A Response to A2IM’s Objection to the New Statutory Mechanical Rates: Part 3

Continued from Part 1 and Part 2

By Chris Castle

The American Association of Independent Music, the independent label trade association, filed comments with the Copyright Royalty Board opposing increasing the mechanical royalty to songwriters from the “frozen rates” to the 12¢ (plus cost of living adjustment) settlement rate of the participating record companies with the NMPA and NSAI. I wrote a reply to the A2IM comment that was timely filed with the CRB–barely. I will repost that comment in a few parts here on MTP. As I had about 10 minutes to write the comment due to the lateness of the A2IM filing, I will add some bracketed language to make it a bit less inside baseball.

The A2IM comment starts out claiming that the organization supports songwriters making more money, but then rejects the settlement that would demonstrably pay songwriters a higher rate because they don’t like the per-unit penny rate. That argument sounds a lot like “make it up on volume” which we’ve heard before.

Unfortunately, A2IM chose not to participate in the Phonorecords IV proceeding and came in a bit late to the party complaining of the check. Nobody stopped them from participating; it appears they put it all on red and it came up black. This is important because unlike independent songwriters who cannot afford the cost of participating at the CRB hearings, A2IM could have participated but evidently chose not to.

As I told the Judges in my comment, I will focus on a few issues raised by A2IM regarding the CRB settlement process in general, the penny rate structure of the mechanical royalty system in the United States, and their proposal that mechanical licensing for physical configurations be handed over to the Mechanical Licensing Collective.

A2IM raises an interesting point that mechanical rates should be different for new releases than for catalog titles. It sounds like they are asking for songwriters on new releases to take an even greater haircut than they already do given the effect of controlled composition clauses–which are justified by the same “investment” (largely recouped from artist royalties) that would be used to justify a further reduction in rates. 

I agree that it is rather insane to expect the Judges to come up with a single rate that treats every song as the same when we all know that’s not true and never has been true.

Accordingly, the copyright law should make it easier for a hit songwriter to charge a higher rate for new releases because after all, the statutory rate is the “minimum”. Why shouldn’t a hit songwriter (or really any songwriter) be able to charge, say, double statutory for new releases, particularly if they are being courted to provide an unproven artist with a song for a single (often already produced). So while there may well be support for rejecting what A2IM describes as a one-size-fits-all approach, it may not come with the result they are looking for. 

It must also be understood that when A2IM asks the Copyright Royalty Board to change the entire century-old mechanical royalty rate from an inflation-adjusted fixed penny rate to a percentage of wholesale is a vast undertaking. That’s why I made the following general comment to the judges:

As a general comment, all of these ideas must be examined under the authority delegated to the CRB by Congress, particularly in light of the Supreme Court’s recent ruling in West Virginia et al v. Environmental Protection Agency et al.  [This case radically cut back the authority of administrative agencies like the CRB to vastly alter their Congressional mandate. Otherewise, the administrative state become effectively a fourth–and unaccountable–branch of government. At first blush, it appears to me that all of these ideas, whatever one thinks of the merits, will require Congress to act.

Mechanical Licensing Collective

The idea that the MLC will just take over the mechanical licensing process for configurations that Congress specifically held back from their portfolio [a few years ago] supports the idea that Congress would need to act in order to accomplish what A2IM wants to do.

I would respectfully point out to the Judges that the MLC has been sitting on top of at least $500,000,000 of other people’s money on the streaming side for a year or more and still can’t manage to get it matched and most importantly paid.  There is also a growing anecdotal belief in the indie publisher community who actually deal with the MLC that there is no musical works database constructed as instructed by Congress—that database appears to be entirely resident at HFA, an MLC vendor.  That seems odd and would be a good question for the Judges to ask of the MLC at the next administrative assessment. [I’ve found that people who are fans of a central planning approach to create a static database for a dynamic dataset like songs are usually people who themselves have never built one from the ground up.]

