If you are not ready to go down into the weeds on this I suggest you stop reading right here.  But I hope you do.  Because this is probably the most important post that we will do on the Berklee College of Music/Rethink-Music/Kobalt Music (Google Ventures) flawed transparency and fair pay report.

The Berklee report takes a particularly uninformed and misleading swipe at HFA (Harry Fox Agency) and black box collections:

As an example, mechanical royalties owed by Spotify to the publishers for the use of their music are paid to HFA, which then distributes the monies to each publisher represented by HFA. If an artist’s publisher (usually smaller publishers) is not represented by HFA, the only way to collect mechanical royalties from Spotify is to make an administrative agreement with HFA or forge a direct agreement with Spotify, which could be a managerial nightmare.

Since organizations like HFA collect most of the mechanical revenues from streaming services on behalf of writers and publishers (and take a cut for their services), it’s worrisome that some royalties may be withheld from songwriters simply because they do not have an administrative agreement with HFA. When a mechanical-payment check does arrive, there may be a lack of transparency in the breakdown of what a writer or published is owed, or it may end up in the black box, with the money never reaching its rightful owner. That can be particularly problematic for songwriters.

First of all–I’d be surprised if HFA collects “most” of the mechanical royalties from streaming services due to various direct deals and compulsory licenses.  But second, by law Spotify is the entity required to get licenses from songwriters and then pay and account to them.  Not HFA.

The only reason HFA is involved is because Spotify hired HFA to license songs  and send out royalty statements on their behalf.  And from what I understand they are mostly obtaining compulsory licenses.  That means that HFA is mostly sending (for Spotify) what’s called a “notice of intention to use” under the compulsory license clause of the Copyright Act (Section 115) and “certified statements of account” of the kind we’ve all received (remember those $0.01 checks).  HFA didn’t insert themselves into Spotify’s business, Spotify invited them in.

The workflow is pretty standard stuff these days.  Spotify probably tells HFA what music they have used (likely violating federal NOI rules that require 30 days notice before use) and then HFA tries to match the song owners by song share to the songs used by Spotify.  HFA sends out the NOIs (now likely defective retroactive notices) to the known copyright owners unless there’s a direct license between the publisher and Spotify (I haven’t read about direct licenses for Spotify so they’re probably using compulsory licenses for the most part).

Based on my own experience, if HFA can’t match the songs, Spotify uses them anyway, at least when it comes to my own songs.  As far as I can tell, the decision to use my songs without a license/NOI  in place is made by Spotify not HFA.*

The way I understand the digital services like Spotify work  is that they hire an administrator to send out NOIs to exercise the compulsory license.  This is usually HFA (example, Spotify), MRI (example, Amazon) or Medianet (example, Beats).  After the song share NOIs are sent out (based on usage information given to the administrator by the service), the service sends a “use file” to the administrator that the administrator relies on to make the certified statements of account.  The administrator tells the service the royalties they have to pay to who based on what song shares the administrator can match to the service’s “use file”.

From what I hear, when HFA is working for a digital service like Spotify, HFA doesn’t charge the normal collection fee to its publisher members.  This makes sense since Spotify hired HFA and charging a fee to publishers would be “double dipping.”  That means that this line in the Berklee report is simply false:

Since organizations like HFA collect most of the mechanical revenues from streaming services on behalf of writers and publishers (and take a cut for their services)…

The Berklee report also fails to mention anything about NOIs, which are probably the bulk of Spotify’s licensing.

Since some publishers don’t go through HFA at all and some publishers only go through HFA for certain licenses, it’s a red herring to talk about publishers being forced to sign an admin agreement with HFA. This line in the Berklee report is simply false:

If an artist’s publisher (usually smaller publishers) is not represented by HFA, the only way to collect mechanical royalties from Spotify is to make an administrative agreement with HFA…

Followed by this line which is misleading:

it’s worrisome that some royalties may be withheld from songwriters simply because they do not have an administrative agreement with HFA.

It would be “worrisome” if it were true that songwriters only get mechanicals because they let HFA collect their royalties, but it’s not true.  Note the strategic use of the word “may” in “may be withheld.”  It’s also “worrisome” if the Sun “may” rise in the West, but it won’t happen.

What’s really “worrisome” is if some royalties are withheld from songwriters because a digital service uses their songs but never gets a license.  I bet that’s the reason I’m not getting paid.  I bet that’s also the reason why others are not getting paid, too.  So why would Berklee manufacture these statements?  Maybe because Kobalt–that paid for the Berklee report–views HFA as a competitor?

The reason I’m not getting paid is because Spotify is using my songs without a license and evidently I’m not getting matched somehow.  That means I end up in Spotify’s black box.

Let’s talk about that “black box.”  The term usually applies to money that was payable but was not paid because the song owner couldn’t be found–or no one bothered to look.  Or there was no license and the song was used anyway.  The term “black box” is usually used to criticize PROs, record companies or HFA-type administrators.  There may be valid criticisms for all these, but that’s not what’s happening with Spotify.

When a mechanical-payment check does arrive, there may be a lack of transparency in the breakdown of what a writer or published is owed, or it may end up in the black box, with the money never reaching its rightful owner. That can be particularly problematic for songwriters.

Using a song without getting a license is not “a lack of transparency” it’s a lack of rights.  “Transparency” doesn’t fix what you can’t see.

Because Spotify (and other digital services) are always in control of the money, and because they only pay royalties based on what they can match, the money in Spotify’s black box is not located anywhere but at Spotify (although HFA may have a record of how it came to be there).  So the black box for digital services is under the control of the digital services.  And yes, the money does end up in the black box and yes it may never reach its rightful owner.  And yes that is particularly problematic for songwriters.

There’s an easy fix for this Spotify black box issue though–don’t use songs without a license.

Here’s the reality for the Berklee report though.  If digital services find accounting to songwriters to be a “managerial nightmare” the solution is not cryptocurrency.  The solution is not using the songs until you have the license.

If digital services think it’s too burdensome to account to each songwriter, then what they object to is the creative process itself.  Songs are cowritten and each songwriter has to be accounted to for their ownership interest.

Is Berklee advocating some kind of “eminent domain” where the government takes away your property rights and forces an even more compulsory license so no service has to do the research to know what the service can and can’t use?

If they don’t like having to account to songwriters, they are in the wrong business.  Try starting another pets.com, it’s easier.

No one asked them to get in the music business and no one will miss them if they get out.

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