@digitalmusicnws Asks Is the MLC Putting Smaller Streaming Platforms Out of Business? — ArtistRightsWatch

By Editor Charlie

Dylan Smith at Digital Music News asks the question, “Is the MLC Putting Smaller Streaming Platforms out of Business?” We’ve raised this very question long, long ago, back in early 2018 when the Music Modernization Act was getting passed and the chorus of braying by MLC supporters was at a fever pitch. Everyone ignored the obvious flaws in the legislation, especially the anticompetitive nuances that Dylan has highlighted today. 

But understand–this issue is not new. We raised it in the blogs, and Chris raised it to Congressional staff directly–he said the response was a hangdog “I know, I know. It’s what the parties wanted.”

In other words, Congressional staff knew it was stupid, but were being railroaded into doing it anyway by “the parties” (plural) and there are so many hours in the day. When staff said “the parties” back in 2018 before there was an MLC, guess who they meant? One of those parties was the Digital Media Association which still runs the “Digital Licensee Coordinator” or the DLC–which is essentially the companies with trillion-dollar market caps who we think of as Big Tech. (The DLC’s membership application is here.)

And as you will see, it’s more like is the DLC putting smaller streaming platforms out of business. (See the DLC membership assessment fees “explainer” for DLC members.)

DLC Members

And since the DLC appears dominated by Google, Amazon and Spotify, maybe the real issue is that it’s Thursday, so of course Big Tech wants to keep competition weak and vulnerable to being shut down or acquired. And the MLC and its promoters did nothing to stop it because of the pact between the MLC and the DLC that they would each keep anyone out of the vicinity of the Copyright Royalty Judges who might get in their way. 

Of course the most ludicrous part of this is that these trillion-dollar companies don’t just eat the cost of running the DLC since by the time you get finished reading this post, they will have collectively grossed some sum well, well in excess of the annual operating costs.

But–as we will see, there may be some hope for brave startups to challenge the insider deal that penalizes them without giving them an opportunity to speak up for themselves.

As Dylan writes in DMN:

According to the document [establishing the insiders’ allocation of the fee structure], digital service providers have to cover the MLC’s startup fee ($33.5 million) via a “startup assessment,” or “the one-time administrative assessment for the startup phase of the Mechanical Licensing Collective.” This payment must be made alongside the first annual bill, which is due on February 15th, 2021; the second annual fee disclosure is due in November of the same year and must be paid by January of 2022, for a considerable overall obligation.

Total-wise, platforms “that have a Unique Sound Recordings Count” – or the average number of “royalty-bearing” works streamed or downloaded each month – of less than 5,000 will pay an annual minimum fee of $5,000, to a $60,000 annual minimum fee for those with over 5,000 such works. For DSPs that break the 5,000 threshold, it appears that 2021 will bring with it a low-end bill of $120,000.

Significantly, our source proceeded to indicate: “That’s just the minimum – the total assessment is dependent on market share, which is basically unpredictable at this point. And that’s on top of mechanical royalties for those who use the blanket license.”

This completely out of whack cost structure was obviously a major, major flaw in the Music Modernization Act–specifically the incredibly muddled and meandering Title I which established the Mechanical Licensing Collective and the DLC. The chickens are now coming home to roost.

As Chris wrote in Newsmax Finance on August 20, 2018:

[T]he problem [with the MMA] doesn’t come from songwriters. It comes from the real rule makers—Amazon, Apple, Facebook, Google and Spotify. And startups know which side butters their bread.

Public discussion of MMA has focused on the song collective and the compulsory blanket license for songs, but the mandated digital services collective is more troubling given the size of the players involved…Rule taker startups are governed by the rule maker DLC, but have no say in the DLC’s selection.

Like Microsoft’s anonymous amici, startups know their place —especially against Google, Amazon, and Facebook, whose monopoly bear hug on startups includes hosting, advertising and driving traffic.

The MMA authorizes these aggressive incumbents to effectively decide the price to startups for the “modernized” blanket license. Why? Because the MMA requires users of the license to pay for the lion’s share of the “administrative assessment,” the licensees’ collectivized administrative cost payment that the CBO estimates will be over $222 million for eight years….

