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.

A Response to A2IM’s Objection to the New Statutory Mechanical Rates: Part 2

By Chris Castle

This post first appeared on MusicTechPolicy, continued from Part 1

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.

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 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.

The Longer Table

I actually was pleased to join A2IM at their annual Indie Week conference recently in New York on a panel devoted to this very topic.  I am well aware that they believe their members will be disproportionately affected by the increase in cost although I have not seen the data.  After many years in the music business, I will take on faith for purposes of this letter that they are correct.

I completely concur that the negotiation process for CRB needs a relook if not an overhaul.  I made the point on the A2IM panel that David Lowery and I intend to host a conference devoted largely to this subject [on November 15] at the University of Georgia at Athens.  Dr. Lowery and I are both of a mind that this issue needs to be vetted by the Copyright Office in their roundtable format.

However, I do not concur that the Subpart B resolution should be derailed at the 11th hour because of these structural issues that lawmakers no doubt will need to resolve.  The time for A2IM to have made their views known in Phonorecords IV has long passed.  They had the opportunity to participate in the proceeding, which individual songwriters could not afford to do, and they did not.  They had the opportunity to comment on the first and second comment periods for what became the rejected settlement and they did not.  They had the opportunity to insert themselves in the second settlement and appear not to have done so until filing a comment on the last day at the 11thhour.

Derailing the settlement for this purpose at the 11th hour is inappropriate.  Whether the Judges can even accomplish what is asked of them, I respectfully leave to Your Honors to decide, but I do think there’s a question of authority here.  I do support including all these topics being on the table for Phonorecords V as do many other commenters.

What is the Actual Cost to Labels of the New Rates?

While I am prepared to take disproportionate impact on faith, I am less prepared to take disproportionate financial impact without more data.  There is an assumption that A2IM labels all will have a one-to-one increase in costs because of the new rates, whatever they end up being.  I’m not so sure about that and would want to know a few things including the following.

Many indie labels operate on a revenue share basis with their artists (or licensors).  In those revenue share deals, the artist or licensor is paid a percentage of revenue that includes all mechanical royalties.  In that structure, the new rates have arguably zero impact on the [independent] label.

Because of rate fixing dates in deals [with controlled compositions clauses] where the label does pay the mechanicals, the new rates would only apply to records delivered during the rate period, i.e., after January 1, 2023.  Term recording artist agreements would typically include a controlled compositions clause as the Judges have noted in the Withdrawal Notice.  In such an arrangement, the label would be paying a modest increase and could easily tell the artist that unless the artist-songwriter agreed to take still lower rates based on the previously frozen rates, the label would be unable to release their records.

A2IM does make a good point about the bull-headedness of the DSPs on permanent download rates.  Perhaps the Judges could refer this issue to the Register for subsequent referral to the Department of Justice Antitrust Division to investigate these pricing practices.  Congress seems focused on these kinds of issues at the moment.

[It is unfair for A2IM to complain of being excluded from settlement negotiations by the labels who did participate in the proceedings and who did negotiate a settlement with the NMPA publishers who also participated in the proceedings. Participating in the proceedings is a threshold condition for participating in a settlement of the proceedings. It’s hardly the case that the major labels conspired against the indies this time. If A2IM labels were concerned about being included in these negotiations there are a number of steps they could have taken, starting with participating in the bifurcated Subpart B proceeding–a much less expensive proposition than the streaming side.

There is also a threshold question–that A2IM does not really address–as to whether the CRB has the authority to unilaterally change U.S. mechanical licensing structure that Congress initiated in 1909 and has been based on a penny rate ever since, not to mention hundreds of thousands of term recording artist agreements and licenses incorporating those statutory rates. The entire US recording industry is built on statutory rates and controlled compositions clauses, not to mention the valuations of music publishing catalogs. 

That change requested by A2IM is a question of such “magnitude and consequence” that it should require Congress to act based on both the CRB’s statutory authority, the U.S. Supreme Court’s recent holding in West Virginia vs. EPA as well as common sense. Not to mention there are other reasons why getting a CRB case before the Supreme Court could backfire and disrupt a process that in other important ways is working quite well.]

