MTP readers following the “frozen mechanicals” topic over on The Trichordist will have seen the rather touchy response to the discussion by three songwriter members of the Nashville Songwriters Association International who apparently are actually participating in the offending Copyright Royalty Board rate-setting proceeding.  

What Would TR Do?

On the surface, I would say that their rhetoric reminds me of the famous quote from my hero Teddy Roosevelt in his 1910 speech at the Sorbonne: “It is not the critic who counts. Not the man who points out how the strong man stumbles or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena….”  

The problem is that a ticket into the Copyright Royalty Board  arena costs millions and nobody elected those who claim to be representatives—on either side of the bench.  Having compelled songwriters to license their works, the government now is falling down on how they set the price.  I’m not so sure TR would have approved of a proceeding that plays fast and loose with core values like due process, equal protection, consent of the governed and even property rights.  You know, constitutional values grounded in natural law.

Original Sin and the $20 million Arena Ticket

One main thrust of the Nashville songwriters is essentially “where were you critics back in the day when we labored to save you” or words to that effect.  To which one saucy reply I heard was “OK boomer.”  Which is a little harsh, but yet salient.  This “where were you” angle is a bit of a deflection because of the “original sin” aspect of the entire rate setting process under Section 115 of the Copyright Act that condemns the 9.1¢ young to bear the burden of the 2¢ old. It does sound like a guilt trip rivaling walking to school five miles through snow, but backwards.

The three songwriters (and we have to ask, where are the publishers?)  describe the exclusive nature of the entire structure of the Copyright Royalty Board rate setting for mechanical royalties under the §115 statutory license (in contrast to the webcasting license under §114 which actually makes some sense).  There’s only so many songwriters who can afford to participate in these proceedings conducted by a little elite in a far away Eastern capitol.  That’s partly because of the geography, which in a post-COVID Zoomerica, seems very, very dated.  Geography is, after all, one of the reasons we have representative government.

But geography is not the only reason that more songwriters do not participate—cost is perhaps the major gating item.  The Nashville songwriters make this point very clearly and the legal fees for CRB rate settings are legendary.  As the songwriters point out, “our side” paid $20,000,000 in fees and costs to participate in a prior CRB proceeding from a few years ago.  Presumably, “our side” means the publishers and at that probably means the major publishers.  (As opposed to the lobbyists, lawyers and experts who profit from the CRB excesses.)

So a ticket for this particular arena is a bit pricey.  If a ticket to the arena costs $20,000,000, I have the feeling that TR would probably not approve.  Is it a fair criticism that the critics failed to participate in a proceeding they weren’t able to afford to be in and thus were effectively denied that participatory right–but were compelled to license anyway?  Resulting in one small private group deciding for all? That doesn’t sound very fair.  

Eating Cake at the Copyright Royalty Board

I’m sure it was all very dramatic, but the average bear probably couldn’t even afford to show up in the CRB’s public gallery, much less actually be in the proceeding as a participant.  

I actually happened to be in Washington during a CRB many years ago and dropped by to see what it was like.  Judging by the reaction of the lawyers who were at the CRB on the day, they looked at me like I was either a ghost or strapped.  Meaning it was very uncommon for the public to just show up and see whassup with the little elite group who were carving up our money.  And that makes you wonder how this process fulfilled the “permanent and aggregate interests of the community,” so to speak.

Fire Up the Crucible for the 1%

And that leads to another key talking point that the songwriters made to downplay the importance of the mechanical rate for physical records and permanent downloads.  They tell us that:

Based on industry revenue analysis, it is anticipated that physical mechanical royalties will amount to less than 1% of the total mechanical royalty revenue in the United States during 2023-2028, the rate period this CRB proceeding covers. 

Regardless of how you feel about this 1% number, realize that evidence of “industry revenue analysis” supporting their claim will not be presented in the CRB proceeding.  Why?  Mostly because the proceeding is split in two parts, or “birfucated” between physical and download royalties paid by the record companies and streaming mechanicals paid by the music services.  

