In case you missed it, the MLC, Inc. was handed a five year contract in 2019 to operate the mechanical licensing collective. This contract was worth millions and millons of dollars, but more importantly guaranteed that the Harry Fox Agency would have a job for at least another five years. The salty arrangement was the brainchild of the lobbyists, the controlled opposition and the Copyright Office–and has resulted in The MLC, Inc. sitting on hundreds of millions of other peoples money.
The Copyright Office has posted a notice letting us know that the time has come for the circular admiration society also known as the 5 year review of the MLC and the DLC as required by Title I of the oh so modern Music Modernization Act (yet we keep comeing back to these age-old problems that are not modern at all). This is all conducted by the Copyright Office which in a meaningful way is simply reviewing how well the Copyright Office did with the designation of the MLC, Inc. as much as how well the MLC met expectations.
After suffering through establishing some regulations for the MLC that largely favored the services, the head lawyer at the Copyright Office threw down the pretenses and became employed as a lobbyist for Spotify. Another went to work for the National Association of Broadcasters to screw artists our of a performance right for sound recordings. Can’t wait to congratulate current Copyright Office staff on their employment futures after we get through this important reup for the MLC, Inc. and the lobbyists. I hear the chief butterfly killers have openings for copyright lawyers trained on the public purse.
The comment period in this vitally important review is divided into at least two parts: The special people, i.e., The MLC, Inc. quango and the DLC get to go first, and then the hoi polloi (that’s you and me). You’ll find this language buried at the very bottom of the Reup notice:
Interested members of the public are encouraged to comment on the topics addressed in the designees’ [i.e., the DLC or the MLC’s] submissions or raised by the Office in this notification of inquiry. Commenters may also address any topics relevant to this periodic review of the MLC and DLC designations. Without prejudice to its review of the current designations, the Office hopes that this proceeding will serve as an opportunity for any songwriter, publisher, or DMP who wishes to express concerns, satisfaction, or priorities with respect to the administration of the MMA’s blanket licensing regime to do so, and that any designated MLC or DLC will use that feedback to continually improve its services.
Bite your tongue now.
This post first appeared on MusicTechPolicy by Chris Castle.
The Culture and Education of the European Parliament issued an important report on the state of the creative economy. Our friend Helienne Lindvall, President of the European Composer and Songwriter Alliance, gives us some insights into the report and the context.
I know ECSA was involved in testifying for the EU cultural diversity report, can you tell us a little about the report, what prompted it and how does it help or hurt?
Streaming and the amount of issues it brought with it has been at the top of the agenda for European songwriters since the launch of Spotify. As an Ivors Academy Board Director, I was part of the inception of the UK #FixStreaming campaign which resulted in the UK Government calling for a complete overhaul of music streaming, and for the creation of music industry working groups to fix these problems. Meanwhile, similar lobbying efforts have been applied in Brussels by music creators across Europe. The EU has a fine history of promoting, supporting and protecting culture – in 2019, legislators proved it by adopting the DSM Copyright Directive. Now we need it to step up to help create a sustainable streaming environment.
Rapporteur Iban Garcia del Blanco and his fellow CULT MEPs took their time to really listen to and understand the reality that music authors (ie songwriters and composers) face, and our proposed remedies, and I think the report reflects that.
Is the report designed to shape future legislation or rulemaking in the EU?
We look forward to seeing the European Commission work on such a strategy and take concrete actions to build a fair and sustainable music streaming ecosystem for all music creators..
MEP Garcia del Blanco said at the press conference that he would prefer if the industry stakeholders could sit down and fix these problems without further legislation, but judging from our experience in the UK, certain areas are easier to get a consensus on than others. The UK metadata working group has set parameters for improvements, which I believe can easily be adopted across Europe and beyond. However, when it comes to remuneration and making it fairer for songwriters and performers, we have met with resistance from labels and platforms – unsurprisingly, perhaps. Getting increased transparency has also proved more difficult. If this resistance remains we will keep pushing for Government intervention and legislation.
The report calls for a comprehensive and ambitious strategy based on independent data and a structured dialogue with all stakeholders, and we stand ready to work with the entire music value chain towards a fairer distribution of revenues, and we support the establishment of a European Music Observatory to collect and analyse data.
I noticed this language in the report calling on EU parliament: “Calls for action to be taken at the European Union level to guarantee the visibility and accessibility of European musical works, considering the overwhelming amount of content constantly growing on music streaming platforms and the lack of Union rules to regulate them in a harmonised manner”. and algorithmic dominance?
