#FrozenMechanicals Take 2: @sealeinthedeal Finds Some Facts on the NMPA Tax Return and MOU FAQ

[A little context: The public comments on the majors’ proposed settlement at the Copyright Royalty Board that freezes mechanical royalties on vinyl and CDs are again attracting first rate reporting and arguments. Public comments are designed to help the Copyright Royalty Judges focus on important nuances before they tell us all what’s fair.

Enter the connection between extending the fifteen year-old frozen mechanical rate for another five years in return for what may well be hundreds of millions under the unmatched “late fee waiver” settlement (total settlement value still undisclosed). It’s become obvious after the majors’ 11th hour reply comment in “#FrozenMechanicals Take One” that the majors have tied a settlement on what is essentially the late fee on black box mechanicals at the participating labels to getting a freeze on mechanicals. You can ask yourself how much of a risk it is that major publishers will sue their major label affiliates and what kind of a settlement avoiding that risk might drive.

NMPA 2018 Tax Return
NMPA 2019 Tax Return

Fair enough, right? Well, maybe not. Thanks to excellent open-source research by Austin music lawyer Gwendolyn Seale in her new frozen mechanicals comment, it turns out that there are a couple of loose ends. First, the National Music Publishers Association’s tax returns for 2018 and 2019 suggest that the organization received several million dollars from the late fee waiver program over two years.

Where that money finally came to rest is unclear but something about the size of that sum sounds like “employee year-end performance bonus” to me although that’s just a guess. (Not the first time the unmatched issue has come up–remember the New York Attorney General back in 2004 who dropped the hammer on labels and at least one publisher who had egregious cases of unpaid royalties to people like David Bowie, John Mellencamp, David Matthews, Dolly Parton and Sean Combs.)

Gwen also did a deep dive on past late fee waiver settlements (commonly called “MOUs”) dating back to 2009 or so. These also had similar connective tissue between past mechanical royalty freezes and the late fee settlement dating back many years. (It would not be a shock if some of the more cold-blooded publishers preferred taking the late fee than the black box royalties because a late fee is an interest payment that may not have to be shared with their writers…just sayin’. Let’s not forget who works for whom.)

Not only is the CRB being asked to repeat the sins of the past with the justification that they accepted it before, Gwen discovered yet another wrinkle in the open-source rules of the prior MOUs–you have to join the NMPA and pay dues in order to get paid with what is ostensibly your own money. See what they did there? That’s probably old news to those who also read the establishment press, but worth mentioning in case you missed it.]

Gwendolyn Seale, Esq.

Chief Copyright Royalty Judge Suzanne Barnett

Copyright Royalty Judge David R. Strickler

Copyright Royalty Judge Steve Ruwe

US Copyright Royalty Board

101 Independence Ave SE / P.O. Box 70977

Washington, DC 20024-0977

SENT VIA ELECTRONIC DELIVERY

IN RE DETERMINATION OF ROYALTY RATES AND TERMS FOR MAKING AND DISTRIBUTING PHONORECORDS (Phonorecords IV)

Honorable Judges,

I am a music lawyer in Austin, Texas, and represent songwriters throughout the state of Texas. I appreciate the judges reopening the comment period with respect to the proposed settlement (“Proposed Settlement”) submitted by the three major labels, the National Music Publishers Association (“NMPA”) and the Nashville Songwriters Association International (“NSAI”) which, if adopted by the Judges, would freeze the statutory mechanical royalty rate at 9.1 cents for physical products and permanent digital downloads through 2027. For reference, my prior comment regarding the Proposed Settlement can be found in the footnote below,[1] and the purpose of this supplemental comment is to highlight the relevance of the Memorandum of Understanding 4 (“MOU4”) between the three major labels and the RIAA on the one hand and the NMPA and a select group of music publishers on the other hand (collectively “MOU Parties”) in the Judges’ consideration of the Proposed Settlement. As the Judges will see below, MOU4 appears to be additional consideration for the Proposed Settlement — consideration which is only able to be enjoyed by NMPA members. Binding the world’s songwriters to this Proposed Settlement when the overwhelming majority of songwriters cannot even reap the benefits of the additional consideration demonstrates there is no reasonable basis to adopt the rates and terms of the Proposed Settlement industrywide, and further, doing so would be patently unjust.

Please note that the views I am expressing here are not made on behalf of any client or the State Bar of Texas.

  1. THE PLAIN LANGUAGE OF MOU4 MORE THAN SUGGESTS IT IS ADDITIONAL CONSIDERATION FOR THE PROPOSED SETTLEMENT

When the three major labels, the NMPA and NSAI submitted their motion to adopt the Proposed Settlement to the CRB, included was the following language that raised concerns during the first round of comments:  

Concurrent with the settlement, the Joint Record Company Participants and NMPA have

separately entered into a memorandum of understanding addressing certain negotiated

licensing processes and late fee waivers.[2]

In my prior comment, I posed the question, “[if] this Memorandum of Understanding is irrelevant to the proposed settlement, why would it be referenced in the motion to adopt the settlement?” At the time of drafting the prior comment, I will honestly say I was not too familiar with the previous MOUs and associated NMPA Late Fee Programs (“Late Fee Programs”). Subsequently, I began perusing through the sparse number of media articles concerning the MOU stemming from Phonorecords I (“MOU1”), along with information listed on the Late Fee Program website, and the text of each MOU to date (MOU1, MOU2 and MOU3). Examining the text of the MOUs was eye-opening; it became readily apparent that each, and their associated Late Fee Programs, would never have come into existence if the MOU Parties had not submitted settlement proposals to the Judges in connection with mechanical rates for physical product and permanent downloads (i.e., the mechanical royalties paid by record companies). In other words, there is no Proposed Settlement without MOU4 and there is no MOU4 without the Proposed Settlement – the two are inextricably intertwined.  The longstanding history of this practice is first exhibited in the language from Section 1.0 of MOU2:

This MOU 2 shall not go into effect unless a proposed settlement of the 2013-2017 Proceeding is submitted to the Copyright Royalty Judges for approval, which the Parties anticipate happening promptly after this MOU 2 has been entered into by all Parties[3].

The key word to examine here is “unless.” MOU2 would not go into effect unless a proposed settlement was submitted to the CRB in Phonorecords II (2013-2017). If the MOU Parties had not presented the proposed settlement in Phonorecords II to the CRB, MOU2 would have never gone into effect and thus, no Late Fee Program for that time period.  A close review of the plain language of MOU2 is critical as it more than suggests MOU2 served as additional consideration for the proposed settlement in Phonorecords II, which extended the 9.1 cent mechanical rate freeze for physical products and permanent downloads that commenced in 2006.

Fast-forward to the language in Section 2 of MOU3, where the same condition is visible:

This MOU 3 is a separate, conditional agreement that shall not go into effect until NMPA and SME submit a motion to adopt a proposed settlement of the 2018-2022 Proceeding as to rates and terms presently addressed in 37 C.F.R. Part 385 Subpart A to the Copyright Royalty Judges, which the Parties anticipate happening promptly after this MOU 3 has been signed by all of the Parties. It is understood that SME, UMG, WMG, RIAA and NMPA will sign this MOU 3 at the outset, and that NMPA will use its best efforts to obtain the signatures of all the music publishers represented on its Board of Directors as additional Parties to this MOU 3 by October 28, 2016. The term of this MOU 3 shall commence on the date when a motion to adopt such a settlement is submitted to the Copyright Royalty Judges (the “Effective Date”), and continue until the End Date…[4]

Despite the removal of the word, “unless,” exhibited in MOU2, and the replacement with the word, “until,” the analysis remains the same. MOU3 appears to have been additional consideration for the proposed settlement in Phonorecords III, which furthermore extended the 9.1 cent mechanical rate freeze for physical products and permanent downloads.[5]

Finally, the same condition is found in MOU4’s language:

This MOU4 is a separate, conditional agreement that shall not go into effect until NMPA, SME, WMG’s affiliate Warner Music Group Corp., and UMG submit a motion to adopt a proposed settlement of the Phonorecords IV Proceeding as to statutory royalty rates and terms for physical phonorecords, permanent downloads, ringtones and music bundles presently addressed in 37 C.F.R. Part 385 Subpart B (the “Subpart B Configurations”), together with (1) certain definitions applicable to Subpart B Configurations presently addressed in 37 C.F.R. § 385.2 and (2) late payment fees under Section 115 for Subpart B Configurations presently addressed in 37 C.F.R. § 385.3, together with certain definitions applicable to such late payment fees presently addressed in 37 C.F.R. § 385.2, for the rate period covered by the Phonorecords IV Proceeding, which the Parties anticipate happening promptly after this MOU4 has been signed by SME, UMG, WMG, RIAA, NMPA, Sony Music Publishing, Universal Music Publishing Group, and Warner Chappell Music, Inc. (the “Initial Signatories”)…

The plain text of MOU4 and likewise, the plain text of MOU2 and MOU3 demonstrates MOU4 serves as additional consideration for the Proposed Settlement. If this is the case, the Proposed Settlement does not provide a reasonable basis for establishing Subpart B rates and terms because MOU4 is consideration which can only be enjoyed by select participants in Phonorecords IV, while songwriters worldwide are bound to rates and terms they do not approve and for which they receive no benefit of the MOU4 bargain. Further, in a stunning display of pretzel logic, if a self-published songwriter even wants to reap the benefits of MOU4, such songwriter would have to join the NMPA as a publisher to participate in Late Fee Program – which would entail paying to join an organization that has agreed multiple times to freeze the mechanical royalty rate for physical and download formats.[6]

Songwriters, including those who have submitted comments in this proceeding, have made it abundantly clear that they do not support extending a mechanical royalty rate freeze. So, the question becomes whether the Judges believe it is just and reasonable to subject songwriters to a rate freeze that they oppose, understanding that they will either never benefit from the additional consideration for the freeze or will have to pay dues to a party proposing the freeze they oppose to benefit from the additional consideration. Therefore, I ask the Judges to please determine whether MOU4 is additional consideration for the Proposed Settlement.

2. IF ALL SONGWRITERS ARE TO BE BOUND TO THE PROPOSED SETTLEMENT, ADDITIONAL TRANSPARANCY IS WARRANTED

The MOU Parties stated in their “Comments in Further Support of the Settlement of Statutory Royalty Rates and Terms for Subpart B Configurations” (“Reply Comment”) that they did not present MOU4 to the Judges as they regarded it to be routine and irrelevant to the Judges’ determination of the Proposed Settlement.[7] The MOU Parties further stated the payments under the previous MOU processes have resulted in hundreds of millions being properly paid to publishers and songwriters and enabled more successful identifications of musical works.[8] Additionally, the MOU Parties contended the history of the MOUs is no secret, pointing to a couple of articles from 2009-2010 and the NMPA Late Fee Settlement website.[9]

While the MOU Parties can generally state MOU4 and prior MOUs are no secret, the MOU process to date has hardly been transparent. While some media outlets published information about MOU1 in 2009-2010, over the last decade there has been virtually no reporting on the MOU program, encompassing MOU2 and MOU3. With respect to MOU1, outlets reported approximately $275 million was paid out from the labels and distributed to publishers via marketshare methodology.[10] Amounts paid out pursuant to MOU2 and MOU3 have not been publicly disclosed – and should be if MOU2 and MOU3 were additional consideration which continued the mechanical rate freeze to the present day.

The MOU Parties further state, “[c]ontrary to the conspiracy theories of others, there is no secret payoff to major publishers or to any other MOU participant.”[11] It is not conspiratorial to simply point out that the public is unaware of the amounts payable to publishers under these MOUs; it is further obvious the major publishers benefit from a settlement system which distributes funds to publishers in accordance with major label and HFA data via marketshare methodology. Additionally, according to the NMPA’s 2018 and 2019 IRS 990 filings, “Royalty Late Fee Program” was listed as an income line-item, reflecting $2,908,988.00 and $768,368.00, respectively, as revenue for the organization. If in fact this line item pertains to commissions taken by the NMPA on prior Late Fee Programs established by the MOUs, there is absolutely a payoff to a MOU participant, albeit, not secret.

Note that I have no issue with the notion of these MOUs and the Late Fee Programs, or which sums are paid out to whom, provided that the MOUs and associated Late Fee Programs are truly irrelevant deals that do not serve as additional consideration for settlements to freeze the statutory mechanical rate for physical and download configurations industrywide.  

3. IF THE PROPOSED SETTLEMENT IS NOT WITHDRAWN, THE JUDGES SHOULD APPLY DIFFERENT RATES AND TERMS TO PUBLISHERS AND SELF-PUBLISHED SONGWRITERS WHO DO NOT OPT INTO MOU4 AND THE LATE FEE PROGRAM

Notwithstanding the repeated practice of the CRB adopting settlements freezing the mechanical rate for physical products and permanent downloads proposed by parties who wield the most power in the music business, the current situation is different and should be treated as such. Many songwriters oppose the Proposed Settlement but cannot afford to participate in this proceeding. Songwriters and other key songwriter advocacy organizations oppose this Proposed Settlement, proffering comments that the Proposed Settlement is unreasonable because songwriters do not wish this revenue stream to be frozen for yet another five years during a vinyl resurgence amid a worldwide pandemic that continues to ravage the world’s economy. While there has been considerably more public outcry with respect to this proceeding than those prior, luckily, there are solutions available which will reverse this course and are entirely within the control of the MOU Parties and the Judges.

First, the MOU Parties can withdraw the Proposed Settlement and voluntarily agree to a rate increase for Subpart B configurations – and continue to proceed with their Late Fee Program. This act will not only bring the entire songwriter and music publisher communities together, but also it will serve to extinguish one of the streaming services’ key benchmarks in their testimony (since every streaming service participant in Phonorecords IV is using this Proposed Settlement to justify their abysmal streaming rate proposals).

Alternatively, if the foregoing is not an option, the terms of the Proposed Settlement should apply only to the MOU Parties and the NMPA publishers that subsequently opt-into the Late Fee Program, while the Judges determine different rates to be applied to everyone else. To be clear, again, I have no issue with the concept of MOU4 or the Late Fee Program, rather it is inequitable for songwriters to be bound to the terms of a settlement which they do not support, particularly when they do not receive any benefit from the consideration attached to the settlement. 

CONCLUSION:

Prior to this Phonorecords IV proceeding, it appears the only person who publicly opposed any settlement to freeze the statutory mechanical rate for physical and download configurations was George Johnson, a pro se self-published songwriter participant. While the Judges’ determination of rates and terms for physical and download configurations in Phonorecords III is final, I believe it is worth briefly revisiting an excerpt from the Judges’ determination which addressed Mr. Johnson’s opposition to the Phonorecords III settlement:

But, Mr. Johnson has not even hinted at evidence to support his argument that the representative negotiators are engaged in anti-competitive price-fixing at below-market rates. The very definition of a market value is one that is reached by negotiations between a willing buyer and a willing seller, with neither party being under any compulsion to bargain.[12]

While Mr. Johnson may not have articulated his opposition to the Phonorecords III proposed settlement in a lawyer-like manner, he clearly understood years ago that there was something awry with respect to these proposed settlements. It is evident that the “something awry” happens to be these MOUs, which I never would have realized had the Judges not reopened the comment period to specifically address MOU4. The representative negotiators in these settlements represent “willing buyers” and “willing sellers” who are effectively the same parties at the corporate level. The “willing sellers” (i.e., the major publishers/ NMPA) are under compulsion to bargain so they can enjoy the compensation associated with the Late Fee Program. When such a settlement is adopted and applied industrywide, we are posed with an end result of “unwilling sellers” (i.e., songwriters worldwide) tethered to below-market rates who will not enjoy the benefits of the additional consideration – MOU4 and the associated Late Fee Program. 

The Judges have a duty to all songwriters – from the millions who are unaware the CRB exists, to the millions who do not have the financial resources to participate in CRB proceedings, to the millions who do not speak English (in this country and abroad) and cannot follow this proceeding if they wanted to– to determine whether this MOU4, a side agreement which benefits a select few, is in fact additional consideration for the Proposed Settlement which would freeze statutory mechanical royalty rate for physical products and permanent downloads through 2027. And if the Judges determine this is true and the MOU Parties are unable to withdraw the Proposed Settlement, the Judges should establish different rates and terms to be applied to all other songwriters and publishers.

Thank you for re-opening the public comment period and for your consideration.

Gwendolyn Seale

November 22, 2021


[1]Prior Comment, available at https://app.crb.gov/document/download/25534.

[2] Motion to Adopt Settlement of Statutory Royalty Rates and Terms for Subpart B Configurations, Docket No. 21–CRB– 0001–PR (2023–2027) (May 25, 2021) (Proposed Settlement).

[3] Memorandum of Understanding 2 at 1.

[4] Memorandum of Understanding 3 at 2-3.

[5] This analysis is further exhibited by the content in this article, which provides a recap of the 99th NMPA annual meeting: https://www.musicweek.com/publishing/read/us-publishers-push-for-music-industry-unity-at-nmpa-agm/065029.

[6] FAQ 8, available at http://www.nmpalatefeesettlement.com/mou3/faq.php; FAQ 3, available at https://www.nmpa.org/boardmembers/faqs/.

[7] Comments in Further Support of the Settlement of Statutory Royalty Rates and Terms for Subpart B Configurations,  Docket No. 21–CRB– 0001–PR (2023–2027) (August 10, 2021).

[8] Id.

[9] Id. 

[10]Publishing Briefs: NMPA Late Fee Site, Melvin Brown, Peermusic, BILLBOARD (Jan. 8, 2010), available at https://www.billboard.com/music/music-news/publishing-briefs-nmpa-late-fee-site-melvin-brown-peermusic-1213394/

[11] See supra note 6.

[12] 37 CFR Part 385 [Docket No. 16–CRB–0003–PR] Determination of Royalty Rates and Terms for Making and Distributing Phonorecords (Phonorecords III); Subpart A Configurations of the Mechanical License.

