Comment to Copyright Office on Termination, the Black Box and Lawlessness at MLC


January 5, 2023

By Regulations.gov

Suzanne Wilson
General Counsel and Associate Register of Copyrights
U.S. Copyright Office
101 Independence Avenue S.E.
Washington D.C. 20559

Re:   Notice of Proposed Rulemaking: Termination Rights and the Music Modernization Act’s Blanket License 
         Docket No. 2022-5 Comment

Dear General Counsel Wilson:

Thank you for the opportunity to make this comment on the docket referenced above.[i]    

I am a music lawyer in Austin, Texas and write this comment on my own behalf only and not on behalf of anyone else.  

Others will address the substantive termination issues that are well-described and assayed in the Notice, so I will focus on the procedural tension between The Mechanical Licensing Collective, Inc. (“The MLC, Inc.”) currently designated as the mechanical licensing collective (“MLC”), its officers and directors, and the law as described in the Notice.  

I argue that the need for this Notice is symptomatic of a larger problem in the relationship between Congress and The MLC, Inc. I hope the Office will consider resolving this tension as it has been authorized to do under the Music Modernization Act[ii] such as through regulations establishing the type of code of conduct that is common for other federal contractors.  

This tension is alarming.  The Notice states the MLC “does not follow the Office’s rulemaking guidance”[iii] regarding terminations, and that The MLC, Inc. “declin[es] to heed the Office’s warning….”[iv]  These disclosures are diametrically at odds with the clear intent of Congress in crafting the MLC’s role.[v]

The disclosures confirm clearly that there are governance and oversight controversies at The MLC, Inc. that in my view need to be conclusively disposed of, and quickly.[vi]  These governance issues are symptomatic of what may be much greater problems with the administrative capabilities of The MLC, Inc. that may be metastasizing but have not yet risen to the level of a public inquiry.

The recklessness that gives rise to the Notice also highlights The MLC, Inc.’s general lack of accountability and suggests a conscious disregard for the Copyright Office’s oversight role on a significant matter of law that is not capable of proper resolution through any “business rules.”[vii]  

I also note this troubling statement in the Notice:

But, having reviewed the MLC’s policy, the Office is concerned that it conflicts with the MMA, which requires that the MLC’s dispute policies ‘‘shall not affect any legal or equitable rights or remedies available to any copyright owner or songwriter concerning ownership of, and entitlement to royalties for, a musical work.’’[viii]

It seems clear that The MLC, Inc.’s conscious failure to comply with Congressional intent as well as the Office’s guidance is, or ought to be, a decision of some import that surely must have been taken by someone—that is, one or more persons—employed or appointed by the MLC.  It seems likely to be a subject that would have been reviewed both by its General Counsel and as part of the millions in outside counsel fees[ix] spent by The MLC, Inc.  

The fact that the decision-making process is not readily known is itself of concern and leads one to further consider developing a code of conduct for The MLC, Inc. to assure the Office, the Congress and the public of its administrative capabilities.

Respectfully, I request that you determine how this decision was arrived at and what internal controls The MLC, Inc. has put in place to assure the Congress, the Office and interested parties that these mistakes will not happen again.  This should not be an “oh well” moment and should be taken seriously by The MLC, Inc.

If The MLC, Inc. fails to disclose what it is doing by establishing opaque “business rules”, it is essentially creating de facto regulations that have the practical effect of law or regulations made behind closed doors unless the Office or other oversight agency happens to catch them out.  The public will never know that the business rule was established, how the “business rule” was arrived at, or have a meaningful opportunity to comment such as in response to this Notice.

For example, do the minutes of The MLC, Inc.’s board of directors or statutory committees reflect a discussion or vote on the adoption of the MLC’s policies on termination treatment? Did such a vote implicate any conflicts of interest?  Who determined that there was or was not a conflict of interest in the MLC’s decision to adopt the termination policy, however it was taken?  Were there any dissenting votes recorded?  Did an officer or director of The MLC, Inc. certify the completeness of the record in these findings in the corporate minute book?

This leads to other concerns under public discussion regarding the hundreds of millions of “black box” monies being held by The MLC, Inc. Given that the public has very little information available to it regarding the results and implications of the MLC’s operational decisions, I respectfully request that you determine what, if any, financial implications have arisen as a result of The MLC, Inc.’s reckless failure to comply with the law and the guidance of the Office in implementing its termination policy.  Such determination should likely include any funds[x] that The MLC, Inc. is apparently trading in the market for its own account.[xi]  Any curative action required by the Office should, of course, be retroactive in scope which will require considerable before-and-after accounting disclosures.

It must be asked whether the “business rule” established for terminations increases or decreases the enormous black box which was of considerable interest to Chairman Leahy at the recent Copyright Office oversight hearing at which the Register testified.[xii]  This is particularly true if the implementation of the business rule results in financial harm to interested parties who rely on The MLC, Inc. to get it right.  

The subject of black box came up in the Questions for the Record from Chairman Leahy.  The Copyright Office’s response to Chairman Leahy’s inquiry about the hundreds of millions in black box held by the MLC directed the Chairman to the MLC’s annual report for answers.  

Respectfully, I find this odd.  Chairman Leahy did not ask what the MLC told the world in its annual report; rather he asked, “What can the Copyright Office do to help ensure that the MLC is working to make sure that rightful owners of music works are identified and paid?”[xiii]The question is transitive:  We have oversight of you, you have oversight of The MLC, Inc., therefore we have oversight of the MLC.  

Surely no one is surprised by this.  The question many have is why The MLC, Inc. itself—a quasigovernmental organization operated by inferior officers[xiv] of the United States–is not the subject of an oversight hearing at Senate Judiciary regarding the hundreds of millions it is sitting on.  Maybe next time.

It must also be said that the answer to Chairman Leahy goes on:

Notably, the MLC plans to wait to process historical unmatched royalties from the Phonorecords III rate period [2018-2022] until the Copyright Royalty Judges finalize those rates in the ongoing remand proceeding and digital music providers provide adjusted reports of usage and royalty payments. It is the Office’s understanding that the bulk of historical unmatched royalties come from that period.[xv]

Without getting into the timeline of what came when, how is it exactly that The MLC, Inc. took the decision in February 2021—nearly two years ago–to sit on top of hundreds of millions of other peoples’ money that they were somehow investing under their undisclosed “Investment Policy”?  Was anyone asked?  Who gave the MLC the permission to do this?  Do they not hold the black box corpus in trust for songwriters and copyright owners yet to be identified?  Does this not compound the already painful series of failures that resulted in the black box in the first place, the delay in accounting to songwriters (or their families) under Phonorecords III remand, and still more delay while legions of lobbyists and lawyers argue over the post-remand true up accountings?

The MLC reported $2,529,910 investment income on its 2021 US Federal tax return 990

Respectfully, there is also, of course, a larger question that the Office may consider answering:  If The MLC, Inc. adopts a policy or takes some action outside of the law or its remit, is that policy binding on any future entities designated by the Office as the MLC?  