Plus, the MLC will not be able to do this additional work on physical accounting for free.  I simply cannot imagine that the DLC will welcome the opportunity to provide free accounting services for access to the compulsory license when their own members pay up front a share of the millions that have vanished into the MLC in return for what I cannot say.  

We must ask that if the A2IM members cannot afford the modest increase in mechanical royalties for their own songwriters—many of whom are their own artists—how will they afford a share of the administrative assessment plus the transaction costs of switching over to an entirely new accounting system plus what will almost certainly be frequent audits by the MLC.

Conclusion 

In short, while A2IM’s comments are well-intentioned and I understand that they feel overlooked in the process, believe me they are not alone.  There are a lot of people in the community who take their objections to heart and are willing to parlay about all these ideas in the future. Unfortunately, I don’t think there is support for derailing the process at the 11th hour which should come as no surprise to anyone.

@SchneiderMaria Rolls Over YouTube in Her Copyright Infringement Case

By Chris Castle

It’s been just over two years since Maria Schneider sued YouTube for copyright infringement. But the court has now cleared a path for her to actually proceed with her main case by dismissing–emphatically–YouTube’s motion to dismiss for failure to state a claim.

According to Reuters:

Schneider sued YouTube in 2020 on behalf of a proposed class of small copyright owners, arguing the platform only protects large copyright owners from infringement while allowing pirated content from others in order to draw in users. The group said major companies have access to YouTube’s advanced Content ID software to scan for and automatically block infringing content, while individual creators are left “out in the cold.”

But that’s not the critical part. Maria’s lawsuit alleges that YouTube YouTube removed copyright management information (CMI) in violation of 17 U.S.C. § 1202(b)–potentially intentionally.

The amended complaint states that YouTube knew that files containing audio and/or video works routinely contain CMI, that CMI is valuable for protecting copyright holders, and that the distribution of works with missing CMI on YouTube has induced, enabled, facilitated, and concealed copyright infringement. The plausible inference from these and similar allegations is that YouTube removed the CMI from plaintiffs’ works with knowledge that doing so carried a “substantial risk” of inducing infringement. 

One could see how anyone who intentionally removes one brick from the complex wall that protects big infringers like YouTube from truly massive liability for copyright infringement would be in a whole heap of trouble for inducing infringement (which gets you into Grokster land).

Personally, it’s my view that this is exactly what YouTube and Google do on a massive scale and that they should pay the class damages that will dwarf all the fines these people have already paid for everything from violations of the Controlled Substance Act to competition law violations. Truly Carl Sagan level damages…billions and billions.

We’re lucky Maria’s on the side of the angels. Fight on.

@MMercuriadis on the @CMAgovUK’s Whiff on the Streaming Report

Hipgnosis CEO Merck Mercuriadis had a strong statement in Music Week about the Competition and Markets Authority’s swing and a miss at the obviously absurd music streaming system as it was clearly identified by the groundbreaking report from the Digital Culture Media and Sport Select Committee of the UK Parliament. Given the good work done by the DCMS committee, the CMA report is simply insulting to those Members of Parliament.

Bob Welch and Reggie Jackson, Game 2 1978 World Series

Unfortunately the CMA report reads like a lobbyist’s press release and Mercuriadis lays it down and calls them out. Even though this is a little inside baseball in the UK, Trichordist readers understand that the underlying issues involve every songwriter and involve every artist regardless of where you live and regardless of where you claim as home. Mercuriadis is exactly right, the money is there it’s just not getting to the right people.

The battle continues.

“[Hipgnosis] would like to thank the Competition and Markets Authority for acknowledging in its report today the lack of transparency in the music streaming market, and for highlighting the continued dominance of the market by the major labels and recorded music, along with the severely adverse impact this is having on songwriters’ ability to earn a living,” he said. “However, with 70% of all those responding to the CMA consultation calling for reform, it is regrettable that the CMA is not minded to investigate and address the clear failures its study identified.

