Should the Compulsory License be Re-Upped?

By Chris Castle

[This post first appeared on MusicTechPolicy]

The wisest of those among you learn to read your portents well
There’s no need to hurry, it’s all downhill to Hell…

Don’t Stand Still, written by The Original Snakeboy, performed by Guy Forsyth

Congress is considering whether to renew The MLC, Inc.‘s designation as the mechanical licensing collective. If that sentence seems contradictory, remember those are two different things: the mechanical licensing collective is the statutory body that administers the compulsory license under Section 115. The MLC, Inc. is the private company that was “designated” by Congress through its Copyright Office to do the work of the mechanical licensing collective. This is like the form of a body that performs a function (the mechanical licensing collective) and having to animate that form with actual humans (The MLC, Inc.), kind of like Plato’s allegory of the cave, shadows on the wall being what they are.

Congress reviews the work product of The MLC, Inc. every five years (17 USC §115(d)(3)(B)(ii)) to decide if The MLC, Inc. should be allowed to continue another five years. In its recent guidance to The MLC, Inc. about artificial intelligence, the Copyright Office correctly took pains to make that distinction in a footnote (footnote 2 to be precise. Remember–always read the footnotes, it’s often where the action is.). This is why it is important that we be clear that The MLC, Inc. does not “own” the data it collects (and that HFA as its vendor doesn’t own it either, a point I raised to Spotify’s lobbyist several years ago). Although it may be a blessing if Congress fired The MLC, Inc. and the new collective had to start from scratch.

But Congress likely would only re-up The MLC, Inc. if it had already decided to extend the statutory license and all its cumbersome and byzantine procedures, proceedings and prohibitions on the freedom of songwriters to collectively bargain. Not to mention an extraordinarily huge thumbs down on the scales in favor of the music user and against the interest of the songwriters. The compulsory license is so labyrinthine and Kafka-esque it is actually an insult to Byzantium, but that’s another story.

Rather than just deciding about who is going to get the job of administering the revenues for every songwriter in the world, maybe there should be a vote. Particularly because songwriters cannot be members of the mechanical licensing collective as currently operated. Congress did not ask songwriters what they thought when the whole mechanical licensing scheme was established, so how about now?

Before the Congress decides to continue The MLC, Inc. many believe strongly that the body should reconsider the compulsory license itself. It is the compulsory license that is the real issue that plagues songwriters and blocks a free market. The compulsory license really has passed its sell by date and it’s pretty easy to understand why its gone so sour. Eliminating the Section 115 license will have many implications and we should tread carefully, but purposefully.

Party Like it’s 1909

First of all, consider the actual history of the compulsory license. It’s over 100 years old, and it was established at a time, believe it or not, when the goal of Congress was to even the playing field between, music users and copyright owners. They were worried about music users being hard done by because of the anticompetitive efforts of songwriters and copyright owners. As the late Register Marybeth Peters told Congress, when Congress created the exclusive right to control reproduction and distribution in 1909, “…due to concerns about potential monopolistic behavior [by the copyright owners], Congress also created a compulsory license to allow anyone to make and distribute a mechanical reproduction of a nondramatic musical work without the consent of the copyright owner provided that the person adhered to the provisions of the license, most notably paying a statutorily established royalty to the copyright owner.”

Well, that ship has sailed, don’t you think? 

This is kind of incredible when you think about it today because the biggest users of the compulsory license are those who torture the bejesus out of songwriters by conducting lawfare at the Copyright Royalty Board–the richest corporations in commercial history that dominate practically every moment of American life. In fact, the statutory license was hardly used at all before these fictional persons arrived on the scene and have been on a decades-long crusade to hack the Copyright Act through lawfare ever since. This is particularly true since about 2007 when Big Tech discovered Section 115. (And they’re about to do it again with AI–first they send the missionaries.)

If the purpose of the statutory scheme was to create a win-win situation that floats all boats, you would have expected to see songwriters profiting like never before, right? If the compulsory was so great, what we really needed was for everyone to use Section 115, right? Actually, the opposite has happened, even with decades of price fixing at 2¢ by the federal government. When hardly anyone used the compulsory license, songwriters prospered. When its use became widespread, songwriters suffered, and suffered badly.