#FrozenMechanicals Take 2: Comment of Professor @KCEsq to the Copyright Royalty Board

[A little context:  As readers will recall, the Copyright Royalty Board is in the middle of two (count ’em, two) simultaneous rate proceedings for the statutory mechanical royalty rates under the reliably absurd Section 115 of the Copyright Act. These two are styled “Phonorecords III” and “Phonorecords IV” respectively. Technically, Phonorecords III was appealed to a higher court (DC Circuit for those reading along at home) and was pretty much rejected and sent back to the Copyright Royalty Board on what’s called “remand” or as it’s know in the vernacular, “nice try.” Phonorecords IV is for the 2023-2027 period and is currently in the discovery phase for streaming mechanicals. MTP readers will also recall that I anticipated an attempt to extend the freeze on physical mechanicals at the 2006 rate of 9.1¢–long since corroded by inflation to a real mechanical rate of about 6¢ given an inflation rate of approximately 33% since 2006. And the majors are vigorously pursuing both a freeze as well as an extension of the pending and unmatched settlements for NMPA members (aka “MOU” for “Memorandum of Understanding” among the insiders) that is tied to the freeze for everyone else. See what they did there? Today we are posting the first of the 2nd round comments on the freeze filed with the Copyright Royalty Board in the Phonorecords IV proceeding. I was kind of hoping that someone would file a comment in support of the freeze but no one did–all comments are opposed. The first up is Professor Kevin Casini’s thoughtful comment. We will be cross posting with the Trichordist.]

November 20, 2021


Hon. C.J. Suzanne Barnett
Hon. J. David R. Strickler 
Hon. J. Steve Ruwe 

US Copyright Royalty Board 
101 Independence Ave SE / P.O. Box 70977 
Washington, DC 20024-0977

Honorable Judges of the Copyright Royalty Board:

I am a Connecticut resident, attorney, and law professor, and the views expressed here are mine, and not necessarily those of any local or state bar association, or any employer. The bulk of this comment appeared in an open letter to this body, and to my senators, dated May 27, 2021. It requested time to comment for those that were not represented by the publishing lobby, the so-called “self-administered” songwriters that were so en vogue during the passing of the Music Modernization Act, and with it, the advent of the Mechanical Licensing Collective. As the preeminent music economist of the day, Will Page, put it in his annual “Global Value of Music Copyright” compendium, “anyone can record a song, but only someone can compose it.”[1] I don’t speak for them, I’ve not been empowered to do so, but because so many of us know “self-administered” means “not administered” I speak to their best interests, even if they don’t know anything about this process. These writers are considered “self-publishing”, but the reality is, they have no publishing. Ironically, it is these independent writers who rely disproportionately on physical sales, direct downloads, and Bandcamp Fridays. In essence, “I speak for the trees.”[2]

On May 18, 2021, a “Notice of Settlement in Principle” was filed by parties to the proceedings before the Copyright Royalty Board about its Determination of Royalty Rates and Terms for Making and Distributing Phonorecords.[3] That Notice was followed on May 25, 2021 by a Motion To Adopt Settlement Of Statutory Royalty Rates And Terms For Subpart B Configurations, filed by the NMPA, Sony, Universal and Warner and NSAI.[4] I write today in reference to that proposed settlement. 

This settlement outlines the terms by which mechanical royalty[5] and download rates will remain locked at the current rate of 9.1¢. The same almost-dime for each copy of a work manufactured and distributed. The same almost-dime that it’s generated since 2006. A paltry sum to be certain but a far cry from the 2¢ royalty rate mechanical royalties imposed for the better part of seventy years.[6] Starting in 1977, Congress mandated that the mechanical royalty be increased incrementally until 2006 when the rate of 9.1¢ was achieved. And there it has remained. 

This proposed private settlement would extend that 2006 freeze until 2027. 

In March 2017, a precursor to Phonorecords IV found the Copyright Royalty Board ruling that interactive streaming services must pay more in mechanical royalties over the course of the next five years.[7] Surely more than a simple inflation adjustment, but nonetheless a sign that the CRB thought costs and values needed to become more aligned for streaming—which is paid by the streaming platforms unlike the physical and download mechanical which is paid by the record companies. Now comes Phonorecords IV, and a proposed settlement from the major publishers and their affiliated major labels. Before this proposal can be accepted by the CRB, I asked for the simple opportunity of public comment. This COurt saw fit to grant that request, and I express my appreciation.

As you well know, in nearly all other administrative proceedings public comment is an integral and indispensable component of the process. To see that the CRB may allow for a public comment period by members of the public beyond the participants in the proceeding or parties to the settlement is a step in the right direction, and my hope is that this development will be broadcast far and wide so that the CRB, and in turn, Congress, may get a full picture of the status of mechanical royalty rates, especially from those that are historically underrepresented. “Public comments” should be comments by the public and made in public; not comments by the participants made publicly.

I have a great deal of respect and admiration for the work put into the landmark copyright legislation that came about at the end of 2018, and for those that made it happen. So too for the members of the CRB, and in this space, I thank those Judges for taking the time to read a letter from an adjunct law professor with no economic stake in the outcome, but rather an interest in, and duty of, candor to the Court. 

In an age of unprecedented political polarization, the consensus built in the passage of the Music Modernization Act showed that politics aside, when it’s time to make new laws that fix old problems, Congress can still get the job done. I know well the sweat-equity poured into its creation by the very same people that propose this settlement. I have found myself on the same side fighting the same fight as them many times. They have proven capable of navigating your halls and taking on those that would seek to devalue (or worse) the work of the songwriter, and musician. In this instance, I would like to see them fight the fight yet again. recognize the reasoning and intention behind the proposed settlement. Commenting by the public is a way for that to happen.[8] I commend this Court for re-opening the comment period to allow for as much dialogue, and information, as possible. 

A year ago, I made the unilateral decision to pivot our consulting company, Ecco Artist Services, to purposefully work with, and advocate for, the traditionally and historically underserved and underrepresented in the music industry. Freezing the growth of rates for physical and digital sales that are already digging out of the residual effects of 70 years at 2¢ strikes at the heart of that community’s ability to generate revenues from their music. 

Now, it’s no secret the trade association for the US music publishing industry is funded by its music publisher members, and of course, as a professional trade organization, the association is bound to represent those members. Publishers have long enjoyed a better reputation amongst industry insiders than “the labels,” and for good reason, but the fact remains that writers signed to publishing deals are in contractual relationships with their publishers, and their interests are not always aligned. Such is the state of play in a consumer-driven marketplace, and especially now that publishers and labels are consolidating their businesses under the same tents. They, it seems, are the forest. An indie songwriter is but a tree. 

Unfortunately, the independent songwriter lacks the resources to participate fully in the process, and although a signed songwriter may believe her interests and those of her publisher are one and the same, they may not always be. It would seem the economic analysis the publishers undertook in deciding the mechanical royalty was not worth the heavy cost and burden of fighting is the same calculus the writers need not do: they couldn’t afford the fight no matter the decision. 

But I ask: if the mechanical royalty covered by the proposed settlement is a dying source of revenue, why would the fight be so onerous? By the RIAA’s 2020 year-end statistics, physical sales and downloads accounted for 15% of the music marketplace.[11] That’s a $12.2 billion marketplace, and that 15% amounts to $1.8 billion. Now, I know attorney’s fees can be exorbitant in regulatory matters, but I would think we could find a firm willing to take the case for less than that. As for sales, in 2020, 27.5 million vinyl LPs were sold in the United States, up 46-percent compared to 2019 and more than 30-fold compared to 2006 when the vinyl comeback began,[12]  while some 31.6 million CD albums were sold.[13]

Median wages in the US, adjusted for inflation, have declined 9% for the American worker. Meanwhile, since the 9.1¢ rate freeze, the cost of living has gone up 31%, according to the American Institute of Economic Research[14]. The 2006 inflation rate was 3.23%. The current year-over-year inflation rate (2020 to 2021) is now 4.16%[15], which is all really to say, simply, an accurate cost-of-living increase would have a mechanical rate of at least 12¢ per sale. Twelve cents! You would think that would be an easy sell, but the streaming rates are fractions of that rate. The reality is a song would need to be streamed 250 times to generate enough money to buy it from iTunes. As my dear friend Abby North put it, the royalty amount for the digital stream of a song is a micro penny.[16]

An adjustment for inflation should require no briefing, let alone argument. If songwriters were employees, this would simply be line-item budgeted as a “cost-of-living adjustment.” If songwriters were unionized it would be a rounding error, but I digress. 

Even if it is true that the mechanical revenue is a lost and dying stream, by the RIAA’s own figures, there stand to be billions of dollars at stake. An opportunity to be heard, without having to sign with a publisher and then hope that publisher takes up the fight you want, maybe that’s all the independent writers of the industry—and, indeed, the world–need to be able to win. 

An inflation-adjusted cost-of-living update to the mechanical statutory royalty rate should be of no issue. Those independent, self-published writers affected by the decision of the CRB have been given the opportunity to voice their concerns through public comments. I hope that the CRB considers the disparities in bargaining power among those on the “writers’ side” of this issue before it makes its final decision. Please note, I pass on judgment on those that serve their constituencies, I just know there is no substitute for direct action, direct aid, or direct advocacy.

I want to close this time by thanking the Board, and Copyright Office, all for their continued attention to the universe of copyright, licensing royalties, and the economy that exists therein, and specifically the recently retired CJ of Copyright Royalty Board Jesse Feder, for allowing this opportunity, and so many other. It is my sincere hope (and effort) that the tone and tenor of these negotiations, deliberations, and litigation proceedings can be focused on the issue at hand, with collaborative results the goal, but when that cannot be, I trust the Copyright Royalty Board will see both forest and trees. 

Kevin M. Casini 
New Haven, CT

Attorney-at-Law, Adj. Professor, Quinnipiac Univ. School of Law

cc: Ms. Carla Hayden, US Librarian of Congress 

Ms. Shira Perlmutter, US Register of Copyrights 


[1] Available at https://tarzaneconomics.com/undercurrents/copyright-2021

[2] SEUSS. (1971). The Lorax. MLA (7th ed.) Seuss, . The Lorax. , 1971. Print.

[3] (Phonorecords IV) (Docket No. 21–CRB–0001–PR (2023–2027)).

[4] Available at https://app.crb.gov/document/download/25288

[5] The term “mechanical royalty” dates back to the 1909 Copyright Law when Congress deemed it necessary to pay a music publishing company for the right to mechanically reproduce a musical composition on a player-piano roll. As a result, music publishers began issuing “mechanical licenses”, and collecting mechanical royalties from piano-roll manufacturers. The times, and the tech, changed, but the name stuck.

[6] A summary of historical mechanical royalty rates is available from the U.S. Copyright Office at https://www.copyright.gov/licensing/m200a.pdf

[7] Docket No. 16-CBR-0003-PR (2018-2022) (Phonorecords III).

[8] The CRB arguably has the statutory obligation to publish the Motion in the Federal Register for public comment, but may have the discretion to construe those commenting to the participants in the proceeding and the parties to the settlement.  17 U.S.C. § 801(b)(7).  

[9] https://www.officialdata.org/Rent-of-primary-residence/price-inflation/2006-to-2021?amount=1000

[10] https://www.in2013dollars.com/Milk/price-inflation/2006-to-2021?amount=4

[11] RIAA year-end revenue statistics. https://www.riaa.com/wp-content/uploads/2021/02/2020-Year-End-Music-Industry-Revenue-Report.pdf

[12] MRC 202 Year End Report. https://static.billboard.com/files/2021/01/MRC_Billboard_YEAR_END_2020_US-Final201.8.21-1610124809.pdf

[13] Id.

[14] American Institute for Economic Research. https://www.aier.org/cost-of-living-calculator/

[15] U.S. Bureau of Labor Statistics Consumer Price Index https://www.officialdata.org/articles/consumer-price-index-since-1913/

[16] Abby North, North Music Group Letter to Congress on Frozen Mechanicals and the Copyright Royalty Board, The Trichordist (May 24, 2021) available at https://thetrichordist.com/2021/05/24/northmusicgroup-letter-to-congress-on-frozen-mechanicals-and-the-copyright-royalty-board/

#FrozenMechanicals Take 2: Chelsea Crowell, Erin McAnally, and Abby North Comments to CRB

[Trichordist says: The Copyright Royalty Board reopened the comments on frozen mechanical song royalties in Phonorecords IV rate setting and the filings are coming in, especially from songwriters! We will be posting the comments (or excerpts from the long ones. First up is a straight from the heart contribution from Chelsea Crowell, Erin McAnally and Abby North.]

Copyright Royalty Board 37 CFR Part 385
[Docket No. 21–CRB–0001–PR (2023–2027)]
Determination of Rates and Terms for Making and Distributing Phonorecords (Phonorecords IV)

Interim Chief Copyright Royalty Judge Suzanne Barnett
Copyright Royalty Judge Steven Ruwe
Copyright Royalty Judge David R. Strickler
US Copyright Royalty Board
101 Independence Ave SE
Washington, DC 20024

SECOND REOPENING PERIOD COMMENTS OF ABBY NORTH, ERIN MCANALLY
AND CHELSEA CROWELL

To Your Honors:

Thank you for the opportunity to submit additional comments, now that the details of the
Memorandum of Understanding (MOU4) apparently related to the Subpart B mechanical rate
settlement negotiated by the NMPA, NSAI and three major labels have been made available.

Only the NMPA’s 300 or so publishers are potential parties to the MOU, assuming the opt in
terms are the same as those of MOU3 (http://nmpalatefeesettlement.com/mou3/faq.php). The
publishers that opt in to the MOU4 settlement will receive money for their participation, and in
exchange for this money, the NMPA Board members have agreed to freeze the Subpart B
mechanical rate at the $.091 rate that’s been in place since 2006.

In this exchange, NMPA publishers have a stream of revenue (the MOU4 money) that offsets the
negative effect of the lack of rate increase in the Subpart B mechanical.

Although foreign CMOs could opt into the current MOU3 settlement, rightsholders that are not
NMPA members may not opt in and will not receive the buffer that the MOU4 money provides,
yet they are subject to the frozen mechanical rate that is an apparent condition of the negotiation
related to the proposed settlement of the Subpart B rates and terms.

Thousands, if not tens of thousands of songwriters in the world have songs published or
administered by those NMPA publishers that are party to the rate freeze settlement, but neither
these songwriters nor the vast number of songwriters around the globe were given a say in the
decision to freeze the mechanical rate.

The concern we have is not that there is a settlement. The concern is that the settlement does not
provide for a base rate greater than $.091, plus annual increases to adjust for inflation.

To quote the NMPA’s Supplemental Comments: “…mechanical royalties from Subpart B
configurations now constitute only a small part of total mechanical royalty revenue in the U.S.,
and that share is expected to get smaller during the period covered by this proceeding.”

That concept only resonates with a corporation that aggregates thousands or millions of
copyrights.

To an individual songwriter or a small rightsholder, it doesn’t matter if Subpart B mechanicals
constitute 1% or 15% or 50% of total royalties. Why? Because every single penny counts.

When an individual is paying a mortgage, tuition or a car payment, every single penny counts.
When a health crisis occurs, every penny counts. When existing off the very low streaming
royalties generated by even a hit song, every penny counts.

Physical and download mechanicals are still an extremely relevant revenue stream to individual
songwriters and small publishers.

At the current retail price of $.99 for a download, the $.091 mechanical is 9.2%.

The streaming royalty pool for songs is roughly 10.5% of the total, possibly as much as 15.1%,
per the CRB III hearing results (after all this time, still under appeal). The NMPA has suggested
an increase of the streaming royalty rate to 20%. This would be an exceptional improvement.

How is the download royalty not at least the same percentage as the streaming royalty?

Why is the value of a downloaded song less than that of one that is streamed?

We suggest the Subpart B rate and the streaming mechanical rate (based on percentage) should
be on no less than a most favored nations basis with one another.

To songwriters and most publishers, every royalty type and every revenue stream matters. The
move from physical to digital, the unbundling of albums in favor of singles and the unlivable
streaming royalty rates absolutely substantiate the need for an increase in Subpart B mechanicals,
at least to reach the percentage paid on the streaming side, and with periodic adjustment for
inflation. 3

We appreciate the opportunity to submit these additional comments, and we ask the Judges to
recognize that songwriters and small publishers are individuals who do not have the luxury of
collecting royalties from the aggregation of hundreds of thousands of works.

It is not fair that songwriters signed to the NMPA publishers have a frozen mechanical rate
forced on them, and it is remarkably egregious that non-NMPA publishers and their writers are
also forced into this horrible reality.

Respectfully,

Abby North, North Music Group LLC
Chelsea Crowell, Songwriter
Erin McAnally, Songwriter/Factory of Strange Tones

A Potential Solution in Phono IV To the Streaming Services’ “Lowest In History” Rate Proposals : Withdrawing The Settlement To Freeze

By Gwendolyn Seale

Last week, participants in Phonorecords IV filed the public versions of their written direct statements with the Copyright Royalty Board (CRB) – and since, countless articles have surfaced from the major music media outlets with headlines reading, “Streaming Services Propose Lowest Rates in History for Songwriters”(see here: https://www.musicbusinessworldwide.com/spotify-and-other-streaming-services-propose-lowest-royalty-rates-in-history-for-songwriters/) and tuneful soundbites equating this proceeding to a “war” (Id). 

It is absolutely accurate that the streaming services are pushing for abysmal rates and terms in Phono IV. Some services like Amazon, Pandora and Spotify actually advocate to a return of the rates and terms from prior rate setting “wars” in Phono I (2006) and II (2011).   Others, like Apple, suggest applying the rates and terms that are determined by the CRB in Phono III – which, mind you, covers 2018-22, and is being litigated simultaneously despite 2022 commencing in two months – because what an awesome system is this Copyright Royalty Board! Nevertheless, there is something that has been conveniently omitted from each of these media articles: “the why.” Why are the services proposing the “lowest rates in history?” What justification do the services provide for their positions? Unfortunately, the answer is not as simple as the streaming services playing the role of “the villains” in the “war” for songwriters’ livelihoods.

When you download the hundreds of pages of the services’ written direct testimony from the CRB, and wade through the arguments in the mire of heavily redacted passages, there is a surprising common theme used to bolster every last one of their positions: the proposed settlement by the NMPA, NSAI and the three major labels to freeze rates for physical product like vinyl and permanent downloads (the Subpart B configurations) (see here: https://app.crb.gov/document/download/25288).

Simply put, every service used the NMPA and NSAI proposed settlement for physical as a benchmark to support their abysmal rates on streamingSurprised? Me, too. But for reference I’ve included some excerpts from the services’ filings at the end of this post. 

For those in need of catching up to this point, The Trichordist has chronicled this proposed settlement and the reactions thereto (i.e. “the Frozen Mechanicals Crisis” see here: https://thetrichordist.com/category/frozen-mechanicals/ ).  Songwriters, music publishers, and songwriter advocates penned articles for The Trichordist and some wrote comments to the CRB objecting strongly to the NMPA and NSAI settlement.  Some also wrote their representatives in Congress, expressing their dismay over this important revenue stream being frozen yet again for another five years due to a private settlement between “willing buyers” and “willing sellers” who are one and the same person at the corporate level. What’s more, Texas Congressman Lloyd Doggett submitted a letter to the Librarian of Congress and the Register of Copyrights inquiring about the matter (see here: https://thetrichordist.com/2021/07/18/letter-from-congressman-lloyd-doggett-about-frozen-mechanicals-to-librarian-of-congress-and-register-of-copyrights/).