“The Digital Culture Media and Sport select committee in its July 2021 report on the economics of music streaming – ‘Music streaming must modernize. Is anybody listening?’ – called for the CMA to address the economic impact of the music majors’ dominance.

“Today the CMA has not acted to address the impact on the creative songwriting community, and this is a missed opportunity to follow up on those concerns raised by Members of Parliament on the Digital Culture Media and Sport select committee. It is a disappointment for songwriters who earn pitiful returns from streaming, not because there is not enough to go round, but simply because it is not being shared fairly and equitably.”

Mercuriadis added: “Hipgnosis will continue to call for fundamental reform of a broken system which does not recognise the paramount role of the songwriter in the music ecosystem. We have always believed that the ultimate solution lies within the music industry itself and we will continue to advocate on behalf of songwriters with the major recorded music companies to push for a fair and equitable split. There would be no recorded music industry without songwriters.

“Legislative and government authorities have the power to redress the economic imbalance where major recorded music companies that own and control the major publishing companies are purposefully undervaluing the songwriter’s contribution. The Intellectual Property Office [UK’s Copyright Office] has a key role to play in redressing the imbalance and we will continue to support its work and efforts.

“Hipgnosis will continue to campaign for change at the highest levels, using our success to advocate and fight on behalf of the songwriting community and to take the songwriter from the bottom of the economic equation to the top.”

@KerryMuzzey Calls Out Chinese Streamer iQiyi and Tencent for Massive Infringement of Composers

Readers will recall Kerry Muzzey, a leading film composer and outspoken advocate for composers. Kerry’s testimony before the U.S. Senate is some of the best analysis of the struggle of independent creators against the DMCA onslaught. We’ve also been lucky to have him post on MusicTechPolicy and Trichordist.

As Kerry has taught us, composers are often ripped off by some of the biggest names in streaming, some of which are based in China. This is particularly ironic given the long arm of companies like Tencent into the legitimate music business.

Never say never, but it does seem like the mainstream trade press never reports on this angle: These companies are ripping off our artists in a whole other kind of human rights violation because artist rights are human rights.

AFL-CIO Backs Artist Play for Radio Play and the American Music Fairness Act #irespectmusic

Hooray! The @AFLCIO’s 12.5 million members have joined the fight to pass the American Music Fairness Act. The USA is the only democratic country in the world where artists don’t get paid for AM/FM radio airplay. This act will change that. #IRespectMusic https://t.co/CoGJtoWSbk — Blake Morgan (@TheBlakeMorgan) June 20, 2022 Really great news, the largest […]

AFL-CIO Backs Artist Play for Radio Play and the American Music Fairness Act #irespectmusic — Music Tech Solutions

Really great news, the largest union organization in the US has joined the fight for fairness for the world’s recording artists and session performers! 

MusicFirst leader Joe Crowley said: 

We applaud the AFL-CIO for standing by artists and music creators and lending the strength of its 12.5 million members to fight for passage of the American Music Fairness Act.

This legislation will benefit artists across the country – including the tens of thousands who are members of SAG-AFTRA, the American Federation of Musicians and other AFL-CIO unions – by correcting a decades-long injustice fueled by corporate greed that has left artists uncompensated for their use of their songs on AM/FM radio.

The Effect of Unfrozen Mechanicals on Controlled Compositions

[A “controlled compositions clause” explainer for artists and songwriters by Chris Castle on MusicTech.Solutions]

Nice post by Ed Christman in Billboard explaining the continuing crisis on frozen mechanicals. Ed comes up with a rough justice quantification of the impact on songwriter and music publisher revenues in light of controlled compositions clauses in recording contracts that apply to (a) songs written and recorded by artists, or (b) songs by “outside writers” if and only if the artist can get the outside writer to accept the controlled compositions terms and rates.