Why should the government only permit one game in town? Rather than have the DLC run by the usual suspect monopolists, why not allow competition?

This is important–if startups can’t afford to buy-in to the license, it does them no good, and their biggest competitors decide the price of that license through the DLC.

“Modernization” should make licensing easier: level the playing field for startups and protect them from famously predatory competitor incumbents, as well as copyright infringement lawsuits from the rule takers.

These are all good reasons for the private market solution. Competition at least gives startups hope for the pursuit of fair treatment.

“The parties” and everyone else ignored this warning (and of course, since it wasn’t included in a press release, the trade press did no investigation). This is exactly what Dylan is focused on in DMN. It was only a matter of time until the invoice for startups came due. 

That invoice arrived as part of the “administrative assessment” hearing mandated by Congress in Title I. This is a curious procedure before the Copyright Royalty Judges that expressly excluded anyone from participating who might get in the way of the check that would reunite the Harry Fox Agency with its former owners. That order by the CRJs is the document that Dylan links to.

In a blog post at the time on MTP, Chris drilled down on the nuances of this settlement for the administrative assessment (which is what gives teeth to the mechanism to sandbag startups:

Notice two things:  First, the CRJs’ adopt the position of the MLC and the DLC that the only people who could object to the settlement were “participants”.  Who might that be?  Why the DLC and the MLC, of course.  There were other participants, most prominently the Songwriters Guild of America.  SGA was hounded out of the proceeding because the MLC apparently did not want to include SGA in the negotiation of a settlement.

I can understand the complexity of a three-way negotiation with those pesky songwriters about a matter that affects all the songwriters in the world who have ever written a song or that may ever write a song.  Those songwriters might really get in the way.  What I do not understand, however, is why the songwriters would not be afforded the opportunity to at least comment on the settlement that carries the awesome power of the Leviathan behind it.  I do understand how the rules came to be written the way they are, however.

And this leads to the other thing to observe about this ruling.  “Because there were no non-settling participants…the proposed settlement was unopposed.”  Rather tautological, right?  How can the settlement be opposed if those who might oppose it are not allowed to do so?

Let’s be clear what “opposition” means in this context.  You could just as easily say “improve” or “make fair”.  And lest you think that this is yet another example of sloppy legislative drafting in the mistake-prone Title I, this time I don’t think it’s a mistake.  I think it is exactly what the drafters intended.

This is all pretty darkly typical swampy behavior by the insiders and their lobbyists dedicated to lawyering their way to an unfair court order masquerading as a good thing for songwriters. Of course.

Here’s the ray of sunshine:

After the world “unopposed” the CRJs drop a footnote.  And it is this footnote that is probably the most important point to the unrepresented songwriters and startups who either couldn’t afford to participate or who were afraid of back alley retaliation if they did.

“The Judges have been advised by their staff that some members of the public sent emails to the Copyright Royalty Board seeking to comment on the proposed settlement agreement.Neither the Copyright Act, nor the regulations adopted thereunder, provide for submission or consideration of comments on a proposed settlement by non-participants in an administrative assessment proceeding. Consequently, as a matter of law, the Judges could not, and did not, consider these ex parte communications in deciding whether to approve the proposed settlement. Additionally, the Judges’ non-consideration of these ex parte communications does not: (i) imply any opinion by the Judges as to the substantive merits of any statements contained in such communications; or (ii) reflect any inability of the Judges to question, [on their own motion without a filing from a participant] whether good cause exists to adopt a settlement and to then utilize all express or reasonably implied statutory authority granted to them to make a determination as to the existence…of good cause [to reject the settlement now or in the future].

This footnote is very, very important.  I would interpret it to mean that the CRJs may anticipate that they are directly or indirectly appealed or their decision is examined by the Congress that has ultimate oversight. 

Note that the Judges clearly anticipate reviewing the assessment for “good cause” without a filling from the DLC or the MLC. It’s not clear exactly how that might happen, but it might be as simple as a startup complaining to the CRJs in an email.

So it seems to us that it’s only an MLC issue in that both the MLC and the DLC are each complicit in keeping outsiders away from the decisions about the administrative assessment and how it will be tagged to startups or smaller services. You know, “the parties” decided how the little people are to make do.

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