These are all questions that I would expect to have answers that are readily available to the public given that The MLC, Inc. is in a position of public trust administering a compulsory license on behalf of the United States and has been given great privileges under the MMA.[xvi]

Thank you again for the opportunity to comment.

Very truly yours,

Christian L. Castle

CLC/ko


[i] U.S. Copyright Office, Notice of Proposed Rulemaking, Termination Rights and the Music Modernization Act’s Blanket License 87 FR 64405 (Oct. 25, 2022) (Doc. No. 2022-5) (hereafter “Notice”).

[ii] Orrin G. Hatch-Bob Goodlatte Music Modernization Act, Public Law 115–264, 132 Stat. 3676 (2018) (“MMA”) and specifically Title I thereof.

[iii] Notice at 64407.

[iv] Id.

[v] See S. Rep. 115-339 (115th Cong. 2nd Sess. Sept. 17, 2018) at 7 (“Senate Report”).  (“The collective is expected to operate in a transparent and accountable manner.”) 

[vi] I would hope that this failure will be weighed and measured by the Copyright Office as part of The MLC, Inc.’s quinquennial review as is required under the legislative history.  See, e.g., Senate Report at 5 (“[E]vidence of fraud, waste, or abuse, including the failure to follow the relevant regulations adopted by the Copyright Office, over the prior five years should raise serious concerns within the Copyright Office as to whether that same entity has the administrative capabilities necessary to perform the required functions of the collective.”)(emphasis added).

[vii] It must be said that the MLC’s disregard for this particular matter may present a moral hazard (at best) for the publishers represented by at least some of its board members.

[viii] Notice at 64407 (emphasis added).

[ix] Annual Report at 16.

[x] See the MLC’s annual report stating that the MLC invests the black box according to its internal “Investment Policy” established by its board of directors but not made public.  MLC 2021 Annual Report at p. 4 available at https://www.themlc.com/hubfs/Marketing/23856%20The%20MLC%20AR2021%206-30%20REFRESH%20COMBINED.pdf(“Annual Report”) (“Investment Policy: This policy covers the investment of royalty and assessment funds, respectively, and sets forth The MLC’s goals and objectives in establishing policies to implement The MLC’s investment strategy. The anti-comingling policy required by 17 U.S.C. § 115(d)(3)(D)(ix)(I)(cc) is contained in [The MLC, Inc.’s] Investment Policy. The Investment Policy was approved by the Board in January 2021.”) (emphasis added).

[xi] Realize that every CMO is confronted with the decision about what to do with the royalty float and black box, but not every CMO decides to invest these funds in the market. If they do invest the funds, it is generally the case that any trading profits, dividends or interest goes to offset the CMO’s administrative costs that otherwise would be deducted from collected royalties.  However, the MLC, Inc.’s administrative costs are paid by the users of the blanket license (making the United States, I believe, the only country in history or the world that charges for the use of a statutory license). Therefore, the return on the MLC’s investment of the songwriters’ money would not be used for the same purpose as all the world’s CMOs that follow a similar practice.  The continuity in ownership for profits derived from The MLC, Inc.’s trading is also unclear;  if The MLC, Inc.’s existing designation is not continued but securities are being held or profits generated, what happens? 

[xii] Senate Judiciary Committee, Subcommittee on Intellectual Property, Oversight of the U.S. Copyright Office, Responses to Questions for the Record by Shira Perlmutter, Register of Copyrights and Director of the Copyright Office (Sept. 7, 2022), available at https://artistrightswatchdotcom.files.wordpress.com/2022/10/qfr-responses-perlmutter-2022-09-07.pdf. (“Questions for the Record”) (“With respect to the historical, pre-2021, unmatched royalties, which were reported to be about $426 million, the annual report says that the MLC recently started distributing those that it has been able to match. It also says that the MLC has begun making associated usage data for historical unmatched royalties available to copyright owners, which will facilitate further claiming and matching.”) 

[xiii] Id. at 4.

[xiv] President Donald J. Trump, Statement on Signing the Orrin G. Hatch-Bob Goodlatte Music Modernization Act (October 11, 2018) available athttps://www.govinfo.gov/content/pkg/DCPD-201800692/pdf/DCPD-201800692.pdf (“Because the directors are inferior officers under the Appointments Clause of the Constitution, the Librarian must approve each subsequent selection of a new director.”)

[xv] Questions for the Record at 4.

[xvi] See, e.g., Senate Report at 5 (emphasis added).  “For the responsibilities described in subparagraphs (J) [distribution of unclaimed royalties] and (K) [dispute resolution] of paragraph (3), the collective is only liable to a party for its actions if the collective is grossly negligent in carrying out the policies and procedures adopted by the Board of Directors pursuant to section 115(d)(11)(D). Since the Register has broad regulatory authority under paragraph (12) of subsection (d), it is expected that such policies and procedures will be thoroughly reviewed by the Register to ensure the fair treatment of interested parties in such proceedings given the high bar in seeking redress.” 

Are Songwriters and Artists Financing Inflation With Their Credit Cards? — Music Tech Solutions

If streaming mechanicals are the most important income for songwriters, why doesn’t streaming get inflation protection?

Are Songwriters and Artists Financing Inflation With Their Credit Cards? — Music Tech Solutions

By Chris Castle

Recent data suggests that songwriters and artists are financing the necessities in the face of persistent inflation the same way as everyone else–with their credit cards. This can lead to a very deep hole, particularly if it turns out that this inflation is actually the leading edge of stagflation (that I predicted in October of 2021).

According to the first data release for the US Census Bureau’s recent Household Plus survey, over 1/3 of Americans are using credit cards to finance necessities at an average interest rate of 19%. Credit card balances show an increase that maps the spike in inflation CPI over the same time period. This spike results in a current debt balance of $16.51 trillion (including credit cards). There’s nothing “transitory” about credit card debt no matter the helping of word salad from the Treasury Department. Going into the Christmas season (a bit after this chart) U.S. credit card debt increased to the highest rate in 20 years

According to the Federal Reserve Bank of New York:

These balance increases, being practically across the board, are not surprising given the strong levels of nominal consumption we have seen. With prices more than 8 percent higher than they were a year ago, it is perhaps unsurprising that balances are increasing. Notably, credit card balances have grown at nearly double that rate since last year. The real test, of course, will be to follow whether these borrowers will be able to continue to make the payments on their credit cards. Below, we show the flow into delinquency (30+ days late) grouped by zip code-income. Here, it’s clear—delinquency rates have begun increasing, albeit from the unusually low levels that we saw through the pandemic recession. But they remain low in comparison to the levels we saw through the Great Recession and even through the period of economic growth in the ten years preceding the pandemic. For borrowers in the highest-income areas, delinquency rates remain well below historical trends. It will be important to monitor the path of these delinquency rates going forward: Is this simply a reversion to earlier levels, with forbearances ending and stimulus savings drying up, or is this a sign of trouble ahead?