For those reading along at home, one theory (aside from sheer leverage) that gets used in this context is that the artist/writer can agree on behalf of all co-writers to accept the terms of the license granted by the artist to the label in the controlled compositions clause because they are co-owners of an undivided interest in the song copyright and can grant nonexclusive licenses in the whole subject to a duty to account provided the license is not economic waste or self-dealing. Let’s just leave all that where it lays for now, but that story has never really been properly challenged–particularly the economic waste part given the rate fixing date issue and even the frozen mechanicals crisis itself. We’ll come back to that bit some other time.

The rate fixing date is a key part of the discussion for understanding the impact of unfreezing mechanicals. So what is that rate fixing provision? 

Remember, the controlled compositions clause starts with reducing the minimum statutory mechanical rate in the US (and in theory in Canada subject to MLA) in effect at a point in time. That point in time is either commencement of recording (booo!), delivery, release or sale of a unit embodying the song at issue. Remember that the labels only pay mechanical royalties on physical and downloads (the rates at issue in the frozen mechanicals crisis)–streaming services pay for the interactive streaming mechanicals (and there is no mechanical for webcasting, a whole other beef).

You say, wait–isn’t the mechanical rate 9.1¢? Why does it matter when the record was recorded, delivered, released or sold? Won’t the rates all be the same? And you’d be right if you were asking about a record recorded and released in 2006 or after, or a record recorded and released between 1909 and 1978, like, say some titles by Bob Dylan, The Beatles, Otis Redding or Miles Davis. 

But–it wasn’t always this way. The mechanical royalty rate was set at 2¢ by Congress with the first statutory license, i.e., compulsory license, in 1909 and did not change until the 1976 revision of the US Copyright Act effective 1978. The rate then began to incrementally increase over the years until it reached 9.1¢ in 2006, a phased increase that was to compensate for Congress failing to increase the rate for 70 years, aka “the Ice Age”. The Congress really screwed up songwriters’ lives by freezing the rate at 2¢ during the Ice Age and songwriters and their heirs have been paying for it ever since, right up to the 2006-2022 period, aka “the Second Ice Age” or the Return of the Neanderthals. 

In an effort to help songwriters shovel out from the Ice Age, The Congress also authorized indexing the minimum rate to inflation from 1988 to 1995. Indexing is again on the mind of the Copyright Royalty Board right now–bearing in mind that an increase in rates due to inflation has nothing to do with the intrinsic value of the song copyrights so there’s no confusion. Indexing simply applies any increase in the consumer price index to the statutory rate and preserves buying power. In a way, it is the opposite of a case about value. Indexing assumes that the value issue was already decided (in this case in 2006) and simply preserves buying power so that the “nominal” rate of 9.1¢ in 2006 can still buy the same amount of goods or services in 2022 (or 2023 in the case of the CRB rate period). Otherwise the “real” rate, i.e., the inflation adjusted rate, is not 9.1¢ it is about 6¢.

Remember–the proposed rate increase to 12¢ by the CRB is not about value, it’s about buying power because it’s solely focused on inflation.

So back to controlled compositions. It is no coincidence that at the same time as the 1978 increases were phased in, the labels established controlled compositions clauses that knocked songwriters back down. They would probably not have gotten away with freezing by contract at 2¢ so they let the rate float up but much more slowly and with several caps. The first cap is the maximum number of songs, usually 10 or 11. The next cap is the infamous 3/4 rate, where the label pays based on 75% of the minimum statutory rate. But the third cap is the rate fixing date and that’s the one we want to focus on in the unfrozen mechanicals context.

In simple form, it looks something like this contract language:

If the copyright law of the United States provides for a minimum compulsory rate: The rate equal to seventy-five percent (75%) of the minimum compulsory license rate applicable to the use of musical compositions on audio Records under the United States copyright law (hereinafter referred to as the “U.S. Minimum Statutory Rate”) at the time of the commencement of the recording of the Master concerned but in no event later than the last date for timely Delivery of such Master (the applicable date is hereinafter referred to as the “Copyright Fixing Date”). (The U.S. Minimum Statutory Rate is $.091 per Composition as of January 1, 2006); 

The way that the statutory rate increases come into the controlled compositions clause is because from 1978-2006 the statutory rates increased across albums delivered across album cycles. If you consider that the rates used to increase about every two years and that an album cycle can be two years, it’s likely that LP 1 would have a lower rate than LP2, LP 2 than LP3 and so on right up to 2006.