Now that it is crystal clear the proposed settlement is being seized upon by the services as a way to benchmark and justify their lower-than-ever rate proposals (also called “hoist with your own petard”), it is time for the highly paid representatives of the copyright owners in this proceeding to truly rethink their strategies. This result was predictable – as I mentioned in my last post here: https://thetrichordist.com/2021/06/25/guest-post-by-sealeinthedeal-a-foreseeable-result-of-the-phonorecords-iv-private-settlement-opening-pandoras-box/ , “[i]t did not take a soothsayer to foresee this result; the private settlement opened Pandora’s box – begetting misery for every songwriter.” 

More disturbing, they should have seen this coming a long way off because they got called out for doing essentially the same thing in Phonorecords III.  For context, when there was a lull in the pace of Phono IV, I began delving through the filings in the Phono III remand. Much to my unsurprise, an expert witness for Pandora in that proceeding, Professor Michael Katz, foreshadowed the current debacle. Not only did he use the physical settlement to make the case that the streaming mechanicals rate in the 2012 settlement was a ’good benchmark,’ but also, even more disastrously, used this argument to rationalize the 2012 rate being too high in testimony filed on April 4, 2021. Chris Castle referred to this issue as the “Streaming Royalty Backfire: 

“If you want to argue that there is an inherent value in songs as I do, I don’t think freezing any rates for 20 years gets you there.  [Physical mechanical rates were first frozen at 9.1¢ in 2006.] Because there is no logical explanation for why the industry negotiators freeze the rates at 9.1¢ for another five years, the entire process for setting streaming mechanical rates starts to look transactional.  In the transactional model, increased streaming mechanicals is ultimately justified by who is paying.  When the labels are paying, they want the rate frozen, so why wouldn’t the services use the same argument on the streaming rates, gooses and ganders being what they are?  If a song has inherent value—which I firmly believe—it has that value for everyone. Given the billions that are being made from music, songwriters deserve a bigger piece of that cash and an equal say about how it is divided.”

Chris Castle

The proposed settlement did not just open Pandora’s Box, it also opened Spotify’s, Google’s, Amazon’s and Apple’s boxes (don’t mind me, I’m Greek and enjoy every opportunity to make mythology references). So, when posed with the question, “why advocate for this settlement to freeze,” even following the filings of the services, the NMPA’s David Israelite provides the following commentary (heard most recently during last Wednesday’s Town Hall via zoom):

 (1) he refers to folks who articulate this concern as professional critics who like to blog from their couches, and that there’s a lot of misinformation going around;

 (2) the NMPA has previously (as far back as Phono I) tried to press for an increase to no avail after spending millions of dollars; and 

(3) the NMPA wishes to focus efforts on the streaming services as they do not wish to fight multiple fights at once and potentially risk the labels proposing an even lower than 9.1 cent rate. 

To respond to this commentary  — first, it is difficult to believe the major labels would propose a lower than 9.1¢ rate if the publisher negotiators did not cave if for no other reason that the willing buyer and the willing seller standard ought to work the other way, too.  However, if anyone has evidence to support this “labels will screw us” rationale, please reach out to me and I will immediately withdraw that premise. Notwithstanding, even in the hypothetical event that the labels counter with a lower than 9.1 cent rate, is it not the job of the prime representative of the “copyright owners” at the NMPA and NSAI to firmly state that this rate has been frozen for nearly 20 years and no longer will “we” (including their sister publishers) stand by this? In response to the other two points, I understand that I have spent no money in these proceedings and that I do not have the resources to do much more than write about this from the couch in my apartment in Austin, Texas. But, for what it is worth, I believe that an important part of advocacy is being open to critique, listening and learning – even if it is something that you do not wish to hear. 

Speaking of, the buried lede is that the CRB has reopened the public comments on the proposed settlement to freeze physical mechanicals – the CRJs are at least willing to listen and learn. Maybe they don’t think we’re couch commenters.

Now, I do not believe in presenting a laundry-list of problems without proffering potential solutions, and luckily, there is a solution that is entirely within the control of the parties that settled: withdraw the proposed settlement to freeze the mechanical rates for Subpart B configurations. Go to the labels and negotiate a voluntary increase. Submit that increase proposal to the CRB. This act will not only bring the entire songwriter and music publisher communities together, but it will also serve to extinguish one of the services’ key benchmarks in their testimony.

While we’re on the topic of strategies, I want to end on one note. Now is not the time to pit what artists are earning from digital radio in relation to what songwriters are earning ( see here: https://variety.com/2021/digital/opinion/digital-radio-guest-column-david-israelite-nmpa-1235092330/ ). One of the great things about working with songwriters in Texas happens to be that many are also recording and performing songwriter/artists. Thus, they value the rates from digital radio that are applied to recording artists, and they welcome the victory achieved by SoundExchange in Web V (which resulted in a rate increase plus index of rates in accordance with inflation — which seems wiser by the day and winter is coming). 

Instead, it is time for the focus to be on achieving the best possible results in Phono IV by expanding the revenue stream, not taking money from others which only benefits the services. 

THE RECEIPTS: Petard-Hoisting Excerpts from the Services’ Testimony

(Note: PDD = “permanent digital downloads,” and WBWS = the “willing buyer willing seller” standard which the Copyright Royalty Judges (CRJs) are to use as the basis for determining rates in this proceeding, pursuant to the Music Modernization Act.)

AMAZON

PANDORA:

APPLE:

GOOGLE:

SPOTIFY:

Copyright Royalty Board Reopens Public Comments in Controversial #FrozenMechanicals Hearings

In an unusual–if not historic–move, the Copyright Royalty Board has decided to re-open public comments in the controversial “frozen mechanicals” rate hearing to set the government rate for mechanical royalties paid on physical records and downloads. It is absolutely crucial that the Judges have reopened the comments because it indicates that they are bending over backwards to demonstrate their interest in being fair and deliberative and not allowing themselves to be used to bootstrap an unfair freeze on mechanical royalties. (If you need to catch up, there are many posts on Trichordist about “frozen mechanicals“.)

The Board gave this reason for reopening the comments:

The Joint Submission [by the NMPA, NSAI and the major labels] included arguments that the MOU is irrelevant to the Judges’ consideration of the proposed partial [frozen mechanicals] settlement and proposed regulations and that the MOU does not call into question the reasonableness of the proposed partial settlement and proposed regulations. Because interested parties other than those who submitted the Joint Submission may have been unable to adequately view or comment upon the MOU prior to the close of the Judges’ extended comment period, the Judges are reopening the comment period. The Judges will allow 30 days for comments [from October 19] regarding the impact, if any, that the MOU should have on the Judges’ consideration of whether the proposed partial settlement and proposed regulations provide a reasonable basis for setting statutory rates and terms.

Quick recap–remember that the NMPA, NSAI and the major record companies decided to keep the freeze on mechanical royalties for physical and downloads that these same groups and companies decided to impose on the world back in 2006. If these people win this argument before the Copyright Royalty Board, the rate will be frozen at 9.1¢ for another five years–until 2027. NMPA and the major labels also made a side deal (called an “MOU”) as a quid pro quo that appeared to be additional incentive to the NMPA to accept the frozen mechanical rate that applied to every songwriter but includes undisclosed payments.

What is particularly offensive about this freeze is that the majors and a lot of indie labels have “controlled compositions” clauses in their recording agreements that give them all kinds of downside protection against rate increases. These include a “rate fixing” clause that freezes the mechanical rate for songs at the rate in effect when the recording is initially released. That’s why there are still many songwriters paid at the 2¢ rate that hasn’t been around since 1977. So giving a rate increase is not anywhere near a 1:1 cost increase for the record companies.

David joined with Helienne Lindvall and Blake Morgan to file a comment asking for the Copyright Royalty Board to give the NMPA and NSAI the deal they made but raise royalty rates for songwriters who don’t get the benefit of the MOU payments (whatever they are). Many other distinguished songwriters, songwriter advocacy groups (12 in total) and publishers filed their own comments opposing the freeze.

And then something strange happened as we reported on August 16 with a copy of the brief joined by Austin music lawyer Gwendolyn Seale:

[Chris Castle says: Here’s the context of this post. As it turns out, the CRB extended the filing deadline for comments due to what they said was a technical difficulty, although we have yet to meet anyone who couldn’t file their comment on time. This extension seems contrary to the CRB’s February revised rules for filings by participants. The CRB procedures presciently have an email filing procedure in the case of technical problems arising out of their “eCRB” document filing system. It will not surprise you to know that the NMPA, NSAI, and major labels filed what is essentially a reply comment after the close of business on the last day of the extension, after at least our if not all commenter accounts were disabled, the practical effect of which was that no one could respond to their comments through the eCRB, i.e., on the record.

We tried, and drafted a reply to the most important points raised in the majors’ comment. We emailed our comment to the CRB during business hours on the next day in line with the CRB’s own “Procedural Regulations of the Copyright Royalty Board Regarding Electronic Filing System” (see 37 CFR §303.5(m)) or so we thought. But not so fast–we were told by an email from a nameless person at the CRB that we would need to file a motion in order to get approval to file the comment less than 24 hours late for good cause–which of course, we are not able to do since we are not “participants” in the proceeding. See how that works? According to this person’s email, we’d also need to contact CRB technical support to get our accounts reopened which would make the comment later still even if we were able to file a motion. Instead, we decided to just post our reply comment on the Internet. A wider audience. Unfortunately not part of the record, but we’ll see what happens.]

We all have to be grateful to the Copyright Royalty Board for re-opening comments on the frozen mechanicals crisis. That is an indication that the Judges do not intend to be a rubber stamp and let the rich use the CRB to bootstrap their private deal onto every songwriter in the world.

We want to stongly encourage you to file your own comments in the frozen mechanicals hearing, tell your own stories and give your own point of view about how to handle the crisis. If you want to file a comment, you need to register for an account at the Copyright Royalty Board. Chris Castle has a helpful guide to setting up your account.

Why Songwriters Should Care About Inflation Protection for Mechanical Licenses

[This post first appeared on MusicTech.Solutions]

By Chris Castle

In a word: Stagflation. Maybe. In more words, classic stagflation occurs when supply side shocks lead to the costs of goods increasing while the real economy declines. We certainly have had and continue to have supply side shocks and it’s hard to tell what the real economy is doing because of distortion. Due to the COVID pandemic, the global economy has been hit with a cascading series of supply side shocks. For example, one shock is due to supply chain disruptions which look something like this:

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If you’ve ever been on one of the very large cargo ships, you will know that is a big mofo. (When a sailor looks at all those elephants churning up the water, you can’t rule out a collision which could have really big problems depending on where and how bad that collision is.)

There currently are something like 500,000 shipping containers sitting on ships off of the Port of Los Angeles that can’t unload. That means someone has ordered the goods in the containers, perhaps paid in advance all or part of the cost of those good, but can’t get the goods to sell. And that’s just Los Angeles. That’s also called a supply side shock.

A supply side shock may cause an increase in the prices of the goods that are available to sell which causes a shift in the aggregate prices in the economy as a whole.

Another supply side shock may occur when inflation causes the price of goods to increase over the level that a firm can eat to avoid passing on the cost to their customers. This causes earnings to decline and eventually share prices to decline. If the market does not re-establish equilibrium fairly quickly, right after earnings decline, the price may get passed on to the consumer which may cause demand to drop which will ultimately cause earnings to decline. This is cost-push inflation which is a bit different from what you normally hear about too many dollars chasing too few goods or demand-pull inflation.

So to recap: cost-push inflation is a decrease in the aggregate supply of goods and services caused by an increase in the cost of production, and demand-pull inflation is an increase in aggregate demand from one or more or all of households, business, governments, and foreign customers. 

Inflationary pressure is compounded by an increase in the money supply, especially a sharp increase in the money supply.

All this should be sounding familiar if you follow the news.

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The Stagflation Three Point Play

Historical examples of stagflation events in the US are particularly related to energy cost shocks and OPEC’s use of oil embargos to influence US foreign policy and support for Israel. We’ll come back to this, but remember that the crippling stagflation of the 1970s was largely due to one input–energy. The gas lines of the 1970s and heating oil price increases were particularly profound and the resulting stagflation influenced the increase in interest rates to a prime rate of 21.5% in December of 1980 after President Jimmy Carter lost reelection. It may be hard to comprehend a prime rate of 21.5% in this low interest rate environment, but don’t feel bad–it wasn’t so easy to understand then, either. The shys were jealous.

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Could it happen again? At this point, I think it’s hard for anyone to rule it out entirely, so the probability is a positive integer. What did songwriters do during the stagflation era of the 1970s? Unlike most of the rest of the peacetime economy, songwriters had mechanical royalties set by the government at a fixed price. Starting in 1909, the federal government set songwriter royalties at 2¢ per unit and never changed the price until 1978. Needless to say, the stagflation of the 1970s destroyed the government’s fixed songwriter royalties. By 1978 it’s not an overstatement to say that songwriters earned a negative royalty rate if you adjusted for inflation. This was all due to the government’s wage controls on songwriters. (You can argue that this is the primary reason songwriters get paid so little today.)

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Why did this happen? Government mandated wage and price controls were common in wartime–during World War II, military expenditures exceeded 40% of gross domestic product (GDP) so the government had an interest in controlling labor and materials costs. They accomplished this through the War Labor Board and the Office of Price Administration. If that sounds positively Soviet, it was. Unlike songwriter royalties, the government mandate was temporary.

By the time the 1976 revision to the Copyright Act rolled around, songwriters lobbied effectively for their statutory mechanical rate to be increased. However, given the rampant inflation of the time, they needed protection because even with prices reset after five year periods, inflation could easily eat away any gains. That’s one reason why after the 1976 revision, mechanical rates gradually increased and eventually were increased based on the Consumer Price Index (called “indexing”) for many years.

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If you followed the recent commentary opposing an extended freeze of the mechanical royalty rate for physical and downloads, the inflation issue is front and center once again. And if you observe the current state of the economy and the likely future, you’ll understand why indexing may be crucial to preserving the value of whatever mechanical royalty is set by the Copyright Royalty Board, the songwriter’s version of the WWII era Office of Price Administration. And who would bet against inflation?

Of course, the CRB heard absolutely no evidence on the inflation issue from the NMPA, NSAI and the major labels that essentially put their finger in the air and decided to freeze rates. That’s not the end of the story, though. The relevant information on inflation is readily available in the public domain and the CRB can take notice of it if they want.

Remember, the 1970s stagflation was a highly unusual economic condition caused by a supply side shock of one input–energy. Here’s a few examples of current supply side shocks from multiple inputs. I think it should give everyone pause before they rule out a need to index the statutory rates for songwriters.



Personal Consumption Expenditure Index (US Govt. Bureau of Economic Analysis)

The “PCE” and “Core PCE” are indexes that economists monitor (such as the economists at the Federal Reserve) to track inflation trends. So let’s see what these metrics tell us about the inflationary trends that would be an argument to support indexing mechanical royalties.

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“Core PCE” is another look at consumer prices that excludes the cost of food and energy which doesn’t make much sense to you and me, but is another way to look at underlying inflation trends for economists. This is important because it can influence decisions about interest rates at the Federal Reserve.

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For perspective, here’s a five-year look at PCE and at PCE excluding food and energy:

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The data tell us that the five year inflationary trend is up and to the right with an increasing slope. It is the sharpness of that increasing slope that gives pause–the inflationary trend has been up since 1959 per the following chart, but the steepness over the last 12 months is unusual.

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Overall US Inflation Rate

The PCE and Core PCE is confirmed by the overall U.S. inflation rate as measured by the U.S. Bureau of Labor Statistics:

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You see the trend here. Inflation has sharply increased. Consider the last twelve months–inflation has more than quadrupled.

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Do we think it will continue to increase or will it decline? Let’s consider the inputs that can cause that supply side shock we talked about above.

Residential Rent Prices

According to Zillow, “[t]ypical U.S. rents grew 9.2% year-over-year in July, according to the Zillow Observed Rent Index (ZORI) — the fastest recorded by Zillow records in data that reaches back through 2015 — to $1,843/month. Projecting forward historical ZORI values from February 2020 — the last full month before the COVID-19 pandemic hit the U.S. in earnest — we estimate that the U.S. ZORI in July was 2.9% ($52) higher than where it would have been if the last roughly 18 months had been more ‘normal.’ “

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And CBS news confirms the data:

After dipping last spring, rents around the U.S. have not only recovered but are now blasting past their pre-pandemic levels. In 44 of the nation’s 50 largest metro areas, rents have surpassed where they were before the health crisis, according to data from Realtor.com. Nationwide, the median rent reached a record high of $1,575 in June, an increase of 8% from a year ago.

Cotton

Cotton is a commodity that finds its way into many goods. The Wall Street Journal reports that cotton prices have surged to their highest level in a decade, but that Levis won’t be passing on the cost increase to consumers–yet. Remember cost-push inflation?

Levi’s commentary on the cotton-pricing issue should soften some of those fears—at least in the near term. On its earnings call Wednesday evening, the apparel company said that much of its own cotton prices have already been negotiated for the first half of 2022 and that it expects its cost of goods sold to increase 1% in the first half of 2022 compared with 2021 levels. For the second half of 2022, the company said it might be able to negotiate prices that will lead to a mid-single-digit percentage increase in costs compared with 2021 levels. Cotton accounts for about a fifth of the cost of producing Levi’s jeans.

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Food Inflation

If you’re going to just look at the core PCE without food and energy, you can’t just ignore those two key inputs if you want to know what is going on at the micro level. We’ll look at both food inflation as well as inflationary effects on a few key energy components, especially for touring bands. Consider this chart of food inflation in the US over the last twelve months which itself is slightly higher than the core PCE.

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Propane

Propane–also known as heat–is a lot more relevant to consumers particularly as we head into winter. Propane generators are of particular interest to anyone who suffered a power outage during a polar vortex–ahem–and as you can see, propane prices are already through the roof.

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Same story for natural gas and heating oil.

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Gasoline

If you’re planning a ground tour, keep an eye on the price of gasoline, also up and to the right.