What does it mean for artists and songwriters? It is more important than ever that creators work is valued and compensated. When it comes to government-mandated royalty rates like webcasting for artists and streaming for songwriters, due to the long-term nature of these government rates, it is crucial that creators be protected by a cost of living adjustment. (Remember, a cost of living adjustment or “COLA” is simply an increase in a government rate based on the rise of the Consumer Price Index, also set by the government.)

Of course, songwriters are in the position that the MLC could issue low to no interest credit cards to help them through hard times at least until the MLC was able to distribute the $500 million in black box they are sitting on.

Thankfully, the webcasting rates (set in “Web V”) are protected by the benchmark cost of living adjustment, as are the mechanical royalty rates paid to songwriters for physical and download. 

The odd man out, though, is the streaming mechanical rate which has no cost of living adjustment protection. This is troubling and exposes songwriters to the ravages and rot of inflation in what we continue to be told is the most important income stream for songwriters. If it’s the most important royalty, why shouldn’t it also have the most protection from inflation?

No Hits, No Hit Records: The Streaming Mechanicals Poverty Program at the CRB

by Chris Castle

Government intervention into the economy can, and usually does, produce negative externalities (or unanticipated harms). Government interference with price can produce the negative externality of poverty. While we can sue if we are harmed by some negative externalities, we usually can’t sue the government for causing poverty. 

Understanding poverty often considers the government’s interaction with citizens. Do the government’s policies increase poverty or reduce poverty? 

One of those analytical inquiries is whether the government gives the people too much or too little agency in establishing poverty policy. Does poverty policy remember to allow people the ability to have a meaningful effect on their lives and outcomes based on their own efforts and human agency? Or does poverty policy trap them and limit or even take away their agency? 

The Compulsory License as Poverty Program

I can’t think of a better example of the government limiting the outcomes of a class of people than the compulsory mechanical license. Minimum wage tries to influence poverty favorably by establishing a lower bound of fair compensation for employees. Minimum wage policy anticipates that some employers will pay above minimum wage because employees will be able to quit a lower paying job and strive for a higher paying job. 

Employees exercise agency because the government policy does not stop them from doing so and gives them a seat at the table in negotiating their own compensation. Money isn’t the only consideration, but it is a core issue. And employees can walk across the street and get a better paying job. Unlike the minimum wage, the compulsory license places a limit on what the biggest corporations in the world are required to pay a specific class of people–songwriters. 

Neither can I think of a better example of the government working with Big Tech to destroy human agency than the Copyright Royalty Board–which is strangely consistent with Big Tech’s dehumanizing data trafficking business model.

The New Streaming Mechanical Rates

The Copyright Royalty Judges have issued their final ruling on the rates and terms under the government-mandated compulsory license for streaming mechanicals. That ruling is to be published in the Federal Register in the coming days and is based on a settlement among the National Music Publishers Association, Nashville Songwriters International, Amazon, Apple, Google, Pandora, and Spotify.

The CRJs mostly discuss the 20 comments they received on the proposed version of their rule and don’t really spend much time defending why they are adopting the settlement reached by the richest corporations on Earth (and in Earth’s history) on the one hand and–let’s be honest (and we’ll come back to this)–the major publishers on the other hand. The Judges are adopting the deal these parties made essentially because the CRJs can’t find anything unreasonable or illegal about it.

Said another way, the Judges can’t find a reason to take the heat of rejecting it. That’s unfortunate, because they did reject the “frozen mechanicals” settlement as is their role in the Copyright Royalty Board process required by Congress.

I’m not going to argue about the rates and terms of the settlement itself. I could and I know others will, but I’m going to focus on one economic point today: the absence of a cost of living adjustment (or COLA). There are some other points that should also be addressed that are more nuanced and policy oriented which I’ll come to in another post.

It’s important to understand one aspect of the CRB’s procedural nomenclature: Participants and commenters. There is only one individual songwriter who is a participant in Phonorecords IV–a songwriter named George Johnson who represents himself. Being a “participant” means that you are appearing before the Judges as a legal matter. In the case of settlements that the Judges intend to approve and adopt as law, the Judges are required to make those settlements available for public comment which they did. Those comments are posted in the CRB’s docket for the particular proceeding, styled as “Phonorecords IV” in our case today. Note that if the Judges did not make those settlements available, no one who is answerable to the electorate would be involved in the rate setting.

It is important to understand that the voluntary settlement excludes George Johnson from negotiation and drafting of the settlement even though he is a participant. Commenters are also excluded and only find out the terms of the proposed settlement once the Judges post the settlement as a proposed rule and seek public comments.

Unless commenters persuade the Judges to reject a settlement (which MTP reader will recall happened in the “frozen mechanicals” proceeding), this means that the only people who have a meaningful opportunity to affect the outcome are the important people: The National Music Publishers Association, Nashville Songwriters International, Amazon, Apple, Google, Pandora, and Spotify, that is, “Big Tech.”

Nobody else.

It should be noted that the smart money is betting that the next session of Congress will not be a pleasant experience for any of these DSPs based on public statements of a number of Members, including House Judiciary Chairman-select Jordan. It will be easy for songwriters to point to the latest insult in the form of the streaming mechanical ruling as yet another example of that special combination of Big Tech, the compulsory license and the nine most terrifying words in the English language. One novel issue of law at least at the CRB that the Copyright Office may wish to opine on is what happens if one or more participants in a proceeding negotiate an oppressive voluntary agreement but cease to exist when it is put into effect. Just sayin.

But songwriters will be able to point to the poverty-creating externality of the compulsory rate and the human agency-destroying effect of Congress’s Copyright Royalty Board.

The Failure to COLA

As the Judges confirm in the streaming mechanicals ruling, George Johnson and the commenters who opposed the settlement all support some version of a cost of living adjustment applied to the statutory rate. A COLA is the standard government approach to preserving buying power in a number of areas of the economy driven by government intervention including the physical mechanical royalty for the same songs.

However, since the important people did not agree to a COLA as part of their settlement for the streaming mechanical, the Judges evidently believed they were unable to add a COLA in the final rule because it might disturb the “negotiation” by the biggest corporations in commercial history and God know we wouldn’t want to do that. They might get mad and there’s no poverty at Big Tech.

The Judges authority is an issue that one day may be decided in another forum, perhaps even the Supreme Court. I’m not so sure the role of the Judges was to ignore the utility of a COLA and merely scriven into law the deal the lobbyists and lawyers made while ignoring George and all the public comments in this case supporting a COLA.

This is of particular interest because the Judges had just adopted a COLA in Phonorecords IV for physical records and permanent downloads and have adopted COLAs in other compulsory licenses (and have done so for many years). It must be said that one reason there is a COLA in the “Subpart B” proceeding for physical royalties is because the Judges themselves suggested it when they rejected the initial Subpart B settlement. Presumably the Judges could have done the same thing in the streaming mechanicals proceeding despite the tremendous political clout wielded by Big Tech, at least for the moment.

For some reason, the Judges decided not to treat likes alike when it involved the richest corporations on Earth.  This means that the exact same writers with the exact same songs will have the value of the government’s compulsory rate protected by a COLA when exploited on vinyl but not when the exact same song and the exact same writers on the exact same recordings are streamed.

