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Who Owns What Under the Music Modernization Act and What Effect on Valuations?

February 19, 2018 Leave a comment

There are two imponderables under the Music Modernization Act that I think could have a significant effect on valuations and investment: the designation of the mechanical licensing collective by the Register of Copyrights and the contemplated global rights database.

First the initial and any re-designation of the collective by the Register.  It must be said that it would be nice to have the process by which the Register is selected be finalized in the pending legislation sitting in the Senate titled the Register of Copyrights Selection and Accountability Act (S. 1010).  The House version of the bill has already passed on a near unanimous vote so hopefully the Senate will get around to voting on it sometime soon.

It must also be said that the statutory requirements to guide the Register in selecting the collective make it almost inevitable that the selection process will be the sound of one hand clapping.  Given the bill’s supporters, it would only be surprising if that were not the case.  After all, who can forget the drafting contortions of the Section 115 Reform Act to avoid calling the general designated agent by its true name.

But the remarkable part is in the re-designation of a different collective, the “new entity”, assuming that  a latter-day Diogenes scours the countryside to discover that one can be found that meets the standards.  Here’s what’s supposed to happen then:

PERIODIC REVIEW OF DESIGNATION.—Following the initial designation of the mechanical licensing collective, the Register shall, every 5 years, beginning with the fifth full calendar year to commence after the initial designation, publish notice in the Federal Register in the month of January soliciting information concerning whether the existing designation should be continued, or a different entity….

If a new entity is designated as a mechanical licensing collective, the Register shall adopt regulations to govern the transfer of licenses, funds, records, and administrative responsibilities from the existing mechanical licensing collective to the new entity.

Now…I know that they don’t worry themselves too much about the details in Washington (which can always be fixed through ever more regulations after all), but what if the collective being replaced by the designated “new entity” has made a substantial investment in its operations.  This will be particularly true of the first collective.

Since the MMA doesn’t really state it, who will own the global rights database for example?  That database of databases?  The collective is going to have to manage that database and get it built (unless they outsource it to Google, I guess).  That database will be the core asset of the collective’s business in all likelihood.  Is it to have zero value?  Is the Register going to be able to just take it?  (There’s that word again.)

If you happen to be a publisher that has not been allowed to enter a direct license with digital music services, what assurances are there that there will be no interruption in your cash flow to be paid by the collective when the designated new entity takes over?  This will not be a trivial undertaking, especially since the collective will control the revenue for every song ever written or that ever will be written that is exploited in the US and is not subject to a direct license.

If you’re an investor in a publisher that is owed money by the collective, is this “new entity” risk likely to drive up your valuation or multiple?  Or drive it down?

And don’t forget that the MMA allows the collective to invade the black box for operating cost overages.  If the Congress doesn’t fix the black box invasion problem, what assurances to you have that your black box money once taken will be replaced properly and timely?  (Assuming the Congress will let the collective get away with what would very likely be a breach of fiduciary duty absent Holy Potomac Water being sprinkled on it.)

If you are the designated “new entity” what kind of indemnification against claims for improper accounting or audits will you be able to get from your predecessor?  If you’re the predecessor, why would you ever give such indemnification?  You’re likely out of business as there probably won’t be much of a market for former collectives.  And will any of the collective’s board members stand behind those indemnity claims?

And the lobbyists say but the MMA can get passed!  And that’s the most important thing!

 

 

Black Box Invasion! Duties of Collective’s Board Under Music Modernization Act

February 17, 2018 Leave a comment

One of the most unusual aspects of the non-profit collective to be established under the Music Modernization Act is the method of codifying the number of seats on the board of directors (and a couple other boards) and designating the characteristics of the kind of person who gets to hold those seats.  (Of course, it must be said that if there is any language in the bill that actually says who gets to appoint members of the collective’s board of directors in the first place, how long they can serve and how they can be voted off, I can’t find it.)