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10 Year US Treasury Bonds

You may not be aware of it, but practically everything in your financial life is affected by the 10 Year US Treasury bond. The “10 Year” is used as a reference point for a multitude of financial instruments and interest rates around the world. This includes mortgage rates and credit card rates. As you can see, over the past 12 months, the yield on the 10 Year treasury note has increased or nearly doubled. And remember that the bond market is orders of magnitude larger than the stock market. The bond market is also run by sophisticated traders–I’ve never heard of day traders in the bond market.

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You want to keep a good eye on the 10 year because the Federal Reserve plans to “taper” which is one of those fancy names like “quantitative easing” that sounds like a caramel macchiato but is actually not. What that means in a nutshell is that the Federal Reserve plans on buying fewer treasury bonds than they have done–sopping up however much debt that Congress wants to take on. (Some people say this is a lot like printing money–remember that increasing the money supply is one of the causes of inflation, particularly sharp increases in the money supply.)

A cynic–certainly not me–might say that the Federal Reserve keeps the interest rates low because if the U.S. government ever had to pay anything like a market interest rate, the country would go under. But this cannot go on forever, hence “tapering”.

People may disagree with this “printing money” analogy, but the money supply has substantially increased in the last 12 months and it came from somewhere.

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Conclusion

If you stayed with me this far, thank you. I hope I’ve persuaded you that it in the current environment it is highly dubious that songwriters should ever agree to a fixed mechanical rate for any configuration that is not indexed to inflation. Even if you don’t think that stagflation is around the corner, we are certainly seeing considerable inflation in a number of inputs–the supply side shock that is the hallmark of a period of stagflation may not come solely from energy this time. Just because energy was the culprit before doesn’t mean that the economy will not succumb to stagflation by a thousand cuts in the future.

#FrozenMechanicals Crisis: Unfiled Supplemental Comments of @helienne Lindvall, @davidclowery, @theblakemorgan and @sealeinthedeal

[Chris Castle says: Here’s the context of this post. As it turns out, the CRB extended the filing deadline for comments due to what they said was a technical difficulty, although we have yet to meet anyone who couldn’t file their comment on time. This extension seems contrary to the CRB’s February revised rules for filings by participants. The CRB procedures presciently have an email filing procedure in the case of technical problems arising out of their “eCRB” document filing system. It will not surprise you to know that the NMPA, NSAI, and major labels filed what is essentially a reply comment after the close of business on the last day of the extension, after at least our if not all commenter accounts were disabled, the practical effect of which was that no one could respond to their comments through the eCRB, i.e., on the record.

We tried, and drafted a reply to the most important points raised in the majors’ comment. We emailed our comment to the CRB during business hours on the next day in line with the CRB’s own “Procedural Regulations of the Copyright Royalty Board Regarding Electronic Filing System” (see 37 CFR §303.5(m)) or so we thought. But not so fast–we were told by an email from a nameless person at the CRB that we would need to file a motion in order to get approval to file the comment less than 24 hours late for good cause–which of course, we are not able to do since we are not “participants” in the proceeding. See how that works? According to this person’s email, we’d also need to contact CRB technical support to get our accounts reopened which would make the comment later still even if we were able to file a motion. Instead, we decided to just post our reply comment on the Internet. A wider audience. Unfortunately not part of the record, but we’ll see what happens.]

SUPPLEMENTAL COMMENTS OF HELIENNE LINDVALL, DAVID LOWERY, BLAKE MORGAN  AND GWENDOLYN SEALE OBJECTING TO PROPOSED SETTLEMENT OF SUBPART B RATES

            This comment is in reply to the comment[1] filed by the Copyright Owners and the Joint Record Company Participants (the “Majors”) time-stamped after the close of business on August 10, 2021 and made available on the CRB docket the morning of August 11, 2021, i.e., after the deadline established by the Judges in the Proposed Rule published at 86 FR 33601 that would codify the Proposed Settlement.[2] 

            We ask the Judges’ leniency in permitting our late-filed supplemental comment to be made a part of the record in hopes that our responsive discussion will be helpful to the Copyright Royalty Board in resolving the frozen mechanicals crisis.

            This comment is filed on behalf of Helienne Lindvall, David Lowery and Blake Morgan who timely filed their comment on July 26, 2021[3] in accordance with the proposed rule.  This comment is also filed by Gwendolyn Seale who timely filed her own comment[4] in accordance with the proposed rule.  Their respective biographical information may be found in their previously filed comments.

            We will briefly discuss what we think are the essential points the Judges should consider that the Majors have raised in their comment.

I. Discussion

            A.  Authority:  As multiple commenters have stated, it is unclear whether the NMPA and NSAI have been authorized by their respective memberships of over 300 music publishers and over 4,000 songwriters to propose and/or accept a settlement freezing the statutory rate for Subpart B configurations through 2027. Thus, we ask the Judges to seek out evidence demonstrating that self-published songwriters and independent publishers have authorized the NSAI and NMPA to accept this Proposed Settlement.  We do not question the integrity of the Majors, but we do have questions about the negotiation process that have yet to be answered. 

            References to a broad “consensus” must be questioned because there is both a lack of evidence of consensus and also evidence in the record that at least 12 international songwriter groups object to the Proposed Settlement.  Independent songwriters, including Ms. Lindvall, Mr. Lowery and Mr. Morgan, also object.  It seems simple enough for the Judges to require some evidence of consent to the Proposed Settlement given the awesome power of the government that the Judges are essentially asked by Congress to delegate to the Majors through a voluntary negotiation.  This seems to us to be good cause for further verification of authority to make the deal in the first place.

            B.  The Judges Predicted the Current Opposition in their Phonorecords III Determination

The Majors rely on a citation that both demonstrates the foresight of the CRB and on balance tends to support our position that the NMPA and the NSAI likely lack the requisite authority to negotiate on behalf of all the world’s songwriters.  The Majors invite the Judges to participate in a thought experiment[5] that actually serves quite well to highlight the issues we have raised in the respective comments regarding both the authority of the NMPA and NSAI and the implied below-statutory rates bootstrapped indirectly by means of the freeze:

As the Judges have noted, “NMPA and NSAI represent individual songwriters and publishers,” and would not “engage[] in anti-competitive price-fixing at below-market rates,” since they must “act[] in the interest of their constituents” lest their constituents “seek representation elsewhere.” [Phonorecords III] at 15298.[6]

Respectfully, the problem is way beyond seeking representation elsewhere—the problem is that there was likely no “representation” in the first place if you take “representation” in the legal sense (such as that of a common agent) which we gather is how the Judges intended the use of the word.  Likewise, there is a difference between an agent’s principal and a “constituent”, i.e., a difference between one who expressly authorizes an agent to represent them in certain circumstances and one who is allowed to vote on who that representative is to be.  Neither is the case for many songwriters who have commented in the record for the current proceeding.  We will leave their record to speak for themselves as to why they have sought “representation elsewhere” but it appears that it is for the same reason that they are not participants in the proceeding—they can’t afford the justice and this is why they ask the Judges to give special weight to their comments in the CRB’s deliberations.

            But the Major’s thought experiment and speculation continues in an interesting coda regarding below statutory licensing (generally not permitted as a matter of contract in likely tens of thousands of co-publishing and administration agreements):

And certainly it would not be in the interest of any major publisher to agree to extend a below-market mechanical royalty rate to the competitors of its sister record company.[7]

While the thought experiment and speculation sound innocuous, consider what is being said here.  First, the Majors identify their interest as that of “major publishers”; not all publishers, not all songwriters, but “major publishers.”  Then the Majors go on to say that it would not be in the interest of the major publishers to give a “below market” rate to their sister record company’s competitors

            Of course, there is no market rate in the U.S. and essentially never has been; the Judges have the unenviable task of divining a market rate to be made statutory.  We would therefore modify the thought experiment to include “below statutory”.  Now we are left with the assertion that major publishers use the statutory rate to protect their record company affiliates from competition—not that they fulfill their role as true blue fiduciaries for their songwriters by refusing to grant below-statutory rates (either directly or indirectly), but rather being hard on the competitors of their affiliates.   And they are using their market power to impose a rate on the world that they seem to say protects their affiliates.  Extending the frozen mechanical rate certainly doesn’t protect their songwriters—the Judges have ample evidence that many songwriters object to the extension.  But in the Majors’ own words we now know cui bono, and the benefit goes back to Phonorecords III and likely earlier.

            But let us extend the thought experiment a little bit further.  Who is an unrelated “competitor” of the three major labels and all their distributed labels, DIY operations like The Orchard, joint ventures and so on and on and on?  That must be a pretty small group of true independents who have cobbled together a distribution network for the Subpart B configurations to deal with the logistics of manufacturing, warehousing, shipments, returns, and the like—branch distribution is what makes a major label a major.  Perhaps the Majors could provide some examples of these “competitors”?  Clearly though, the citation demonstrates that the Judges sensed many years ago the very situation now unfolding on the record in the frozen mechanicals crisis.

            C.  Comparisons to Largely Unopposed Prior Rulemakings Compare Apples to Oranges:  We understand that the Majors claim to have proposed a similar settlement in Phonorecords III resulting in a freeze of the statutory rate for Subpart B configurations, and that the Judges then-adopted that settlement.  We also understand that there was little if any formal objection to that freeze in Phonorecords III at least by comparison to the number of objecting commenters in Phonorecords IV.  The Judges are now presented with a significant number of objectors who entirely reject the application of the Proposed Settlement to the world in a kind of bootstrapping move.  Respectfully, comparing the field in Phonorecords III to Phonorecords IV is comparing apples to oranges and creating a pomegranate.

            We also acknowledge the millions of dollars that the NMPA asserts that it spent litigating these rates some fifteen years ago, but this assertion perhaps proves too much.  The cost of participating in any of these proceedings is exactly the reason why objecting songwriters understandably rely entirely on the Judges to seek fairness and justice.  They cannot afford to participate in these proceedings themselves and trust the Judges to balance all the facts not just the arguments of rich people and corporations. 

Not only do the Majors gloss over the songwriters’ objections, but their reasoning is actually fallacious. Because both proceedings are called “Phonorecords” does not make them similar in regard to the frozen mechanicals crisis.  The facts on the ground are wildly different between III and IV.  Moreover, we hear a subtext in the Major’s argument that if a configuration experiences declining sales, that is a reason for the government to reduce the royalty rate.  Aside from a lack of statutory authority, this is also fallacious reasoning because the Majors have produced no evidence that the per-unit price for Subpart B configurations has declined, and if anything, we are informed that the dealer price has increased in the case of vinyl.[8] 

We respectfully ask that the Judges consider these flaws in the Majors’ positions and give them their due weight. 

            D.  The Elusive MOU:  The Majors tell the Judges that: 

The MOU entered into contemporaneously with the Settlement is irrelevant to the Judges’ consideration of the Settlement, and does not call into question the reasonableness of the Settlement.[9]

            Respectfully, if the MOU is “irrelevant” to the settlement, why did they bring it up at all?  Recall that we previously asked the Judges to question whether the MOU was additional consideration for extending the frozen mechanical rates.  While others may have, we did not concern ourselves with whether the MOU was a “sweetheart deal” as we knew nothing about it.  Rather our issue was whether the MOU was a quid pro quo of additional consideration for the frozen rates that was enjoyed by a limited group of participants in the settlement but was not enjoyed by strangers to the deal who were still subject to the frozen rate.  Indeed, it appears that this is exactly the case.  While we appreciate that the Majors have now disclosed the MOU as part of their Reply, nothing in the Majors’ comment ameliorates this fundamental concern.

            A significant reason why the concern still exists is language in the now-disclosed MOU that certainly has the ring of a quid pro quo directly related to extending the frozen Subpart B rates in Phonorecords IV:

This MOU4 is a separate, conditional agreement [the quid] that shall not go into effect until [the quo] NMPA, SME, WMG’s affiliate Warner Music Group Corp., and UMG submit a motion to adopt a proposed settlement of the Phonorecords IV Proceeding as to statutory royalty rates and terms for physical phonorecords, permanent downloads, ringtones and music bundles presently addressed in 37 C.F.R. Part 385 Subpart B (the “Subpart B Configurations”), together with (1) certain definitions applicable to Subpart B Configurations presently addressed in 37 C.F.R. § 385.2 and (2) late payment fees under Section 115 for Subpart B Configurations presently addressed in 37 C.F.R. § 385.3, together with certain definitions applicable to such late payment fees presently addressed in 37 C.F.R. § 385.2, for the rate period covered by the Phonorecords IV Proceeding, which the Parties anticipate happening promptly after this MOU4 has been signed by SME, UMG, WMG, RIAA, NMPA, Sony Music Publishing, Universal Music Publishing Group, and Warner Chappell Music, Inc. (the “Initial Signatories”).[10]

            To the contrary, a fair reading of the MOU suggests, and may even require, that the consideration for the MOU is tied directly to extending the frozen rates in the Proposed Settlement.

            Moreover, we can revisit the authority issue raised above given language in the MOU.  Consider the following post-closing condition imposed on the NMPA by the plain terms of the MOU:

It is understood that only the Initial Signatories will sign this MOU4 at the outset, and that NMPA shall use its best efforts to obtain the signatures to this MOU4 by all of the remaining Parties within two (2) weeks thereafter.[11]

            If the NMPA had the authority to bind these many publisher “Parties” to the MOU, why would there be a need to impose such a post-closing condition on the NMPA?  There may be an explanation for this structure, but it is not obvious to us.

            We also find it somewhat unusual that neither the Reply of the Majors nor the now-disclosed MOU reference a dollar figure that is changing hands as far as we can tell.  This could be a lot of cash.  In the 2009 Billboard article cited by the Majors, the MOU that was the subject of that reporting was valued at “up to $264 million.” [12] However “routine” the MOU process is, a $264 million payment in a “pennies business” is not routine.  We would appreciate a further disclosure of the amount at issue in the current MOU.  As they say, it is evidently not a secret.

            Respectfully, it does not appear that one can completely exclude the relevance of the MOU as consideration for extending the freeze on Subpart B royalties at least on the face of the documents provided.  As strangers to the deal do not have the opportunity to subject these assertions to the crucible of cross-examination, we hope the Judges can welcome the reliance on them of those who cannot afford to participate in this proceeding.

II.  Conclusion

            In conclusion, we respectfully ask the Judges to consider the foregoing comments along with the many heartfelt and well-reasoned comments by others in Phonorecords IV.  Unfortunately, as is too often the case in the music business, we think that the sum and substance of the Majors’ argument is that “we are the wealthy and therefore we win.”

            We do not have to remind the Judges that this is the antithesis of our Constitutional system of government.

                                                                         Respectfully submitted.

Christian L. Castle

Gwendolyn Seale


[1] Comments in Further Support of the Settlement of Statutory Royalty Rates and Terms for Subpart B Configurations,  Docket No. 21–CRB– 0001–PR (2023–2027) (August 10, 2021)(Reply).

[2] Motion to Adopt Settlement of Statutory Royalty Rates and Terms for Subpart B Configurations, Docket No. 21–CRB– 0001–PR (2023–2027) (May 25, 2021) (Proposed Settlement).

[3] Comment of Helienne Lindvall, David Lowery and Blake Morgan, Docket No. 21–CRB– 0001–PR (2023–2027) (July 26, 2021) available at https://app.crb.gov/document/download/25533

[4] Comment of Gwendolyn Seale, Docket No. 21–CRB– 0001–PR (2023–2027) (July 26, 2021) available at https://app.crb.gov/document/download/25534

[5] Reply at 5.

[6] Id. (emphasis added).

[7] Id.

[8] See, e.g., Samantha Handler, Copyright Panel Rethinking Song Royalties Streamers Pay, Bloomberg Law (Aug. 12, 2021) (“Royalties from downloads and CDs haven’t increased since 2006, but still make up a significant portion of income for independent songwriters.”) available at https://news.bloomberglaw.com/ip-law/copyright-panel-rethinking-song-royalties-streamers-pay

[9] Reply at 6 (emphasis added).

[10] Reply at 19, MOU-4 at 2 (emphasis added).

[11] Id. at 20, MOU-4 at 3.

[12] Ed Christman, NMPA, Major Labels Sign Terms of Agreement, Billboard (Oct. 7, 2009) available at https://www.billboard.com/articles/business/1264471/nmpa-major-%20labels-sign-on-terms-of-agreement.

#FrozenMechanicals Crisis: Comments of @helienne Lindvall, @DavidCLowery and @TheBlakeMorgan to the Copyright Royalty Board

Before the

United States Copyright Royalty Judges
Copyright Royalty Board

Library of Congress

Docket No. 21–CRB–0001–PR
               (2023–2027)

COMMENTS OF HELIENNE LINDVALL, DAVID LOWERY AND BLAKE MORGAN

            Helienne Lindvall, David Lowery and Blake Morgan submit these comments responding to the Copyright Royalty Judges’ notice soliciting comments on whether the Judges should adopt the regulations proposed by the National Music Publishers Association, Nashville Songwriters Association International, Sony Music Entertainment, UMG Recordings, Inc. and Warner Music Group Corp. as the so-called “Subpart B” statutory rates and terms relating to the making and distribution of physical or digital phonorecords of nondramatic musical works that, if adopted by the Judges, would apply to every songwriter in the world whose works are exploited under the U.S. compulsory mechanical license (86 FR 33601).[1]

            We object to the proposed rates and terms for the following reasons and respectfully suggest constructive alternatives.  The gravamen of our objection is that (1) the Subpart B rates have already been frozen since 2006; (2) no evidence has been publicly produced in the Proceeding that justifies or even explains extending the proposed freeze; (3) very large numbers of songwriters of various domiciles around the world do not even know this proceeding is happening and have not appointed any of the parties to act on their behalf or been asked to consent to the purported settlement; (4) physical sales are still a vital part of songwriter revenue; and (5) there are many just alternatives available to the Judges without applying an unjust settlement to the world’s songwriters.

 A.  Statement of Interests.

By way of background, following are short summaries of the commenters’ respective biographies demonstrating their respective significant interests in the subject matter of this proceeding.

            Helienne Lindvall:  Ms. Lindvall is an award-winning professional songwriter, musician and columnist based in London, England. She is Chair of the Songwriter Committee & Board Director, Ivors Academy of Music Creators (formerly British Academy of Songwriters, Composers & Authors BASCA) and chairs the esteemed Ivor Novello Awards. She also is the writer behind  the Guardian music industry columns Behind the Music and Plugged In and has contributed to a variety of publications and broadcasts discussing songwriters’ rights, copyright, and other music industry issues.