If that’s not arbitrary, I’m looking forward to the explanation. I’m all ears.

Bootstrapping for Rich People

One might think that this unequal treatment wasn’t arbitrary because the Judges are directed by Congress to favor adopting as the law applicable to all songwriters voluntary settlements agreements on rates and terms reached among some or all of the participants in a proceeding like Phonorecords IV. Of course Congress made it so expensive to be a participant in a proceeding (and that negotiation) that it’s likely that if you are both a participant and also a party to any voluntary settlement, you must be one of the rich kids.

What is very interesting about Phonorecords IV is that the proceeding was divided between physical and streaming mechanicals. Although the publisher representatives were the same (NMPA and NSAI), the music users were, of course different: The major labels were in the physical negotiation and the DSPs were in the streaming. Faced with strident opposition from commenters and continued opposition from George Johnson, the major labels came up with a solution that included a COLA and got the publishers to agree. That solution increased the minimum penny rate from 9.1¢ to 12¢ as a base rate with an annual COLA. 

Why this difference between labels and DSPs? Could it be because the labels understand that they are in the age of the songwriter and they need to be certain that songwriters thrive? You know, no hits, no hit records? Could it be because the DSPs are so blinded by leverage, wealth and political power that they and their THIRTY SIX LAWYERS lack this understanding?

The label deal was acceptable to a lot of people, albeit begrudgingly in some cases, but it closed. And the deal was a step toward what I would call the primary goal of government rate setting–stop bullying songwriters with insulting rates while repeating nonsense talking points that nobody in the trenches believes for a second. It should not be forgotten that the label deal also came with a renewed commitment to finding a way toward a longer table with more people at it to negotiate these deals in the future. We’ll see, but the labels should expect to be reminded about this in the future.

But–nothing like this common sense approach to inclusion happened on the streaming side with DSPs. Why not? Probably because the rich kids were calling the shots and did not give a hoot about what the songwriters thought. They used their situational leverage as participants throughout the Phonorecords IV proceeding to jam through an insulting deal no matter how much they embarrassed themselves in the process. The conduct of the DSPs–and did I mention their THIRTY SIX LAWYERS–was the complete opposite of how the major labels conducted themselves.

You may notice that I refer to the DSPs and the labels as calling the shots in these negotiations. There’s a very simple reason for that–the government has put its thumb on the scale because of the compulsory license. Songwriters can’t say “no” (much less “Hell, no”), so are forced to fight a rear guard action because the outcome is predetermined–unless the settling parties do something to change that outcome. To their great credit, the labels did. But to their great–and highly predictable–shame the DSPs–and did I mention their THIRTY SIX LAWYERS–didn’t. The way the government has constructed the CRB procedures songwriters are thrown into the arena to engage in what amounts to slow motion begging and managed decline.

When the Judges’ ruling is subject to legal review, this arbitrary distinction may be difficult to defend and the Judges certainly don’t put much effort into that defense in their ruling. They say, for example:

[T]he Judges observe the broad increases within the Settlement, including the headline percentage rate applicable to Service Revenue, the percentage of Total Content Costs, and each of the fixed per subscriber elements. The Judges find that the structure and increases are a reasonable approach to providing an organic cost of living adjustment.

In other words, the DSPs and the Judges are pushing a “trickle down” approach that a rising tide lifts all boats. They ignore the underlying algebra that is the flaw at the heart of the “big pool” royalty calculation that’s as true for songwriters as it is for artists. The more DSPs keep prices the same and the more songs are added to the big pool denominator, the lower the per-song royalty trends (particularly for estates because the numerator cannot grow by definition). If the rate of change in the denominator is greater than the rate of change in revenue or the number of songs being paid out in the numerator, the Malthusian algebra demands that the per-writer rate declines over time. It may be less obvious in streaming mechanicals due to the mind bending greater of/lesser than formula, TCC, etc., but gravity always wins. 

Why COLA?

There is a common misapprehension of what the COLA is intended to accomplish as well as the government’s compulsory license rate. A COLA is not an increase in value, it is downside protection to preserve value. Stating that the headline rate increases over time so you don’t need a COLA compares apples to oranges and gets a pomegranate. It’s a nonsense statement.

Plus, no element of the Judge’s list of producer supply side inputs have anything to do with cost items relevant to songwriters providing songs to DSPs (or publishers and labels for that matter). The relevant costs for COLA purposes are the components of the Consumer Price Index applicable to songwriters who receive the government’s royalty such as food at home, rent, utilities, gasoline and the like. That’s why you have a COLA–otherwise the real royalty rate declines BOTH because of inflation AND because of the Malthusian algebra. And that creates the negative externality of poverty among songwriters and discourages new people from taking up the craft.

There’s a reason why Big Tech never wants to talk about per-stream rates on either recordings or songs. That’s because if you explained to the average person or Member of Congress what the rates actually were in pennies, the zeros to the right would make it obvious how insulting the entire proposal is to songwriters. 

One of the surest ways to cause poverty is for the government to cap income and destroy human agency. But this is what has happened with the streaming mechanicals. Songwriters are crushed again by Big Tech–and did I mention their THIRTY SIX LAWYERS?

And don’t forget–if no one writes hits, no one has hit records. Eventually, this will become a catalog business and American culture will be impoverished right along side the impoverishment of songwriters.

@repdarrellissa on #AMFA: The right number is not zero #IRespectMusic

Starting with Frank Sinatra on December 12, 1988–nearly 34 years ago to the day–artists have campaigned for fair treatment in line with the rest of the world and get a performance royalty for broadcast radio. The House Judiciary Committee led by the stalwart Rep. Jerry Nadler moved that goal a little closer this week by passing HR 4130, the American Music Fairness Act, out of committee.

Almost as significant as the vote was the comments by Rep. Jim Jordan and Rep. Darrell Issa (the remaining author of the bill after the wonderful Rep. Ted Deutch announced he would not run for reelection). Given the party change in the House next session, Rep. Jordan is the front runner for Chair of the House Judiciary Committee. He was very clear that the committee will be taking up the bill if it doesn’t pass in the lame duck, because it is time to resave this unfairness. Rep. Darrell Issa summed it up: It is time for bipartisan compromise so that America is not in the same category as North Korea, Cuba and Iran, and whatever the right number is it is not zero. 

This is not where we needed up before on prior versions of the legislation. We are in a much, much better place than before. I would say that’s for two reasons. First, because the legislation itself addresses radio’s objections and makes the NAB’s mean-spirited lobbying tactics ring hollow and cheap. That dog just won’t hunt anymore.

The other reason is because of a superb messaging effort by the MusicFirst Coalition under new management. MusicFirst under Joe Crowley took their job seriously and understood their job to be very simple: We win, they lose. Too often, lobbyists view their job as perpetuating the conflict so the money keeps flowing. You can tell when you are in one of those because the organization doesn’t seem to quite get it that when you have fewer points when the clock runs out, we call that losing. Even in Washington.