As the implications of the collective’s Congressionally mandated board composition starts to be understood by songwriters and publishers it is increasingly viewed a highly unusual–and, frankly, extremely patriarchal and expansionist–role for the federal government.  The composition of an organization’s board is something that is always handled in the organization’s by-laws.  By-laws are rules enacted by at least the board of directors of a private company for its own government and are sometimes thought of as a contract between the board and the shareholders, or in this case the governing (the board) and the governed (everyone who has ever written a song and everyone who will ever write a song in the future).  (Some nonprofits may appoint a by-law committee that then reports to the board on recommendations to amend the by-laws, then voted on by the board of directors.)

What is interesting about the MMA board of directors from a process point of view is that because the number of directors and committee structure are fixed by statute, changing the composition of the collective’s governance will probably require an act of Congress.  Which is like saying this may never change and the initial board members are appointed for life and maybe the afterlife.

Of course, the collective is to be a nonprofit corporation.  That means that the nonprofit corporation itself will have to incorporate somewhere in some state, often Delaware, which will have its own rules on by-laws and that pesky voting stuff that the MMA does away with.  It appears that the MMA will immediately cause the collective to come into conflict with state corporate law.

Since the MMA is the greatest expansion of federal power into the lives of songwriters in the history of the United States (a fact not lost on our opponents in the copyleft who might like to get some, too), I would imagine that the response will be the usual don’t worry, be happy.   Federal preemption will fix everything and simply override state law by fiat.  Because they’re from Washington and they’re here to help.  In case you haven’t noticed, not all states are huge fans of this kind of thing.  I live in one such state.

But then I’m just a country lawyer and I’m not as smart as these city fellers.  I’m sure they have it all figured out.

One thing I fully expect to start hearing as the response to the many, many holes in the MMA is not to let the perfect be the enemy of the good enough and that regulations will fix it all.  I have actually heard this said.

That’s right–regulations–as in more regulations.  And if all corporate formation and governance issues are to be handled by regulations, that’s one pile of regulations.  All of which are likely subject to discovery under the Freedom of Information Act, including all board minutes, correspondence, agendas, votes, transcripts, etc.

And then let’s not forget that the MMA has to get signed into law by a President who is making it his business to cut regulations.  Radically.  Whether you like him or not, whether you are a populist or a resister, it is an obvious fact that cutting regulations was definitely a part of the Trump platform and it is definitely something he is doing every day.  So think about how that‘s going to go over.

Back to ignoring reality.  First of all, more regulations require a rulemaking, probably by the Copyright Office.  Ever notice how long it takes for rulemakings to get finalized?  Public comments, etc.?  Is the Copyright Office really up for handling the governance structure of the collective?  Is the collective a government agency which would require rulemakings and regulations to operate or is it a private nonprofit that handles its own rules through the same process that have served organization well in America for a couple hundred years.  You know, that pesky voting thing without the feds looking over your shoulder.

One more thing–remember that the MMA has this clause (aka the “Black Box Invasion”):

INTERIM APPLICATION OF ACCRUED ROYALTIES.—In the event that the administrative assessment, together with any funding from voluntary contributions as provided in subparagraphs (A) and (B), is inadequate to cover current total costs of the mechanical licensing collective, the collective, with approval of its board of directors [unanimous?  simple majority?], may apply unclaimed accrued royalties on an interim basis to defray such costs, subject to future reimbursement of such royalties from future collections of the assessment [to be paid by digital music services after a final, nonapealable judgment].

That’s right–“they” intend for the government to fund the collective’s overbudget out of the black box.  (We can’t know who “they” are because the MMA does not say.)  Well, at least this time they’re honest about it.

And what is the most likely common characteristic of anyone whose money is in the black box?  Songwriters with no direct deal with the services aka the little people in the majority of songwriters.

Remember–the collective has no business plan and no budget.  Yet the board is at least permitted if not required by law to use unmatched money they hold in trust to pay overbudget–for which there is no approved budget so could literally be someone’s cigar bill, legal fees, who knows what.