A Response to A2IM’s Objection to the New Statutory Mechanical Rates: Part 1

By Chris Castle

This post first appeared on MusicTechPolicy

A2IM, 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.

Unfortunately, A2IM did not 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.

As I told the Judges, I will focus on a few issues raised by the American Association of Independent Music 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.

The Clean Slate

A2IM raises the idea of compensating songwriters on a percentage of wholesale basis which is how mechanicals are paid in many if not most other countries.  I understand why labels favor this structure but I also understand why publishers and songwriters do not.

First, I am of the view that a percentage of wholesale royalty is incompatible with a compulsory license.  [To my knowledge, the European countries operating on a percentage of wholesale basis do not have a compulsory licensing regime.] Imposing a compulsory obligation to have a third party set the “just compensation” for rights the government takes from the songwriter has that unconstitutional ring to it [see 5th Amendment and Takings by Prof. Richard Epstein, an oldie but goodie].

And that really is the problem with a percentage of wholesale royalty—it allows the conflicted record company to call the tune [for songwriters] which is the very definition of moral hazard.  Having said all that, I am happy to have a conversation about a clean slate and reimagining of the entire structure as long as it really is a clean slate.  Of course, that will mean throwing away the entire controlled composition structure.

It must be said that in countries with a percentage of dealer price mechanical royalty there [are] no controlled composition terms at all.  So if we are to have the discussion, let’s have all the discussion for all the record companies including catalog.  If we want to be like Europe, let’s be European.

We cannot overlook that changing that compensation system will throw royalty compliance examinations of every record company onto the table with great force.  How can songwriters be asked to give up a system that has been in place since 1909 without knowing whether they have gotten a straight count heretofore?

It must also be said that if A2IM members feel justified in changing the entire U.S. mechanical rate system, there is nothing stopping them from creating such terms in their new signings under controlled compositions clauses.  In fact, such arrangements might be a good laboratory to experiment with these alternative structures.

[To be continued.]

@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.

The @CMAgovUK UK Competition and Markets Authority’s Missed Opportunity: Reaction from @MrTomGray #BrokenRecord

The literature suggests that in the presence of…positive feedbacks [from the Get Big Fast strategy], firms should pursue an aggressive strategy in which they seek to grow as rapidly as possible and preempt their rivals. Typical tactics include pricing below the short-run profit-maximizing level (or even below the cost of goods sold), rapidly expanding capacity, advertising heavily, and forming alliances to build market clout with suppliers and workers and to deter entry of new players. Intuitively, such aggressive strategies are superior because they increase both industry demand and the aggressive firm’s share of that demand, stimulating the positive feedbacks described above.

Limits to Grown in the NEw Economy: Exploring the Get big Fast strategy in ecommerce https://scripts.mit.edu/~jsterman/docs/Oliva-2003-LimitsToGrowthInTheNewEconomy.pdf

By Chris Castle

You may have seen that the UK Competition and Markets Authority released a report on music streaming in the UK. Of course, because the same players dominate the UK market like they do in France…sorry, I meant Germany…sorry I meant Canada…sorry I meant Sweden…sorry I meant the United States…how different could the competition issues be for US artists and songwriters? You have the biggest corporations in commercial history (Apple, Amazon, Facebook and Google) and the “get big fast” wannabes like Spotify (and Pandora in the US) on one side, the three major labels and the music publishing affiliates on the other side and the artists, songwriters, indie labels, indie publishers and especially the session musicians and vocalists squeezed in the middle.

Plus you have all of the biggest of Big Tech companies as well as wannabe Get-Big-Fast acolytes like Spotify and Pandora setting almost identical price points and freezing them there for a decade while refusing to exercise pricing power and nobody finds that just a trifle odd? Then in the grandest of grand deflections passing this off as the “pie” that everyone should look at instead of acknowledging that it’s the poptart served at the kid’s table in the nursery instead of the feast at the adult’s table in the dining room where the gravy bowls of shares of public stock are handed out dot-bomb style with a side of advertising barter. All while singing an apologia for payola and consumer welfare based on cheapness? You know there’s another way to get really, really cheap goods for consumers that ain’t quite so well received in history.

