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The Return of 100% Licensing and the Expansion of the Blanket License
Who can forget the nightmare of the Justice Department’s counterproductive flirtation with 100% licensing the last time the DOJ reviewed the consent decrees. (We covered the 100% licensing head fake in a podcast and a guide to 100% licensing.)
Since then, the Congress passed the Music Modernization Act, which includes a massive overhaul of the mechanical licensing system which is currently the subject of an implementing rule making. What does the MMA have to do with the PRO consent decrees?
More than you might think. If you recall, one of the big justifications for supporting the MMA legislation that did not include a terrestrial performance right for sound recordings was due to the lobbying firepower opposing the terrestrial right. We were told that artists were never going to win the terrestrial right (which is what the #irespectmusic campaign is all about) so we should just give up and think of England, so to speak. Or more precisely, support the MMA.
If you drill down on Title I of the MMA (which creates the Mechanical Licensing Collective, etc.), what it does at a high level is create a compulsory license for certain activities, a global rights database, and a regulatory authority for all of the above.
Note–“certain activities.” At the moment, those activities are limited to digital phonorecord deliveries, including on demand streaming, limited and permanent downloads.
But–guess what? Those activities could be expanded to include compulsory blanket licenses for other exploitation rights of songs, like general licensing (bars, hotels, restaurants), broadcasting and anything else the lobbyists can jam through. All administered by the Mechanical Licensing Collective, which if such an amendment comes to pass probably would have to change its name to something catchier like, you know, Skynet.
And remember, we don’t stand a chance against these lobbyists, right? Remember? Now whoever saw that coming? And how might the lobbyists get involved with a DOJ consent decree review? Well, because of what I call “Title IV,” which is the provisions of Title I that relate to Congressional approval of any consent decree reform for the PROs and a couple other things the PROs wanted. (Congressional review because you have to keep an eye on the anticompetitive leanings of those pesky songwriters against MIC Coalition members with a $5 trillion market cap.) So who are these masterminds and lobbyists? (There is no actual Title IV by the way, that’s just a teaching tool.)
The MIC Coalition
Billboard reports that we’re not the only ones worrying about this angle:
Sources further say the PROs and some songwriter groups both fear that if the issue goes to Congress [under Title IV], the music business will face several industries with more lobbying power than themselves, all intent on getting legislation for a compulsory license. Even worse, music licensees would also likely push for the law to include 100% licensing — meaning only one songwriter’s consent would be needed for a song to be used— an outcome which publishers, songwriters and PROs have described in the past as a disaster.
But don’t worry, the smart people will figure this out. Don’t bogart the popcorn.
@musictechsolve: Defiance or Collaboration? The Role of the Presidential Signing Statement in MLC Board Appointments
[This post first appeared on MusicTech.Solutions]
Even though they have a long history, Presidential Signing Statements are not exactly front and center in every civics class or constitutional public law class in America. You may be hearing about them for the first time now. But that doesn’t mean they have not been an important part of Constitutional law-making and jurisprudence.
Presidential Signing Statements were first used by President James Monroe in 1822 in the form of a “special message” to the Senate. Presidents Andrew Jackson, John Tyler and Ulysses Grant also issued signing statements, but they were used infrequently until the 20th Century. Then their use picked up quite a bit starting with President Theodore Roosevelt and continuing to the present day. So the use of Signing Statements is quite bipartisan. While Signing Statements may not themselves have any actionable legal effect, they should not be ignored, either. As the MMA’s Signing Statement relates directly to corporate governance and accountability (one of our pet topics on MTP as applied to what SEC Commissioner Robert Jackson called “corporate royalty” at Spotify, Google, WeWork, Facebook and others), this post may be of interest on an issue that has not been covered by the music press.
The MMA Presidential Signing Statement
Not surprisingly, there is a Presidential Signing Statement accompanying the Music Modernization Act (“MMA”) specifically relating to Title I and at that specifically relating to the MLC board appointments. The relevant language is:
One provision, section 102, authorizes the board of directors of the designated mechanical licensing collective to adopt bylaws for the selection of new directors subsequent to the initial designation of the collective and its directors by the Register of Copyrights and with the approval of the Librarian of Congress (Librarian). Because the directors are inferior officers under the Appointments Clause of the Constitution, the Librarian must approve each subsequent selection of a new director. I expect that the Register of Copyrights will work with the collective, once it has been designated, to ensure that the Librarian retains the ultimate authority, as required by the Constitution, to appoint and remove all directors.
Let’s explore why we should care about this guidance.
According to Digital Music News, there have been changes at the Mechanical Licensing Collective, Inc. (“MLCI”) the private non-profit permitted under Title I of the MMA:
[I]t appears that two separate MLC board members are jumping ship. The details are just emerging and remain unconfirmed, though it appears that two members — one representing indie songwriters and the other on the publishing side — are out of the organization.
