Category: Copyright Royalty Board

Should the Compulsory License be Re-Upped?

By Chris Castle

[This post first appeared on MusicTechPolicy]

The wisest of those among you learn to read your portents well
There’s no need to hurry, it’s all downhill to Hell…

Don’t Stand Still, written by The Original Snakeboy, performed by Guy Forsyth

Congress is considering whether to renew The MLC, Inc.‘s designation as the mechanical licensing collective. If that sentence seems contradictory, remember those are two different things: the mechanical licensing collective is the statutory body that administers the compulsory license under Section 115. The MLC, Inc. is the private company that was “designated” by Congress through its Copyright Office to do the work of the mechanical licensing collective. This is like the form of a body that performs a function (the mechanical licensing collective) and having to animate that form with actual humans (The MLC, Inc.), kind of like Plato’s allegory of the cave, shadows on the wall being what they are.

Congress reviews the work product of The MLC, Inc. every five years (17 USC §115(d)(3)(B)(ii)) to decide if The MLC, Inc. should be allowed to continue another five years. In its recent guidance to The MLC, Inc. about artificial intelligence, the Copyright Office correctly took pains to make that distinction in a footnote (footnote 2 to be precise. Remember–always read the footnotes, it’s often where the action is.). This is why it is important that we be clear that The MLC, Inc. does not “own” the data it collects (and that HFA as its vendor doesn’t own it either, a point I raised to Spotify’s lobbyist several years ago). Although it may be a blessing if Congress fired The MLC, Inc. and the new collective had to start from scratch.

But Congress likely would only re-up The MLC, Inc. if it had already decided to extend the statutory license and all its cumbersome and byzantine procedures, proceedings and prohibitions on the freedom of songwriters to collectively bargain. Not to mention an extraordinarily huge thumbs down on the scales in favor of the music user and against the interest of the songwriters. The compulsory license is so labyrinthine and Kafka-esque it is actually an insult to Byzantium, but that’s another story.

Rather than just deciding about who is going to get the job of administering the revenues for every songwriter in the world, maybe there should be a vote. Particularly because songwriters cannot be members of the mechanical licensing collective as currently operated. Congress did not ask songwriters what they thought when the whole mechanical licensing scheme was established, so how about now?

Before the Congress decides to continue The MLC, Inc. many believe strongly that the body should reconsider the compulsory license itself. It is the compulsory license that is the real issue that plagues songwriters and blocks a free market. The compulsory license really has passed its sell by date and it’s pretty easy to understand why its gone so sour. Eliminating the Section 115 license will have many implications and we should tread carefully, but purposefully.

Party Like it’s 1909

First of all, consider the actual history of the compulsory license. It’s over 100 years old, and it was established at a time, believe it or not, when the goal of Congress was to even the playing field between, music users and copyright owners. They were worried about music users being hard done by because of the anticompetitive efforts of songwriters and copyright owners. As the late Register Marybeth Peters told Congress, when Congress created the exclusive right to control reproduction and distribution in 1909, “…due to concerns about potential monopolistic behavior [by the copyright owners], Congress also created a compulsory license to allow anyone to make and distribute a mechanical reproduction of a nondramatic musical work without the consent of the copyright owner provided that the person adhered to the provisions of the license, most notably paying a statutorily established royalty to the copyright owner.”

Well, that ship has sailed, don’t you think? 

This is kind of incredible when you think about it today because the biggest users of the compulsory license are those who torture the bejesus out of songwriters by conducting lawfare at the Copyright Royalty Board–the richest corporations in commercial history that dominate practically every moment of American life. In fact, the statutory license was hardly used at all before these fictional persons arrived on the scene and have been on a decades-long crusade to hack the Copyright Act through lawfare ever since. This is particularly true since about 2007 when Big Tech discovered Section 115. (And they’re about to do it again with AI–first they send the missionaries.)

If the purpose of the statutory scheme was to create a win-win situation that floats all boats, you would have expected to see songwriters profiting like never before, right? If the compulsory was so great, what we really needed was for everyone to use Section 115, right? Actually, the opposite has happened, even with decades of price fixing at 2¢ by the federal government. When hardly anyone used the compulsory license, songwriters prospered. When its use became widespread, songwriters suffered, and suffered badly.

