Guest Post by @SealeInTheDeal: A Foreseeable Result of the Phonorecords IV Private Settlement: Opening Pandora’s Box

By Gwendolyn Seale

Over the last six weeks, the Trichordist has chronicled the frozen mechanicals saga occurring at the Copyright Royalty Board in the government’s rate setting for the compulsory mechanical license commonly called “Phonorecords IV.” (Congress mandated that these government rate settings occur every five years and are numbered sequentially.) 

Songwriters, independent music publishers, music lawyers and advocates have penned articles and contacted their representatives in Congress to express their concerns about the private party settlement which would extend the existing freeze on the statutory mechanical rate with respect to physical products and permanent downloads for yet another five years.  That private party settlement among the Big Three record companies, the National Music Publishers Association and the Nashville Songwriters Association International is expected to be opened to public comment later today.  (Friday news dump?)  These entities then submitted that settlement to the Copyright Royalty Board asking the CRB to impose the terms of that private settlement on the rest of the world.  And it now appears that these secret deals may be backfiring.

The frozen rate most prominently applies to permanent downloads and physical sales like vinyl.  Why the Big Three want to freeze mechanical royalty rates on the booming vinyl business is anyone’s guess.

The sticking point for most people commenting in the Trichordist is that the terms of the private settlement are not disclosed to the CRB or to the public, especially a side deal between the Big Three and the NMPA.  Songwriters around the world have no way of knowing the terms of these deals unless the Copyright Royalty Board forces their disclosure.

These entities who are before the CRB in Phonorecords IV, along with those vocal in opposition against their private party settlement have been in this arena for far longer than I. When the Phonorecords I proceeding occurred in 2006, I was merely a freshman in high school — and I was completing my final year of law school as the Phonorecords III proceeding began. Needless to say, there has been a significant amount of information and procedure to digest.

Upon learning of the settlement by the Big Three labels, the NMPA and the NSAI, several thoughts came immediately to mind:

1) The settlement and side agreement referenced must be disclosed immediately.

 2) How can this freeze be rationalized, especially during the midst of a worldwide vinyl resurgence?

3) Why would an organization representing songwriters agree to such a freeze? (As an aside, as I was teaching a course on copyright and songwriter revenue streams to 30 older songwriters two weeks ago, they were shocked and moreover disheartened to learn this — as physical sales, not streaming revenue, pays their bills. One said: ”I can stand out on the street in Smithville, Texas, with my guitar and a tip jar and earn more in a couple hours than I will ever earn from streaming”).

 4) This is perfect ammunition for the streaming services to use to justify their already abysmally-low mechanical “rates.”  

While there is much to say on points 1-3, the focus here is on point 4. Chris Castle echoed the same sentiments on June 1:

“Streaming Royalty Backfire:   If you want to argue that there is an inherent value in songs as I do, I don’t think freezing any rates for 20 years gets you there.  Because there is no logical explanation for why the industry negotiators freeze the rates at 9.1¢ for another five years, the entire process for setting streaming mechanical rates starts to look transactional.  In the transactional model, increased streaming mechanicals is ultimately justified by who is paying.  When the labels are paying, they want the rate frozen, so why wouldn’t the services use the same argument on the streaming rates, gooses and ganders being what they are?  If a song has inherent value—which I firmly believe—it has that value for everyone. Given the billions that are being made from music, songwriters deserve a bigger piece of that cash and an equal say about how it is divided.” (link: https://thetrichordist.com/2021/06/01/healing-with-sunlight-a-rate-based-solution-for-the-frozen-mechanicals-dilemma/)

It did not take a soothsayer to foresee this result; the private settlement opened Pandora’s box – begetting misery for every songwriter. Since the CRB has been quiet for the last month with respect to this proceeding, yesterday, I began delving through some of the more recent Phonorecords III remand filings. And much to my unsurprise, I came across a statement from Pandora Media’s expert witness, Professor Michael Katz, who understandably used the proposed settlement as evidence that the streaming rates were fine as is. Katz’s statement was filed on April 4 – two months before songwriters became aware of the quiet filing of the private settlement and began speaking out.  Here’s the link to Professor Katz’s testimony and you’ll find the text below beginning on page 65:  https://app.crb.gov/document/download/23858 .

Pandora not only used the settlement to make the case that the streaming mechanicals rate in the 2012 settlement was a “good benchmark,” but also, even more disastrously, used this argument to rationalize the 2012 rate being TOO HIGH.

This is what happens when there are only a select few gatekeepers, privileged with endless resources and far removed from the plight of independent songwriters, making decisions that affect literally every songwriter’s future. This is why CRB proceedings must be more easily accessible for independent songwriters and their staunch advocates. This is the consequence of the “willing buyer” and “willing seller” appearing on different sides of the same corporate coin – (and if anyone wishes to challenge me on this point be ready for some “interlocking board” remarks based on extensive research into conflicts of interest).  Songwriters deserve better than to have this crucial revenue stream frozen – especially  immediately following an eighteen-month-long worldwide pandemic.

After the release of misery and misfortune with the private settlement, hope remained at the bottom of pandora’s box—hope that the CRB would allow the songwriters affected by the private settlement to at least have an opportunity to be heard in the exclusive and expensive environment of the Copyright Royalty Board. Once the CRB publishes their request for public comments (on the Friday before the July 4 weekend), songwriters may at last have their chance.

And I firmly believe that by the CRB providing every songwriter the opportunity to express how this settlement and the proposed regulations freezing mechanicals for another five years fails to represent her interest, it will exbibit to all the inherent value of songs and restore hope that every voice matters.

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