Turning this beast around was a tough job and the entire MusicFirst team deserves recognition and appreciation. We’re not done–there may still be some magic tricks left in this session. But as Congressmen Jordan and Issa said, if the bill doesn’t pass this session, they are committed to taking it up early next session and getting it passed in the House.

Godspeed to everyone who has worked so hard for so long to make this a reality for all of our artists and musicians who need it. It’s what Frank would do.

Senator Leahy Says Show Me the Money on the MLC’s Black Box

Readers will recall that the Mechanical Licensing Collective, Inc. aka the MLC, is sitting on a pile of other peoples money (remember that the Mechanical Licensing Collective is the digital music services’ one-of-a-kind joint venture quango mandated by the good folks from Washington who are here to help). We estimate that the MLC has got at least $500 million socked away at City National Bank in Nashville collecting dust–or interest. More on that later. This would include current black box accruing since January 1, 2021 plus $424 million or so in historical black box that was voluntarily paid to the MLC by the DSPs in February 2021–an inexplicably large sum given all the DSP audits over the years. 

And the clock is ticking, tick tock, tick tock.

Readers will also recall that the U.S. Copyright Office is responsible for the operations of the MLC, or as they say in Washington where all the children are above average and no one is responsible for anything, “has oversight” which usually means “gets to blame somebody else” when the fan takes over. And of course the Congress has oversight of the Copyright Office. Every so often, the head of the Copyright Office gets the rare joy of attending an oversight hearing at the Congress which happened recently and resulted in certain follow up “questions for the record” that get answered in writing. 

The MLC and its employees should get one thing straight–they are about to be blamed for some grubby practices when Congress wants you to show them the money. And you will be thrown under the bus, count on it. Just think–you could have stolen the money the old fashioned way. In the dark. But no, you wanted the government to force songwriters to deal with you and you could not stop congratulating yourselves about how smart you were. Well, you wanted it, and now you’ve gotten it.

Senator Patrick Leahy, Chair of the Senate Judiciary Committee, submitted some rather pointed questions about the MLC black box which drew a rather pointed response:

Question: The Mechanical Licensing Collective (MLC), the organization created under the Music Modernization Act to collect mechanical royalties for songwriters and publishers, also has an obligation to identify the owners of musical works that have accrued royalties when the owners are not known. The major publishers who largely control the MLC keep the royalties from unidentified works if the owners cannot be found. Over the past year, the MLC has identified only a tiny fraction of the rightful owners. [You were warned.] The major publishers stand to gain hundreds of millions of dollars from that failure to find rightful owners. We did not intend to create a disincentive for the MLC and major publishers to find the rightful owners of music works.

What can the Copyright Office do to help ensure that the MLC is working to make sure that rightful owners of music works are identified and paid?

Response: The Mechanical Licensing Collective (“MLC”) should make every reasonable effort to ensure that royalties are paid to the rightful owners of musical works. According to the MLC’s first annual report, it has distributed over $420 million under the new blanket license for uses reported in 2021, with a steadily improving match rate reported to be approximately 88% of all royalties. With respect to the historical, pre-2021, unmatched royalties, which were reported to be about $426 million, the annual report says that the MLC recently started distributing those that it has been able to match. It also says that the MLC has begun making associated usage data for historical unmatched royalties available to copyright owners, which will facilitate further claiming and matching. Notably, the MLC plans to wait to process historical unmatched royalties from the Phonorecords III rate period until the Copyright Royalty Judges finalize those rates in the ongoing remand proceeding and digital music providers provide adjusted reports of usage and royalty payments. It is the Office’s understanding that the bulk of historical unmatched royalties come from that period. [More on this PR III issue below]

The Copyright Office has been active on the issue of matching musical works to accurately pay copyright owners. Last year, we issued a report recommending best practices for the MLC to consider to reduce the incidence of unclaimed royalties. The report’s comprehensive recommendations ranged from high-level concepts to detailed suggestions across seven areas: (1) education and outreach; (2) usability of the MLC’s systems, including the public musical works database and claiming portal; (3) data quality; (4) matching practices; (5) holding and distributing unclaimed accrued royalties; (6) measuring success; and (7) transparency. One of the report’s most significant recommendations was that the MLC should hold unclaimed royalties for longer than the statutory minimum period, to maximize its matching efforts and the ability of copyright owners to make claims before any market-share-based distributions are made. We recommended that the MLC should wait to make such distributions of unclaimed royalties based on the evaluation of various objective criteria, like match rates and engagement metrics.

Additionally, the Office and the MLC are each involved in substantial education and outreach efforts to help ensure that publishers and songwriters, especially self-published songwriters, are aware of the Music Modernization Act (“MMA”), understand their rights under the new system, know that they can register their works with the MLC and claim royalties, and know that royalties for unclaimed works will be equitably distributed to known copyright owners.

[Here comes the bus.]. The Office is continuing to engage with the MLC and other industry stakeholders, including digital services and songwriters, to monitor the MLC’s progress as it continues to ramp up operations. While the MLC has not indicated that it plans to make a distribution of unclaimed royalties anytime soon, the Office possesses broad regulatory authority to act if necessary to prevent a premature distribution. The statute requires the MLC to give ninety days’ notice before any distribution. We have previously cautioned that making a premature distribution of unclaimed royalties could jeopardize the continuation of the MLC’s designation. 84 Fed. Reg. 32,274, 32,283 (July 8, 2019) (“[I]f the designated entity were to make unreasonable distributions of unclaimed royalties, that could be grounds for concern and may call into question whether the entity has the ‘administrative and technological capabilities to perform the required functions of the [MLC].’”) (quoting 17 U.S.C. § 115(d)(3)(A)(iii)).

One issue that is not discussed in the QFR or anywhere else for that matter is what is happening to the hundreds of millions that the MLC is sitting on. Remember that the MLC is required to pay a government interest rate on black box, and that interest rate has been steadily increasing this year thanks to the Federal Reserve. That interest payment is presumably covered under the MLC’s administrative assessment and government fees charged to music users for the privilege of using the compulsory blanket license.

But wait–there’s more. According to the MLC’s annual report (at p. 4), the MLC invests the black box according to its internal “Investment Policy” established by its board of directors.

Investment Policy: This policy covers the investment of royalty and assessmentfunds, respectively, and sets forth The MLC’s goals and objectives in establishing policies to implement The MLC’s investment strategy. The anti-comingling policy required by 17 U.S.C. § 115(d)(3)(D)(ix)(I)(cc) is contained in The MLC’s Investment Policy. The Investment Policy was approved by the Board in January 2021.

This raises some interesting points. First and foremost, it is unclear where any trading profits reside. Realize that every CMO is confronted with the decision about what to do with the royalty float and black box, but not every CMO decides to invest these funds in the market. If they do invest the funds, it is generally the case that any trading profits, dividends or interest goes to offset the CMO’s administrative costs that otherwise would be deducted from collected royalties.

However, the MLC’s administrative costs are paid by the users of the blanket license (making the United States, I believe, the only country in history or the world that charges for the use of a statutory license). Therefore, the return on the MLC’s investment of the songwriters’ money would not be used for the same purpose as all the world’s CMOs that follow a similar practice. 