Songwriters have been relegated to the bottom of the pile in compensation, a sure sign of no leverage because whatever leverage songwriters may have is taken–there’s that word again–by the compulsory license. I don’t think Google, a revanchist Microsoft, Apple, Amazon or Spotify need any protection from the anticompetitive efforts of songwriters. Google, Amazon, Apple, Microsoft, Spotify are only worried about “monopolistic behavior” when one of them does it to one of the others. The Five Families would tell you its nothing personal, it’s just business. 

Yet these corporate neo-colonialists would have you believe that the first thing that happens when the writing room door closes is that songwriters collude against them. (Sounding very much like the Radio Music Licensing Committee–so similar it makes you wonder, speaking of collusion.) 

The Five Year Plan

Merck Mercuriadis makes the good point that there is no time like the present to evolve: “In the United States, we have a position of stability for the next five years – at the highest rates paid to songwriters to date – in the evolution of the streaming economy. We are now working towards improving the songwriters’ share of the streaming revenue ‘pie’ yet further and, eventually, getting to a free market.” The clock is ticking on the next five years, a reference to the rate period set by the Copyright Royalty Board in the Phonorecords IV proceeding. (And that five years is a different clock than the five years clock on the MLC which is itself an example of the unnecessary confusion in the compulsory license.)

What would happen if the compulsory license vanished? Very likely the industry would continue its easily documented history of voluntary catalog licenses. The evidence is readily apparent for how the industry and music users handled services that did not qualify for a compulsory license like YouTube or TikTok. However stupid the deals were doesn’t change the fact that they happened in the absence of a compulsory license. That Invisible Hand thing, dunno could be good. Seems to work out fine for other people.

Let’s also understand that there is a cottage industry complete with very nice offices, pensions and rich salaries that has grown up around the compulsory license (or consent decrees for that matter). A cottage industry where collecting the songwriters’ money results in dozens of jobs paying more in a year than probably 95% of songwriters will make, maybe ever. (The Trichordist published an excerpt from a recent MLC tax return showing the highest compensated MLC employees.) Generations of lawyers and lobbyists have put generations of children through college and law school from legal fees charged in the pursuit of something that has never existed in the contemporary music business–a willing buyer and a willing seller. Those people will not want to abandon the very government policy that puts food on their tables, but both sides are very, very good at manufacturing excuses why the compulsory license really must be continued to further humanity.

The even sadder reality is that as much as we would like to simply terminate the compulsory license, there is a certain legitimacy to being clear-eyed about a transition. (An example is the proposals for transitioning from PRO consent decrees–ASCAP’s consent decree has been around a long time, too.) There would likely need to be a certain grandfathering in of services that were pre or post the elimination of the compulsory, but that’s easily done, albeit not without a last hurrah of legal fees and lobbyist invoices. Register Pallante noted in the well-received 2015 Copyright Office study (Copyright and the Music Marketplace at 5) “The Office thus believes that, rather than eliminating section 115 altogether, section 115 should instead become the basis of a more flexible collective licensing system that will presumptively cover all mechanical uses except to the extent individual music publishers choose to opt out.”  An opt out is another acceptable stop along the way to liberation, or even perhaps a destination itself. David Lowery had a very well thought-out idea along these lines in the pre-MLC era that should be revisited.

X Day

However, while there is a certain attractiveness to having a plan that the dreaded “stakeholders” and their legions of lobbyists and lawyers agree with, it is crucially important for Congress to fix a date certain by which the compulsory license will expire. Rain or shine, plan or no plan, it goes away on the X Day, say five years from now as Merck suggests. So wakey, wakey. 

That transparency drives a wedge into the process because otherwise millions will be spent in fees for profiting from moral hazard and surely the praetorians protecting the cottage industry wouldn’t want that. If you doubt that asking for a plan before establishing X Day would fail as a plan, just look at the Copyright Royalty Board and in particular the Phonorecords III remand. Years and years, multiple court rulings, and the rates still are not in effect.  Perseveration is not perseverance, it’s compulsive repetition when you know the same unacceptable result will occur.

But don’t let people tell you that the sky will fall if Congress liberates songwriters from the government mandate. The sky will not fall and songwriters will have a generational opportunity to organize a collective bargaining unit with the right to say no to a deal. 