It may come as no surprise that American and major label records still dominate on streaming platforms.
Is this designed to keep local language artists from being overwhelmed by English language tracks due to algorithmic bias or Spotify’s stream discrimination plans?
The short answer is: yes. During our stakeholder testimonials in the EU Parliament, Spotify claimed that streaming has increased diversity. And, yes, it may be true that some European countries have seen plenty of local acts in their local charts, though by no means all countries have experienced this, but on an international level there’s still a huge dominance of Anglo-American repertoire. Then we have the issue of the dominance of legacy artists and catalogue albums, such as ABBA, Fleetwood Mac and Elton John.
In a post-Brexit reality, does the report have any effect on the UK?
The EU doesn’t have any legislative powers when it comes to the UK, due to Brexit, but as streaming is cross-border, as is the music industry, an improvement in either would have an impact on both. Some EU members have already implemented their own versions of equitable remuneration, such as Belgium and Spain – and France is establishing a streaming tax to support local music – but we would like to see solutions and changes that help ALL music creators, in particular songwriters, who currently are at the bottom when it comes to their share of the streaming royalty “pie”, and are finding it next to impossible to survive on their music, despite getting millions of streams.
Given the attention that the Bad Dog story is getting, would the metadata accuracy proposals in the report help to stop outright fraud and impersonation?
Yes, it would. Overall, we need more transparency, accountability and accuracy to deal with fraud. These are all words that get thrown around the industry willy-nilly but are rarely truly abided by. In this industry, companies rarely make an effort when it comes to accuracy unless there is an incentive for them to do so. What is the incentive for distributors and platforms to clean up their act and make an effort to prevent bad actors from profiting from fraudulent streams when they still get a share of those streams? I make the comparison to physical stores: If a supermarket sold counterfeit products, they’d be in trouble with the law. Why not these platforms and distributors? And this is before we even get into what’s happening on TikTok, which is the wild west when it comes to unlicensed usage.
Does the metadata accuracy help to enforce “know your customer” type minimum indentifiable data requirements?
Accurate metadata is vital for so many reasons. Not only because more than 20% of all song revenue is unallocable and won’t go to the rightful recipient, but it will help in the fight against fraud. The way I put it to legislators is: You wouldn’t be able to buy a tuna sandwich in the supermarket without being able to read EXACTLY what is in it on the package, or the trader knowing who to pay for those ingredients. So how can it be legal for streaming services to accept, display and charge for recordings without knowing who created the underlying composition? How can they collect money without having any information on who to pay it to? And, as we’ve discovered with cases such as the Bad Dog story and Swedish criminal gangs using Spotify streams to launder money, that money could even be funding drug and weapons trafficking.
Anything else you think is important about the report?
The report calls for action when it comes competition issues and the dominance of a handful of labels and platforms, issues that we believe suppresses our bargaining power. It also stresses that authors, performers and other rights holders should be allowed to reserve and license the rights for the use of their work for AI training, and it acknowledges that this requires transparency. Overall it’s an important report that aims to correct the imbalances that have led to the unsustainable situation music creators find themselves in, and to build a sustainable, thriving and diverse cultural future. It couldn’t come soon enough.
Thanks to the efforts of the “frozen mechanicals” commenters to the Copyright Royalty Judges and the labels who agreed to the structure, there is now an annual cost of living adjustment (called a “COLA”) for the statutory mechanical royalty paid for songs on physical (like vinyl or CDs) and permanent downloads. Starting this month and going forward, that COLA is made by the Copyright Royalty Judges in December, effective the next January 1.
Remember that the frozen minimum statutory mechanical rate was 9.1¢ since 2006 but increased to 12¢ effective 1/1/23.
The Copyright Royalty Judges announced the new COLA rate yesterday which has increased to a minimum rate of 12.40¢ for recordings of songs with a running time of 5 minutes or less, and a per-minute long-song rate of 2.39¢. Depending on how frequently you get accountings, you could see that COLA rate increase show up on your next statements for sales after 1/1/24.
Remember, the purpose of having a COLA is to preserve the buying power of the government’s royalty because songwriters get one opportunity every five years to negotiate compensation for mechanical royalties. Of course, the COLA rate may get distorted by “controlled compositions” clauses in artist agreements, so check your contracts.
Also remember that the rate paid for physical and downloads is actually paid by the record companies as the “licensee” who agreed to the COLA on royalties they pay.
The rate paid for streaming is paid by the digital music platforms like Spotify, Apple, Google, Amazon, Tidal and others.