Also remember that the increases in rates are prospective, meaning that the controlled compositions rate on recordings delivered in the future will, of course, get the higher rate, even if the past rates don’t change which they don’t, at least not yet. Also consider that permanent downloads often are excluded from controlled comp treatment and are paid at full rate, probably on the rate fixing date in the artist’s agreement. Sometimes the download rates “float” or increase in line with increases in the statutory rate, but that’s part of individual negotiations.

If there is an outside songwriter who does not agree to accept the artist’s controlled composition rate (and there are plenty of these) what happens? Typically the label will account to the outside writer at their full minimum statutory rate but will deduct that payment from the maximum aggregate mechanical royalty payable to the artist (i.e., the 10 song cap). There’s some twists and turns to this involving rates on different units “made and distributed”, but for our purposes there is one clear thing to understand:

Because of the rate fixing date which is frozen by contract (the Mini Ice Age) the artist/songwriter will be paying a higher mechanical to the outside writer from a frozen royalty “pool”. 

This is why you should always, always demand “protection” for at least one outside song in your contract and then review each album to determine if that needs to be increased. This is particularly true for records made in places like Nashville where the record company will demand you work with “A” list songwriters (assume none of whom will take 3/4 rate) and then try to deduct the difference between the uncontrolled rate and the controlled rate from you (and if it gets big enough, cross it to your record royalties). (Not only will A list writers not take the 3/4 rate, they’re pissed because they can’t charge you double stat like they do double scale for sessions.)

Example: You have a 10 x 3/4 rate cap on mechanicals, the “cap rate”. That’s the 68.25¢ album rate you hear about (10 x .75 x 9.1¢). Say you have 10 songs on your album and you wrote all of them. You get the entire 68.25¢. If you had two outside songs whose writers get 9.1¢ under current rates, you deduct 18.2¢ from the cap rate, and that leaves 50.05¢ as the “controlled pool” or the total mechanical royalty payable to the artist/songwriter (actually all controlled writers, but leave aside that wrinkle).

So you can see, that’s no longer a 75% rate, it’s actually more like a 55% rate.

Now let’s assume that the new rate is 12¢. Same calculation, two outside songs now get 24¢, but the cap rate stays the same because of the rate fixing date. During the Mini Ice Age, i.e., while that cap rate is fixed at 9.1¢ x 10 x .75, the controlled pool now is expressed as 68.25¢ – 24¢ = 44.25¢, or about 48% (44.25 ÷ 91). The artist’s publisher is not going to be wild about that; the outside writer’s publishers will be thrilled.

This will start to true up on the next LP that takes a rate fixing date after the 12¢ rates go into effect. In that situation you’d be increasing both sides of the equation, so the cap rate would increase to 90¢ (10 x .12 x .75). The outside writers still get 12¢ each for two songs (or 24¢) which is deducted from the cap rate to get a controlled pool of 66¢. The true controlled comp rate is then back to about 55%.

These effects will be less pronounced if you have protection for one or more songs (or fractions of songs) or you have a higher cap, say 11 or 12 instead of 10 (with corresponding increases on other configurations). But you see the trend line.

I think this leads to the conclusion that increasing the statutory rate is a huge step forward and we should all be grateful to the Judges. The rate fixing dates for catalog titles (really the entire rate fixing date concept) must also be considered and any new effort to tweak the controlled compositions clause to effectively nullify the Judges’ rate increase will no doubt cause further conflict.