Songwriters have been relegated to the bottom of the pile in compensation, a sure sign of no leverage because whatever leverage songwriters may have is taken–there’s that word again–by the compulsory license. I don’t think Google, a revanchist Microsoft, Apple, Amazon or Spotify need any protection from the anticompetitive efforts of songwriters. Google, Amazon, Apple, Microsoft, Spotify are only worried about “monopolistic behavior” when one of them does it to one of the others. The Five Families would tell you its nothing personal, it’s just business. 

Yet these corporate neo-colonialists would have you believe that the first thing that happens when the writing room door closes is that songwriters collude against them. (Sounding very much like the Radio Music Licensing Committee–so similar it makes you wonder, speaking of collusion.) 

The Five Year Plan

Merck Mercuriadis makes the good point that there is no time like the present to evolve: “In the United States, we have a position of stability for the next five years – at the highest rates paid to songwriters to date – in the evolution of the streaming economy. We are now working towards improving the songwriters’ share of the streaming revenue ‘pie’ yet further and, eventually, getting to a free market.” The clock is ticking on the next five years, a reference to the rate period set by the Copyright Royalty Board in the Phonorecords IV proceeding. (And that five years is a different clock than the five years clock on the MLC which is itself an example of the unnecessary confusion in the compulsory license.)

What would happen if the compulsory license vanished? Very likely the industry would continue its easily documented history of voluntary catalog licenses. The evidence is readily apparent for how the industry and music users handled services that did not qualify for a compulsory license like YouTube or TikTok. However stupid the deals were doesn’t change the fact that they happened in the absence of a compulsory license. That Invisible Hand thing, dunno could be good. Seems to work out fine for other people.

Let’s also understand that there is a cottage industry complete with very nice offices, pensions and rich salaries that has grown up around the compulsory license (or consent decrees for that matter). A cottage industry where collecting the songwriters’ money results in dozens of jobs paying more in a year than probably 95% of songwriters will make, maybe ever. (The Trichordist published an excerpt from a recent MLC tax return showing the highest compensated MLC employees.) Generations of lawyers and lobbyists have put generations of children through college and law school from legal fees charged in the pursuit of something that has never existed in the contemporary music business–a willing buyer and a willing seller. Those people will not want to abandon the very government policy that puts food on their tables, but both sides are very, very good at manufacturing excuses why the compulsory license really must be continued to further humanity.

The even sadder reality is that as much as we would like to simply terminate the compulsory license, there is a certain legitimacy to being clear-eyed about a transition. (An example is the proposals for transitioning from PRO consent decrees–ASCAP’s consent decree has been around a long time, too.) There would likely need to be a certain grandfathering in of services that were pre or post the elimination of the compulsory, but that’s easily done, albeit not without a last hurrah of legal fees and lobbyist invoices. Register Pallante noted in the well-received 2015 Copyright Office study (Copyright and the Music Marketplace at 5) “The Office thus believes that, rather than eliminating section 115 altogether, section 115 should instead become the basis of a more flexible collective licensing system that will presumptively cover all mechanical uses except to the extent individual music publishers choose to opt out.”  An opt out is another acceptable stop along the way to liberation, or even perhaps a destination itself. David Lowery had a very well thought-out idea along these lines in the pre-MLC era that should be revisited.

X Day

However, while there is a certain attractiveness to having a plan that the dreaded “stakeholders” and their legions of lobbyists and lawyers agree with, it is crucially important for Congress to fix a date certain by which the compulsory license will expire. Rain or shine, plan or no plan, it goes away on the X Day, say five years from now as Merck suggests. So wakey, wakey. 

That transparency drives a wedge into the process because otherwise millions will be spent in fees for profiting from moral hazard and surely the praetorians protecting the cottage industry wouldn’t want that. If you doubt that asking for a plan before establishing X Day would fail as a plan, just look at the Copyright Royalty Board and in particular the Phonorecords III remand. Years and years, multiple court rulings, and the rates still are not in effect.  Perseveration is not perseverance, it’s compulsive repetition when you know the same unacceptable result will occur.