There is no COLA adjustment for streaming even though same songs and same time period and even though the MLC gets a guaranteed annual increase in its “administrative assessment”.
2024 rate. For the year 2024 for every physical phonorecord and Permanent Download the Licensee makes and distributes or authorizes to be made and distributed, the royalty rate payable for each work embodied in the phonorecord or Permanent Download shall be either 12.40 cents or 2.39 cents per minute of playing time or fraction thereof, whichever amount is larger.
By Chris Castle
What’s a better way to hide a story than a Friday news dump? A long weekend news dump. (Remember when The MLC announced that they had “decided” to pick the Harry Fox Agency as their principal vendor after jerking chains for months?).
So I’m not surprised that the BMI sale got a turkey press release on the Thanksgiving long weekend. BMI’s press release is remarkable for what it doesn’t do. For example, it doesn’t announce the financial terms of the deal in favor of the bright and shiny object of a $100,000,000 tip to its 1.4 million “affiliates” which works out to about $71 each. Want to bet that BMI’s shareholders and executive team are pocketing a bit more on the deal?
Which is fine—it’s their company, they can decide how they want to share the sale price windfall. But if you’re going to be a capitalist, be a capitalist and don’t try to sugar coat the fact that you got rich(er) selling data that doesn’t belong to you and trading on the efforts of songwriters. In the great tradition of streaming that we’ve become accustomed to from Big Tech, songwriters get the shortest end of the stick. Oh, and don’t overlook how BMI intends to distribute that $100 million—my bet is that 90% of BMI songwriters won’t even net anything like $71.
But here’s the line that BMI definitely buried in the very last sentence of their press release: “As part of New Mountain’s investment, CapitalG will also invest a passive minority stake in BMI.”
Now who might CapitalG be? CapitalG is a side venture fund owned by Google. So that’s right—after 20 years of fighting the biggest copyright offender in the history of commerce, a seller of advertising on pirate sites like Megavideo, BMI has invited them inside the wire.
“Passive” normally means the party does not participate in the management decisions of a company they have invested in. However, without knowing the terms of the investment, there’s really no way to know what that means. “Minority” typically means that the party holds less than 50% plus one of the outstanding voting shares of the target company on an as-converted basis, in this case the BMI shares following the closing of the sale transaction. Again, without seeing the post-money capitalization table, you really have no way of knowing what “passive minority stake” really means.
So that leads me to look at the public statements of CapitalG, such as on its website. Here’s a couple of examples:
“CapitalG is Alphabet’s (Google’s) independent growth fund.”
“By maintaining a small, concentrated portfolio, we are able to invest heavily in each company’s success, fueling them with recurring, significant capital and consistent, hands-on operational and strategic support.”
What this sounds like is what you would expect—a very engaged, Silicon Valley style venture investment. It is inevitable that this investment will result in at least one board seat or “board observer” which is even worse from the company’s point of view. And that investment style is confirmed by another statement on CapitalG’s website:
“3000 Googlers have advised 4500 portfolio employees. Hands-on go-to-market, people & talent, and product & engineering support, often producing multimillion-dollar value within the first year.”
What that means is that Google will be all up in your grill, BMI folk. Get ready for it, because they will now be able to push you around for real with your jobs on the line because THEY OWN YOU.
What is worse than Boston Consulting Group telling you what you ought to do? Google telling you what you must do. And they will.
Why do they do it?
“16 IPOs and 9 M&A exits. Laser focused on each company’s success–with the track record to prove it.”
“Each company’s success” means the exit. That’s all it means. All those smiling people are smiling for a reason. They don’t care about songs, songwriters, writer relations or anything else. They are about the data, the tech, and all their hairbrained ideas about how the music business really should work in their utopia. Assuming “owning” the MLC and BMI passes antitrust scrutiny at President Biden’s FTC.
In other words, they are going to pump you up and sell your ass. And they’ll do it with the blood money they made by ripping us off for decades. That’s one way to get a job at Google.
So—as long as we understand each other. Something to think about when your writers and publishers start firing you.
[This post first appeared on MusicTechPolicy]
[This post first appeared on MusicTechPolicy referenced by David in his post below from X]
Remember the millions of flawed “address unknown” NOIs that the Copyright Office allowed to be filed by the largest corporations in commercial history, including Google, because they were unable to locate the copyright owners? Aside from the sheer hilarity of the statement “Google can’t find [X]” it is almost certain that the absence of the line of researchers at the Copyright Office at the time suggests that the big tech companies never really did all the research and were allowed to file false statements with the government. Any guesses as to which Copyright Office lawyer was principally involved in allowing them to get away with that massive charade to the tune of approximately 100,000,000 notices? (See my article from the ABA Entertainment & Sports Lawyer.). That might be the one who left the Copyright Office for the riches of private practice shortly after the incident. Mr. Damle also has pretty consistently represented the Digital Licensee Coordinator. More on that later.