Whether the ROI is returned to songwriters or to the users or retained by the MLC is unclear to me from the MLC’s annual report. It is also unclear as to the authority that the MLC’s board (or the Copyright Office for that matter) would have to put the songwriters’ money at risk in the market, what record keeping is made or required of the investments and ROI, or really much of anything at all, aside from the quoted statement above. 

It is also unclear how, if at all, the MLC distinguishes between ROI on royalty or the administrative assessment. It would make sense for trading profits on received but unspent administrative assessment funds to offset current or future assessments, but it’s not clear if that is done.

Assuming there are any. Profits, that is.

I was hoping that this topic would be addressed in the oversight hearing, but maybe next time.

Trickle-Down Streaming Mechanical Royalties Will be Be Up for Discussion

You may have noticed that a cost of living adjustment for statutory royalties was front and center in the recent (and still ongoing) physical mechanicals rate setting. Unfortunately, the idea of a COLA seems to have disappeared in the streaming mechanicals proceeding.

Note that it’s different music users on the physical mechanicals than on streaming. The physical mechanicals are paid by record companies and streaming mechanicals are paid by some of the biggest corporations in history, namely Amazon, Apple and Google and other wealthy public companies like Spotify and Pandora/SiriusXM. All these companies have market capitalizations greater than the gross national product of some countries. 

You may have also noticed that after years of frozen subscription rates, Apple is the first of the streaming subscription services to raise rates by $1 on several of its services including Apple Music. Tim Ingham is asking if Spotify will follow (you know, one of those price fixing agreements inferred from conduct). Who knows, but what’s interesting about this is the effect it will have on streaming mechanical rates, or more pointedly the effect that the Big Tech cartel would like you to think it will have.

The calculation for streaming mechanicals is absurdly complicated. You do have to wonder which of the genii came up with that one. About the only thing that is certain is that the negotiation of that rate every five years (and judicial appeals occasionally) guarantees employment for lots of lawyers and lobbyists on both sides, although definitely skewed toward Big Tech’s share of the 46 lawyers on the docket.

The streaming rates are so bizarre that the Copyright Royalty Judges seem to have lost trust in the process and have issued two separate orders instructing the participants in the streaming mechanical proceedings to either disclose or “certify” that they have come clean with the Judges as to any side deals that may have artificially lowered the rates–the second order makes for interesting reading.

Unlike the physical mechanical, the settling parties rejected a cost of living adjustment in these historically inflationary times. Why they rejected a COLA is hard to understand aside from the fact that they thought they could get away with it.

One thing that is clear, however, is that any argument that a COLA is not necessary with streaming mechanicals because the rate is theoretically based on increases or decreases in revenue is a particularly insulting form of trickle down gaslighting. 

It must be said that the record company group of music users that pays the physical mechanical rate voluntarily agreed a COLA on their rates that is currently pending approval by the Judges. There really is no excuse for the streaming services to rely on the discredited trickle down theory to pawn off their Rube Goldberg royalty structure on songwriters for streaming mechanicals.

Must Read by @ebakerwhite: TikTok Parent ByteDance Planned To Use TikTok To Monitor The Physical Location Of Specific American Citizens — Artist Rights Watch

[Well, here it is. Two years ago we warned everyone who would listen that TikTok were apparatchiks for the Chinese Communist Party–by law in China because of the CCP’s civil-military fusion–“If Google is the Joe Camel of data, then TikTok is the Joe Camel of intelligence.” We did panels warning about TikTok including the CEO’s struggle session and the CCP constitution–facts, you know. Tim Ingham warned that on top of everything else, the deals suck. And then there’s Twinkletoes, who is in our view a walking, talking Foreign Agent Registration Act violation.

Emily Baker White warns of the harms from TIkTok we identified 2 years ago coming home to roost.

[According to Emily Baker White writing in Forbes:]

China-based team at TikTok’s parent company, ByteDance, planned to use the TikTok app to monitor the personal location of some specific American citizens, according to materials reviewed by Forbes.

The team behind the monitoring project — ByteDance’s Internal Audit and Risk Control department — is led by Beijing-based executive Song Ye, who reports to ByteDance cofounder and CEO Rubo Liang. 

The team primarily conducts investigations into potential misconduct by current and former ByteDance employees. But in at least two cases, the Internal Audit team also planned to collect TikTok data about the location of a U.S. citizen who had never had an employment relationship with the company, the materials show. It is unclear from the materials whether data about these Americans was actually collected; however, the plan was for a Beijing-based ByteDance team to obtain location data from U.S. users’ devices.

Read the post on Forbes

Streaming Remuneration:  An answer to global cultural dominance by European/US Streaming Services

By Chris Castle

[from MusicTech.Solutions]

Streamers Lack of Local Cultural Contribution

Look at Spotify’s “Global Top 50” playlist on any day and the world’s biggest music service will show all or nearly all English language songs. With few exceptions these songs are performed by Anglo-American artists released by major record companies.  

These “enterprise” playlists largely take the place of broadcast radio for many users where Spotify operates and Spotify competes with local radio for advertising revenue on the free version of Spotify. 

Spotify’s now former general counsel told the recent inquiry into the music streaming economy conducted by the UK Parliament’s Digital, Culture, Media and Sport Committee, “Our job is sucking users away from radio[2] and Spotify uses its market power to do just that.  

However, Spotify has not been subject to any local content protections that would be in place for local radio broadcasters.  Enterprise playlists that exclude local music contributes to the destruction of music economies, including performers.  Local performers struggle even more to compete with Anglo-American repertoire, even in their own countries.  

Due to this phenomenon, local artists are forced to compete for “shelf space” with everyone in their local language and then the Anglo-American artists and their record companies.  This also means that local artists compete for a diminishing share of the payable royalties.  The “big pool” revenue share method of royalty compensation is designed to overcompensate the English-language big names and reduce payments to artists performing in other languages in their own country.

Local Content Rules 

Many countries implement local content broadcast rules that require broadcasters to play a certain number of recordings performed by local artists or indigenous people, songs written by local songwriters in local languages, or recordings that are released by locally-owned record companies.

Because streaming playlists, especially Spotify enterprise playlists or algorithmically selected recordings, are an equivalent to broadcast radio, there is a question as to whether national governments should regulate streaming services operating in their countries to require local content rules.  Implementing such rules could benefit local performers and songwriters in an otherwise unsustainable enviornment.

The Fallacy of Infinite Shelf Space

Because Spotify adds recordings at a rate of 60,000 tracks daily (now reports of 100,000 tracks daily) and never deletes recordings, there is a marked competitive difference between a record store and Spotify.  In the record store model, artists had to compete with recordings that were in current release; in the Spotify model, artists have to compete will all recordings ever released.  

Adding the dominant influence of Anglo-American recordings on Spotify, the “infinite shelf space” simply compounds the competitive problems for non-English recordings.