Note the “subject to future reimbursement of such royalties from future collections of the assessment”.  What if the judges don’t agree to the assessment or that the Digital Media Association appeals every ruling for years which I fully expect them to do because they don’t care about songwriters.  And if you think that’s extreme, name five things quickly that they’ve ever done that would make you think otherwise?

Remember–it’s not their money.  It’s not the government’s money either.  This is why all the black box needs to put in a true escrow account held by an independent third party or escheated to the state like your utility deposit you forgot to collect.  If it’s good enough for your electric bill, shouldn’t it be good enough for your royalties?

The board will be acting as a trustee for that black box money.  Trustees don’t get to make themselves or their companies loans from the money they hold in trust.

Remember–songwriters have been suing to find a fiduciary duty owed to them from their publishers under their publishing contracts for a long time.  It may not be under their publishing contracts, but the MMA hands songwriters that fiduciary duty on a silver platter with the black box invasion.

Board members–serve at your peril.

 

 

 

Call to Action: Please Help Support Our Musical Legacy and Tell the Congress #irespectmusic on the CLASSICS Act

February 15, 2018 Leave a comment

joanaIRM

I don’t often ask MTP readers to agree with me, much less sign a petition.  But the exception proves the rule and I’m asking that you please sign the petition to support legislation in the U.S. Congress that would close the loophole that some digital music services have been leveraging for quite some time on so-called “pre-72” recordings.

If it sounds implausible that the date a record was released should make a difference in copyright protection or entitlement of the artists to the same royalties as everyone releasing records after that date–that’s because it is.  It’s actually worse–it’s the kind of thing that someone would do if they truly viewed music as a commodity.

But that’s exactly what Pandora and Sirius started doing a few years ago when a truly meanspirited bunch of lawyers and bean counters decided they could save a few bucks by stiffing old guys and dead cats and their heirs.  Between Pandora and Sirius, this bunch of rocket scientists have paid out $300 million in settlement to the major labels and will pay even more in that Turtles class action to the indie community.

And that’s right–these geniuses could have come out better if they had just paid the damn royalties in the first place.

So you know what this is about–it’s a piece of the #irespectmusic campaign for artist pay for radio play.  Except this time it’s about reclaiming rights we already fought over back in 1995.  It’s about claiming a little piece of righteousness for those who can’t do it themselves.

What these jerks at Pandora and Sirius (and the Digital Media Association) were really about was bootstrapping an issue into a bargaining chip by withholding payment on pre-72 recordings like bullies do.  And here’s why:  Remember Blake Morgan told us that the U.S. is one of the only countries in the world that doesn’t recognize a performance right for sound recordings?  Well, before 1972 the U.S. didn’t recognize a federal copyright in sound recordings at all.

The Congress amended that astonishing oversight in 1972 to recognize a federal sound recording copyright and then in 1995 and 1998 adopted a limited performance right in sound recordings performed in a digital medium.  You know–back when it didn’t seem like this funny digital thing didn’t matter much.  Under certain circumstances, there is also a royalty paid for digital performances for webcasting, simulcasting, satellite radio and a few other radio services.  That’s basically your “SoundExchange money.”

Sounds good, right?  Do you think that there was one member of Congress in 1995 who voted for the limited performance right but secretly said king’s x–a royalty for everyone except James Brown, Duke Ellington, Aretha Franklin, Ella Fitzgerald, Louis Armstrong, Jimi Hendrix, Willie Nelson, Buddy Holly and ZZ Top?  No, but that’s what the Digital Media Association, the NAB and their knuckleheads would have you believe.  Remember–not even Pandora believes this bunk anymore.  Amazing what new lawyers will do for the soul.