One day Congress will again act to reduce the effects of the controlled compositions clause and especially the rate fixing date, but in the meantime the Judges may well visit the issue to the extent they are able before we see the Return of the Neanderthals.

What’s Next for Unfrozen Mechanicals? One proposal.

It was a big week for songwriters last week! The Copyright Royalty Judges rejected the frozen mechanicals settlement put forward by the majors in the current rate-setting proceeding at the Copyright Royalty Board thanks in part to the best audience in the world–that would be you! All that hammering on the issue paid off.

We also acknowledge the hard work of all the commenters who spoke straight from the heart and of course songwriter George Johnson who has been fighting the good fight in the Copyright Royalty Board all by himself for years now. We’re also very grateful to the Judges for a well-thought out ruling and a thorough vetting of the issues, George’s many filings and the songwriter public comments.

The question we’ve heard a lot in recent days is where do we go from here? Clearly the answer is “Up” but how far up is the question. We need to be mindful of the economic impact that increased rates will have on independent labels in particular, but at the same time acknowledge that all record companies have gotten the benefit of frozen rates for 16 years and that songwriters have taken it in the shorts for a long, long time.

The Judges seem to be hinting at a deal in their ruling (remembering this is the rate for physical and downloads only (called “Subpart B rates”) and not for Spotify-type streaming which is not affected by these rate changes). Here’s the relevant quote from the ruling:

Commenters advocated application of an inflation adjustment beginning, at a minimum, in 2006. See, e.g. [Songwriters Guild of America] Comments at 4; [Monica] Corton Comments at 4; [Kevin] Casini Comments at 4. According to the proponents of a cost of living adjustment (COLA) applied to the 2006 rates, that adjustment would yield a 2021 royalty rate of $ 0.12 (an upward 31.9% inflation adjustment over the sixteen-year period). See, e.g., SGA Comments at 4. SGA conceded that the COLA extrapolation cannot be considered dispositive on the issue of new rate-setting, but they contended that it does “starkly demonstrate the outrageous unfairness that has been imposed on the music creator community over a period of more than an entire century.”

Step one, then, could be to increase the minimum statutory rate to 12¢ (or 13¢ depending on how you do the math) with customary adjustments for the “long song” formula for songs over 5 minutes.

That increase in the rate would be significant and probably the biggest rate increase ever on a percentage basis for the statutory rate. Will that satisfy everyone? Probably not, but it’s a step forward.

But–and this is a big but–that’s not the end of the story. We do not want to be right back in the same position in a few years time. One way to avoid this is to increase the new rate for inflation every 12 months (called “indexing”) the same way that the webcasting rates are indexed for sound recordings.

The Judges also hint at indexing as a potential solution to avoid just another rate freeze:

[George Johnson] has long advocated inclusion of an inflation index in royalty rates set by the Judges, including the…rates at issue here. In support of his advocacy, GEO has filed 27 pleadings, including motions seeking imposition of an inflation index on section 115 rates and periodic notices of U.S. inflation rates. His plea is bolstered by the many commenters who, almost unanimously, included this suggestion.

So the way this would work is that starting in 2023, the current 9.1¢ rate would be increased to 12¢. After 12 months, the rate would be increased by the Consumer Price Index (the CPI-U rate) for each 12 month period until 2027 when new rates would get decided by the CRB in the next rate proceeding (Phonorecords V). Example: If the CPI is 10%, then the minimum statutory rate would increase to 13.2¢ for the next 12 months. If the CPI in the second year was also 10%, then the 13.2¢ rate would be increased to 14.52¢ and so on until the last year of the period (2027). (Of course we can’t tell today what the CPI will be in 2023.)

Given the Judge’s rejection of the frozen rates, it is very doubtful that there will ever be another freeze, but we have to stay alert and vocal. When the new rates come up, we all have to pay attention.