Because the board composition of MLCI is preemptively set by the U.S. Copyright Act along with many other aspects of MLCI’s operating mandate, the question of replacing board members may be arising sooner than anyone expected. As MLCI is a creature of statute, it should not be controversial that law-makers play an ongoing role in its governance.
The Copyright Office Weighs In
The Copyright Office addressed board appointments for MLCI in its first request for information for the designation of the Mechanical Licensing Collective (83 CFR 65747, 65750 (December 21, 2018) available at https://www.govinfo.gov/content/pkg/FR-2018-12-21/pdf/2018-27743.pdf):
The MLC board is authorized to adopt bylaws for the selection of new directors subsequent to the initial designation of the MLC. The Presidential Signing Statement accompanying enactment of the MMA states that directors of the MLC are inferior officers under the Appointments Clause of the Constitution, and that the Librarian of Congress must approve each subsequent selection of a new director. It also suggests that the Register work with the MLC, once designated, to address issues related to board succession.
When you consider that MLCI is, for all practical purposes, a kind of hybrid quasi-governmental organization (or what the Brits might call a “quango”), the stated position of the President, the Librarian of Congress and the Copyright Office should not be surprising.
Why the Controversy?
As the Songwriters Guild of America notes in comments to the Copyright Office in part relating to the Presidential Signing Statement (my emphasis):
Further, it seems of particular importance that the Executive Branch also regards the careful, post-designation oversight of the Mechanical Collective board and committee members by the Librarian of Congress and the Register as a crucial prerequisite to ensuring that conflicts of interest and bias among such members not poison the ability of the Collective to fulfill its statutory obligations for fairness, transparency and accountability.
The Presidential Signing Statement, in fact, asserts unequivocally that “I expect that the Register of Copyrights will work with the collective, once it has been designated, to ensure that the Librarian retains the ultimate authority, as required by the Constitution, to appoint and remove all directors.”
SGA regards it as a significant red flag that the NMPA-MLC submission to the Copyright Office devotes the equivalent of ten full pages of text principally in attempting to refute this governmental oversight authority, and regards the expression of such a position by NMPA/MLC as arguably indicative of an organization more inclined towards opaque, insider management control than one devoted to fairness, transparency and accountability.
So the Presidential Signing Statement to the MMA is obviously of great import given the amount of ink that has been spilled on the subject. Let’s spill some more.
How might this oversight be given effect and will it be in the public record or an informal process behind closed doors? Presumably it should be done in the normal course by a cooperative and voluntary collaboration between the MLC and ultimately the Librarian. Minutes of such collaboration could easily be placed in the Federal Register or some other public record on the Copyright Office website. Failing that collaboration, it could be done by either the Department of Justice (unlikely) or by individuals (more likely) asking an Article III court to rule on the issue.
Of course, the issue should not delay the Copyright Royalty Judges from proceeding with their assessment determination to fund the MLC pursuant to the controversial voluntary settlement or otherwise. One could imagine an oversight role for the CRJs given that Congress charged them with watching the purse strings and the quantitative implies the qualitative. The CRJs have until until July 2020 to rule on the initial administrative assessment and appeal seems less likely today given the voluntary settlement and the elimination of any potential objectors.
Since the Title I proponents drafted the bill to require a certain number of board seats to be filled by certain categories of persons approved by Congress in a Madisonian balance of power, the Presidential Signing Statement seems well grounded and furthers the Congressional mandate.
Yet there is this conflict over the Presidential Signing Statement. What are the implications?
A Page of History is Worth A Volume of Logic
The President’s relationship to legislation is binary—sign it or veto it. Presidential Signing Statements are historically used as an alternative to the exercise of the President’s veto power and there’s the rub.
Signing Statements effectively give the President the last word on legislation as the President signs a bill into law. Two competing policies are at work in Presidential Signing Statements—the veto power (set forth in the presentment clause, Article I, Sec. 7, clause 2), and the separation of powers.
Unlike some governors, the President does not enjoy the “line item veto” which permits an executive to blue pencil the bits she doesn’t like in legislation presented for signature. (But they tried–Line Item Veto Act ruled unconstitutional violation of presentment clause in Clinton v. City of New York, 524 U.S. 417 (1998).) The President can’t rewrite the laws passed by Congress, but must veto the bill altogether. Attempting to both reject a provision of a new law as unconstitutional, announce the President’s intention not to enforce that provision AND sign the bill without vetoing it is where presidents typically run into trouble.
Broadly speaking, Presidential Signing Statements can either be a President’s controversial objection to a bill or prospective interpretive guidance. Signing Statements that create controversy are usually a refusal by the President to enforce the law the President just signed because the President doesn’t like it but doesn’t want to veto it. Or to declare that the President thinks the law is unconstitutional and will not enforce it for that reason—but signed it anyway.