So the Congress has been forced to introduce legislation to fix the pre-72 loophole once and for all–and that’s what I’d really appreciate your support for.  The bill is called the CLASSICS Act and it’s supported in the House by Ranking Member Jerry Nadler (D-#irespectmusic) and Rep. Darrell Issa (R-CA) and in the Senate by Sen. Chris Coons (D-DE) and Sen. John Kennedy (R-LA).

We have a lot of people to thank for advancing the ball to this point, especially all the folks carrying the legislation, but especially Ranking Member Jerry Nadler who thankfully believes in this so much he’s always up for another fight for artist rights.  We also have to thank The Turtles and their team, SoundExchange CEO Mike Huppe and his team, and Chris Israel and his team at MusicFirst.

You told them how you feel about #irespectmusic and I would ask you to please do it once again because we can’t stop fighting until the fight is done.  But don’t do it for me, do it for Ella, Aretha, the Duke, the Count, Maceo, Jimi with an i and Hendrix with an x.  Do it for all of those who came before, both living and back home and those they left behind.

We never ask you to sign anything you don’t understand, so if you’re still unclear, please let me know.

The MusicFirst Coalition has a petition here.  I’d really appreciate your signing up.

The Bipartisan Classics Act Is Ready For Prime Time: Time to fix Pre 1972 Loophole — The Trichordist

February 15, 2018 Leave a comment

Issa (R-CA) and Nadler (D-NY) sponsored the Classics Act in the house. Artists that had the misfortune to record before 1972 do not get royalties for the public performance of their recordings on satellite and non-interactive streaming services. This so-called loophole is simply a creation of federal courts (Ninth & Second) and apparent collusion by […]

via The Bipartisan Classics Act Is Ready For Prime Time: Time to fix Pre 1972 Loophole — The Trichordist

@hitsdailydouble: Thoughts on a Perfect Storm

February 14, 2018 Leave a comment

The music business is guilty. Guilty of sexism, guilty of shielding harassment, guilty of an old-(white) boy network that has deep and seemingly intractable roots. It would be pointless to pretend otherwise.

The behavior and attitudes represented by this fraternity aren’t all-encompassing; plenty of people in the business have long fought against them. Still, these old-boy traits remain defining characteristics of some parts of our business.

It would also be wrong to suggest that these conditions evolved in a vacuum. They can be found in every sector—Silicon Valley, Wall Street, Washington D.C. and Madison Avenue. They are vestiges of systemic inequality, when women and people of color were legally—or at the very least practically—accorded the status of property….Crucial to that change is the #MeToo movement, which entered the mainstream as part of the larger uprising of women most conspicuously evidenced by the massive worldwide women’s marches of 2017 and 2018.

Then there is #TimesUp, which is not about chronicling past wrongs but preventing future ones.

These threads came together, in our demimonde, at the Grammys, which reflected both the gathering voice of women’s protest and the obstacles to change….

Those obstacles are both institutional and attitudinal. Male domination in the boardroom is matched by male domination on the charts. Only six female artists made the overall Top 50 of 2017; only 10% of the Top 50 tours of 2017 were by female acts (half as many as in 2016). While more than half the acts on the year-end 2017 Top 40 Pop radio chart were female (or had a key female performer), Rhythm had seven such acts—and the Country and Alternative radio charts fewer than 10%.

A recent Annenberg study, meanwhile, found that women received less than 10% of the most recent Grammy nominations. As has been reiterated with considerable fervor since Grammy night, only one female artist accepted an award during the telecast—and the only female Album of the Year nominee wasn’t given a spot to perform.

Which is part of why Neil Portnow’s ill-advised comment about women needing to “step up” became such a flashpoint, turning the Recording Academy boss into a walking example of the problem; thus the letter from female industryites demanding he step down, and a subsequent missive from six top-level biz women insisting that he implement serious changes. His words represented a status quo that is increasingly out of touch with the direction of the biz and the culture.

The response to his words from a number of industry professionals—notably, “The Six,” aka  Jody Gerson, Michele Anthony, Julie Swidler, Sylvia Rhone, Julie Greenwald and Desiree Perez—is chronicled elsewhere in this issue, and is far more eloquent than we could hope to be.