It’s important to remember that “indexing” to inflation just preserves buying power. Meaning that 12¢ today is what 9.1¢ was worth in 2006. Would it be the fair thing to index all the way back to 1909? Sure, but while the Judges hint at going back further (the “at a minimum” reference), the Judges may not be inclined to go further back than 2006 when the current freeze started, but we’ll see what happens.

We’d be very interested in hearing from you with any questions you have or other ideas for solutions. Obviously, this post is just sharing ideas with our audience and isn’t a formal statement by any particular person or group. There may be a number of proposals coming out and we’ll of course post them on Trichordist.

It must also be said that George Johnson has yet to weigh in on the situation and may very well have a different idea. There’s also some twists and turns to sort out, such as the black box “MOU” (the fourth of its name) but especially the controlled compositions rates that the Judges discussed in some detail (as Judge Barnett said, “The disparity between the static rate and the dynamic market is even more stark when considering the “controlled composition clause.””).

In any event, feel free to comment and we welcome the discussion.

@MusicFirst Catches NAB Double-talk at FCC

Dr. Ponzi’s Cure All

By Chris Castle

We’ve all heard the talking points from Big Radio’s shillery the National Association of Broadcasters about how it’s perfectly fine for American radio stations to deny recording artists and session musicians fair compensation–because exposure, don’t you know. Big radio delivers huge audiences for music and we should all be grateful and work for free for the ever-more-consolidated broadcasting industry.

The other talking point we don’t hear so much from these characters is that media ownership rules are bad and that greater and greater concentration of influence and wealth to control the public airwaves is good. That’s right, it’s not the corporate airwaves, it’s the public’s airwaves. But you wouldn’t know that by looking, right?

So the latest version of this “bigger is better” guff is happening right now at the Federal Communications Commission that licenses radio stations. The NAB is poormouthing to the FCC about how radio and TV stations have trouble competing with Google and Facebook (in particular) for advertising. Oh, no. Google is grinding them into bits? Say it ain’t so! 

We know a little bit about what it’s like to have soulless Silicon Valley oligarchs using their political and financial muscle to get a free pass to jack with your livelihood without repercussions from the guys with badges. If Big Tech is really the problem for Big Radio, I’m sure there would be some support for going after them together. But playing nice with others would require the soulless media oligarchs to stop acting like wankers and make a fair deal for artists and musicians.  That is not happening. No, no, the solution to the broadcasters’ Google problem is to relax media ownership rules for even MORE concentrated radio ownership, you see. Plus these monopolists want an antitrust exemption for which they have presented no evidence other than even more shillery.

But see what they did there? MusicFirst certainly did and wrote to the FCC to make sure the FCC did, too (letter is here):

The National Association of Broadcasters, in seeking relaxed broadcast radio ownership rules, is asking the FCC to accept arguments directly contrary to those it makes in opposing the American Music Fairness Act.

In fighting the AMFA, the NAB continues to claim airplay has “promotional value” that eliminates the need for radio broadcasters to pay recording artists for the music the stations use to derive millions of advertising dollars. The promotion argument has never been a valid justification for refusing to pay musicians. Such a rationale could swallow all of copyright, as any use of content can be called “promotional.” But even the NAB’s own arguments before the FCC are showing the flaws with its promotion claim.

For example, the NAB argues in this proceeding that radio broadcasters need increased economies of scale to compensate for the significant audience share broadcast radio has lost. Yet, if radio broadcasters have lost so much audience share that they need government intervention, the promotional value they claim to provide recording artists cannot be adequate compensation.

The NAB also applies the promotion claim inconsistently. In addition to its argument about loss of broadcast radio audience, the NAB alleges here that broadcasters need increased economies of scale because online platforms refuse to fairly compensate broadcasters for content the platforms use to derive advertising revenue. The NAB is similarly arguing that platforms’ inadequate compensation warrants passage of the Journalism Competition and Preservation Act [the antitrust exemption for monopolists].