But don’t let people tell you that the sky will fall if Congress liberates songwriters from the government mandate. The sky will not fall and songwriters will have a generational opportunity to organize a collective bargaining unit with the right to say no to a deal. 

The closest that Congress has come to a meaningful “vote” in the songwriting world is inviting public comments through interventions, rule makings, roundtables and the like–information gathering that is not controlled by the lobbyists. Indeed, it was this very process at the Copyright Royalty Board that resulted in many articulate comments by songwriters and publishers themselves that were clearly quite at odds with what the CRB was being fed by the lobbyists and lawyers. So much so that the Copyright Royalty Judges rejected not only the “Subpart B” settlement reached by the insiders but the very premise of that settlement. Imagine what might happen if the issue of the compulsory license itself was placed upon the table?

Now that songwriters have had a taste of how The MLC, Inc. has been handling their money, maybe this would be a good time to ask them what they think about how things are going. And whether they want to be liberated from the entire sinking ship that is designed to help Big Tech. And you can start by asking how they feel about the $500 million in black box money that is still sitting in the bank account of The MLC, Inc. and has not been paid–with an infuriating lack of transparency. Yet is being “invested” by The MLC, Inc. with less transparency than many banks with smaller net assets.

This “investment” is another result of the compulsory license which has no transparency requirements for such “investments” of other peoples’ money, perhaps “invested” in the very Big Tech companies that fund the The MLC, Inc. That wasn’t a question that was on the minds of Congress in 1909 but it should be today.

Attention Must Be Paid

Let’s face facts. The compulsory license has coexisted in the decimation of songwriting as a profession. That destruction has increased at an increasing rate roughly coincident with the time the Big Tech discovered Section 115 and sent their legions of lawyers to the Copyright Royalty Board to grind down publishers, and very successfully. That success is in large part due to the very mismatch that the compulsory license was designed to prevent back in 1909 except stood on its head waiting for loophole seekers to notice the potential arbitrage opportunity. 

The Phonorecords III and IV proceedings at the Copyright Royalty Board tell Congress all they need to know about how the game is played today and how it has changed since 1909, or the 1976 revision of the Copyright Act for that matter. The compulsory license is no longer fit for purpose and songwriters should have a say in whether it is to be continued or abandoned.

We see the Writers Guild striking and SAG-AFTRA taking a strike authorization vote. When was the last time any songwriters voted on their compensation? Maybe never? Voting, hmm. There’s a concept. Now where have I heard that before?

by thetrichordist

Save the Date: Artist Rights: The Future of the Copyright Royalty Board for Songwriters Webcast 4/7/23 at 1:45pm CT

More information here https://utcle.org/studio/ZAQ23/ and register here https://utcle.org/conferences/ZAQ23/order-form/

We are excited announce that Chris Castle will be moderating a panel on the future of the Copyright Royalty Board for songwriters (the “Phonorecords” proceedings) as part of the University of Texas School of Law Continuing Legal Education Artist Rights series.

The panelists are Mitch Glazier, RIAA, Clark Miller, Clark Miller Consulting, and Abby North of North Music Group.

The panel will be assessing both voluntary and statutory changes to make the Phonorecords process more representative and efficient and reprises the topic that David and Chris spoke on for the “Smartest People in the Room” series.

by theinvisiblestagehand

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?

by Trichordist Editor

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.

by thetrichordist

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.

by Trichordist Editor

Sorry Dave: Breaking Google’s Hold on Government May Be Harder Than You Think

We’ve all been predicting that Google will get broken up by government for any one of a host of reasons. It’s not just songwriters watching the overlawyered lawfare in the Copyright Royalty Board that produces the insulting trickledown royalty structure that you need a team of accountants to understand. Big Tech lawfare is everywhere and it’s even more insidious than you might think. Big Tech spreads their gold around the world to control politicians and conflict lobbyists and lawyers so their combined headlock on laws and markets is hard to comprehend. And then there’s the academics. We’ve been screaming from the rooftops about the censorious Google for years and Google still leads the charge against creators in particular and human decency in general.