            David Lowery:  Mr. Lowery is the founder of the musical groups Cracker and Camper Van Beethoven and a lecturer at the University of Georgia Terry College of Business and is based in Athens, Georgia.  He has testified before Congress on the topic of fair use policy[2]  and is a frequent commentator on copyright policy and artist rights in a variety of outlets, including his blog at TheTrichordist.com.   He has been a class representative in two successful class actions by songwriters against music streaming services.

            Blake Morgan:  Mr. Morgan is a New York-based artist, songwriter, label owner, music publisher, and the leader of the #IRespectMusic campaign[3] which focuses on supporting fair payment for creators across all mediums and platforms including supporting the American Music Fairness Act sponsored by Representatives Deutch and Issa.[4]  Mr. Morgan also lectures on artists’ rights at music, business, and law schools across the United States. 

Helienne Lindvall, David Lowery and Blake Morgan (collectively, the “Writers”) are independent songwriters who own the copyrights to many of their songs. They previously were amici in Google v. Oracle[5] together with the Songwriters Guild of America.  In some instances, they have written songs whose copyrights they have transferred in limited parts and in some cases for limited periods of time to major music publishers.  In other cases, their songs are not owned by major music publishers but are administered by one or more of them, in many cases also for limited periods of time.  In some instances, these transfers were in perpetuity subject to certain statutory or contractual termination rights.  They also have retained the copyrights to many of their songs and are self-administered songwriters with respect to those nondramatic musical works. 

            We thank the Copyright Royalty Judges for inviting the public to comment on the proposed regulations in the docket referenced above (“Proceeding”) and the purported “settlement”[6] that in large part resulted in the Copyright Royalty Board’s proposed regulations.

B.  Objections, Discussion and Solutions

            We appreciate this opportunity to make our views known and hope that our suggestions are helpful to the Judges in trying to solve the frozen mechanicals crisis.  We also appreciate that the Judges seek to do justice and find a fair result given their appointed role of administering the awesome power of the government to compel songwriters to accept all rates and terms of the statutory license.

1.  Lack of Authority to Negotiate for Non-Participants

            As a threshold matter, we think it is important to clarify the source of authority for the purported settlement as set forth in the Motion.  Some play a bit fast and loose with who represents whom in a parade of glittering generalities and hasty generalizations.  The Writers are not members of the Nashville Songwriters Association International and have not authorized NSAI to negotiate any agreement on their behalf, nor would the Writers ever authorize any lobby shop to do so. 

            Neither are the Writers members of the National Music Publishers Association, nor have Writers authorized the NMPA to negotiate any agreement on their behalf.  The NMPA has many members but we seriously doubt that the NMPA has expressly obtained authority from any of its members to negotiate the purported settlement on their behalf, outside of its board of directors.  That authority may give the NMPA employees cover, but is pretty weak sauce as authority for the negotiation of frozen rates to be applied to all the songwriters in the world. 

            We doubt that any other songwriter (outside of the insiders) or that any copyright owner gave consent either, aside from members of the NMPA Board of Directors authorizing employees of the NMPA to accept (or perhaps even propose) frozen rates on behalf of the board.  Neither do we see any evidence that the NMPA or NSAI were appointed a “common agent” by copyright owners to set prices and otherwise negotiate and agree upon the terms and rates under Subpart B.[7]  Therefore, we encourage the Judges to inquire further to determine if an appointment was a necessary condition for settlement or if the majority are claiming a kind of misconstrued authority, perhaps with the best of intentions.  One person’s negotiation strategy is another’s catastrophe.

            We anticipate that the Judges will take that position that the Writers will be “bound” by the purported “settlement” in the Motion among the NMPA (which owns no copyrights), the NSAI (which owns no copyrights), and the major labels (which in theory own no musical work copyrights).  We find it astonishing that entities that do not appear to represent, or to have been appointed a common agent of, all the persons to be bound by the settlement, are still able to use the Copyright Royalty Board to bind nonparties to a settlement.  This seems at best contrary to American constitutional jurisprudence requiring the consent of the governed and at worst destructive of the ends of government. 

            If anyone contests our position that the parties to the settlement had no authority to bind strangers to the deal, let them come forward with a common agent appointment, board minutes, board votes, membership votes, court ruling or other evidence of due process to disclose how this purported settlement described in the Motion was actually approved and which copyright owners authorized the NMPA and NSAI to conclude the agreement on their behalf (and, therefore, which did not). 

            We think that what such disclosure will demonstrate at most is that the respective boards of directors of the two organizations[8] authorized the settlement.  Since neither the organizations nor their respective boards were likely authorized to accept a frozen rate by strangers to that deal, the board members may have merely indicated their own company’s intention to be bound by the settlement.  They likely had no actual authority to do more. 

Even this seems odd.  Each NMPA board member who represents a publisher presumably would be agreeing on their own behalf.  It is unclear what the NSAI board actually approved, since NSAI owns no copyrights and at least some of the songwriter board members are likely signed to publishers, perhaps some or all of the same publishers who were voting on the NMPA board.[9]  Murkiness abounds.  So, if anyone says that their board approval resulted in some kind of “consensus” binding on strangers, that may be something of a misdirection that does not consider the obvious and customary limitations of a board’s authority.  We respectfully ask the Judges to get to the bottom of exactly how this happened by asking for supplemental briefs or such other means as the Judges deem appropriate.

The Writers are in two different groups that fairly are not represented in the Proceeding.  First, Writers are in the very large and global group of songwriters and copyright owners who cannot afford to participate in the Proceeding.  As the Judges are likely aware, yours is very rarified air where only the very rich drive the process but all songwriters must bear the burden of the result.  Songwriters and copyright owners living outside the United States (and even those living outside of Washington, DC)  are essentially prevented from participating at hearings in a far-away capitol although the Judges’ rulings directly affect their works when exploited in America.  This is how process becomes punishment.[10]

            Second, the Writers are in another bucket with some songs still co-published or administered by publishers that may be represented by the NMPA in the settlement—we do not know because individual publishers did not sign the Motion in their own names.  None of those publishers have consulted with the Writers about freezing the statutory royalty rates for yet another five years and essentially granting a reduced rate license without our permission.  Many co-publishing or administration agreements include a restriction on the publisher that prohibits them from granting licenses at less than the statutory rates—songwriters did not consider negotiating an additional restriction that would prohibit the publisher from lobbying to indirectly reduce the rate through freezing the statutory rate and then bootstrapping that agreement to apply to the world through the CRB. Perhaps the CRB will give songwriters a reason to start negotiating a “no frozen rate lobbying” marketing restriction in future deals.

            Respectfully, the Judges should not enable these publishers to do indirectly that which they cannot do directly.  We would ask the Judges to inquire further and opine as to whether such marketing restrictions are at work in the purported settlement as to songwriters or publishers administered by any of the settling publishers.  Since those publishers are not individually parties to the settlement, we have no way of confirming who is in and who is not.

            Regardless, Writers did not authorize anyone to negotiate the frozen rates on their behalf and never would.  If the Judges adopt the proposed settlement without a mechanism to obtain consent of those they govern, such a ruling seems to us to fly in the face of all the fundamental building blocks of democracy and in particular American Constitutional democracy.  Accordingly, Writers reserve the right to challenge any such decision to freeze mechanicals on a number of grounds[11] including due process, equal protection and 5th Amendment takings.

            The parties to the purported settlement would have the Judges believe that because they claim that ‘‘the settlement represents the consensus of buyers and sellers representing the vast majority of the market for ‘mechanical’ rights for Subpart B Configurations”[12] and seem to ask the CRB to accept without question the lack of evidence of the authority to negotiate the settlement in the first place which belies the unelected “consensus.”  It must be said that on the one hand, songwriters are not polled to determine what they want in the way of rates, but on the other hand their number or the number of their works are used to justify frozen rates to argue for a “majority” view (when songwriters were never asked if they want the freeze).  Such “consensus” is chimerical and is, frankly, an equivocation that defies a common definition[13] of the word “consensus” that we find inapt given the current facts and is closer to Kings X.

            The settling parties (presumably the NMPA in this case) would have the Judges apply their private deal to all songwriters throughout the world.  It’s easy to get a faux consensus from “the majority” if you do not invite—and even attack or threaten[14]–those with opposing views.  It illustrates the “tyranny of the majority” that every American high school civics class discusses in the context of governance[15]–even assuming there was a vote of the affected songwriters which there apparently was not.[16] 

Therefore, from the outset the proposed rule is simply not a reasonable basis for setting statutory rates or terms for those not party to the voluntary agreement set forth in the Motion.

            But on a more practical note, we think songwriters will ask what can be done to try to fix the mess the parties have created?  We offer several concrete solutions.

2.  Limit the Settlement to Named Parties to the Agreement or Let Sunlight Shine on the Settlement if Settlement Applies to All Songwriters in the World: 

            We call the Judges’ attention to the record company parties to the settlement.  Note that each of the major labels signed in their own organization names, yet for some reason the publishers did not.  Had they signed in their own names, the symmetry between the two might be obvious due to common ownership at the group level.[17]

The Judges could require that the voluntary settlement apply only to those parties who actually agreed it, rather than trade associations that own no copyrights and likely have limited agency at best.  The Judges could cabin the rates and terms to those parties who are actually signatories to the settlement, directly or indirectly.  The publishers involved could be ordered to step forward for the rationally related purpose of determining who the settlement rate should apply to.  This approach would treat the purported settlement more in the nature of a voluntary license among the parties as is permitted under the Copyright Act.  This cabined approach seems to be consistent with the Act and the proper role of regulatory agencies like the CRB, not to mention the Constitution. 

            If the Judges do not wish to take this approach, the Judges may wish to assure that all songwriters who are affected by their ruling are provided with the full picture of what the deal was that induced the purported settlement.  This approach recognizes that the proposed regulations do nothing to disclose all consideration that was paid in connection with the settlement.  This question has been raised by many interested persons, including Representative Lloyd Doggett in a July 13, 2021 letter[18] to the Librarian of Congress and the Register of Copyrights regarding CRB procedures.

            The settlement expressly refers to undisclosed terms that sound very much like other consideration exchanged and also expressly refers[19] to a side deal or “MOU” between the NMPA and the major labels.[20]  How can the Judges determine, or expect anyone outside the insider group to agree, that the rates and terms set forth in the proposed regulations are fair and reasonable without knowing the full extent of the consideration exchanged?  Therefore, the proposed rule as drafted is simply not a reasonable basis for setting statutory terms or rates for those not party to the voluntary agreement as set forth in the Motion and who are not “in the know” regarding its terms including the terms of the MOU.

3.  Opt In for Independents and Co-Published Songwriters

            We perceive the obvious lack of authority to bind non-parties is a fatal flaw of the proposed settlement.  If true, lack of authority is likely sufficient good cause for the Judges to reject the settlement without even addressing whether the rates and terms meet the willing buyer-willing seller standard required by Congress. 

            We recognize that the Judges may wish to avoid an outright rejection of the purported settlement.  An agreement among the parties is consistent with the goals of a voluntary negotiation.  One remedy might be for the Judges to require the parties to construct an opt-in structure that would only apply to those who affirmatively agree to accept the frozen rate.  There clearly are precedents for implementing an opt-in structure that would allow songwriters and copyright owners to accept the settlement or reject it and negotiate their own arms-length rate as true and unrelated willing sellers to a willing buyer.[21]  If there really is a “consensus,” an opt-in process would simply confirm it in a legally cognizable manner.

            For example, if copyright owner A was party to a co-publishing agreement with publisher X who is represented on the NMPA board, it would be a simple thing to require publisher X to proffer an authorization document permitting the negotiation of the settlement on behalf of copyright owner A.  Failing that proffer, publisher X could put the settlement out for opt-in consent by copyright owner A and those in the same class as copyright owner A.  An opt-in process seems efficient.  Common questions would predominate, the publishers concerned would not be prohibitively numerous, the copyright owners could easily be located based on the billing relationship between them and publisher X and an opt-in structure would no doubt be preferable and less costly than other remedies.

            Alternatively, songwriters or copyright owners could be allowed to opt-out of the settlement by a simple notice by their publisher to them requesting an opt-in, or from them to their publisher opting in or out.  The Judges would, of course, do well to specify the rules for this process and supervise the administration.

            Absent this or similar evidence of authority, there will always be an open question of whether the purported settlement provides a reasonable basis for setting statutory terms or rates which may be answered later down the line in the CRB or other fora.

4.  When the Willing Buyer and Willing Seller Are Effectively the Same Legal Person

            It must be said that we sympathize with the position that the Judges are in of trying to divine a free market rate in America where songwriters have not been free in over 100 years.  In fact, songwriters in America have not been free for so long we could safely say they have never been free in stark contrast to the U.S. economy generally.  Generations of songwriters are held guilty of some long-forgotten and Kafka-esque original sin requiring a degree of government regulation as though songs were hazardous materials.  Regulation that protects monopolists like Google and iHeartMedia from the supposed anticompetitive urges of songwriters who we are asked to believe seek out the closed door of the writer room for one reason–collusion.

            While this willing buyer-willing seller standard makes good sense in the case of webcasting rates[22] or streaming mechanicals where the parties typically are not and are not likely to be related, it is extraordinarily difficult for the Writers to swallow in the case of the parties to the purported settlement—an ancient conflict of interest that was easily predictable on the face of the “Music Modernization Act.”[23]  There is nothing modern about this unitary buyer/seller problem. 

            The major publishers are, of course, owned at the group level by the same companies that own the major labels.  That’s what makes them “major” but that is also what makes them unitary.  Assuming arguendo that the major publishers have obtained the consent of their co-publishers or their administration principals, they would be free to enter into any permitted settlement even with their affiliated record company music users.  But the Motion is hardly a willing buyer-willing seller scenario—the two are essentially the same legal person, or are “unitary.”  Congressman Doggett raised a question about this very issue in his Letter, and we raise it here to the CRB.  We think it deserves a detailed reply from the CRB and will be a key legal precedent going forward under the “new” MMA standard.[24]  All the more reason why the settlement is more suited to a voluntary license among the parties than a rule that applies to all the world.

            The Judges may find the recent report[25] by the UK Parliament’s Digital Culture Media and Sport Committee to be helpful on this point; Ms. Lindvall and the Ivors Academy campaigned for the DCMS Committee’s inquiry. 

            The DCMS Committee called upon the Government to have the UK’s Competition and Markets Authority investigate competition in the recorded music market, particularly the tied song and sound recording markets,[26]  noting that: 

 “With [independent] music publishers…unanimously calling for the value of the song to have parity with the value of the recording [citation omitted], it is conspicuous that the MPA [the UK counterpart to the NMPA] refused to give a definitive perspective on the debate, particularly given that the publishing arms of the three major music groups are counted amongst their members….Whilst the major music groups dominate music publishing, there is little incentive for their music publishing interests to redress the devaluation of the song relative to the recording.[27]

            Accordingly, we do not believe, as discussed more fully below, that the purported settlement agreement in any way approximates fair or reasonable royalty rates and terms, or rates and terms that would have been negotiated in the marketplace between an arms-length willing buyer and a willing seller, i.e., a non-unitary buyer/seller.  Given the position expressed by the DCMS Committee, it’s entirely possible that at least the UK Parliament may wish to resolve the issue in another forum. 

We are open to being persuaded otherwise by the Judges, but it appears that the unitary willing buyer-willing seller will establish a critical precedent going forward.  Therefore, the proposed rule is simply not a reasonable basis in this great moment for setting statutory terms or rates until the application of this standard to related parties is clearly spelled out by the CRB and reviewed.

5.  Vinyl Is a Booming Business

            We ask that the Judges take notice of the multitude of news reports on vinyl sales.[28]  Contrary to the vague assertions by NSAI members outside of the Proceeding about unnamed and undisclosed “industry revenue analysis” when defending their decision to “accept” a frozen rate because they believe that physical is a declining configuration,[29] vinyl sales are, if anything, understated due to the severe inability of supply to keep up with demand.  (Why a rational commercial actor would allow that mismatch to continue to such an egregious extent and to the detriment of artists and songwriters is a whole other question.[30]

            These supply chain problems started well before the pandemic,[31] so please do not allow yourselves to be “gaslighted” into the belief that the problems are caused by the pandemic.  Since the whole point of capitalism is for supply to meet demand, we must assume that this situation will be remedied eventually considering the incredibly strong and nearly vertical demand for vinyl, yet that remedy is slow in coming. 

            While the 2008 coming of Spotify is taken by the press (and Spotify itself) as some sort of celestial arrival of a savior straight out of the Book of Revelation,[32] the data tell a different story about vinyl sales.  For whatever reason of consumer taste, the coming of Spotify was also roughly the beginning of the vinyl boom.  Respectfully, it does not take an economist to read the newspaper—stories of vinyl’s resilience to cannibalization by streaming abound. 

            This upward sales trend is reflected in new survey data as well.  According to a small survey conducted by Artist Rights Watch[33] of self-selected songwriters during the period June-July 2021, approximately 26% of respondents said that, roughly speaking, their songwriting income from physical sales had increased over the last two years, and 32% said they expect their income from physical sales to increase over the next two years.[34]

           

These survey results are consistent with the views expressed by Jeff Gold[35], a music industry veteran, historian and author who has operated the Record Mecca collectibles site for many years.  Rolling Stone profiled Mr. Gold as one of the five “top collectors of high-end music memorabilia.” Mr. Gold told us in an interview[36]:

            “I think the vinyl boom is being driven by a number of factors. First, nostalgia: people like me love the experience of looking at an album cover, putting a vinyl record on the turntable, and traveling back in time. The Record Collector world I live in has expanded as well, with highly collectible records [selling] for much more than ever.

            Second, for younger people I think there is a collectible factor – – they are trying something from a different era, it’s trendy to have a turntable and play vinyl records, and they think maybe this is something they can buy that’ll be worth more later. And that is often the case.

Also, there’s the Record Store Day[37] phenomenon, under pressing records to make instant collectibles.  And to some [vinyl records] are merch[andise] for fans of artists who want to own everything connected to that act.

The market for vinyl has dramatically expanded, and the rare vinyl I sell is more desirable than ever. If I had to guess I would think that the collectible record world will continue to expand, but at some point the fad vinyl buying will begin to ebb. Though I’ve been saying that for a long time and there’s no sign of it.”

            The Artist Rights Watch small survey and recent commentary[38] supports a phenomenon that we respectfully suggest the Judges should explore further before accepting the alleged “consensus” for the purported settlement as fact—a significant number of songwriters appear to find mechanical royalty income from physical sales to be important to them and likely would not accept the terms of the voluntary agreement.  Again, we are not trying to dictate rates and terms to those who find the voluntary agreement to suit their needs; they should have their rates and terms.  But we respectfully ask the Judges not to impose those frozen rates on everyone else without their participation and consent as well as evidence.  What is good for the goose may be anathema to the gander.