Streaming Remuneration Helps Solve the Sustainability Crisis

The streaming remuneration model requires streaming services—not record companies—to pay additional compensation to nonfeatured and featured performers.  Streaming remuneration would be created under national law and is compensatory in nature, not monies in exchange for a license.  Existing licenses (statutory or contractual) would not be affected and remuneration payments could not be offset by streamers against label payments or by labels against artist payments.

Each country would determine the amount to be paid to performers by streaming services and the payment periods.  Payments would be made to local CMOs or the equivalent depending on the infrastructure in the particular country.

European Corporate Dominance 

It must also be said that the two founders of Spotify hold a 10:1 voting control over the company through special stock issued only to them.  This means that these two Caucasian Europeans control 100% of the dominant music streaming company in the world.  For comparison, Google and Facebook have a similar model, while Apple has a 1 share 1 vote structure as does Amazon (although Jeff Bezos owns a controlling interest in Amazon).  

The net effect is that the entire global streaming music industry is controlled by six Caucasian males of European descent.  This demography also argues for local content rules to protect local performers from these influences that have produced an English-only Global Top 50 playlist.

Local governments could consider whether companies with the 10:1 voting stock (so-called “dual class” or “supervoting” shares) should be allowed to operate locally.

Countries Can Respond to Streaming’s Homogenized Algorithmic Playlist Culture

Many national cultural protection laws have a history of sustaining local culture and musicians in the face of the Anglo-American Top 40 juggernaut. There is no reason to think that these agencies are not up for the task of protecting their citizens in the face of algorithms and neuromarketing.

Will the Copyright Royalty Board approve Big Tech’s attempted cover-up? 

By Chris Castle

[This MusicTechPolicy post appeared on Hypebot]

There’s an old saying among sailors that water always wins. Sunlight does, too. It may take a while, but time reveals all things in the cold light of dawn. So when you are free riding on huge blocks of aged government cheese like the digital music services do with the compulsory mechanical license, the question you should ask yourself is why hide from the sunlight? It just makes songwriters even more suspicious. 

This melodrama just played out at the Copyright Royalty Board with the frozen mechanicals proceeding. Right on cue, the digital services and their legions of lawyers proved they hadn’t learned a damn thing from that exercise. They turned right around and tried to jam a secret deal through the Copyright Royalty Board on the streaming mechanicals piece of Phonorecords IV. 

To their great credit, the labels handled frozen physical mechanicals quite differently. They voluntarily disclosed the side deal they made with virtually no redactions and certainly didn’t try to file it “under seal” like the services did. Filing “under seal” hides the major moving parts of a voluntary settlement from the world’s songwriters. Songwriters, of course, are the ones most affected by the settlement–which the services want the CRB to approve–some might say “rubber stamp”–and make law.

To fully appreciate the absolute lunacy of the services attempt at filing the purported settlement document under seal, you have to remember that the Copyright Royalty Judges spilled considerable ink in the frozen mechanicals piece of Phonorecords IV telling those participants how important transparency was when they rejected the initial Subpart B settlement.  

This happened mere weeks ago in the SAME PHONORECORDS IV PROCEEDING.

Were the services expecting the Judges to say “Just kidding”? What in the world were they thinking? Realize that filing the settlement–which IF ACCEPTED is then published by the Judges for public comment under the applicable rules established long ago by Congress–is quite different than filing confidential commercial information. You might expect redactions or filings under seal, “attorneys eyes only,” etc., in direct written statements, expert testimony or the other reams of paper all designed to help the Judges guess what rate a willing buyer would pay a willing seller. That rate to be applied to the world under a compulsory license which precludes willing buyers and willing sellers, thank you Franz Kafka. 

When you file the settlement, that document is the end product of all those tens of millions of dollars in legal fees that buy houses in the Hamptons and Martha’s Vinyard as well as send children to prep school, college and graduate school. Not the songwriters’ children, mind you, oh no. 

The final settlement is, in fact, the one document that should NEVER be redacted or secret. How else will the public–who may not get a vote but does get their say–even know what it is the law is based on assuming the Judges approve the otherwise secret deal. It’s asking the Judges to tell the public, the Copyright Office, their colleagues in the appeals courts and ultimately the Congress, sorry, our version of the law is based on secret information.

Does that even scan? I mean, seriously, what kind of buffoons come up with this stuff?  Of course the Judges will question the bona fides and provenance of the settlement. Do you think any other federal agency could get away with actually doing this? The lawlessness of the very idea is breathtaking and demonstrates conclusively in my view that these services like Google are the most dangerous corporations in the world. The one thing that gives solace after this display of arrogance is that some of them may get broken up before they render too many mechanical royalty accounting statements.

To their credit, after receiving the very thin initial filing the Judges instructed the services to do better–to be kind. The Judges issued an order that stated:

The Judges now ORDER the Settling Parties to certify, no later than five days from the date of this order, that the Motion and the Proposed Regulations annexed to the Motion represent the full agreement of the Settling Parties, i.e., that there are no other related agrements and no other clauses. If such other agreements or clauses exist, the Settling Parties shall file them no later than five days from the date of this order.

Just a tip to any younger lawyers reading this post–you really, really, really do not want to be on the receiving end of this kind of order.

Reading between the lines (and not very far) the Judges are telling the parties to come clean. Either “certify” to the Judges “that there are no other related agreements and no other clauses” or produce them. This use of the term “certify” means all the lawyers promise to the Judges as officers of the court that their clients have come clean, or alternatively file the actual documents.

That produced the absurd filing under seal, and that then produced the blowback that led to the filing of the unsealed and unreacted documents. But–wait, there’s more.

Take a close look at what the Judges asked for and what they received. The Judges asked for certification “that there are no other related agrements and no other clauses. If such other agreements or clauses exist, the Settling Parties shall file them no later than five days from the date of this order.”

What the Judges received is described in the purportedly responsive filing by the services:

The Settling Participants [aka the insiders] have provided all of the settlement documentsand, with this public filing, every interested party can fully evaluate and comment upon the settlement. The Settling Participants thus believe that the Judges have everything necessary to “publish the settlement in the Federal Register for notice and comment from those bound by the terms, rates, or other determination set by the” Settlement Agreement, as required under 37 C.F.R. 351.2(b)(2). The Settling Participants respectfully request that the Judges inform them if there is any further information that they require.

Notice that the Judges asked for evidence of the “full agreement of the Settling Parties”, meaning all side deals or other vigorish exchanged between the parties including the DSPs that control vast riches larger than most countries and are super-conflicted with the publishers due to their joint venture investment in the MLC quango.

The response is limited to “the settlement documents” and then cites to what the services no doubt think they can argue limits their disclosure obligations to what is necessary to “publish the settlement”. And then the services have the brass to add “The Settling Participants respectfully request that the Judges inform them if there is any further information that they require.” Just how are the Judges supposed to know if the services complied with the order? Is this candor?