The musicFIRST Coalition agrees with the NAB that distributors should adequately compensate content providers. But what is good for the goose must be good for the gander. Online distribution of broadcaster content can also be claimed to be promotional. If the NAB finds inadequate the combination of online promotion and the money online platforms do pay broadcasters, the alleged value of broadcast radio promotion combined with the lack of any money the radio broadcasters pay recording artists cannot possibly be adequate.

The shills at the NAB should try being reasonable just once instead of doing their usual blunt force trauma. Here’s the reality: Nobody is buying what they’re selling because it’s just more snake oil.

The Vinyl Resurgence is Understated

by Chris Castle

[A version of this post first appeared in MusicTech.Solutions]

If you’ve tried to get a vinyl record pressed in the last few years, one thing is very obvious: There is no capacity in the current manufacturing base to accommodate all the orders–unless your name is Adele or Taylor Swift, of course. If that’s your name, as if by magic you get your vinyl orders filled and shipped on time.

Jack White spotted the vinyl trend early on–in 2009–and is filling the gap through his Third Man pressing operations. But Jack is calling on the major labels to please compete with him–rather unusual–because it’s the right thing to do in order to meet the demand for the benefit of the consumer. And the elephant in the room of this discussion is that we don’t really have any idea what the vinyl sales would be because demand is not being met by supply.

Not even close.

When a major label abandons a configuration, it’s not really abandoned. It gets outsourced to an independent and as long as there is manufacturing capacity in the system, that independent still takes orders and fulfills those orders by using that manufacturing capacity. The titles still appear in the sales book, orders get taken and returns accommodated.

Major labels also hand off vinyl manufacturing to their “special markets” divisions. For example, if you have ever tried to get vinyl manufactured in a limited run for venue sales on a major label artist (or former major label artist) you will get put through the bureaucratic torture gauntlet for the privilege of paying top dollar on a product that the label will have nothing to do with selling.

But even so, at some point that manufacturing capacity begins to shrink because the majors are getting out of the configuration and they will eventually get out of the manufacturing business altogether. And that creates a great sucking sound as capacity tanks.

I raised this problem in comments to the Copyright Royalty Board about the frozen mechanicals debacle where the smart people have tried to extend the 2006 songwriter rates on vinyl and CDs without regard to rampant inflation and simply the value of songs to sell millions of units. Why? Because vinyl and CDs don’t matter according to the lobbyists. This is, of course, bunk.

The fact is–and Jack White’s plea illuminates the issue–we don’t know what the sales would be if the capacity increased to meet demand. But we do know that sales would be higher. Probably much higher.

You do see entrepreneurs entering the space using new technology. Gold Rush Vinyl in Austin is a prime example of that phenomenon. The majors need to reconsider how to meet demand and keep the consumer happy. They also need to clean up the sales and distribution channel so that it’s easy for record stores to actually get stock, which, frankly is a joke.

Why anyone wants to substitute away from high margin physical goods to low margin streaming goods with a “rich get richer” financial model is a head scratcher. Although maybe I answered my own question.

But–as Trichordist readers will recall, the major publishers and major labels as well as the Nashville Songwriters Association are trying to convince the Copyright Royalty Board that vinyl and CDs are not important and that songwriters should have their mechanical royalty rates frozen again. You do have to ask if Jack White is even aware that the major publishers and major labels are trying to get the Copyright Royalty Board to extend the 2006 freeze on mechanicals for the resurgent vinyl configuration for another five years.

Vinyl and CDs still account for about 15% of revenue on an industry wide basis–I’ll believe that it’s not significant when Lucian Grange says he doesn’t need 15% of billing. Yeah, that will happen.

The only reason that mechanicals for those configurations aren’t higher is because they have been artificially suppressed by the participants at the Copyright Royalty Board telling the judges that the revenue is low so please freeze the rates again. Kind of circular, yes? The current 2006 rate of 9.1¢ would be adjusted to 13¢ in current dollars just taking into account inflation and ignoring the value of the songs to create a nearly vertical chart like this:

Maybe someone should tell Jack.