The closest that Congress has come to a meaningful “vote” in the songwriting world is inviting public comments through interventions, rule makings, roundtables and the like–information gathering that is not controlled by the lobbyists. Indeed, it was this very process at the Copyright Royalty Board that resulted in many articulate comments by songwriters and publishers themselves that were clearly quite at odds with what the CRB was being fed by the lobbyists and lawyers. So much so that the Copyright Royalty Judges rejected not only the “Subpart B” settlement reached by the insiders but the very premise of that settlement. Imagine what might happen if the issue of the compulsory license itself was placed upon the table?

Now that songwriters have had a taste of how The MLC, Inc. has been handling their money, maybe this would be a good time to ask them what they think about how things are going. And whether they want to be liberated from the entire sinking ship that is designed to help Big Tech. And you can start by asking how they feel about the $500 million in black box money that is still sitting in the bank account of The MLC, Inc. and has not been paid–with an infuriating lack of transparency. Yet is being “invested” by The MLC, Inc. with less transparency than many banks with smaller net assets.

This “investment” is another result of the compulsory license which has no transparency requirements for such “investments” of other peoples’ money, perhaps “invested” in the very Big Tech companies that fund the The MLC, Inc. That wasn’t a question that was on the minds of Congress in 1909 but it should be today.

Attention Must Be Paid

Let’s face facts. The compulsory license has coexisted in the decimation of songwriting as a profession. That destruction has increased at an increasing rate roughly coincident with the time the Big Tech discovered Section 115 and sent their legions of lawyers to the Copyright Royalty Board to grind down publishers, and very successfully. That success is in large part due to the very mismatch that the compulsory license was designed to prevent back in 1909 except stood on its head waiting for loophole seekers to notice the potential arbitrage opportunity. 

The Phonorecords III and IV proceedings at the Copyright Royalty Board tell Congress all they need to know about how the game is played today and how it has changed since 1909, or the 1976 revision of the Copyright Act for that matter. The compulsory license is no longer fit for purpose and songwriters should have a say in whether it is to be continued or abandoned.

We see the Writers Guild striking and SAG-AFTRA taking a strike authorization vote. When was the last time any songwriters voted on their compensation? Maybe never? Voting, hmm. There’s a concept. Now where have I heard that before?

by thetrichordist

When Will the MLC Disclose How they Invest the Black Box Money?

[this post originally appeared in MusicTech.Solutions as “Unrealized Losses and the Black Box Investment Policy” by Chris Castle. We asked him to update it a bit to repost.]

Well, another quarter is rolling around and the MLC is still sitting on 100s of millions of dollars of songwriter money as far as I can tell. Billboard says the MLC has “matched”–maybe different than “paid”–$200 million of the $427 million in black box that it was paid by the services in 2021. This doesn’t count the unmatched that the MLC has itself added to that sum. And Congress still haven’t required them to disclose their investment policy, returns on investment or much of anything else.

Compare the MLC to community banks. There are approximately 1,000 community banks with net assets between $250,00,000 to $500,000,000. There are approximately another 1,200 community banks with net assets between $100,000,000 to $250,000,000. It’s admittedly rough justice, but why should one entity holding hundreds of millions of other peoples’ money have virtually no disclosure requirements and be essentially unregulated while another is the opposite?

Remember that the MLC is supposed to pay interest “at the Federal, short-term rate” “for the benefit of copyright owners entitled to payment of such accrued royalties.” Note that the Federal short-term rate is today a lot higher than it was when the lobbyists wrote the Music Modernization Act, currently 4.21% or thereabouts. And through the power of compound interest, that’s a bunch of cash the MLC is supposed to come up with. I wonder where they’ll get it from. Wouldn’t you like to know?

Anyway, let’s talk about interest rates. The “risk free rate” is often thought of as the rate of interest paid on US government bonds. That interest rate is thought of as risk free because it is backed by the full faith and credit of the United States that you hear so much about these days. Want to know where you can find that full faith and credit? Look in the mirror. 

When you ask around about what collective management organizations do with their “black box” monies while they are waiting to match money with songwriters or at least copyright owners, you often hear that the money is invested in very safe instruments, like U.S. treasury bonds. This might be particularly true of CMOs that are required to pay interest on black box because that interest has to come from somewhere.