            Even if every single one of the current vinyl trends are wrong, even if vinyl stops being a resurgent business and abruptly crashes and burns at some point in the next five years due to supply chain problems or reversals in consumption patterns not currently measurable, even if the NSAI songwriters’ undisclosed sources turn out to be 100% correct, what remains even in the industry-wide and world-wide 1% of revenue projected by the NSAI songwriters is still a significant revenue stream to a large portion of songwriters[39] and even music users.  We will believe the users do not care about physical and digital downloads when the first record company president comes forward and declines 15% of annual billing.

            These assertions and speculations about the future are a fine example of a judgement based on conditional probabilities that does not consider the effect of prior probabilities.  If this sudden crash theory really is part of the majority’s thinking, it does seem that the least they could do is provide the Judges and the public with supporting evidence on the record for their projection (or their guesswork) that so far is entirely absent from the record.

            We do not make an emotional appeal, however.  Sales levels do not change the fact that songs have value that deserves greater economic analysis and justification than a finger in the wind.  As the DCMS Committee observed in their referral to the UK’s competition authorities, there are some unusual forces at work here.  The Motion may well provide greater evidence for such a review albeit inadvertently.

            In the absence of an economic case put on by any party to the voluntary agreement regarding freezing Subpart B rates, we ask that the Judges take notice of the overwhelming amount of public information available to document the importance of vinyl and the error of the fundamental assumptions of the NSAI songwriters which we assume gave voice to certain NMPA members.  We have provided the Judges with a handful of representative articles above.
            While the CRB may have other reasons for continuing to impose the existing frozen mechanical rate on the world’s songwriters for another five years, relying on an unnamed “industry revenue analysis” of imaginary dwindling physical sales without inquiring further when there is ample public evidence to the contrary seems to be an unreasonable and arbitrary basis for setting statutory terms or rates.  In fact, putting your finger in the air and guessing that vinyl sales will reverse course into a nose-dive in the face of overwhelming facts and data to the contrary seems the very definition of arbitrary.

6.  Disclosure Should be Mandatory

            Respectfully, we believe there is a compelling need for the Judges to require the disclosure of both the settlement agreement that established the frozen rates as well as the MOU referenced in the Motion.[40]  It appears from the Motion that there was additional consideration beyond putting a finger in the air and deciding to freeze the rates another five years; yet, that additional consideration is described but not disclosed.  It seems that no copyright owner (other than insiders) can rationally evaluate the purported settlement without knowing all the facts.

            We respectfully call the Judges’ attention to analogous facts in Pandora’s ASCAP and BMI rate court proceedings from 2007.  While dated, the story is good background for understanding the problems that can be unleashed from bootstrapping secret deals into law—in the Pandora case, one could say that it led directly to the Music Modernization Act’s provisions requiring random assignment of rate court judges.  This quote from Billboard[41] is a succinct description of the problem:

Back in 2007-2010, when ASCAP and BMI rate court judges were involved in litigation between DMX and performance rights societies, the judges examined the direct licensing deals DMX cut with publishers. During that process, judges did not review the advances or any of the other aspects of the deal, and only looked at the reduced per-store royalty rate. Consequently, in the case of BMI, this resulted in the per-store negotiated rate falling from $36.36 to a per-location fee of $18.91, much to the chagrin of the publishers, who stayed a part of the PROs’ blanket licenses. The ASCAP rate court returned a similar finding.

             Congressman Doggett also correctly raised this question in his Letter and it is entirely understandable—without disclosure of all consideration, strangers to the settlement are being asked to buy a pig in a poke.

            Accordingly, we ask that you compel the disclosure of all documents, payments and other consideration that changed hands or were promised to change hands in the purported settlement.  This would include any payments outside the four corners of the Motion but related to the purported settlement. In the absence of that disclosure or binding certification that it does not exist, the proposed rule is simply not a reasonable basis for setting statutory terms or rates until the full terms of the purported settlement are disclosed or the settlement is cabined as a voluntary license among the parties. 

7.  Raising the Rates

                 First and foremost, the problem with the CRB adopting the purported settlement as the law of the land is the appearance of the bootstrapping of a private deal among apparently related parties and the controlled opposition into rates and terms that apply to all songwriters in the world.  As Congressman Doggett says in his Letter, these are rates and terms that apply to all songs ever written or that ever may be written.  We know you will agree that the rule making authority of the CRB is a serious and solemn example of the awesome power of the government over unrepresented songwriters. 

                 The potential for this bootstrapping is particularly offensive to songwriters who live outside the United States as evidenced by opposition to the frozen mechanicals from a host of international songwriter groups. 

                 We wish to express our desire for a separate and higher rate from the frozen rate accepted by the parties to the purported settlement.  We recognize the corner that the CRB has been backed into regarding raising the rates that have been frozen for so long that they have been substantially eroded by inflation without even considering the value of songs to the booming vinyl business.  According to the Bureau of Labor Statistics CPI-U calculator[42] (the same index used by the Judges in the recent Web V rate determination), a 9.1¢ rate set in 2006 would be indexed to 12¢ today. We therefore estimate that 9.1¢ in 2006 would have the buying power today of approximately 6¢, less than the 1992 mechanical rate established 29 years ago.[43]   

                 However justified, we are sure that raising the 9.1¢ rate across the board would be met by a great howling and rending of garments by at least some of the parties to the purported settlement.  The easy answer to this issue is one raised by Congressman Doggett in his Letter–limiting the settlement rate to the settling parties and setting a higher rate for non-settling parties, i.e., the inverse of the trick referenced above that was played by DMX on the entire industry and the rate courts.

                 The new minimum statutory rate applied to the non-settling parties could be as simple as a headline rate between a bounded range greater than 9.1¢ and up to 12¢ with the appropriate adjustment for the long-song formula.  That headline rate could then be adjusted for inflation and indexed to the CPI-U for the out-years in a similar manner as the Judges applied in Web V.  Even these rates are excruciatingly low and demonstrate the deep hole that the government imposed on songwriters between 1909 and 1978 when the rate for generations of songwriters was frozen at 2¢ through two World Wars, the Great Depression, a global pandemic, two post-war booms and a moon walk.  Songwriters have been digging out ever since, both in the US and abroad due to America’s long commercial shadow.  The Writers fear that a similar freeze has developed with the Subpart B rates and without meaningful consultation.[44]  While we cannot reasonably ask the CRB to solve all the world’s mistakes, we can ask that the Judges not repeat them.  As Congressman Doggett says, we are concerned that we not misstep.

           Alternatively, the CRB could, after consultation with representative parties opposing the frozen rates such as the Songwriters Guild of America, Ivors Academy, ATX Musicians, the Society of Composers and Lyricists, MusicAnswers, the Screen Composers Guild of Canada, Alliance of Latin American Composers & Authors, Asia-Pacific Music Creators Alliance, Pan-African Composers and Songwriters Alliance, Music Creators North America, the Alliance for Women Film Composers and ECSA appoint a representative for independent songwriters to negotiate with both the major labels and the independent labels on rates applicable to and higher than the rates in the settlement.  Such a consultation in this or another forum would go a long way toward clearing up the due process and equal protection Constitutional issues hanging like a cloud over the current Proceeding.  Obviously, the cost of such negotiation should not be borne by the songwriters or recouped from their royalties.

           Therefore, absent such a ruling by the Judges, the proposed rule is simply not a fair or reasonable basis for setting statutory terms or rates until there are truly representative bodies negotiating on behalf of songwriters and independent copyright owners. 

              Thank you again for this opportunity to express our views on the proposed rule.  We respectfully hope that our comment has provided the Judges with some additional insight into how the proposed rule affects independent songwriters and publishers both in America and around the world, particularly since none of us can afford to participate in the rate setting proceeding itself.  We greatly appreciate the Judges’ willingness to avoid process becoming punishment.

                                                                  Respectfully submitted.

                                                                 Christian L. Castle
                                                                
                                                                 Christian L. Castle, Attorneys
                                                                 9600 Great Hills Trail, Suite 150W
                                                                 Austin, Texas 78759

                                                                 July 26, 2021


                  [1]  We focus in this comment almost entirely on the Subpart B rates applicable to physical carriers under 37 C.F.R. §385.11(a).  We note, however, that there is some apprehension among songwriters that the “music bundle” rate in 37 C.F.R. § 385.11(c) could be twisted in a way to drag Non-Fungible Tokens into the frozen rates.  We doubt that Congress intended to include NFTs in the statutory rates since they did not exist even at the time of the Title I amendment to Section 115.  It would certainly add insult to injury for large sums to change hands for NFTs but songwriters be reduced to their usual meagre gruel in compensation while everyone else enriches themselves from the songs. Clarity on this point would be appreciated.

                  [2] See The Scope of Fair Use: Hearing before the Subcomm. on the Courts, Intellectual Property and the Internet of the H. Comm. on the Judiciary, 113th Cong. (Jan. 28, 2014) (statement of David Lowery)

                  [3] See #IRespectMusic campaign, available at https://www.irespectmusic.org.

                  [4] See Reps. Issa, Deutch Introduce Bill to Ensure Artists Receive Fair Pay for FM/AM Radio Airplay (June 21, 2021) available at https://issa.house.gov/media/press-releases/reps-issa-deutch-introduce-bill-ensure-artists-receive-fair-pay-fmam-radio.

                  [5] Google LLC v. Oracle America, Inc., 593 U.S. ___ (2021), Brief of Amici Curiae Helienne Lindvall, David Lowery, Blake Morgan and the Songwriters Guild of America in support of Respondent (2021) available at https://www.supremecourt.gov/DocketPDF/18/18-956/133298/20200218155210566_18-956%20bsac%20Helienne%20Lindvall%20et%20al–PDFA.pdf.

                  [6] Motion To Adopt Settlement Of Statutory Royalty Rates and Terms For Subpart B Configurations, Docket No. 21-CRB-0001-PR (2023-2027) hereafter the “Motion.”

                  [7] See, e.g., 17 U.S.C. §115(c)(1)(D).

                  [8] We invite the Judges to take notice of the relationships at the board level between the NMPA and the NSAI which is beyond the scope of the comment, but we think the Judges may find very relevant for discussions of negotiating authority and the scope of designation of a common agent.

                  [9] It must be noted that the NMPA board and the NSAI board share members from time to time.

                  [10] We are mindful of the result of the WTO arbitration over the Fairness in Music Licensing Act that found the United States liable for damages in violating the TRIPS Agreement. See WT/DS160/12 (Jan. 15, 2001) available at https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(@Symbol=%20wt/ds160/*)%20and%20(@Title=%20((arbitration%20under%20article%2021.3)%20and%20((award%20of%20the%20arbitrator)%20or%20(report%20of%20the%20arbitrator))))&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true#,

                  [11] See, e.g., United States v. Arthrex, Inc., 594 U.S. ____ (2021).

                  [12] Motion at 4.

                  [13]  The Cambridge English Dictionary defines “consensus” as either a “generally accepted opinion” or a “wide agreement,” neither of which apply to frozen mechanicals.

                  [14] Paul Resnikoff, AMLC Board Member Accuses NMPA President David Israelite of Tortious Business Interference and Collusion, Digital Music News (Nov. 28, 2018) available at https://www.digitalmusicnews.com/2018/11/28/amlc-nmpa-president-david-israelite-collusion/

                  [15] Thomas Jefferson, First Inaugural Address (1801) (“All too will bear in mind this sacred principle, that though the will of the majority is in all cases to prevail, that will, to be rightful, must be reasonable; that the minority possess their equal rights, which equal laws must protect, and to violate would be oppression.”)(emphasis added); James Madison, Federalist Papers 10 and 51.  John Locke, Second Treatise of Government (1689) at par. 95 (“[N]o one can be put out of [his property], and subjected to the political power of another, without his own consent.”)

            [16] The tradition of concern with the familiar “tyranny of the majority” sounds in discussions of representative government, the concern being that the majority that gives a representative quorum in a body also could lead to disastrous consequences for the minority.  This is particularly true when the governed have rules imposed on them that they had no part in crafting by persons they had no part in electing.  Washington expressed it well and highlights the very point before this Court today:  “To be fearful of vesting Congress, constituted as that body is, with ample authorities for national purposes, appears to me the very climax of popular absurdity and madness. Could Congress exert them for the detriment of the public without injuring themselves in an equal or greater proportion? Are not their interests inseparably connected with those of their constituents? By the rotation of appointment must they not mingle frequently with the mass of citizens? Is it not rather to be apprehended, if they were possessed of the power before described, that the individual members would be induced to use them, on many occasions, very timidly and inefficaciously for fear of losing their popularity and future election?”  George Washington, “To John Jay,” August 15, 1786, The Papers of George Washington, “Confederation Series,” Vol. 4 (1976) at 212–13 (emphasis added).  If the truth is as we apprehend it, that a dedicated group of essentially unelected likeminded people known for extracting vengeance from anyone who dares question them got in a private room at a private meeting and decided the fate of the world’s songwriters was their unelected remit, then this is not even a vote fulfilling the tyranny of the majority because there was no vote and there was no majority—just tyranny.  de Tocqueville admonishes that “[t]he despotism of faction is not less to be dreaded than the despotism of an individual.”  Alexis de Tocqueville, Democracy in America, Vol. 2, Ch. XIV (1840) at 289.

                  [17] This is particularly relevant in the case of a songwriter who has entered one of the various publishing, co-publishing or administration agreements commonly in use in the music business.  If publisher X intends to be bound by the settlement, yet does not act under its own name in the settlement, songwriters “signed” to publisher X have no way of knowing if they are to be bound.  While certain relationships can be inferred, it seems that there should be clarity regarding the parties to such a watershed agreement.

                  [18] Letter from Hon. Lloyd Doggett to Librarian of Congress Dr. Carla Hayden and Register of Copyrights Shira Perlmutter (July 13, 2021), available at https://thetrichordist.files.wordpress.com/2021/07/letter-library-of-congress-register-of-copyrights-7.13.21.pdf hereafter “Letter”.

                  [19] “Concurrent with the settlement, the Joint Record Company Participants and NMPA have separately entered into a memorandum of understanding addressing certain negotiated licensing processes and late fee waivers.” Motion at 3.

            [20] The “MOU” description and “late fee waiver” reference brings to mind another late fee “MOU” being the NMPA Late Fee Program available at http://www.nmpalatefeesettlement.com/mou2/index.php.  If this MOU is a version of that MOU, it could be a substantial sum.  (“The Record Companies have represented there is approximately $275 million in “pending and unmatched” accrued royalties (the “P&U Royalties”) that have not been distributed to the music publishers. In exchange for waivers of certain late fees through 2012, the Record Companies must comply with the provisions of the MOU, including paying participating music publishers and foreign societies their respective market share of accrued P&U Royalties.”  Available at http://www.nmpalatefeesettlement.com/group_1/summary.pdf)

                  [21] For example, see the Songclaims.com portal used to implement the Spotify class action settlement.

                  [22] 17 U.S.C. §§ 112, 114(d)(2).

                 [23] 17 U.S.C. §§ 115(b)(1) and (3).

                  [24] It is worth noting that we have been unable to find any reference to the unitary buyer/seller in any of the public comments or legislative history regarding the Music Modernization Act.  In fact, the NMPA’s “pitch sheet” entitled Music Modernization Act (MMA): Bringing Songwriters into the Digital Age (Dec. 28, 2017) states that the new MMA rate standard establishes “[r]ates based on what a willing buyer and a willing seller would agree to reflect market negotiations” in contrast to the 801(b) standard that resulted in “below-market rates.”

                  [25] Digital Culture Media and Sport Committee, Economics of Music Streaming (Second Report of Session 2021-22), UK Parliament (July 15, 2021) available at https://committees.parliament.uk/publications/6739/documents/71977/default/.

                  [26] Id. at 3 and 105.

                  [27] Id. at 71 (emphasis added).

                  [28] Tina Benitez-Eves, Vinyl Record Sales up 108.2% in First Half of 2021, American Songwriter (July 16, 2021) (“For the past 15 years, vinyl record sales have seen consecutive growth, despite the continued uptick of digital consumption in the U.S. and drop in sales and backup in production due to the pandemic.”)  available at https://americansongwriter.com/vinyl-record-sales-up-108-2-in-first-half-of-2021/;  Sarah Whitten, Music Fans Pushed Sales of Vinyl Albums Higher, Outpacing CDs, Even As Pandemic Sidelined Stadium Tours, CNBC (July 14, 2021) (“Music consumption in the first half of the year has remained robust even without the sold-out stadium tours, according to a new report. While on-demand audio streaming is up 15%, consumers are also looking to own more tangible collectibles like vinyl albums, which continue to surpass CD sales. In the first six months of 2021, 19.2 million vinyl albums were sold, outpacing CD volume of 18.9 million, according to MRC Data, an analytics firm that specializes in collecting data from the entertainment and music industries.”) available at https://www.msn.com/en-us/entertainment/news/music-fans-pushed-sales-of-vinyl-albums-higher-outpacing-cds-even-as-pandemic-sidelined-stadium-tours/ar-AAM6S31; Ed Christman, Audio Streams Up 15%, Vinyl Sales Double in First Half of 2021, Billboard (July 15, 2021) (“Vinyl sales, which have grown for the past decade, more than doubled between January and June, up 108.2% to 19.2 million from 9.2 million in the first six months of last year. Even CD sales, which have been steadily and precipitously declining, posted a modest 2.2% gain, to 18.9 million units. The only serious loss was in digital sales: Album downloads fell 26.8%, to 12.92 million, while track sales dropped 20.3%, to 101.8 million. But physical sales rose so much that, for the first time in years, total album sales rose, by 12.6% to 51.26 million.”) available at https://www.msn.com/en-us/music/news/audio-streams-up-15-vinyl-sales-double-in-first-half-of-2021/ar-AAM9Sk7); Sam Willings, Sainsbury’s Supermarket Will Stop Selling CDs, Sale of Vinyl Records Will Continue (July 13, 2021) (“A spokesperson for the British Phonographic Industry (BPI) told the BBC that “The CD has proved exceptionally successful for nearly 40 years and remains a format of choice for many music fans who value sound quality, convenience and collectability.”  They continued: “Although demand has been following a long-term trend as consumers increasingly transition to streaming, resilient demand is likely to continue for many years, enhanced by special editions and other collectable releases.”) available at https://www.musictech.net/news/sainsburys-supermarket-will-stop-selling-cds-sale-of-vinyl-records-to-continue/; Andre Paine, Record Store Day set to deliver another summer boost for vinyl sales, Music Week (July 15, 2021)(“ Participating shops will be expecting queues from the early hours as fans and record collectors seek out rare and exclusive vinyl titles being released especially for the day.”) available at https://www.musicweek.com/labels/read/record-store-day-set-to-deliver-another-summer-boost-for-vinyl-sales/083710; Sage Anderson, Barnes & Noble ‘Vinyl Weekend’ Launches With Grateful Dead, Fleetwood Mac Exclusives, Rolling Stone (July 15, 2021)(“Barnes & Noble may be known for their cozy bookstores and massive collective of great reads across all genres, but the retailer has also just announced the return of their fan-favorite “Vinyl Weekend,” which offers dozens of limited-edition records and exclusive in-store and online specials.”) available at https://www.rollingstone.com/product-recommendations/lifestyle/barnes-and-noble-vinyl-turntable-sale-1197904/. 