The three songwriters participated in a binding settlement of the part of the proceeding concerning physical mechanicals (assuming the CRB accepts the settlement which was filed on May 25).  The other part of the proceeding, as they tell us, concerns streaming mechanicals which they view as vastly more important than the physical and downloads.  There no doubt will be tons of evidence presented at the streaming mechanical rate setting, but not for the physical. We’ll come back to that.  

Understand, though, that if the CRB accepts their settlement it will be binding on you.

This settlement will be binding on all songwriters in the world even if they didn’t know the private settlement was happening, didn’t know the terms of it and never agreed to be represented.  So those with the resources to participate got the law the way they wanted it.  

The three Nashville songwriters may have proven too much here—they speak of participating in the proceeding but the problem is their participation in the settlement.  The proceeding is relatively public.  The settlement is entirely private.  (This is the simple reason why the CRB (or Congress) should either not apply the settlement beyond the parties or require full disclosure of all its terms.)

But here’s the punchline on the importance of physical:  Because the three songwriters and NMPA settled the rates for physical and downloads with the three major labels by privately continuing the freeze that has been in effect since 2006, there will be no evidence presented on whether the freeze is representative of the rates that would be arrived at by a willing buyer and a willing seller, which is the post-MMA standard accomplished with great braying.  This assumes, of course, that the buyer and seller are different people, which they’re not, and that you could say no to the license, which you can’t—more like a willing buyer and an unwilling seller.  None of this was discussed during the MMA.  I wonder why not.

Indeed, the settlement never discusses any rationale for continuing to freeze the rates.  It simply announces that the parties have agreed to continue the freeze and have also made some undisclosed side deal.

A Questionnaire for the Copyright Royalty Judges

Because there will be no evidence presented to support the freeze, there will be no cross-examination of that evidence by people who are not part of that bargaining group (although there will be plenty of cross-examination in the streaming mechanical proceeding).  So we have to assume that if the three songwriters are asserting their 1% number, that is what they would have asserted in the CRB had they been required to present evidence.  (That may still happen depending on how the CRB reacts.)

So we could ask a few questions in the crucible of cross-examination:

Speaking of “industry analysis,” which industry analysis?  Conducted by whom? Published where?

Where is this industry analysis written down?  With all the catalog acquisitions and public financing going on, surely this is written down somewhere? The CRB should know because their decision could have a profound effect on catalog valuations.

When the songwriters say “it is anticipated”—anticipated by whom?  What questions did they ask of this person?  Can others ask some questions of this person, too?

Why is there such a disconnect between this 1% figure and current sound recording sales from these configurations?  Is that reflected in the projections for investors currently buying publishing catalogs?

Why is this 1% figure so out of whack with record sales which show physical and downloads at 15% of sales according to RIAA?  Are sound recording valuations overstated also?  With vinyl and streaming revenue both rising, is it really that clear cut that existing revenue levels on physical configurations are going to tank?

Let’s say that 1% number is substantiated (which will inevitably be a projection, of course).  Why use such a homogenized number for industry-wide revenue, anyway?  If publishers and songwriters are coming forward in The Trichordist and elsewhere saying their physical and download revenue is substantially higher than 1% and meaningful income to them, shouldn’t they at least be allowed to be heard?  Particularly since the big players reject these configurations as a side show of a side show?  

Ann Richards: “If You’re Not at the Table You Are on the Menu”

So the point is that there are lots of other songwriters who want into the arena.  The process makes it essentially impossible to participate.  Not only are commenters more than willing to show up, there’s probably lots of other songwriters who would like to be heard.  But they don’t, probably because they can’t.  Thus, the current crisis may be a symptom of a larger and more fundamental problem with the Copyright Royalty Board’s rate setting practices under Section 115. 

An old trust buster like Teddy Roosevelt would have brought out that big stick long ago.  We’ll see what Congress does.