But–and here it is–but, as we have learned from the Silicon Valley Bank collapse and the number of federal government officials in the mumble tank about why these banks are failing and why they are getting bailed out by, you know, the full faith and credit of the United States, “risk free” seems to be a relative concept. When you buy US government bonds, there are a number of different maturity dates available to you, kind of like buying a certificate of deposit. A common maturity date is the 10-year bond and the two-year bond, both of which were recently down sharply.

But–there is a connection between the interest rate that the bond pays, the price of the bond, and the maturity date of that bond. When bond interest rates increase, the face price tends to decrease. So if you paid $100 for a bond with a interest rate of say .08% and that rate then increased to say 4.5%, the face price of that bond will no longer be $100, it will be less. If that increase happens fairly quickly, you can have difficulty finding a buyer. The good news is that when the Federal Reserve raises the interest rate, there is about as much news coverage of the event as it is theoretically possible to have, both before during and after the rate increase, not to mention the Federal Reserve chair testifying to Congress. It’s very public. Closely watched doesn’t really capture that level of attention.

When bond prices decline, holders only “realize” the loss or gain if they sell the bond unless the bond is marked to market so the firm has to disclose the amount of what the loss would be if they sold the bond. Hence the concept of “unrealized losses,” “maturity risk,” or “interest rate risk.”  Some think that US banks currently have $620 billion in unrealized losses due to interest rate risk. And don’t forget, these are your betters. These are the smart people. These are the city fellers.

This interest rate risk issue is not limited to banks, however. It is also present anytime that an entity tasked with caring for other people’s money invests that money in treasury bonds, crypto, or whatever. Like the MLC. You don’t have to be Wall Street Bets to end up losing your shirt or something in this environment.

So the point is that the same problem of interest rate risk and unrealized losses could apply to CMOs, such as The MLC, Inc. because of their undisclosed “investment policy” of investing the $424 million of black box they were paid by the services. They don’t disclose what the investment policy is and they don’t disclose their holdings so we don’t really know what has happened, if anything. The money could be perfectly safe.

Or not.

by Trichordist

@justinebateman wants to see AI contract terms in actor agreements and music folk should be checking, too

Chris Castle says: If you are seeing contract language that allows the other side to use your name, image, likeness, voice, etc., take a close look at the rights granted. It may not be that obvious. Like all other configuration changes in the past, artists, producers and songwriters need to look at their existing agreements and see how old language will be interpreted to cover AI.

Example: Label will have (i) exclusive record artwork merchandising rights; and (ii) exclusive rights to sell merchandise embodying three (3) exclusive designs per contract period, alone and in conjunction with Artist’s names and approved pictures, likenesses and other identifications, subject to Artist’s approval with respect to such matters as product design and manufacturing.

“in conjunction with”, “other identifications” and “approval with respect to such matters as” each take on new meaning.

Example: Artist acknowledges that Label is the exclusive owner of all rights of copyright in Masters and Records embodying the results and proceeds of Artist’s recording services made pursuant to the Recording Agreement or during its term, including the exclusive right to copyright same as “sound recordings” in the name of Label, to renew and extend such copyrights (and all rights in and thereto are hereby assigned to Label), and to exercise all rights of the copyright proprietor thereunder as provided in the Recording Agreement.

Recordings “made pursuant to the Recording Agreement or during its term” could mean AI works.

Example: As used in this agreement, “Other Entertainment Services” shall mean any and all entertainment industry activity that are not otherwise provided for in this recording agreement, including, without limitation, the following: (a) the exploitation in any and all media of the name(s) likeness(es), visual representations, biographical material and/or logo(s) of or relating to Artist or any member of Artist (all of the intellectual properties relating to Artist referred to above are sometimes referred to herein collectively and individually as “Artist Properties”), either alone or in conjunction with other elements, including without limitation merchandise for sale at the site(s) of any and all live concert engagements performed by Artist or any member of Artist, premiums such as products which bear a third party’s trademarks or logos together with Artist Properties, tie-ins, “bounceback” merchandising, and fan club merchandise, whether or not in connection with Master Recordings, including, without limitation, exploitation by any Person other than Label of any rights granted in this recording agreement; (b) endorsements, special marketing arrangements, sponsorships (including tour sponsorships), strategic partnerships or other business relationships with third parties; (c) live performance engagements as a musician, vocalist and/or performer by the Artist or any member of Artist in all media, including but not limited to musical performances on tour, in concerts, on television broadcast or cable casts (including pay-per-view telecasts), radio, “webcast” and all other means.

by Trichordist Editor

Record Producer Agreements, a practical guide

By Chris Castle

[Editor Charlie sez this post first appeared on MusicTechPolicy]

Over the years I have had a number of posts about negotiating record producer agreements. These posts were based on topics, so one would be on royalties, another on recording costs, recoupment, credits, and so on. Readers have asked that I combine these into one topic and I finally did it for the Copyright Alliance and now am posting the combined article here–all 30 pages of it. The last page is a sample producer agreement check list which could be converted into a deal memo.