                  [29] L.B. Cantrell, NSAI Songwriters Respond to Criticism of Decision not to Challenge Physical Mechanical Rates, Music Row (June 2, 2021)(“Based on industry revenue analysis, it is anticipated that physical mechanical royalties will amount to less than 1% of the total mechanical royalty revenue in the United States during 2023-2028, the rate period this CRB proceeding covers.”) available at https://musicrow.com/2021/06/nsai-songwriters-respond-to-criticism-of-decision-not-to-challenge-physical-royalty-rates/.

                  [30] Erin Osman, “It’s a Total Nightmare”: Problems at Direct Shot Distributing Has Made New Vinyl and CDs Scarce, Billboard (Dec. 18, 2019) (“Since April, record stores and labels have been plagued by a distribution bottleneck that began when Warner Music Group moved its physical product to Direct Shot Distributing (DSD). The change made DSD, which also has contracts with Universal and Sony, one of the largest distributors of physical music in the country. The problem became apparent on April 13 — Record Store Day, the busiest and most profitable day of the year for many retailers — when some stores didn’t receive the exclusive releases they had ordered. Since then, the problem has gotten worse.”), available at https://www.billboard.com/articles/business/8546794/direct-shot-distributing-problems-vinyl-cds-physical-product.

                  [31] Allison Hussey, A Major Music Distributor Has Stifled Vinyl Sales for Record Stores and Indie Distributors, Sources Say, Pitchfork (Dec. 19, 2019) available at https://pitchfork.com/thepitch/a-major-music-distributor-has-stifled-vinyl-sales-for-record-stores-and-indie-labels-sources-say/.

                  [32] David Rowan, Daniel Ek: Europe’s Greatest Digital Influencer Tops Wired 100, Wired (May 16, 2014) available at https://www.wired.co.uk/article/wired-100-daniel-ek.

                  [33] “Thriving on scorn from the establishment since 2015”, http://www.artistrightswatch.com               

[34] Artist Rights Watch, Songwriter Mechanical Royalty Income Questionnaire June-July 2021 to be made available at http://www.artistrightswatch.com and results available from the commenters (N=54).

                  [35] https://recordmecca.com/about/

                  [36] Available from the authors.

                  [37] See, e.g., https://recordstoreday.com

                  [38] See, e.g., Artist Rights Watch Podcast Episode 1 “Frozen Mechanicals” available at https://podcasts.apple.com/us/podcast/the-artist-rights-watch/id1574250584; The Trichordist.com “frozen mechanicals” category https://thetrichordist.com/category/frozen-mechanicals/

                  [39] We are likewise unaware of any provision of the Copyright Act or regulations promulgated there under that provides for a sales-based determination of any particular rate.  Such an argument appears to be exactly what underlies the NMPA and NSAI acquiescence to frozen rates but it simply is not the law that the fewer phonorecords sold the lower the royalty rate that the CRB may set.

                  [40] There may be other side agreements that are not disclosed in the Motion.

                  [41] Ed Christman, Less Could Be More:  Why Merlin’s Deal with Pandora May Pay Off, Billboard (Dec. 11, 2014) (emphasis added).

                  [42] U.S. Bureau of Labor Statistics, CPI Inflation Calculator available at https://www.bls.gov/data/inflation_calculator.htm.

                  [43] The minimum statutory royalty rate in effect during the 1992-93 period was 6.25¢.  U.S. Copyright Office, Mechanical License Royalty Rates (Sept. 2018) available at https://www.copyright.gov/licensing/m200a.pdf.

                  [44] Respectfully, the Congress missed an opportunity to strike a blow for fairness in the Copyright Act of 1976 when it failed to index the 2¢ rate retroactively and instead treated a 70-year wage and price control as thought there were nothing to see here.  Had Congress indexed the rate retroactively and then increased the rate prospectively based on value and indexed to inflation, songwriters would be exponentially better off.  When songwriters complain to the CRB that they struggle to make a living, it is this decades long dark hole of the 2¢ rate freeze that is a major contributing factor and apparently punishment for some long-forgotten original sin.  While the CRB is not tasked to fix all the songwriters’ financial woes, an argument could be made that it is at least partly responsible for fixing the ones cause by the government or at least not making it any worse by taking actions such as freezing mechanical royalty rates for twenty years.

#FrozenMechanical Crisis: @RosanneCash’s Must-Read Comment to Copyright Royalty Board

[Rosanne Cash brings a heartfelt and vitally important songwriter’s perspective to the Copyright Royalty Board’s public comments on the frozen mechanical rulemaking. Download and share her comment at this link.]

Rosanne Cash

New York, NY

Copyright Royalty Judge David R. Strickler
Chief Copyright Royalty Judge Jesse M. Feder
Copyright Royalty Judge Steven Ruwe

US Copyright Royalty Board
101 Independence Avenue S.E.
Washington, DC 20024

Your Honors:

Electronically Filed

Docket: 21-CRB-0001-PR (2023-2027) Filing Date: 08/02/2021 03:16:26 PM EDT

I welcome this opportunity to comment on the review of rates and terms for royalties for songwriters. Songwriting is an honorable profession, and a lifelong vocation with the same discipline, attention to detail, and devotion to craft as every other creative pursuit which elevates our humanity and expresses our deepest feelings. ‘It all begins with a song’, as a recent documentary about songwriters was titled.

I am a guest teacher in music and writing departments at various universities around the country— Yale, NYU, University of Iowa, University of Pennsylvania, and more, as well as a songwriter for forty-plus years. I’m enormously grateful for the gift of being able to weave poetry and stories into melodies, and have applied a rigorous discipline to better myself in my work over the decades. The intensity of purpose and willingness to work hard which I see in young songwriters when I hold writing workshops is heartwarming, and often heartbreaking, because I know so few of them will actually ‘make it’ in the music business.

One of the most reliable ways a songwriter can still make a minimum-to-decent wage is through mechanical royalties from sales of songs— both download and physical purchases— but the small percentage of these sales going to songwriters has not been raised or even been adjusted for inflation since the rate was set 15 years ago. Vinyl sales are increasing— which is wonderful news for creators. Young music consumers are newly enamored of vinyl records. They want something they can own, and hold in their hands. They want to read liner notes and pull out the inserts and see who the musicians are, and who wrote the songs, and read the lyrics. I am by no means a young or new artist, but even my audience is slowly turning back to vinyl, as partly evidenced by the number of vinyl records I sign after each show.

There are many things that need to be changed to support the creative class and show writers and artists that they are valued members of society, and that they deserve to be paid for their work as much as any other professional who provides service— and we are indeed a service industry, albeit one for the heart and soul.

One easy change is to release songwriters from a 20 year freeze-out (to use a term from songwriter Bruce Springsteen, who, by the way, is doing fine financially, but I assume would want young songwriters coming up behind him to also do fine), to increase the rate, and adjust for inflation.

I value the next generation of songwriters deeply, and I don’t want to see an entire population give up their passion and their chosen vocation, because they can’t pay the rent. I am also fine financially (not as fine as Bruce or Beyonce, but who is?) but there are many, many struggling songwriters who critically depend on a fair rate for physical sales.

The need for fair pay in regards mechanical royalties from sales of songs is more dire because of the lack of fairness in compensation from streaming services. Streaming services are not in the music business. They are in the tech business, and they have built multi-billion dollar profit machines on the back of songwriters and musicians whom they use as loss-leader content. Again, a modicum of equity and fairness could be created for songwriters in a place that can be controlled by setting a fair rate, adjusted for inflation. It’s only a beginning in our determination to protect and value the creative population, but it’s a very real-world, common sense step, and I hope you consider who is behind the music that sustains, nurtures, and uplifts you in your lives, and adjust this critical royalty rate.

It all begins with a song.

Respectfully,

Rosanne Cash

Songwriter
Board member, Artist Rights Alliance

New York City August 1, 2021

#FrozenMechanicals Crisis: Comments to CRB by Twelve International Songwriter Groups Opposing Frozen Mechanicals Part 2

[Editor Charlie sez: This post demonstrates that no single songwriter group–including NSAI–speaks for every songwriter in the world and that songwriters around the world do not want their incomes smashed. So that’s a bit of a pickle.]

Part 2 of 2 parts, read part 1 here.

COPYRIGHT ROYALTY BOARD (CRB)

In re DOCKET NO. 21-CRB-0001-PR-(2023-2027)

Making and Distributing Phonorecords (Phonorecords IV)

Notice of Proposed Rulemaking re: 37 C.F.R. Part 385 Subpart B

Comments Submitted by the Songwriters Guild of America, Inc.,  the Society of Composers & Lyricists, Music Creators North America, and the individual music creators Rick Carnes and Ashley Irwin

These Comments Are Endorsed by the Following Music Creator Organizations:

Alliance for Women Film Composers (AWFC). https://theawfc.com

Alliance of Latin American Composers & Authors (AlcaMusica) https://www.alcamusica.org

Asia-Pacific Music Creators Alliance (APMA), https://apmaciam.wixsite.com/home/news

European Composers and Songwriters Alliance (ECSA), https://composeralliance.org

The Ivors Academy (IVORS), https://ivorsacademy.com 

Music Answers (M.A.), https://www.musicanswers.org

Pan-African Composers and Songwriters Alliance (PACSA), http://www.pacsa.org

Screen Composers Guild of Canada (SCGC), https://screencomposers.ca

Songwriters Association of Canada (SAC), http://www.songwriters.ca

[Continued from Part 1]

IV. Discussion of Objections By Independent Music Creators


A. The Willing Buyer-Willing Seller Standard and the Conflicts of Interest Inherent in the Present Settlement Negotiation Process

In evaluating whether the terms of the settlement proposal set forth in the May 25 Motion to Adopt “provide a reasonable basis for setting statutory terms or rates,” the US Copyright Act establishes a blueprint in §115(c)(1)(F) for determining the reasonability and adequacy of any such proposed, industry-wide agreement:   

The Copyright Royalty Judges shall establish rates and terms that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller(emphasis added).

The US Treasury Department provides further insight into the “willing buyer-willing seller” construct in the Code of Federal Regulations:[21]

Valuation of Property; in general:  The value of the property is the price at which such property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of relevant facts (emphasis added).

Thus, while under certain circumstances the US Copyright Act provides that private agreements and licenses may be entered into between copyright owners and prospective users that apply various other indicia and metrics to gauge the advisability of one particular royalty rate over another, that latitude does not exist in regard to proposals for the adoption of industry-wide settlements by the CRB “binding on all copyright owners of musical works” per §801(b)(7)(A).

The circumstances under which the settlement negotiations were conducted that produced the proposed royalty rate freeze set forth in the May 25 Motion to Adopt can be fairly characterized  –under the above standards– as being exactly the opposite of what both Congress and the Executive Branch have in mind in defining “reasonability” under the “willing seller-willing buyer” formula.  Rather than arm’s length negotiations between parties on opposites sides of the table, the referenced discussions that produced the settlement agreement instead seem to have taken place solely among vertically integrated parties and their trade association agents, apparently with little or no input from independent music creators and copyright owners[22] upon whom “those rates and terms [will be] binding.”

More to the point, the corporate parties participating in such settlement discussions could by definition plausibly have been compromised by the conflicts of interest inherent in the fact that the corporate overseers of each major label participating in the “negotiation” likewise control the affiliated music publishers of each such label.  UMG is not only one of the three largest record labels in the world, it also is one of the world’s three largest music publisher owners of copyrights in musical compositions, with both UMG entities reporting to the same corporate ownership (Vivendi, Inc. of France).[23]  The same holds true for both WMG (in regard to the multinational corporation Access Industries headquartered in New York)[24] and SME (in regard to the Sony Corporation of Japan).[25]  

Together, these three international conglomerates control close to 70% of the market for sound recordings and musical compositions in the world.[26]  All three represent both sides in any Subpart B mechanical royalty rate discussions, rendering the concept of “willing buyer-willing seller” almost farcical in relation to fashioning a fair proposal to the CRB.  Simply put, in this case, the buyers are the sellers (and the prospective licensors are the prospective licensees). 


NMPA’s role in these negotiations was, and is, as the trade association for music publishers operating in the US, including the above-mentioned major music publishing firms that serve as their most powerful and influential board members by far– and who answer to the same owners as those against whom they and NMPA are allegedly negotiating.  It is unclear what level of input independent music publishers were enabled to exercise in the negotiations, including those with representatives on the board of the trade association.  

In regard to NSAI, its demonstrably uniform alignment with NMPA on a broad array of music industry issues over recent years has in our view appeared so unwavering as to approach potential inseparability.  As a result, we believe we are correct to be concerned that the organization cannot be said in this instance to represent music creator rights and interests in an independent, unbiased manner.  In an informal survey conducted by the well-respected music industry publication Trichordist, to our knowledge not a single music creator entity (either organizational or individual) responded that it intended to join NSAI and its narrow membership in support of the “royalty freeze” proposal.[27]  Organizations and individuals representing hundreds of thousands of songwriters, composers and lyricists, on the other hand, have publicly voiced objection to the proposed royalty rate freeze. 

Based upon these facts and circumstances alone, the settlement agreement produced by the Settling Parties can in no way be considered to have been fashioned upon “willing buyer-willing seller” principles.  As such, respectfully, it should not be relied upon as the basis for a conclusion by the CRB that the proposed settlement “[provides] a reasonable basis for setting statutory terms or rates,” per §801(b)(7)(A) of the Copyright Act and otherwise.

B. Lack of Transparency in the Negotiating and Settlement Process

As previously noted, the Independent Music Creator Community remains additionally concerned over the general lack of transparency that has marked the entire process described above.  We are especially disquieted by the unexplained contents of a “separate Memorandum of Understanding addressing certain related issues” referenced in the March 2 Notice as having been negotiated among the three major labels and publishers and NMPA, with the conspicuous absence of NSAI. 

Has such an MOU been presented to the CRB for approval or adoption?  Has it been seen by NSAI?  Is NSAI endorsing it?  These are important, additional details and questions that require comprehensive answers to complete a full evaluation of any settlement alleged to be reasonable and based upon “willing buyer-willing seller” principles.

Further on the issue of transparency, we also are compelled to raise the issue of NSAI’s public statements purportedly made to explain its support for a five-year continuation of the Subpart B royalty rate freeze. These statements give insight into the level of factual distortion that may have been foisted upon NSAI during negotiations, and that may have hampered it in evaluating the advisability of the settlement, as discussed below.

C. Misleading Mechanical Royalty Statistics

In an open letter to its “Fellow Songwriters and Composers” published by NSAI on or about June 2, 2021,[28] the organization presented the following analysis of its position in favor of continuing the Subpart B royalty freeze:

Based on industry revenue analysis, it is anticipated that physical mechanical royalties will amount to less than 1% of the total mechanical royalty revenue in the United States during 2023-2028, the rate period this CRB proceeding covers [sic]. History and experience told us not to create a powerful opponent when there is a strong possibility of losing with little to gain. So, we decided to focus on the digital streaming services and streaming rates during the next trial. While 1% of revenue is meaningful, waging war was not worth the risk, especially since the rate may have been lowered!

The statistics presented by NSAI in its statement are patently misleading and/or incorrect, contradicted by data published by the principle trade association of US recording companies, the Recording Industry Association of America (RIAA) (a participating party in the Phonorecords IV proceeding).  According to the RIAA’s Year-End 2020 Revenue Report,[29] the record industry’s total US revenues in both 2019 and 2020 from the combined categories of physical phonorecords and permanent downloads surpassed $1 billion in each of those years, correlating on a percentage basis to 14.3% of total revenues in 2020 and 17% of total revenues in 2019:

RIAA US RECORDING REVENUES (rounded)     2020                                        2019

VINYL                                                                      $620M (5.1%)                        $480M (4.3%)

CDs                                                                         $483M (4.0%)                        $631M (5.7%)

DOWNLOADED ALBUMS                                     $320M (2.6%)                        $369M (3.3%)

DOWNLOADED SINGLES                                      $312M (2.6%)                        $408M (3.7%)

TOTAL PERCENTAGES                                            14.3%                                      17.0%

The data published by the International Federation of the Phonographic Industry (IFPI) for 2020 regarding global recorded music revenues is even more starkly indicative of the continuing statistical and economic importance of physical phonorecords and permanent downloads.  According to IFPI, those two categories combined for over 25% of total worldwide earnings.[30]

On the basis of these numbers, it would seem a near impossibility for mechanical royalties attributable to physical phonorecords and permanent downloads (projected by NSAI to be less than 1% of US mechanical revenues by 2027) to represent anywhere near such a tiny comparable percentage to total recording revenue in the same categories.  That is especially so when one takes into account the fact that recording revenues from vinyl recordings are actually growing at a substantial rate (a 30% increase in 2020), not diminishing.  In fact, recent reports for the first half of 2021 indicate that this vinyl growth trend is actually accelerating.  Vinyl sales in quarters one and two of 2021 reportedly rose a whopping 108% over the same period in 2020,[31] and demand for vinyl records is outpacing manufacturing capabilities on both a national and global basis.[32] 

Thus, while no one can plausibly argue that “traditional” mechanical uses of music have not shifted significantly toward streaming on demand in the digital age, that is not to say that Subpart B uses in the US are disappearing or anything close to it.  Subpart B mechanical royalty income remains a substantial and continuing revenue source for many music creators and independent music publishers, almost certainly amounting to tens of millions of dollars per year out of the $823.5 million in mechanical royalties NMPA reports are generated annually in the US.[33]  

And make no mistake about it.  Those tens of millions in annual Subpart B revenues are keeping thousands of songwriters and composers financially afloat in an age that continues to be dominated by unlicensed uses of music on the Internet, and far-below market value royalty rates being paid for music streaming.  The freezing of the Subpart B royalty rate starting in 2006 has inarguably caused significant financial harm to creators in an era when they could least afford it. 