It must also be noted that Google and the NMPA have “lodged” certain documents relating to YouTube’s direct agreements which they claim are not related to the settlement to be published for public comment. These documents are, of course, secret:

[And] are not part of the settlement agreement or understanding of the settling participants concerning the subject matter of the settlement agreement, and do not supersede any part of the settlement agreement with respect to the settling participants’ proposed Phonorecords IV rates and terms. Further, the letter agreements do not change or modify application of the terms to be codified at 37 C.F.R. 385 Subparts C and D, including as they apply to any participant. Rather, the letter agreements simply concern Google’s current allocation practices to avoid the double payment of royalties arising from YouTube’s having entered into direct agreements with certain music publishers while simultaneously operating under the Section 115 statutory license.

You’ll note that there are a number of declarative statements that lets the hoi polloi know that the Data Lords and Kings of the Internet Realms have determined some information involving their royalties is none of their concern. How do you know that you shouldn’t worry your pretty little head about some things? Because the Data Lords tell you so. And now, back to sleep you Epsilons.

So you see that despite the statements in the group filing to the CRB that the “Settling Participants” (i.e., the insiders) claim to have provided all of the settlement documents required by the Judges, Google turns right around and “lodges” this separate filing of still other documents that they think might be related documents with some bearing on the settlement that should be disclosed to the public but they apparently will not be disclosing without a fight. How do we know this? Because they pretty much say so:

Because the letter agreements are subject to confidentiality restrictions and have each only been disclosed to their individual signatories, each such music publisher having an extant direct license agreement with Google, Google and NMPA are lodging the letter agreements directly with the Copyright Royalty Judges, who may then make a determination as to whether the letter agreements are relevant and what, if anything, should be disclosed notwithstanding the confidentiality restrictions in each of the letter agreements.

Ah yes, the old “nondisclosure” clause. You couldn’t ask for a better example of how NDAs are used to hide information from songwriters about their own money.

The Judges noted when rejecting the similar initial frozen mechanical regulations that:

Parties have an undeniable right of contract. The Judges, however, are not required to adopt the terms of any contract, particularly when the contract at issue relates in part, albeit by reference, to additional unknown terms that indicate additional unrevealed consideration passing between the parties, which consideration might have an impact on effective royalty rates. 

So there’s that.

What this all boils down to is that the richest and most dangerous corporations in commercial history are accustomed to algorithmically duping consumers, vendors and even governments in the dark and getting away with it. The question is, if you believe that sunlight always wins, do they still want to hide as long as they can and then look stupid, or do they want to come clean to begin with and be honest brokers.

As Willie Stark famously said in All the King’s Men, “Time reveals all things, I trust it so.”

Thinking Outside the Pie: @legrandnetwork Study for GESAC Highlights Streaming Impact on Choking Diversity and Songwriter Royalties

By Chris Castle

[This post first appeared in MusicTech.Solutions]

Emmanuel Legrand prepared an excellent and important study for the European Grouping of Societies of Authors and Composers (GESAC) that identifies crucial effects of streaming on culture, creatives and especially songwriters. The study highlights the cultural effects of streaming on the European markets, but it would be easy to extend these harms globally as Emmanuel observes.

For example, consider the core pitch of streaming services that started long ago with the commercial Napster 2.0 pitch of “Own Nothing, Have Everything”. This call-to-serfdom slogan may sound good but having infinite shelf space with no cutouts or localized offering creates its own cultural imperative. And that’s even if you accept the premise the algorithmically programed enterprise playlists on streaming services should not be subject to the same cultural protections for performers and songwriters as broadcast radio–its main competitor.

[This] massive availability of content on [streaming] platforms is overshadowed by the fact that these services are under no positive obligations to ensure visibility and discoverability of more diverse repertoires, particularly European works….[plus]  the initial individual subscription fee of 9.99 (in Euros, US dollars, or British pound) set in 2006, has never increased, despite the exponential growth in the quality, amount of songs, and user-friendliness of music streaming services.

Artists working new recordings, especially in a language other than English, are forced to fight for “shelf space” and “mindshare”–that is, recognition–against every recording ever released. While this was always true theoretically; you never had that same fight the same way at Tower Records.

This is not theoretically true on streaming platforms–it is actually true because these tens of millions of historical recordings are the competition on streaming services. When you look at the global 100 charts for streaming services, almost all of the titles are in English and are largely Anglo-American releases. Yes, we know–Bad Bunny. But this year’s exception proves the rule.

And then Emmanuel notes that it is the back room algorithms–the terribly modern version of the $50 handshake–that support various payola schemes:

The use of algorithms, as well as bottleneck represented by the most popular playlists, exacerbates this. Furthermore, long-standing flaws in the operations of music streaming platforms, such as “streaming fraud”, “ghost/fake artists”, “payola schemes”, “royalty free content” and other coercive practices [not to mention YouTube withholding access to Content ID] worsen the impact on many professional creators….

This report suggests solutions to bring greater transparency in the use of algorithms and invites stakeholders to undertake a review of the economic models of streaming services and evaluate how they currently affect cultural diversity which should be promoted in its various forms — music genres, languages, origin of performers and songwriters, in particular through policy actions.

Trichordist readers will recall my extensive dives into the hyperefficient market share distribution of streaming royalties known as the “big pool” compared to my “ethical pool” proposal and the “user centric” alternative. As Emmanuel points out, the big pool royalty model belies a cultural imperative–if you are counting streams on a market share basis that results in the rich getting richer based on “stream share” that same stream share almost guarantees that Anglo American repertoire will dominate in every market the big streamers operate.

Emmanuel uses French-Canadian repertoire as an example (a subject I know a fair amount about since I performed and recorded with many vedettes before Quebecoise was cool).

A lot of research has been made in Canada with regards to discoverability, in particular in the context of French-Canadian music, which is subject to quotas for over the air broadcasters which however do not apply to music streaming services. The research shows that while the lists of new releases from Québec studied are present in a large proportion on streaming platforms, they are “not very visible and very little recommended.” 

It further shows that the situation is even worse when it is not about new releases, including hit music, when the presence of titles “drops radically.” It is not very difficult to imagine that if we were to swap Québec in the above sentence with the name of any country from the European Union [or any non-Anglo American country], and even with music from the European Union as a whole, we could find similar results.

In other words, there may be aggregators with repertoire in languages other than English that deliver tracks to streamers in their countries, but–absent localized airplay rules–a Spotify user might never know the tracks were there unless the user already knew about the recording, artist or songwriter. (Speaking of Canada, check the MAPL system.)

This is a prime example of why Professor Feijoo and I proposed streaming remuneration in our WIPO study to allow performers to capture the uncompensated capital markets value to the enterprise driven by these performers. Because of the market share royalty system, revenues and royalties do not compensate all performers, particularly regional or non-featured performers (i.e., session players and singers) who essentially get zero compensation for streaming.

Emmanuel also comments on the imbalance in song royalty payments and invites a re-look at how the streaming system biases against songwriters. I would encourage everyone to stop thinking of a pie to be shared or that Johnny has more apples–when the services refuse to raise prices in order to tell a growth story to Wall Street or The City, measuring royalties by a share of some mythical royalty pie is not ever going to get it done. It will just perpetuate a discriminatory system that fails to value the very people on whose backs it was built be they songwriters or session players.

We must think outside the pie.