The President can also use the Signing Statement to define or interpret a key term in legislation in a particular way that benefits the President’s policy goals or political allies. President Truman, for example, interpreted a statutory definition in a way that benefited organized labor which was later enforced by courts in line with the Signing Statement. President Carter used funds for the benefit of Vietnam resisters in defiance of Congress, but courts later upheld the practice—in cases defended by the Carter Justice Department. The practice of using Presidential Signing Statements is now routine and has been criticized to no avail for every administration in the 21st Century including Bush II, Obama and now Trump.
Since the 1980s, it has become common for Presidents to issue dozens if not hundreds of Presidential Signing Statements during their Administration. So it should come as no surprise if the Department of Justice drafted up the statement for the MMA prior to it being presented to the President to be signed into law. (See the American Presidency Project archives https://www.presidency.ucsb.edu/documents/presidential-documents-archive-guidebook/presidential-signing-statements-hoover-1929-obama)
Defiance or Collaboration?
What does this mean for the MMA? The President certainly did not call out the statutorily required board membership of the MLC as an unconstitutional overreach that he would not enforce. To the contrary, the MMA Signing Statement expresses the President’s desire that the legislation comply with the requirements of the Constitution.
Moreover, the MMA Presidential Signing Statement is not a declaration about what the President will or won’t enforce but rather interprets a particular section of a long and winding piece of legislation. (Title I principally amended Section 115 of the Copyright Act—now longer than the entire 1909 Copyright Act.) This kind of interpretation seems to be consistent with the practices of prior Presidents of both parties, not an end-run around either the veto power or separation of powers.
Failing to acknowledge the admonition of the signing statement would seem an unnecessary collision both with long-standing jurisprudence and with a sensible recommendation from the President of how the Librarian, the Copyright Office and the Justice Department expect to approach the issue in collaboration with the MLCI. That’s possibly why the Copyright Office restated the Signing Statement in the RFP.
Title I of the MMA is a highly technical amendment to a highly technical statute. A little interpretive guidance is probably a good thing. Collaboration certainly makes more sense than defiance.
Should the Copyright Office’s Best Practices Shine Sunlight on the Unmatched?
[This post first appeared in the MusicTechPolicy Monthly newsletter. Become an email follower of this blog to get your copy.]
The Music Modernization Act is a litigation magnet because of its failure to mandate a wholistic solution to the controversial black box. There are two commercially available systems that can address the problem.
We’ve all heard that the digital music services are sitting on a pile of cash in unmatched statutory mechanical royalties also known as the “black box”. No one knows how much because Title I of the Music Modernization Act does not require them to disclose the unmatched sums being held as of the enactment date (October 11, 2018–a year ago), much less a bring down of the current amount. And unsurprisingly, no service has voluntarily disclosed how much they are holding.
One may ask, why can’t you just look up on the financial statements of at least the public companies how much they are accruing for their share of the black box? Good luck with that.
The monies owed to the unmatched “known unknowns” is probably the number one question the services don’t ask their third party reporting agents. And because of the well known agency principle that “notice of a fact that an agent knows or has reason to know is imputed to the principal if knowledge of the fact is material to the agent’s duties to the principal,” these services likely know as a matter of law how much is in their principals’ respective black boxes or at least what they couldn’t match. (Restatement (Third) of Agency Sec. 5.03.)
Fortunately, the Copyright Office is tasked with establishing best practices for distributing these unmatched black box monies through regulations to implement these and other provisions of the Music Modernization Act, such as the late fee for non-compliant services.
The Copyright Office has also announced the “kick off” of its study of unclaimed royalties study to be held in Washington, DC on December 6. This will be great for Washington area songwriters, as well as convenient for the lobbyists and lawyers, but everyone else will have to wait for the transcript and video which unfortunately (and perhaps incredibly) will not be live streamed. Even so, these pending regulations and the upcoming mandated study on matching are the best chance songwriters have had for a generation to get a straight count on unmatched mechanicals.
There are two currently existing standards that the Copyright Office can reference for examples of industry best practices-the SoundExchange unclaimed royalty search for new members and the Lowery-Ferrick Spotify class action Songclaims portal powered by Crunch Digital. It seems inescapable that these claiming standards should be guideposts for both the Copyright Office and the Copyright Royalty Judges.
Having such clear cut standards–already operational so not theoretical–is fortunate because it seems obvious that the Congress is both concerned with the black box distributions not being gamed and also intends to exercise its statutory authority to retain oversight over the Mechanical Licensing Collective’s operations. In fact, Senator Grassley specifically stated in his questions for the record following the Copyright Office oversight hearing that:
The success of the Music Modernization Act (MMA) will depend, to a large extent, on the effective and efficient operation of the Mechanical Licensing Collective (MLC). The MMA included provisions to ensure that there was robust ongoing oversight of the MLC by both the Copyright Office and Congress, and that the new MLC would be accountable to the stakeholders.”
This is in addition to the oversight role of the Copyright Royalty Judges with respect to the Administrative Assessment and at least budgetary aspects of the MLC’s operations that inevitably will turn the quantitative into the qualitative.