One independent music publishing company owner with substantial, practical insight into this issue, recently offered the following observations:

The royalty amount for digital streams is a micro-penny. Unless we are talking about top songwriters with hundreds of millions to billions of streams, there is an excellent chance he or she still may be driving an Uber to support a family.  It literally takes hundreds of streams to equal the 9.1 cent mechanical publishers receive for a physical sale or download.  That’s why the physical and download mechanical rate is so important to independent creators, and especially to those just starting out.

Vinyl sales are still strong among many retailers, including Amazon. CDs remain a significant media format, and many listeners still prefer to ‘own’ rather than temporarily cache the music they listen to.  Major music publishers do not face the same struggles as independent publishers and songwriters. They are part of multi-national conglomerates that own both the major publishers and major record labels. Major publishers that agree to freeze the statutory rate are simply leaving more money in the pockets of the labels that are their sister companies.  We, on the other hand, are trying to preserve the only sources of revenue that we have.  We don’t have another pocket.  That’s why we must fight to be heard.[34]

D. NFTs

On a very much related issue, the emergence of non-fungible tokens (NFTs) and related block chain technologies seem to have been glaringly omitted from the mechanical royalty analysis presented in NSAI’s informal statement and explanations of the proposed Subpart B settlement.   Although the longevity periods of such trends are notoriously difficult to predict, NFTs appear to be forming the basis of new, specialized and mainstream music products and associated downloads. 

As a category of recording industry revenues, NFT estimates for 2020-21 are in the tens of millions of dollars (out of billions of dollars in NFT earnings in all categories during that period so far).[35]  The question of whether this issue was raised in the Phonorecords IV Subpart B settlement negotiations is an important one, on both a conceptual and a financial basis.  Given the wide range of NFT supported consumer products that may be introduced in the near future, it is not a phenomenon that can be prudently ignored in light of its significant potential effects on the future of US and global mechanical royalties.

NFTs, which by definition are regarded as electronic and non-fungible, have since their introduction in the music realm often been bundled with specialty physical product and downloads to increase their total value.  We pose the rhetorical question of whether there shouldn’t be a conversation taking place at the CRB level as to whether an NFT that is purchased for hundreds, thousands or even millions of dollars (as some recently have been), and which includes a bundled, sometimes unique physical sound carrier or download component, shouldn’t produce more than a one-time, 9.1 cent revenue payment for music creators and copyright administrators?  Are these really sales to the public for private use under §115 of the Copyright Act, and what royalty rate should apply to them?   Might a fixed percentage of the sale price realized be a more equitable means of compensating music creators in such situations?    Millions of dollars in songwriter, composer and independent music publisher revenue may be riding on the answers to those questions.  

On a much broader scale, the same holds true for recorded physical products and downloads that are sold to the general public as part of mainstream NFT packages now and in the future.  Some industry analysts are predicting a further, significant resurgence of vinyl sales and downloads predicated on an NFT boom that will drive purchases of products such as artist box sets and other music collections and compilations.  As we stand on the threshold of what might be a new era reliant in important part on NFT music distribution, the extension of a new, five-year freeze on already frozen Subpart B mechanical rates would further exclude the creative community from participation in the real and potential rewards such new technologies are intended to generate.

While the future may not be clear, the fact that these issues deserve full, public airings and careful consideration before the CRB certainly is.  We should not and cannot permit silent acquiescence through privately negotiated, confidential agreements, to control the future of NFT-related mechanical royalties.  Moreover, we cannot help but wonder whether the NFT issue has been relegated to the unknown contents of the Settling Parties’ MOU (at least executed and possibly negotiated without the participation of NSAI), which we expect may be claimed by those same Settling Parties to be subject to non-disclosure requirements (including those set forth in the protective order in place for these proceedings). 

These are issues of serious concern and great financial importance to the independent music creator community.  We urge that they be addressed transparently and publicly as part of the Phonorecords IV Subpart B proceedings.  At the very minimum, it also seems that NFTs should be excluded from the “music bundles” contemplated by Subpart B.

E. Economic Bars to Effective Music Creator Participation

There is one additional, extremely important issue raised by NSAI’s explanatory statement upon which we believe it is essential to comment.  It concerns the financial ability of independent music creators to participate in CRB proceedings, and the severely compromised bargaining positions of music creators when it comes to the negotiation of so-called “industry settlements” under the current CRB rate setting system.

In defending its position in favor of the continuing Subpart B royalty rate freeze in Phonorecords IV, NSAI offered the following observation:

The question songwriters and composers should be asking is why these false critics [apparently referring to all other music creator organizations] did not participate in the trial [sic] themselves. Any of these groups or individuals could have participated, but they did not even try.

That position presents an interesting juxtaposition to this prior assertion made by NSAI within the same published statement:

What these critics are not telling you is that we did fight that battle in 2006, during CRB I, when we asked the Copyright Royalty Board to increase the physical rate, while critics were nowhere to be found.[36]  [footnote added] Instead, after our side spent more than $20 million, the judges kept the rate exactly where it was, at 9.1 cents [emphasis added].

The point made by NSAI about the necessity of huge participatory expenditures goes a long way toward explaining why the only “songwriter group” participating in the Phonorecords IV settlement discussions is NSAI.[37]  Other music creator organizations do not have millions of dollars –or anything close to it– to allow their full participation in CRB proceedings.  Neither, in reality, does NSAI.  In fact, we wonder how NSAI continues to be able to participate in $20 million battles without accepting support from other groups on its “side” whose conflicted goals and actions may be antithetical to songwriter interests, both long and short term.

Much has changed since 2006.  In practice, the prohibitive costs of participating in CRB rate setting proceedings now form a nearly impenetrable barrier to entry for any independent music creator group wishing to participate while maintaining its autonomy. To participate generally means to acquiesce to those music publishing mega-corporations with the funds to remain in control of the negotiation, settlement and/or litigation process, including the conflicted major music publisher affiliates of the major record labels (some of whom purportedly utilize revenues charged back to their songwriters and composers to pay for positions taken before the CRB that are incompatible with those same music creators’ interests—such as the approval of frozen royalty rates). 

Thus has the current Phonorecords IV Subpart B settlement negotiation process continued to move forward without independent music creator input, tainted by the appearance of conflicts of interest created through vertical integration.  Unsurprisingly, the resulting “settlements” now unfairly threaten to harm the ability of music creators to argue successfully for substantial and desperately needed increases in streaming royalty rates. 

In that regard, shortly after the March 2 Notice was filed by the Settling Parties concerning their anticipated agreement to again freeze Subpart B royalty rates in Phonorecords IV, a witness for the music streaming company Pandora in the Phonorecords III Remand proceeding filed testimony citing the March 2 Notice as proof that frozen or diminished streaming royalty rates are similarly needed as a matter of both sound policy and fairness.[38]   

This predictable backfiring of the Settling Parties’ “roll forward” strategy is likely to be the catalyst for many more, baseless claims by other members of the digital distribution community desperately seeking to avoid paying market value streaming royalty rates under the Phonorecord III Remand and the Phonorecord IV proceeding.  That sad eventuality raises even more complex, potential conflict of interest issues concerning past or current cross ownership/investment arrangements between record companies and digital distributors too labyrinthian to detail in these Comments, but worthy of future consideration.  For now, however, we should consider that the ability of a stronger, broader group of independent music creator organizations and representatives to affordably participate in future CRB rate setting proceedings might avoid many of these unfair and counter-productive results.  It is an inquiry that we believe is worth pursuing through the US Copyright Office.

In the meanwhile, to independent music creator organizations such as ours and our colleagues, the choice to officially participate in the Phonorecords IV proceedings (especially regarding the Subpart B settlement negotiations) as second-class citizens on an economically tilted playing field remained no choice at all.  We instead have chosen to rely on the comments process, and our belief in the authority and wisdom of the CRB to ensure that the principles set forth in §§115 and 801 of the US Copyright Act, among others, are diligently applied.

To us, the events of 2006 occurred too long ago to be used as a pretext not to fight now for higher, more equitable Subpart B mechanical royalty rates, which in the interim have been devalued by a third simply due to inflation, inflicting significant economic harm on creators.  Rather, we submit as independent music creator representatives that the circumstances described throughout these Comments demonstrate beyond doubt –despite the endorsement by NSAI of the Subpart B royalty rate freeze in Phonorecords IV—that the proposed settlement does not come close to providing a reasonable basis for setting royalty rate standards arrived at through a willing buyer-willing seller process.

V. Recommendations

In light of the foregoing, and with likely hundreds of millions of dollars of music creator income at stake for the future rate periods under consideration in Phonorecords IV, the independent music creator signatories to these Comments respectfully submit the following recommendations in regard to this Rulemaking:

  1. For the reasons stated throughout these Comments, we urge the CRB to decline to adopt the settlement agreement as a basis for statutory rates and terms.   Adoption of the settlement and the rules as proposed would represent a miscarriage of justice, placing the imprimatur of the CRB on a negotiation and settlement process that was unfair, non-transparent, and may have been conducted under circumstances that were anything but reasonable pursuant to (and setting crucial precedent for) the required “willing buyer-willing seller” standard.
    
  2. We further urge that the CRB publish for comment at the earliest possible time the full text of the settlement
    agreement as submitted by the Settling Parties, and the MOU referenced in the March 2 Notice.  As Congressman Lloyd Doggett of Texas wrote to the Librarian of Congress and the Register of Copyrights on July 18, 2021, “it seems appropriate that every songwriter who will be affected by the outcome of this proceeding, from San Antonio and Austin, Memphis, to Detroit and beyond, should have the opportunity to read and comment meaningfully on the actual settlement agreement posed for adoption, and the related MOU referenced.”[39]
    
  3. We urge that at minimum, new royalty rates be made applicable to Subpart B uses pursuant to Phonorecords IV, adjusted to reflect changes in the CPI since 2006 as a starting point, and further adjusted according to changes in the CPI each year thereafter (with a permanent floor of 9.1 cents and corresponding per minute rates for physical phonorecords and permanent downloads).   Precedent and support for such a prospective adjustment methodology can be found in §805 of the Copyright Act,[40] as well as in the CPI-based mechanical royalty rate adjustments applied during the period January 1, 1990 through December 31, 1997,[41] and recent §114 decisions, among other sources.  Moreover, at a minimum, it seems that NFTs should also be excluded from the “music bundles” contemplated by Subpart B.  If the Settling Parties wish to establish different rates through private agreements for themselves, that is their prerogative.  Non-participants in such settlements and agreements, however, should not be tied to such settlements and agreements (especially ones not negotiated at arm’s length) by the CRB.
    
  4. We urge that the CRB recommend the undertaking of a study by the US Copyright Office to improve the ability of independent music creators and music publishers to more fully participate in CRB proceedings at reasonable cost.  The current inability of all but the major music publishers and their affiliated music publisher and music creator groups to effectively participate in CRB proceedings due to the costs of such participation must be effectively addressed.  Until then, it is incumbent upon the CRB to help level the playing field by taking into account the interests and predicaments of the independent music creator community, whose Constitutional, creative and economic interests the US Copyright Act is primarily intended to protect pursuant to Article I, §8 of the US Constitution.

VI. Conclusion

We thank the Copyright Royalty Judges and the CRB for this opportunity to participate in the Phonorecord IV proceedings through the submission of these Comments.

Respectfully submitted,

    

Rick Carnes                                                    Ashley Irwin

President, Songwriters Guild of America      President, Society of Composers and Lyricists

Officer, Music Creators North America         Co-Chair, Music Creators North America



List of Other Supporting Organizations

Alliance for Women Film Composers (AWFC). https://theawfc.com

Alliance of Latin American Composers & Authors (AlcaMusica) https://www.alcamusica.org

Asia-Pacific Music Creators Alliance (APMA), https://apmaciam.wixsite.com/home/news

European Composers and Songwriters Alliance (ECSA), https://composeralliance.org

The Ivors Academy (IVORS), https://ivorsacademy.com

Music Answers (M.A.), https://www.musicanswers.org

Pan-African Composers and Songwriters Alliance (PACSA), http://www.pacsa.org

Screen Composers Guild of Canada (SCGC), https://screencomposers.ca

Songwriters Association of Canada (SAC), http://www.songwriters.ca

cc:    Charles J. Sanders, Esq.

         Ms. Carla Hayden, US Librarian of Congress

         Ms. Shira Perlmutter, US Register of Copyrights

         Mr. Eddie Schwartz, President, MCNA and International Council of Music Creators (CIAM)

         The Members of the US Senate and House Sub-Committees on Intellectual Property


[1] https://www.songwritersguild.com/site/index.php

[2] https://thescl.com/

[3]  https://www.musiccreatorsna.org

[4] https://www.songwritersguild.com/site/rick-carnes

[5] https://en.wikipedia.org/wiki/Ashley_Irwin

[6] https://www.fairtrademusicinternational.org/

[7] See, e.g., http://www.americanmusicpreservation.com/songwriters.htm

[8] https://www.bls.gov/data/inflation_calculator.htm

[9] See, e.g., https://escholarship.org/content/qt332557hg/qt332557hg.pdf

[10] https://copyright.gov/licensing/m200a.pdf

[11] https://www.bls.gov/data/inflation_calculator.htm

[12] Ibid..

[13] As songwriter and recording artist Michelle Shocked has so aptly commented on this issue, “many may forgive the past, but we do not forget it.”

[14] https://app.crb.gov/document/download/25288

[15]  https://app.crb.gov/document/download/23883

[16] https://www.musiccreatorsna.org/mcna-letter-regarding-fairness-and-transparency-on-frozen-mechanicals/

[17] https://thetrichordist.com/2021/05/25/coalition-of-songwriter-groups-ask-crb-wheres-the-motion-on-insider-deal-for-frozen-mechanicals/

[18] https://app.crb.gov/document/download/25288

[19] https://www.govinfo.gov/content/pkg/FR-2021-06-25/pdf/2021-12950.pdf     

[20] 801 (b) Functions.—Subject to the provisions of this chapter, the functions of the Copyright Royalty Judges shall be as follows:

…(7)(A). To adopt as a basis for statutory terms and rates or as a basis for the distribution of statutory royalty payments, an agreement concerning such matters reached among some or all of the participants in a proceeding at any time during the proceeding, except that—

(i) the Copyright Royalty Judges shall provide to those that would be bound by the terms, rates, or other determination set by any agreement in a proceeding to determine royalty rates an opportunity to comment on the agreement and shall provide to participants in the proceeding under section 803(b)(2) that would be bound by the terms, rates, or other determination set by the agreement an opportunity to comment on the agreement and object to its adoption as a basis for statutory terms and rates; and

(ii) the Copyright Royalty Judges may decline to adopt the agreement as a basis for statutory terms and rates for participants that are not parties to the agreement, if any participant described in clause (i) objects to the agreement and the Copyright Royalty Judges conclude, based on the record before them if one exists, that the agreement does not provide a reasonable basis for setting statutory terms or rates.

[21]  26 CFR § 25.2512-1

[22] See, e.g., Statement of Anthony Garnier, https://thetrichordist.com/category/frozen-mechanicals/.

[23] https://www.digitalmusicnews.com/2021/06/18/biggest-record-labels-of-2021/

[24] Ibid.

[25] Ibid

[26] Ibid

[27] See, https://thetrichordist.com/2021/06/07/the-ivors-academy-joins-the-no-frozen-mechanicals-campaign/

[28] https://musicrow.com/2021/06/nsai-songwriters-respond-to-criticism-of-decision-not-to-challenge-physical-royalty-rates/

[29] https://www.riaa.com/wp-content/uploads/2021/02/2020-Year-End-Music-Industry-Revenue-Report.pdf

[30] https://www.ifpi.org/our-industry/industry-data/

[31] https://www.cnbc.com/2021/07/13/music-fans-pushed-sales-of-vinyl-albums-higher-in-first-half-of-2021.html

[32] https://static.billboard.com/files/2021/06/june-08-2021-billboard-bulletin-1623187818.pdf

[33] https://www.royaltyexchange.com/blog/u-s-music-publishing-grows-nearly-10-to-over-4b-in-2020

[34] Comments of Abby North of North Music Group.  See also, “Hit Songwriters are Driving Ubers,”  https://www.bbc.com/news/entertainment-arts-55232418

[35]  See, e.g.,  https://variety.com/2021/music/news/nft-sales-imusic-business-wild-west-1234970419/;  https://www.businessinsider.com/how-crypto-art-muscians-primary-income-nfts-record-labels-2021-3; https://www.forbes.com/sites/forbesbusinesscouncil/2021/06/09/are-nfts-the-new-crypto-a-guide-to-understanding-non-fungible-tokens/?sh=51fc14763d95  

[36] It should be noted that SGA did participate in the 2006 CRB proceedings.  Moreover, perhaps the fact that “critics” in the music creator community were “nowhere to be found” in 2006 is because all espoused the same position in favor of a royalty rate increase for Subpart B uses. 

[37] As the Independent Music Creator signatories have previously pointed out in these Comments, one individual music creator is participating in the Phonorecords IV proceedings. As always, we admire the courage and energy of Mr. George Johnson, whose efforts are appreciated by his fellow creators.  However, as Mr. Johnson has often readily admitted, his ability to match the overwhelming firepower arrayed against him at every turn in these and other proceedings before the CRB severely diminishes his capacity to serve as an effective advocate, and frequently results in his total marginalization by other participants.

[38]  See pages 65-67 at  https://app.crb.gov/document/download/23858; https://thetrichordist.com/2021/06/25/guest-post-by-sealeinthedeal-a-foreseeable-result-of-the-phonorecords-iv-private-settlement-opening-pandoras-box/   

[39] https://thetrichordist.com/category/frozen-mechanicals/

[40] 805. General rule for voluntarily negotiated agreements

Any rates or terms under this title that—

(1) are agreed to by participants to a proceeding under section 803(3),

(2) are adopted by the Copyright Royalty Judges as part of a determination under this chapter, and

(3) are in effect for a period shorter than would otherwise apply under a determination pursuant to this chapter, shall remain in effect for such period of time as would otherwise apply under such determination, except that the Copyright Royalty Judges shall adjust the rates pursuant to the voluntary negotiations to reflect national monetary inflation during the additional period the rates remain in effect [emphasis added].

[41] https://copyright.gov/licensing/m200a.pdf