I’d encourage you to see if there’s anything important to you that I’ve left out, because when you write these things there’s almost always something you leave out. Since the business is changing rapidly, as soon as you sit down to write one of these things there’s some new configuration that becomes all the rage, so there will be some topics not included because you have to draw the line somewhere.

Feel free to post any comments. You can download the article here.

record-producer-agreements-v-3Download

record-producer-agreements-v-3Download
by thetrichordist

PRESS RELEASE: Copyright Alliance Applauds Nomination of Deborah Robinson as Intellectual Property Enforcement Coordinator

Washington, DC—Today, Copyright Alliance CEO Keith Kupferschmid issued the following statement in support of the Biden administration’s announcement that Deborah Robinson has been nominated to be the next Intellectual Property Enforcement Coordinator (IPEC):

“The position of Intellectual Property Enforcement Coordinator (IPEC) is crucial to the United States’ continued strong and effective support for intellectual property (IP) laws and policies, both here and abroad. The Copyright Alliance is pleased to learn that the White House has nominated Deborah Robinson to be the next IPEC and urges the Senate to expeditiously consider and approve her nomination.

“Deborah Robinson is an accomplished attorney, experienced IP content and protection specialist, and former prosecutor who has real world experience. We are confident that, upon Senate confirmation of her nomination, she will do a tremendous job in this very important role as she works to further IP protections across the country.”

###
ABOUT THE COPYRIGHT ALLIANCE: The Copyright Alliance is a non-profit, non-partisan public interest and educational organization representing the copyright interests of over two million individual creators and over 15,000 organizations in the United States, across the spectrum of copyright disciplines. The Copyright Alliance is dedicated to advocating policies that promote and preserve the value of copyright, and to protecting the rights of creators and innovators. For more information, please visit our website.
by Trichordist Editor

Snoop Asks in @hypebot: “How can you get a billion streams and not get a million dollars?”

Snoop Dogg had strong words for Spotify, Apple Music, and other music streaming services during an interview with former Apple Music Creative Director Larry Jackson at the Milken Institute Global Conference.

“I know I’m going off-script right now, but fuck it. This is business,” said Snoop “In a room full of business people and somebody may hear this so the next artist don’t have to struggle and cry for his money because some of these artists are streaming millions and millions and millions and millions of fucking streams and they don’t got no millions of dollars in the pot.”

Read the post on Hypebot

by Trichordist

Save the Date: May 2, 4:15pm Central European Summer Time (CEST), Tom Grey and friends on fixing streaming

Register for the panel here

by Trichordist Editor

Copyright Office Authorized a Star Chamber at the MLC to Hold Your Money

We knew this would happen. The Copyright Office has empowered the Mechanical Licensing Collective to decide whether a song (or a sound recording) can be copyrighted all under the guise of AI. If the MLC–not the Copyright Office–decides that your song is not capable of being registered for copyright, the MLC can hold your money essentially forever.

Where’s the regulation on this important subject? Did you get a chance to comment on these crucial regulations and precedent?

Ah…no. You didn’t miss any notices in the Federal Register. No, we know this because of this cozy “guidance letter” to MLC CEO Kris Ahrend from the general counsel of the Copyright Office. That’s right, a letter that we just happened to run across. That letter states:

More specifically, the Office advises that a work that appears to lack sufficient human authorship is appropriately treated by The MLC as an “anomal[y],” consistent with its Guidelines for Adjustments, and The MLC should “place [associated] Royalties in Suspense while it researches and analyzes the issue.” Such research could include corresponding with the individual or entity claiming ownership of the work or [could include] inquiring whether the Office has registered the work and whether there are any disclaimers or notes in the registration record.