During her July 30 testimony at the Copyright Office oversight hearing of the House of Representatives Committee on the Judiciary, Register of Copyrights Karyn Temple was peppered with questions about the black box from Members of the Committee, including Representatives Ted Deutch, Sheila Jackson-Lee and Chairman Jerry Nadler.
These months after the hearing, the gravamen of the Committee’s questions were crystalized in yet another copyright infringement suit brought against Spotify, this time by Eminem’s publishers. The key theory of the suit is that Spotify is out of compliance with the conditions for the new safe harbor for copyright infringers that is one of the central themes of the MMA. The Copyright Office can use the complaint as another guidepost for best practices to be compassed by their new regulations.
As drafted, Title I is an invitation for litigation, so it should be no surprise that the independent publishing community stepped forward to sue as that was the only way to find out what was going on behind the curtain. However, as Senator Grassley emphasized, Congress charged the Copyright Office to establish regulations to implement Title I and gave the Copyright Royalty Judges a defacto oversight role through their approval of the MLC’s budget.
- Copyright Office Regulations
The Copyright Office is in the process of drafting regulations for a number of areas in Title I. The Copyright Office therefore is in a unique position to avoid a maelstrom of litigation by adopting regulations that shine light on the unmatched, recognize industry practices by SoundExchange and Crunch Digital, and accomplish simple goals. This is not hard.
Regulations should require iterative public disclosure to accompany the iterative matching required by Title I. Remember-many of these services are the biggest, smartest and richest companies in the history of commerce. They know something about these systems as they all have to one degree or another developed significant in-house expertise.
However, it is crucial to have the unmatched actually administered by an unrelated and trusted infomediary. This could be done by repurposing existing searchable databases for unclaimed funds while simultaneously disclosing to the public the amounts owed for each song.
Balance the Checkbook: Immediate Public Release of Trial Balance and Monthly Updates of Unmatched
Each service currently participating in the Initial Administrative Assessment proceeding before the Copyright Royalty Judges should disclose an aggregate trial balance of the total sums they are holding in their respective unmatched accounts. This total number should be made public as well as the methodology used to calculate it. Nothing should or needs to be redacted.
The services should update that initial disclosure on a monthly basis. The monthly calculation should show the month’s starting balance of unmatched royalties, how much was paid out during the month, how much was added during the month, and the remaining balance at the end of the month. This simple calculation would allow songwriters to know what monies were being held with no intermediaries. It’s as simple as balancing a checkbook.
Unmatched Lookup
If the services know the total sums, they should also be able to disclose the sound recording titles at least, if not the artist names, ISRCs, other metadata for the recordings of the songs that comprise the totals. These services should be able to provide a simple web-based look-up so that songwriters could know if their songs are included in a service’s unmatched accrual.
Cost Reimbursement
It is becoming increasingly obvious to independent publishers that there will be significant resources and costs required to deliver their data to the MLC and claim their unmatched. Those transaction costs of delivering data to the MLC-without which the imagined global rights database would not be functional enough to distribute the black box effectively-are incremental to publishers who have been doing business prior to the MMA and the MLC.
These incremental costs are easily identifiable and should be invoiced to the MLC by rights owners to be included in the next administrative assessment and reimbursed by the services.
Future Licensees
Any future licensee (blanket or nonblanket) should also be required to comply with these obligations and disclosures.
2. Role of the Copyright Royalty Judges
The Copyright Royalty Judges are currently conducting a proceeding to establish the initial “administrative assessment” for the MLC. The rules of the proceeding require the MLC and the Digital Licensee Coordinator to attempt to reach a voluntary agreement on the amount of the assessment. If they fail, the CRJs will determine it for them. The voluntary negotiation is divided into two periods: July 8 to September 6, and then September 7 to January 28.
The parties have failed to reach an agreement in the first period already, so a very basic assessment of probabilities means there’s less than a 50% chance they will agree during the second period. If they fail to reach an agreement by February 17th, the CRJs will commence a hearing to reach the decision for them. (One could argue that the likelihood of a voluntary agreement increases with the passing of time, but that doesn’t seem to be the case at this point-it seems to be going the opposite direction.)
Remember-the MLC is supposed to have their imagined global rights database up and running and be fully operational and able to render statements shortly after January 1, 2021, or a little over 14 months from now. At this point, it seems that there is a greater than 50% probability that Congress will have to amend the MMA to extend the deadline. Presumably something has happened in the last year to advance the ball.
Crucially, there is an inextricable link between the amount of the administrative assessment and what the MLC intends to do with the money. Two of those functions will be (1) the MLC’s own efforts at matching whatever is unmatched when the Digital Licensee Coordinator delivers the unmatched accounts (and presumably transaction logs) from the services to the MLC after January 1, 2021, and (2) ingesting data for the imagined global rights database.