For the music world, the Grammys thus became a point of inflection, thanks to the perfect storm of the repressive Trump-era climate—with the government’s unapologetic embrace of injustice and prejudice—and the post-Harvey Weinstein eruption of the #MeToo movement, which many had been expecting to reach the music industry for some time.

THE NEW LEADERS
In recent years we’ve seen the emergence of a wave of new, young leaders, many of them women and many people of color, who are clearly ready to break with the excesses of the past. Leaders whose hiring and policy choices are changing the culture.

This is happening in all sectors, no matter how many old (white) boys run amok.

Our own business is seeing profound growth in female leadership. Women are running major companies, piloting artists’ careers and plenty more—and refocusing the cultural conversation via activism. A young, diverse wave is coming, and it will in all likelihood alter the dynamics across the biz.

 

Read the post on HITS

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@musicbizworld: An Interview with The Great One: Bruce Allen: ‘ARTISTS TODAY HAVE MORE POWER THAN THEY REALIZE’

February 14, 2018 Leave a comment

This is a must read interview with Bruce Allen, one of the great managers in the history of the music business.

Read the post on Music Business Worldwide

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Press Release on CLASSICS Act to Close Pre-72 Loophole

February 14, 2018 Leave a comment

[Editor Charlie sez:  Let’s not forget–if it weren’t for The Turtles stepping up with Henry Gradstein’s team and suing Sirius and Pandora in a class action to close the nasty loophole leveraged by their legal teams, none of this would be happening.  Artist class actions work and sometimes are the only thing that work.

The consensus behind the CLASSICS Act and songwriter complaints demonstrate that the Music Modernization Act is simply not ready for prime time.  If we’re not going to stand behaind Chairman Nadler’s Fair Play Fair Pay, the CLASSICS Act deserves a chance to stand alone and not be tied to the punitive and controversial Music Modernization Act that would vastly restrict songwriter class actions.  You can support the CLASSICS Act and also acknowledge that MMA is rushed, is full of problems and not ready for prime time.]

PRESS RELEASE


Historic Coalition of 213
Musical Artists Calls on Congress to Pass CLASSICS Act,

Fix the “Pre-1972” Loophole for Legacy Artists
Music Organizations Press Congress to Consolidate
Widely Backed Music Licensing Reforms Into Single Bill
WASHINGTON, February 13, 2018 — An unprecedented coalition of 213 musical artists, supported by eight leading music organizations, called upon the U.S. Congress to pass the CLASSICS Act, bipartisan legislation pending in both the House and Senate to address one of copyright law’s most glaring loopholes.
In a two-page advertisement that will appear in Wednesday’s Politico, the artists state:
Digital radio makes billions of dollars a year from airplay of music made before Feb. 15, 1972. Yet, because of an ambiguity in state and federal copyright laws, artists and copyright owners who created that music receive nothing for the use of their work. The CLASSICS Act (H.R. 3301 / S. 2393) would correct this inequity and finally ensure that musicians and vocalists who made those timeless songs finally get their due. We urge Congress to pass the CLASSICS Act and other pro-artist reforms quickly.
The advertisement marks the start of a robust advocacy campaign by artists and music community leaders A2IM, American Federation of Musicians, Content Creators Coalition, musicFIRST Coalition, Recording Academy, Recording Industry Association of America, SAG-AFTRA and SoundExchange.
The ad can be viewed here.
The CLASSICS Act is an essential component of a package of music licensing reforms supported by the organizations that includes additional critical reforms such as the Music Modernization Act (H.R. 4706 / S. 2334), the AMP Act (H.R. 881) and the establishment of market-based rate standards. In the coming weeks, music community leaders anticipate the House Judiciary Committee will commence formal consideration of the music licensing reform legislation with the goal of consolidating the key reforms into a single bill.
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