Lots of politicians will tell you they want to break up Google and Facebook but will Google and Facebook tell them “I”m sorry Dave, I’m afraid I can’t do that.”

Eamon Javers at CNBC has a story that shows the most recent example of just how difficult it will be to get Google out of the government. Mr. Javers reports “How Google’s former CEO Eric Schmidt helped write A.I. laws in Washington without publicly disclosing investments in A.I. startups”.

Yes, that’s right: Shady Uncle Sugar is back in the news, this time with added corruption and even less transparency than a Google royalty audit. Mr. Javers reports that the crux of Uncle Sugar’s latest grift is that he was appointed by former House Armed Services Committee Chair and Club Raytheon plankowner Mac Thornberry to something called the National Security Commission on Artificial Intelligence. This “commission” is one of those “independent commission” thingys, but this one on AI didn’t exist before Uncle Sugar arrived.

Where the hell did that commission come from? Smells like astroturf to us. A complete fabrication Truman Show-style designed to push Eric Schmidt and Google even deeper into the AI business and the Washington swamp. Remember, Google acknowledges it ran AI research in cooperation with the Chinese government–in China–for years under the leadership of Stanford/Google University Professor Fei Fei Li. Keep an eye on that one.

According to the Commission’s website:

Section 1051 of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (P.L. 115-232) established the National Security Commission on Artificial Intelligence as an independent Commission “to consider the methods and means necessary to advance the development of artificial intelligence, machine learning, and associated technologies to comprehensively address the national security and defense needs of the United States.

And of course, you won’t be surprised to know that China has taken the lead on developing model AI regulations and business practices. Which brings us to Mr. Javers reporting and the National Security Commission on Artificial Intelligence.

We’ll keep poking around on this “commission”, but this entire commission thing smells like a Washington lobbyist (perhaps Shady Uncle Sugar himself) got the government to pay for a study and put the US government’s stamp of approval on its work product. With Sugar running the whole show. Full on astroturf. And remember–the very best astroturf constructs an alternate reality that is controlled by the special interests. Interests don’t get more special than Shady Uncle Sugar who is too special for his shirt and is so special it hurts.

Curiously, right about the time that Uncle Sugar started touting the Commission’s work product, China has some work product of its own along similar lines:

On September 6, 2022, the Shenzhen government passed China’s first local regulation dedicated to boost AI development – Regulations on Promoting artificial Intelligence Industry in Shenzhen Special Economic Zone (the Shenzhen AI Regulation), which will take effect on November 1, 2022.

The Shenzhen AI Regulation aims to promote the AI industry by encouraging governmental organizations to be the forerunners in utilizing related technology and increasing financial support for AI research in the city. It also establishes guidelines for public data sharing to organizations and businesses involved in the sector.

But of course the kicker with the ex-Googler Schmidt brought his own Sugar to the party as Javers tells us:

In short, the commission, which Schmidt soon took charge of as chairman, was tasked with coming up with recommendations for almost every aspect of a vital and emerging [AI] industry. The panel did far more under his leadership. It wrote proposed legislation that later became law and steered billions of dollars of taxpayer funds to industry he helped build — and that he was actively investing in while running the group.

That’s right–if you think the government is going to break up Google, just realize that Google doesn’t want to get broken up because it is all working so well with zero oversight whether they are bamboozling government oversight in Congress or ravaging songwriters at the Copyright Royalty Board. It’s hard to get them out of the government when they are the government. If the Oracle case showed us anything, it showed us that Google’s reach is far and wide. Their special brand of evil knows no boundaries. And we never have gotten an explanation for why Eric Schmidt suddenly left Google.

“Open the pod bay doors” is not going to get it done. We must have an answer when they say “I’m sorry, Dave, I’m afraid I can’t do that.”

by thetrichordist

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.”

by Trichordist Editor

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.

by trichordist

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.

by thetrichordist