Unmatched Best Practices and Disclosures
The CRJs should take a very close look at both the startup and the operating budget for the MLC as well as the underlying assumptions, processes and vendors for those functions to take on the U.S. accounting burden for the entire world. It should be obvious that the services have a great deal of experience in licensing copyrights and operating royalty systems.
The CRJs should also consider whether they have the authority to address the nexus between the best practices to be adopted by those seeking to rely on the retroactive safe harbor, payments of the newly matched prior to 1/1/21 and public reporting of both accrued unmatched royalties and claiming before and after 1/1/21. I think they do and they probably have an obligation to do so that is at least as great as the obligation on the Copyright Office.<
Sufficiency of Funding and Sufficiency of Allocation
As Senator Grassley has asked, the CRJs need to address what happens if the process fails to hit the deadlines as part of their determination of the administrative assessment. Each passing day makes it more likely that the entire procedure will grind to a halt before statements can be rendered.
This concerns both the DLC funding the MLC sufficiently, but it also depends on the MLC allocating those sums appropriately across its operations–and the quantitative implies the qualitative. Moreover, the CRJs need to fashion a procedure for relief that can be taken up inexpensively by any copyright owner that has a good faith belief they have simply not been accounted to. An example would be someone who was being paid under a statutory license (NOI or modified compulsory) prior to January 1, 2021 whose statements then drop to zero thereafter or who simply receive no statements at all.
While the Register said in response to Rep. Deutch during the Copyright Office oversight hearing that both MLC and AMLC had agreed with the Copyright Office interpretation that unclaimed funds are not to be distributed before 2023, the MLC’s actual statement on the issue is more nuanced. The judges need to take this into account and leave nothing to the imagination in their determination.
3. Sunlight is the Best Disinfectant
As Mr. Justice Brandeis taught us in Other People’s Money-And How Bankers Use It,“sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”
Songwriters are in need of both.
Guest Post: We are Not Blind to the Harsh Economic Realities of Streaming: An Interview with an Indie Publisher
[Following is an interview with a reader who is an independent publisher about how they view the future for songwriters and independent publishers in the streaming upside down world to the right of the decimal place. The publisher requested to remain anonymous.]
Chris Castle/MTP: I want to ask you about challenges in the streaming reality for an independent publisher. So, readers get the context, about how many titles are in your catalog and what responsibilities do you have as a publisher or administrator?
Publisher: Our companies were originally founded in 1958 in Hollywood at Vine and Selma. We control over 2100 recorded known songs collectively – in four main publishing firms – which also includes 35 administrated composer artist’s own publishing firms as well, worldwide. We handle all licensing, collection, royalty accounting, back royalty recoveries and sync licensing, inhouse. This we do for 46 years now.
MTP: One of the threshold problems that I’ve seen with the way royalties are calculated for streaming is that the per-stream rate shifts from period to period which makes it impossible to tell a songwriter—let’s not forget about them—how much they are getting paid. Do you find that’s an issue for publishers or am I making too much of that information gap?
Publisher: That information gap IS holding us down, we have no way to know HOW it’s calculated as it is and those calculations ABSOLUTELY are not making any sense, there is no explanation, continuity or pattern to deciphering the differences for each part of the service’s tiers – and the amount of units reported to support the varied rates, it follows no logic at all. It changes from period to period and often you’ll see 25,000 units on a Spotify Premium plan that PAYS nothing. WHY? We have no rights to audit and are helpless to question this with hundreds of thousands of excel statements that keep making LESS sense.
The rates are always different and incomprehensible!
PANDORA (PREMIUM/ AND PLUS
RATE UNITS TOTAL
0.1667 44755 0.57303
.24368 19756.5 0.24368
ITUNES MATCH AND FAMILY AND ITUNES MATCH
RATE UNITS TOTAL
0.000027 964 0.02
0.000511 1323 0.67
0.00048 2816 1.35
0.00001 1345 0.01
0.000011 4832 0.05
SPOTIFY FREE!? PREMIUM
0.00020 4765 0!
0.000174 1441 0!
[NOTE: The Music Modernization Act creates an optional audit right for the MLC to audit service once every three years. Remember this is an optional right created in the Mechanical Licensing Collective–not songwriters–to audit services operating under the blanket license (unclear when that three year period starts running, but probably 1/1/21, so the first audit can start after 1/1/24). Unclear how songwriters can require MLC to audit services, or if the MLC’s audit right applies to periods before 1/1/21. MLC is also allowed to use an “alternative verification process” which doesn’t preclude a settlement without an audit. MMA is unclear on how audit recovery is shared.]
MTP: Along that same line, Apple proposed a penny rate of $0.00091 in the last Copyright Royalty Board rate setting (aka Phonorecords III, which is currently being appealed for other reasons by Spotify, Google and Pandora). Do you think that a fixed penny rate would be easier or more difficult to calculate? Apple’s proposal was rejected. Was Apple’s rate more or less than you collect now?