If The MLC subsequently concludes that the work qualifies for copyright protection and the section 115 license, it should distribute any royalties and interest in suspense to the copyright owner. Alternatively, if The MLC believes that the work does not qualify for copyright protection following its research and analysis, it should notify the individual or entity claiming ownership of the work of its determination and that associated royalties will be subject to an adjustment. This conclusion and adjustment may be challenged by initiating an “Adjustment Dispute” consistent with The MLC’s policies. If legal proceedings are initiated to challenge The MLC’s actions, the disputed royalties and interest should remain suspended until those proceedings are resolved.

So just in one paragraph, the Copyright Office has effectively delegated its role in the U.S. government to a private corporation controlled by the largest music publishers and financed by the largest tech companies in the world (actually the largest corporations in the history of commerce). If the MLC decides that your song “appears to lack sufficient human authorship” The MLC can hold your money while they research the issue.

Note this doesn’t say who makes that decision, it doesn’t say when they have to notify you, it doesn’t say they have to give you an opportunity to be heard, it places no timeline on how long all this may take. “The MLC” (whoever that is) could sit on your money for years without ever telling you they are doing it and also keep invoicing the DSPs for your royalties while they “research and analyze the issue”.

The only time they have to give you notice if they “believe” (whatever that means) “that the work does not qualify for copyright protection” then “it should” (not the mandatory “shall”, but the permissive “should”) notify you of that determination. You can then file an “adjustment dispute” based on the MLC’s own guidelines which you will not be surprised to learn places no disclosure obligations on them, imposes no timeline and cannot be appealed.

Note that this guidance from the Copyright Office pretty expressly contemplates that the MLC may dispute a work that has already been registered for copyright without qualification–which raises the question of what a copyright registration actually means, and where is it written that the MLC has the authority to challenge a conformed Copyright Office registration.

It also places the MLC in a superior position to the Copyright Office because it allows the MLC to initiate a dispute resolution system outside of the Copyright Office channels. Is this written somewhere besides a burning bush on Mount Horeb?

The letter does seem to suggest that you can always sue the MLC or that the MLC could be prosecuted for state law crimes, perhaps, like conversion, but it would help to know who at the MLC is actually responsible.

This also raises the question of why the MLC is invoicing the DSPs in the first place and what happens to the money every step along the path. Because of the idiotic streaming mechanical royalty calculation, it seems inevitable that the royalty pool will be overstated or understated if the MLC is claiming works that are not subject to copyright (like it would for public domain works it invoiced).

Ever wonder what prompts letters like this to get written?

Play your part, dude. Go back to sleep.

by Trichordist Editor

@musicbizworld: UNIVERSAL MUSIC GROUP RESPONDS TO ‘FAKE DRAKE’ AI TRACK: STREAMING PLATFORMS HAVE ‘A FUNDAMENTAL RESPONSIBILITY TO PREVENT THE USE OF THEIR SERVICES IN WAYS THAT HARM ARTISTS’

The track, heart on my sleeve, credited to the ‘artist’ ghostwriter, has racked up more than 230,000 plays on YouTube, and more than 625,000 plays on Spotify.

In addition to AI-replicated vocals of Drake, the track – a seemingly original composition – also features AI-replicated vocals of The Weeknd’s voice.

Both Drake and The Weeknd release their (real life) records via UMG and its Republic Records.

Said UMG in a statement to MBW in the wake of today’s news: “UMG’s success has been, in part, due to embracing new technology and putting it to work for our artists–as we have been doing with our own innovation around AI for some time already.

“With that said, however, the training of generative AI using our artists’ music (which represents both a breach of our agreements and a violation of copyright law) as well as the availability of infringing content created with generative AI on DSPs, begs the question as to which side of history all stakeholders in the music ecosystem want to be on: the side of artists, fans and human creative expression, or on the side of deep fakes, fraud and denying artists their due compensation.

Read the post on Music Business Worldwide

@musicbizworld: UNIVERSAL MUSIC GROUP RESPONDS TO ‘FAKE DRAKE’ AI TRACK: STREAMING PLATFORMS HAVE ‘A FUNDAMENTAL RESPONSIBILITY TO PREVENT THE USE OF THEIR SERVICES IN WAYS THAT HARM ARTISTS’ — Artist Rights Watch–News for the Artist Rights Advocacy Community

by theinvisiblestagehand