And yet somehow the Competition and Markets Authority passes this off as good for the consumer? With no meaningful discussion of the Malthusian and anticompetitive effects of the pro-rata model and pretty much summarily ignoring the actual revenue earned by “successful” artists in the beggar-thy-neighbor pricing and revenue charade. Not to mention the complete failure to discuss the supervoting stock at Spotify, Google and Facebook and all the other accoutrements of power that give Daniel Ek, Martin Lorentzen, Tim Cook, Sergey Brin, Larry Page, Mark Zuckerberg and Jeff Bezos control over the global music industry–pale males one and all and also looking pretty stale around the edges the singularity notwithstanding. And then there’s Bytedance and Tencent.

The logic of the CMA in avoiding these issues rivals the Warren Commission’s Single Bullet Theory. But makes total sense as the triumph of the lobbyists for the biggest corporations in commercial history. And sometimes you just might find you get what you need.

We will continue to dig into this latest report and its methodology as will others like Tom Gray, the dynamic founder of the hugely effective #BrokenRecord campaign that led to this investigation which is not over by a long shot. Tom had this reaction to a what’s next question and we take his guidance:

The CMA’s initial findings are:

the music market doesn’t have much competition;

the actions of the Majors and DSPs actively reduce that competition;

artists and songwriters are mostly, if not entirely, doing badly out of it;

but they accept the status quo using the narrowest paradigm of competition and its value to the consumer. It doesn’t go near the fact that the Majors used market power to create the very ‘norms’ the report resigns us to.

A difficult read: one which points to the weakness or indifference of national ‘authorities’ in the face of the gross expansion of multi-nationals unfettered by regulation. Monopolies should be broken to protect citizens and workers, not only to defend consumerism’s need of a saving.

What’s most ironic is you could take the CMA’s findings to a different authority with a more progressive outlook and get a completely different result. They simply don’t seem to have considered it their job to care about the hugely visible negative consequences of concentrated power on musicmakers.

If you would like to tell the Competition and Markets Authority what you think about their statements they want to hear from you.

Judge Rejects Spotify’s Privilegium Regale Theory, Ek Must Be Deposed Under Oath

By Chris Castle

Judge Trauger rejected Spotify’s theory of privilegium regale that would have protected Daniel Ek from being deposed in the Eight Mile Style case against Spotify and the Harry Fox Agency. His Danielness will now have to submit to deposition testimony under oath in the case that seeks to show Spotify failed to comply with their Title I of the Music Modernization Act as drafted by Spotify’s lobbyists and the regulations overseen by Spotify’s head DC government relations person.

The Judge ruled that Spotify was pushing a theory that the relevant rules applicable to the deposition should be more deferential to high level executives. As a matter of law. That hasn’t been true since Magna Carta. (In 1215 for those reading along at home.)

Oopsie.

Needless to say but I’ll say it, it will be an absolute side splitter if Spotify ends up losing the safe harbor they drafted into US Copyright Law to protect themselves from songwriters seeking justice. And then there’s the HFA issue–you know, the ones that are backend for the MLC that can’t match $500,000,000 of other people’s money.

Stay tuned kids.

Must See Documentary: The Way the Music Died: Why You Should #DitchSpotify

Big thanks to Jon at Camden Live for posting about this really important documentary about the deep, down and dirty effects of Spotify on music, musicians and the creative process.

It’s always been a hard road for musicians to make money from their songs. Nonetheless, selling tons of singles and albums was at least a target and something bands could dream about.  Of course, there were many ways the labels could work the sales figures to get their shares out first, and only then the bands might see something. Despite the conflict between the often industrial-strength labels and the upcoming artists, there was at least hope that money was flowing back to the content creators.  Now though in the age of streaming music, the connection between making music and making a living is profoundly broken.