Another fake enterprise seems to have been uncovered by Politico this week, this time apparently in what I think is Mr. Damle’s latest assault on creators, his fascination with Open AI. As Politico reports:
The message in the open letter sent to Congress on Sept. 11 was clear: Don’t put new copyright regulations on artificial intelligence systems.
The letter’s signatories were real players, a broad coalition of think tanks, professors and civil-society groups with a stake in the growing debate about AI and copyright in Washington.
Undisclosed, however, were the fingerprints of Sy Damle, a tech-friendly Washington lawyer and former government official who works for top firms in the industry — including OpenAI, one of the top developers of cutting-edge AI models. Damle is currently representing OpenAI in ongoing copyright lawsuits.
Damle did not sign the letter, and did not reply to multiple attempts to contact him with questions about his involvement. But data contained in a publicly posted PDF of the letter show the document was authored by “SDamle,” and three signatories confirmed to POLITICO that Damle was involved in its drafting and circulation. Two of them said they were first made aware of the letter by Damle, and signed it at his invitation.
The letter’s covert origin offers a window into the deep and often invisible reach of Big Tech influence in the Washington debate over AI — a fast-moving part of the policy landscape where Congress is hungry for outside advice, and which is still new enough to create strange political bedfellows. Signatories included the American Library Association, the progressive nonprofit Public Knowledge and the free-market R Street Institute.
Oh my. This bears all the hallmarks of Google policy washing, while the company is at the same time engaging in a charade with artists through the YouTube AI Music Incubator. And as usual, Mr. Damle is only too happy to accommodate.
Oh snap. It’s Tuesday.
Before we get to George’s letter, a little context. If you’re coming to this subject for the first time, mechanical royalties are paid to songwriters (and their publishers) for the mechanical reproduction of their songs. The federal government established a compulsory license for this purpose and corresponding royalty rates starting in 1909. The license has evolved over time and now includes physical configurations like vinyl (paid by record companies) and digital transmissions like streaming (paid by DSPs like Spotify).
Until the Music Modernization Act, songs were licensed on a song-by-song basis notice-based system except for catalog licenses. Or at least theoretically–pre-MMA most of the streaming services didn’t take advantage of the statutory license they were entitled to because they couldn’t be bothered. (Until David’s class action called them out. We note that the Copyright Office, in particular a former lawyer at the Office now representing Big Tech against songwriters, allowed the streamers to get away with tens of millions of flawed “address unknown NOIs” that a cynic might say was a catastrophe with a purpose. Chris has an article about this fiasco that went largely unreported except by Hypebot.)
Fast forward to today. Every five years the Copyright Office is required to review the company that the Office has designated to run the Mechanical Licensing Collective. Currently that entity is The MLC, Inc. designated by the Copyright Office on July 8, 2019. Remember that The MLC, Inc. was independently chosen by the Copyright Office as the best in breed of all applicants after a rather odd beauty contest. This is their thing, and the MLC, Inc. is their idea. So do you think that creates an incentive to create a five year review that everything is peachy and they were geniuses for creating this dumpster fire?
Even though the first five year review is set to happen next year, Congress has already held a hearing about the MLC, Inc. which frankly did not go well for the company. Nobody got their ears nailed to the barn door, but the hearing was not the usual love fest. The review is to be conducted by the Copyright Office, so there’s a question as to why Congress decided that the House Judiciary Committee IP Subcommittee should conduct the first of what may be multiple hearings.
Everyone assumed that the Copyright Office would choose the first MLC as the NMPA-backed entry, The MLC, Inc. That company was so confident of winning the contract their confidence made people ask why anyone else bothered to try out. And when the next charade resulted in The MLC, Inc. choosing the former NMPA affiliate the Harry Fox Agency as their data vendor, everyone knew there was definitely gambling at Rick’s. All paid for by Big Tech (or maybe we should say Really Big Tech) because not even the taxpayer is stupid enough to fall for this BS. After all, nothing blew up and nobody died.
