If you’ve followed the Fair Play Fair Pay legislation and the #IRespectMusic campaign, you know that at the heart of the broadcasters’ rationale for not paying performance royalties to artists for over the air broadcast is the “promotion” argument. Simply put, the broadcasters tell us that the reason that the U.S. should deny artists a performance royalty for over the air broadcast is because of promotional value. Or what we call “Exposure Bucks.” Congressman Jerry Nadler and our friend Blake Morgan have been trying to get this wrong righted.
Also recall that the mechanical royalties to be governed by the Music Modernization Act are set by the Copyright Royalty Judges who are tasked with conjuring up a compulsory mechanical royalty rate. Currently, the judges set mechanical rates based on certain policy factors. For many years, songwriters have wanted to replace the policy-based method with what’s called “willing buyer/willing seller”–which is a process of divination by which the judges guess at what a willing buyer would pay to a willing seller for a rate. For a compulsory license.
You know, the rate for which there hasn’t been a free market in over 100 years.
The Music Modernization Act would change the policy factor standard to willing buyer/willing seller but it should not be assumed that the change alone will result in an increased royalty to songwriters. Particularly because the MMA creates a kind of “willingness Plus” standard that instructs the judges to take several economic factors into account in addition to market place benchmarks.
And also remember that the Music Modernization Act sets a rate for digital streaming only–you know, the pay-to-playlist world of recommendation algorithms that reenforce paid-for playlists and who knows what else in the background to distort listener choices.
There’s another factor here–the Music Modernization Act creates a new mechanical royalty collective agency (kind of like Harry Fox Agency on steroids) that the law mandates all the songwriters in the world authorize to license their songs in the U.S. (unless their songs are subject to a direct license). The MMA requires digital music services pay for the operating costs of the new collective–another selling point.
Said another way–the fox pays for the locks on the chicken coop designed to keep out the fox.
Who gets to determine how much the services are to pay for the operating costs of the collective? The Copyright Royalty Judges of course. Because they are so well-suited to that task.
This cost-shifting alone supposedly will result in more money for songwriters because the costs of collecting and paying will be borne by those paying the royalty. Which only makes sense as long as those paying the royalty don’t convince the judges that the royalty they pay should itself be reduced by the cost of the new collective. See what happened there?
So two moving parts–let’s stay away from reducing royalties based on promotional value that isn’t really promotional and let’s prohibit the judges from taking into account the cost of the collective in setting rates (since the cost-shifting is supposed to be a great trickle down benefit to songwriters and letting services pay with one hand and take away with the other is no saving at all).
Here’s what the MMA actually says about the willing buyer/willing seller divination standard (at p. 10):
The Copyright Royalty Judges shall establish rates and terms that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller. In determining such rates and terms for digital phonorecord deliveries, the Copyright Royalty Judges shall base their decision on economic, competitive, and programming information presented by the parties, including—
‘‘(i) whether use of the compulsory licensee’s service may substitute for or may promote the sales of phonorecords or otherwise may interfere with or may enhance the musical work copyright owner’s other streams of revenue from its musical works; and
‘‘(ii) the relative roles of the copyright owner and the compulsory licensee in the copy righted work and the service made available to the public with respect to the relative creative contribution, technological contribution, capital investment, cost, and risk.’’;
So–unless there is an express prohibition that stops services from asking the judges to reduce royalty rates by a factor representing the cost of the collective–which the judges themselves would have set–then there’s nothing that stops the services from giving with one hand and taking away with the other. I haven’t found that prohibition in the MMA so far. Under the relevant language, the services give by paying the costs of the collective, and they take that back by reducing the royalty rate. This glitch seems to be clearly contemplated by the MMA.
And of course, it certainly looks like the judges are forced to take into account promotional value of streaming services for which at least Spotify are frequently paid already according to reports. Summing up all the pay to playlist payments may make it easier to calculate the value of promotion on streaming services, but then again the services may not really want to disclose how much of their activity is bought and paid for.
So, it appears that songwriters may actually be worse off under the MMA than they are now.