Publisher: Of course, accounting with a penny rate would be easier than these fractional mini pennies. YES, it seems as though GETTING at least a penny rate per stream, would be SOMETHING at least, better than all the units practically accounted AS free goods! The rate rise promised in the MMA is still on the horizon, yet that certain MMA Copyright Act granted yearly increase HAS NOT arrived yet, not until 2021 AND because the still HOSTILE-to-Creators and GREEDY Streaming Companies – are Appealing it now.
MTP: Under the current regime, how difficult is it to calculate songwriter payments for streaming?
Publisher: It’s real hell, you do your best to get it, account it and pay it out but honestly, it’s not making any financial sense. The logistics over the last 6 years on its delivery by excel downloads is absolute insanity. You can do five hours of just taking it off of each excel Song line – 0ver to the Individual Writer statement, and after the hours of cutting it – you find the grand total of the WHOLE STREAMING check with 21,000 rows turns out to be $10.00! The accounting is so time consuming, and with its tiny micro pennies, too often is beyond heartbreaking seeing the endless devaluation of thousands of copies of your famous songs for so little.
MTP: Would you say that on a per-songwriter basis it costs you more to administer songwriter payments than you make? How about on a per-stream basis?
Publisher: THERE is NO question whatsoever EXACTLY how much the cost of Administration has exceeded the EARNED revenue since Napster and file sharing became legalized as Streaming. We have been under siege with OUR COSTS and our Administrative workload heavier and harder – but digital LOSSES are still growing each month.
If you ACTUALLY compared it to the example of the mechanical days of CD Song units sold at 9.1 cents – (pre-streaming) the resultant digital sea change to streaming NOT CD sales – has actually cost us over $126,000 in losses of normal record income in 6 years. My accountant thinks its just crazy. In order to survive the expense of administrating and office overhead and more- we were driven absolutely to the wall at the end of December 2018 and forced to personally leverage (my own private shares of some very famous songs controlled by a big company). Yeah, a ten-year loan against this income that was supposed to be part of my retirement.
The venture capital investors are buying up Catalog like vultures preying on the Indies who have been hurt. It’s a part of the history of Songs and it’s a travesty. But this is what Streaming rates have done to the business of Music Publishing/Administration UNTIL those rates are raised to an equitable and fair market value number. We have had to work DOUBLETIME in doing film/tv sync licenses at a fast pace just to help supplement our streaming income. It’s terrible that we have to do all this while the Corporations use our Creations and profit, while we collectively suffer. I’ve had to spend my own savings to advance to Writers and Clients in hardship during these times because THEY come first.
MTP: Spotify’s failure to match is a key issue in the recent lawsuit by Eminem’s publishers. How has the matching been for you since Title I of the MMA went into effect?
Publisher: IT’S A friggin nightmare, I don’t have the personal time to DO all of this MATCHING and reclaiming our titles THAT THEY failed to even LOOK for. IT’S SO UNFAIR to put this on us the Victims of their infringing our works. YET we have no choice now BUT to GET THEM FOUND, FILED and claimed under The Spotify settlement, and The Rhapsody settlement too, and HELP get those PENNIES back for our Writers and Publisher clients.
MTP: If you could change anything about the current system what would it be?
Publisher: The three major labels who first invested in this scheme and enabled themselves to ELIMINATE the manufacturing costs, and put all the Masters in the vaults – and devalued the price of songs with these terrible streaming rates really represents THE Corporate take over of the Song Business as we knew it. The only thing other than setting us free from this slavery and unfair business competition and constant bleeding loss of royalty value – IS – WE want a fair market streaming rate that will help restore our Writers and Clients to some kind of sustainability in order for them to be able to pay their bills and survive these terrible years of attack on their livelihood and income. Nothing less. Will the MMA law now bring us to that remedy and healing, I surely pray it does?
MTP: Is there anything you’d like to add?
Publisher: I hope this article reaches every creative person who’s suffering privately and silently and helps to show them they are not alone, and we are not blind. That is my desire. Hugs and thank you for making it possible. Even anonymously I give this..this truth, as solace to all of us trying to make sense of it all.
@musictechpolicy Podcast: Eight Mile Style Sues Spotify Under Music Modernization Act
Chris Castle discussion of Eight Mile Style lawsuit against Spotify under Music Modernization Act (driving with dogs series)
Postdicting the Future: Five Things Congress Could Do for Music Creators That Wouldn’t Cost the Taxpayer a Dime from The Hill
[This is a July 30, 2013 summary from The Hill of my series that first appeared in the Huffington Post on July 26, 2013–let’s see how I did after the Music Modernization Act.]
1. Create an Audit Right for Songwriters for Compulsory Licenses: One of the oldest compulsory licenses in the Copyright Act is the “mechanical license”, the statutory mandate forcing songwriters to license songs that dates from 1909. The government mandates the license and also mandates the rate that songwriters are paid—from 1909 until 1977 that rate was set at 2¢ per recording. Although that rate was eventually indexed to inflation leading to the current 9.1¢ minimum, songwriters had to dig out of a deep hole.