So the lobbyists and lawyers and the Copyright Office were busily building up a new bureaucracy to drive mechanical licensing back to the future and essentially preserve the 1909 compulsory license that George refers to. Because what they didn’t do was throw out the compulsory license and come up with an alternative more in keeping with streaming. You know, modernization.
In fact, they never really considered how one might implement mechanical licensing without the compulsory part. And that’s probably because there is a cottage industry of lobbyists, lawyers, and government clerks built up around compulsory licensing that would simply be out of a job if the compulsory were rejected. But they will get out the green eyeshades and the furrowed brow and tell you that mere songwriters cannot appreciate the complexity of getting rid of the compulsory license that governs their lives and has done for over a century.
But then there’s this five year review. What is the review reviewing if it never takes into account the compulsory license itself. Are we to just assume that the compulsory lasts forever? Are they just to review how The MLC, Inc. and HFA are doing administering a law that itself doesn’t work? Where does the failure of one start and the other begin?
The effectiveness of the statute itself really must be part of the five year review as well as a review of the MLC.
Enter George Johnson. George is a songwriter who has effectively represented himself at the Copyright Royalty Board and is fighting hard for increased songwriter royalty rates, holding up a mirror to the emperor in the Imperial City of Washington, DC. Needless to say, George has made no new friends among the grandees and courtiers who all see the advantage in complementing the emperor on his new clothes and complain that George does not shut up and let his betters run things the way they like. Billboard did an extensive profile on George during the frozen mechanicals crisis in which he played a major part.
George has written a timely letter to the Copyright Office anticipating the need for a review of the compulsory license statute itself from which spring all these problems for the obvious reason that you can’t really talk about the MLC with out talking about that statute (17 USC §115). (You may want to take a look at a proposal that David made a few years ago for a US version of extended collective licensing.) Just remember that it’s not really that difficult to transition off of song-by-song licensing to a blanket license administered by the MLC fiasco compared to extended collective licensing with an opt-in for songwriters who want to get away from HFA and the compulsory licesne.
Spoiler alert–the Copyright Office rejected George’s request. Their rejection does not mean George was wrong, it just means that the right person didn’t ask the question,
Following is George’s letter to the Copyright Office and we will later post the Copyright Office response. You can read George’s white paper here.
Monday, June 12, 2023
Via Email
Attn: Ms. Shira Perlmutter,
Register of Copyrights and Director
U.S. Copyright Office
101 Independence Ave. S.E.
Washington, D.C., 20559-6000
Re: Study to Repeal §115 Compulsory License & Ex Parte Meetings to benefit Congress and all U.S. Songwriters and Music Publishers
Dear Register Perlmutter,
For the benefit of all American songwriters and music publishers “bound by” 1 the 114 year old §115 compulsory license, and to benefit Congress in their upcoming 2 decision making processes involving intellectual property law and music copyright policy, I respectfully request that the Copyright Office please initiate a compulsory license study and roundtables regarding it’s full repeal, including ex parte meetings.
The century old compulsory license is no longer an incentive or profitablefor all U.S. songwriters and music publishers, and there are many problems arising from it’s use, and misuse, not intended by Congress, the Constitution, and copyright law.
The 1909 compulsory license was designed for a different time, for the local sale of piano rolls and not contemplated to be used by the largest trillion-dollar corporations in the history of the world, with teams of attorneys, with no sale, by “access”, on “computers” or telephones, distributed digitally, through the air, and all for free from songwriters and publishers? Now, with no COLA for streaming.
Former Register Ms. Marybeth Peters initiated several studies 3 that questioned the continued necessity of the compulsory license, and for it’s full repeal or full reform 4. Unfortunately, those studies are now outdated and considering the vast changes in the delivery of musical works and sound recordings, experts 5 6 now think a new study would be very helpful in updating Congress on how the license is functioning post Music Modernization Act (MMA), to benefit their 2024 MLC review, but primarily so Congress can make an informed decision on full repeal or full reform?
While my comments here are my own and separate from my participation in the current Phonorecords III & IV proceedings at the Copyright Royalty Board, please feel free to notify me if there is any conflict or other legal protocol to be followed.
Other than the obvious economic arguments to finally pay songwriters the true value of their copyrights, the primary reason I believe compulsory license roundtables are necessary and so dire is the 3 major record labels’ current anticompetitive misuse of the compulsory license 7 at the CRB (See #1, 2, 3 in the attached white paper) that I’ve experienced as a 4 time CRB participant and appellant in Sound Exchange v. CRB 8 and Johnson v. CRB 9. The 3 major labels’ misuse of the license is the #1 issue including several dozen other serious issues.
