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Why Won’t Anyone Budget the MMA’s Mechanical Licensing Collective?

June 6, 2018 Comments off

There was an interesting exchange between Chairman Grassley and the CEO of the Digital Media Association regarding the costs of operating the Music Modernization Act’s mechanical licensing collective at the recent Senate hearing on the Music Modernization Act.  (See the video of the exchange here.)

MTP readers will recall that I have a bone to pick regarding the complete absence of a publicly disclosed budget or business plan for the mechanical licensing collective.  I find this particularly annoying because digital music services paying for creating the collective’s operations, data and (we have to assume) royalty accounting was a major sales pitch for supporting the MMA.

I thought for a while that it was simply impossible that the biggest corporations in commercial history (Amazon, Apple and Google) actually didn’t know how much money they were committing to pay (and were essentially committing other blanket license hopefuls yet unknown to pay) pay for the MLC with no idea at all about the operating costs they were signing up for–and essentially signing up everyone else for who wants a blanket license.  This just seems insane to me.

Chairman Grassley evidently thought this lack of a budget was worth a couple questions as well.  Here’s the Chairman’s exchange with the DiMA CEO:

CHAIRMAN GRASSLEY:

Mr. Harrison, I have [two] questions about the mechanical licensing collective….Can you tell us what are the Digital Media Association’s estimate of the expecting cost of the new collective? Are members concerned that they’ll be responsible for excessive and unreasonable costs or does the bill prevent that from happening? And then the second question, do you believe that the oversight and accountability requirements in the bill are adequate, or do you think they can be improved? 

MR. HARRISON:

So, Senator, it’s difficult to know what the cost of operating collective will be. We saw estimates come out of the CBO when reviewing the House [version of the MMA] legislation that said the number was somewhere in the — between $20 and $30 million a year.

So let’s unpack this unsatisfying answer to the Chairman’s common sense question.  First, why is it “difficult to know”?  We know that the failed Global Rights Database cost approximately $70 million and they never processed a payment.  I know what it cost to build the SNOCAP database and tools.

Does anyone really believe that Amazon, Apple and Google can’t apply their collective brainpower to estimating the startup costs of the MLC…because “it’s difficult to know”?  Really?  Is that how it works back at the Googleplex, in Seattle or Cupertino?  Can’t come up with a budget for that moonshot project because “it’s difficult to know”?

Sorry.  Ain’t buying that.

And then notice the deflection–it’s not that DiMA or its members could estimate the costs–no, no.  The Congressional Budget Office came up with an estimate–which by the way was not $20 to $30 million.  Which is it?  20 or 30?  $30 million is 50% more than $20 million.  Is that what they tell the Apple shareholders back in Cupertino?  Too difficult to know, put it down as $20 million.  Or $30 million.  Or something in that range.

And why are we relying on the Congressional Budget Office?  All they did was guess–here’s what they actually said:

H.R. 5447 would authorize the MLC to spend amounts collected under the administrative assessment levied by the Copyright Royalty Judges, without further appropriation, to cover the MLC’s costs. Such expenditures would be considered direct spending. For this estimate, CBO expects that the Copyright Royalty Judges would estimate the operating costs of the MLC accurately and set an assessment rate to equal those costs each year. Using information from industry experts and the administrative costs to operate entities that engage in similar activities, CBO estimates that expenditures by the MLC would average $30 million annually and would total $227 million over the 2021-2028 period.

All the CBO did was ask “industry experts”–who might they be?  Perhaps DiMA members?  But why would the DiMA CEO deflect Chairman Grassley’s question and give a non-responsive answer?  The Chairman didn’t ask what the CBO’s estimate was, he very clearly asked “[W]hat are the Digital Media Association’s estimate of the expecting cost of the new collective?”

I think the Chairman deserves a direct answer to a direct question.  “We didn’t try to find out” or “We intend to negotiate that number into the ground and take all available appeals to all possible forums before we pay a nickel” are both perfectly acceptable answers and are probably pretty close to the real truth.

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