Getting paid is another story. This statutory license requires songwriters be sent “statements of account” for royalties—but songwriters are not allowed to conduct a “royalty compliance” examination (called an “audit”). The law requires a company officer and a CPA to certify the company’s statements—a practice rarely complied with. As recently demonstrated by Aimee Mann’s lawsuit against Medianet, if songwriters don’t get paid there’s not much they can do except sue—a costly process.
The government tells the songwriter “trust—but don’t verify.” This is an easy fix. Congress could give songwriters an audit right as they did for stakeholders in the contemporary digital performance compulsory license for satellite radio and Internet radio.
2. Allow Artists and Songwriters to Opt Out of the Compulsory License: The recent blow-up regarding the so-called “Internet Radio Fairness Act” and the related ASCAP and BMI rate court proceedings should let the Congress know that there are many artists and songwriters who want to be able to decide who gets to license their songs. Again, the digital performance compulsory license allows copyright owners to control “interactive” uses of their works—why not at least do the same for the mechanical license as well?
3. Require Digital Royalties for pre-72 Sound Recordings: Sound recordings did not receive federal copyright protection until 1972. When the Congress established the digital performance royalty, it seemed to clearly apply to all recordings and did not arbitrarily exclude recordings prior to 1972. However, this “gotcha” is used by SiriusXM and others to avoid paying great American artists whose records were released before 1972—jazz, R&B and rock legends get nothing. Congress could fix this “gotcha” and secure a fair share of digital performance royalties to these authors of our musical heritage.
4. Require All Unpaid Statutory Mechanical Royalties Be Paid to the State Unclaimed Property Offices: As Aimee Mann’s alleged in her lawsuit against the white label provider Medianet, witnesses stated that 23 percent of the songs used by Medianet are unlicensed—which could easily be millions of songs if true. And there are likely a number of digital music services that are arbitrarily holding unpaid royalties in an unauthorized “escrow.”
It seems that there could be substantial royalties controlled by the very retailers who must pay songwriters under the law, a potentially significant moral hazard. Congress could require that any “escrowed” royalties be paid over under State unclaimed property laws—a lawful “escrow.”
5. Require that Online and Offline Videos Follow the Same Rules: As online video platforms become available through Internet enabled home televisions, attention should be paid to a frequently overlooked category of songwriter—the film and television music composers. Current reporting by online video platforms makes it difficult for score composers to be paid for their work. The Congress may well ask whether those who seek to replace television should be held to the same licensing standards as television.
These are but a few ideas the Congress could be addressing that might make a difference in the lives of artists and songwriters and would cost the taxpayer very little. All leverage existing structures and bureaucracies, eliminate “gotchas,” and help to reduce the unintended consequences of government mandated compulsory licensing.
Postdicting the Future: Five Things Congress Could Do for Music Creators That Wouldn’t Cost the Taxpayer a Dime Part 4: Fixing Unmatched Songwriter Royalties
[In 2013, I wrote 5 articles on Huffington Post titled “5 Things Congress Could Do That Wouldn’t Cost Taxpayers a Dime”. The series foreshadowed policies that were addressed in the Music Modernization Act five years later. This is a repost of Part 4 of that series. After the MMA, how did I do?]
The US is alone in the world in maintaining a compulsory license for songs. The government forces songwriters to license their songs at a rate approved by the government and then has rather flimsy rules about how songwriters actually get paid. These flimsy rules, I suggest, have resulted in unknown amounts of royalties not finding their way to songwriters, particularly under compulsory licenses used by on-demand digital music services.
There’s an easy fix for this — the same rule that was applied against record companies and music publishers for unclaimed royalties in the past: Pay the money to state unclaimed property offices. If songwriters are getting ripped off by brand sponsored piracy on the unlicensed sites, then let’s at least make sure they get paid on the licensed services.
The Compulsory License for Songs
When the Congress established the compulsory license in 1909, the legislative body was concerned that granting exclusive rights in “mechanical royalties” for songs in piano rolls might create a monopoly if a single publisher could buy up the market in songs. However real that concern might have been at the time, the most common complaint from digital music services about songs is that the music publishing market is too fragmented, so it seems that argument is no longer relevant.
One of the big users of compulsory licenses is, of course, Google Play. Concern about the antitrust lusting of songwriters is particularly difficult to comprehend in a world in which the same government allows Google to buy and subsidize YouTube with monopoly rents, buy Double Click to achieve a dominant position in online advertising, and is given a pass by the FTC for antitrust violations. But those songwriters…boy, we have to keep a close eye on them.
Unsupervised Digital Music Services
So what appears to be happening is this: Digital music services use the compulsory license and its labyrinthine regulations — often with notices that are too late, accountings that are noncompliant and data that is just incorrect. To give you a sense of scope, digital music services often offer 20 million or so recordings, all of which contain the co-equal copyright in the song being recorded. Songs and recordings of songs have to be separately licensed for on-demand streaming services (especially the popular “cover recordings”). Songs are frequently co-owned — so the service using the compulsory license must notify a minimum of 20 million songwriters of their use of the song and often two or more writers per song. So let’s just call it tens of millions of licenses.