The license, the rate-structure, and the CRB process are all truly broken in almost every way and must be fixed immediately or completely abandoned. All rational market actors who currently use private collective blanket licensing providers would certainly switch, proving no need for federal licensing to operate efficiently.
We all could really benefit from the Copyright Office’s input, ideas, and legal opinions on these extremely important issues since each and every songwriter cannot compete with RIAA and NMPA counsel, nor 25 years of their regulatory capture.
We songwriters truly need Congress and the Copyright Office’s help and guidance.
We pray the Copyright Office 11 will initiate a study with roundtables, in addition to ex parte communications and meetings to benefit Congress, and all American songwriters and music publishers “subject to”11 the license — for these good reasons, good cause, and those contained in the following white paper attached below.
Thank you for your time and thoughtful consideration.
Respectfully,
George D. Johnson
Singer/Songwriter
PO Box 22091
Nashville, TN, 37202
@georgejohnson
cc: Librarian of Congress
General Counsel of the Copyright Office
U.S. House Judiciary Committee
U.S. Senate Judiciary Committee
Office of the TN Attorney General
1. https://www.federalregister.gov/documents/2022/03/30/2022-06691/determination-of-royalty-rates-and-terms-for-making-and-distributing-phonorecords-phonorecords-iv March 30, 2022 Withdrawal of Subpart B Final Rule by the Copyright Royalty Board. Referencing §801(b)(7)(A) “That provision directs the Judges to provide those who would be bound by the negotiated rates and terms an opportunity to comment on the agreement.” Page 3 (emphasis added)
2. Upcoming 5 year work product review of the Music License Collective (“MLC”) by Congress in 2024.
3. https://www.copyright.gov/newsnet/2022/981.html September 30, 2022 — In Memory of Marybeth Peters. “Her leadership of the Office also included the generation of several landmark studies, such as those on statutory licenses…”
4. To me, a full overhaul in dollars of the “nano-penny” rate-structure in §385 Subpart C streaming.
5. https://musictechpolicy.com/2023/04/05/should-the-copyrightoffice-begin-at-the-beginning-with-the-mlcs-first-five-year-review/ April 5, 2023 — by attorney and Phonorecords IV Commenter Mr. Chris Castle. Should the Copyright Office Begin at the Beginning With The MLC’s First Five year Review “The continued need for a song compulsory license is just the kind of information that Reps. Jordan and Issa could use in case they were inclined to just get rid of it. It would be a great topic for the Copyright Office to study and hold round tables on, this time preferably lead by a Copyright Office lawyer who was not being recruited by Spotify.”
6. https://musictechpolicy.com/2023/05/28/should-the-compulsory-license-be-re-upped/ May 28, 2023, Should the Compulsory License Be Re-Upped? by music attorney and official CRB Commenter Mr. Chris Castle.
7. …through NMPA’s, et al. re-writing all laws and definitions, and MMA, to fit label business models, not U.S. songwriters. This is also in no way the Judges fault, they have to deal with it too, so reform would help them. The Judges are great and not to blame when I say the process is broken.
8. https://www.cadc.uscourts.gov/internet/opinions.nsf/8AE80A6C0FBDFB7B8525830C004D863A/$file/16-1159-1751123.pdf SoundExchange, Inc. v. Copyright Royalty Board and Librarian of Congress, Case No. 16-1159, consolidated with 16-1162 (DC Cir. Sept. 18, 2018) (Srinivasan, J)
9. https://www.cadc.uscourts.gov/internet/opinions.nsf/720464D843B0D6C7852585C10074B11B/$file/19-1028-1856124.pdf George Johnson v. Copyright Royalty Board and Librarian of Congress, Case No. 19-1028, (D.C. Cir. Aug. 7, 2020) (Henderson, Garland, and Millett)
10. https://www.govinfo.gov/content/pkg/FR-2023-02-17/pdf/2023-03392.pdf Ex parte.
11. https://app.crb.gov/document/download/3715 September 29, 2016, SDARS III Order Denying Services’ Motion To Dismiss George D. Johnson d/b/a Geo Music Group. “The Services’ reliance on the Librarian’s decision in PSS II—a decision that involved neither a copyright owner nor a copyright user—is misplaced because it is based on an erroneous premise. Unlike the party in PSS II, GEO is subject to the license at issue…and GEO would have no say in the matter—that is the essence of a statutory license. For the forgoing reasons, the Judges DENY the Services’ Motion.”
[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.
The Trichordist 
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