This schism is the subject matter for Lightbringer Production’s documentary film “The Way The Music Died” featuring insights from musicians and industry pros, including Mishkin Fitzgerald from Birdeatsbaby.  The film probes the spirit of artists determined to keep writing songs in the face of the meager payouts from the giant and ever-growing music stream service Spotify. Find out why this is ripping-out the heart and soul of new music.

San Antonio Musicians: Texas Public Radio Presents the Music Artist Forum TODAY

Get more info and materials here

TPR Music Artist Forum | In Partnership with SLATT Management

Musicians of all ages are invited to a networking workshop and panelist discussion dedicated to understanding the future of music technology, copyright law, entertainment law, obtaining royalties, and navigation of music streaming services.

Address:

321 W. Commerce St, San Antonio, TX 78205

Doors open at 6:30pm. 

Panelist discussion will take place at 7:00pm.

Guest Panelists:

Ondrejia Scott | 7:00pm – 7:10pm

Chris Castle | 7:10pm – 7:20pm

Krystal Jones | 7:20pm – 7:30pm

Dr. Steven Parker | 7:30pm – 7:40pm

Linda Bloss-Baum | 7:40pm – 7:50pm

Food and drinks will be provided.

Musicians are welcome to submit an original track to be featured on our TPR Music Artist Forum playlist:

Professional headshots will be offered free of charge by Oscar Moreno.

We will be ending out the night with a special live performance by J. Darius live in the Malú and Carlos Alvarez Theater.

RSVP here to reserve your spot for this free event!

@davidclowery and @musictechpolicy Talk Copyright Royalty Board on Who Knew: The Smartest People in the Room

Big thanks to Tom Truitt and the wonderful audience!

David and Chris discuss improvements in the Copyright Royalty Board rules and procedures including:

–A songwriter advocate as a permanent independent representative of songwriter interests and participant in the Phonorecords proceedings with full rights of a participant. All other participants would bear the cost of the advocate. Other participants would be prohibited from using the advocate as a way to engage in overreaching discovery against individual songwriters or their publishers.

–Each participant would be limited to one lawyer representing their interests in the Phonorecords proceedings. This would counteract the current abuses forced upon the CRB and intimidation tactics of Big Tech.

–Songwriters would be permitted to form a bargaining collective with a general antitrust examption.

–Music users who appeal the Judges’ rulings must pay higher rates pending appeal.

–Discovery would be extremely curtailed to protect songwriters from abuses by Big Tech to punish and intimidate songwriters such as that currently being imposed by Google and other Big Tech companies without songwriter consent or even notification.

–Should songwriters get an across-the-board antitrust exemption under competition law (like the Sherman Act)?

Save the date: A2IM Indie Week Panel with @musictechpolicy on the Impact on Indie Labels of Unfreezing Mechanicals

If you are coming to Indie Week, Trichordist readers might enjoy a panel Chris Castle is on to discuss the impact on indie labels of the Great Unfreeze! 

Entitled How the CRB’s Rejection of Frozen Mechanicals Will Affect Your Label?, the panel goes off at 10:30 am ET on Wednesday, June 15 at the New York Law School.

Speakers are Victor Zaraya: Concord (Moderator), Danielle Aguirre: NMPA (National Music Publishers’ Association), Glen Barros: Exceleration, and Chris.

If you want to read up on the issues that caused the Copyright Royalty Board to reject the failed settlement, here’s some background:

Copyright Royalty Board’s Rejection of NMPA, NSAI, Sony, Warner, Universal settlement

Copyright Royalty Board’s Reaction to Second Settlement Proposal by NMPA, NSAI, Sony, Warner and Universal

Survey Results from Songwriter Survey on Frozen Mechanicals

Comments:

Rosanne Cash

Helienne Lindvall, David Lowery, Blake Morgan

David Poe

Abby North, Erin McAnally, Chelsea Crowell

Kevin Casini

NMPA, NSAI, Sony, Warner, Universal Comment with Copy of MOU4

Chris will post about the panel afterward.