The digital music services must then track the use of these songs and recordings and match the usage to licenses obtained. There inevitably will be songs for which the writers cannot be found. So even if you assume that these companies can get to the matching stage without making any mistakes at all, what happens when there is usage — and therefore payable royalties — for songs that the service is unable to match — even for the most honest of reasons.
How Digital Music Services Pay Themselves Free Money
Add to this problem another problem — digital music services frequently try to dupe songwriters — the ones they have found — into agreeing that the service need only account to them if the songwriter has over a certain amount in payable royalties — somewhere between $50 and $250 depending on the service. (Google Play, for example, has a $100 minimum threshold — unilaterally imposed — on all international and “friction free” electronic payments.)
To put some math on this, realize that there are about 20 million songs typically available in a broad based retail offering such as Google Play or Spotify. Assume that on average 50 percent achieve $25 in earnings in a given calendar quarter accounting period. (This is consistent with both the “long tail” power law type sales distribution and the miniscule royalties paid to songwriters by these services.)
If a service holds royalty payments from songwriters until payable royalties exceed $25 (such as Google Play’s $100 default threshold as stated in their “Publisher Statement of Account Preference”), this means that the service could then be sitting on up to $250,000,000 in interest-free money. Free money that they theoretically may never have to pay out and only have to pay out when the service determines that the songwriter’s account is payable. Free money that is not permitted under the compulsory license rules for songs.
And that’s one service.
This policy of withholding royalties is fraught with moral hazard and practical problems: The heirs of one songwriter recently tried to sort out these payments and were told they needed to hire a lawyer to deal with the highly litigious digital music service. They couldn’t afford a lawyer so guess what happens to the unclaimed monies? And then there’s the statute of limitations.
Unmatched and Unclaimed Royalties
But there’s another problem with the digital music services — if they service cannot match usage (and earnings) to a royalty recipient in their systems, what happens then? Particularly with monies based on a share of advertising revenue that is distributed proportionately based on usage?
In this example, if in one month all songs were played 100 times and your song was played 10 times, then you would get 10/100 (or 10 percentt) of the advertising pie for that period. But — if there were actually 120 songs played during that period but only 100 could be matched, what happens to the other 20 that were unmatched? There is a growing belief that what happens is that the services don’t count the 20 unmatched songs, and divide the pie up based on the 100 they are able to match.
That means — there are 20 songs that were exploited but that are never paid and are not on the books. Even though there should be no songs on the service that were unlicensed because the compulsory license applies. If this seems high, remember that MediaNet’s lawyers acknowledged in a declaration cited in the current case by Aimee Mann against MediaNet that 23 percent of the millions of songs on the service are unlicensed.
By not counting the unmatched (and probably also unlicensed) songs, a service could argue — albeit fallaciously — that it had no “unallocated” royalties as it allocated all payable royalties to songs it could match and did not accrue any unpaid royalties. If I’m right about this, services are overpaying the matched songs with a share of revenue from the unmatched songs (in our example, 10/120 or 8-1/3 percent instead of the overpayment of 10/100 or 10 percent).
Because the Congress does not allow songwriters to audit the digital music services, there is no real way to know whether this is happening or the degree to which it is happening. If 23 percent of the MediaNet songs are unlicensed, royalties payable on any activity on these songs seems like it should at least be accrued until the songwriters can be found.
This is, of course, why states have unclaimed property statutes. In 2004, then Attorney General Eliot Spitzer chased record companies and music publishers for unpaid royalties for artists who could not be found for a variety of reasons, some plausible, some not so plausible. Spitzer forced the royalties to be paid—like utility deposits, dividends, abandoned bank accounts, the works—to the state unclaimed property office where the monies are held forever and where somebody eventually tries to track down the rightful owner.
Of course — there is a chance that if the digital music services did this voluntarily they might be admitting that they were using unlicensed songs and they want to keep a good eye on those kinds of admissions. So they will come up with many excuses for why they should not be subject to the same laws as everyone else. It is, after all, the Internet, and you know how that can be.
An Easy Fix for Congress: Pay unclaimed money to people who deal with unclaimed money
Even if the Congress does not establish an audit right for songwriters for mechanical royalties as they have for rights holders under the more contemporary webcasting compulsory license and the Audio Home Recording Act, it would be quite simple for the Congress to clarify once and for all that unpaid royalties — whether for the unmet minimum thresholds unilaterally imposed by digital music services, unknown addresses for songwriters, or any other reason — should be paid to the state unclaimed property offices in the state of the songwriter’s last known address or at least the state where the company does business.
Companies that want to take advantage of the compulsory license rules for songs shouldn’t also get to make their own rules to take advantage of songwriters.
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