The upshot of the Judges’ ruling rejecting the extension of the frozen rates is that both George Johnson as a participant and a host of commenters brought up many valid points about problems with the settlement. I suppose the next step will be for the Judges to either set rates themselves and let the parties react to them or ask the parties to resubmit a new proposal in line with the Judge’s ruling.
Either way, the settlement is rejected and we have to thank the Judges who listened thoughtfully, George Johnson who toils alone representing himself (and the independent songwriter’s view) as an actual participant in the proceeding, and all the songwriters, independent publishers, lawyers and songwriter groups who took the time to comment. And of course a huge thank you to all the Trichordist readers who supported fairness and justice and all the heartfelt comments against frozen mechanicals.
The wheels of justice turn slowly, but they do turn. Don’t forget it–the price of liberty is eternal vigilance.
Here is the Judges conclusion:
Rightsholders are free to choose their representation in these proceedings. Admittedly, individual songwriters and self-publishers have traditionally chosen not to expend the resources necessary to participate in these proceedings at the same level as trade organizations and major technology companies. Nonetheless, the outcomes of these proceedings can have a significant impact on the lives of the individual rightsholders. In this proceeding, the Judges received lengthy comments from SGA, which claims to represent thousands of songwriters. For SGA’s comments to have independent influence, however, SGA would have needed to join the proceeding as a participant. Nonetheless, with regard to the present proposed settlement, the comments of non-participants cumulatively served to amplify those of the objecting participant.
Pursuant to section 801(b)(7)(A)(ii), based on the totality of the present record—including the Judges’ application of the law to that record, as well as GEO’s objections, which, as noted supra, are consistent with the non-participant comments—the Judges find that the proposed settlement does not provide a reasonable basis for setting statutory rates and terms. Furthermore, the Judges find a paucity of evidence regarding the terms, conditions, and effects of the MOU. Based on the record, the Judges also find they are unable to determine the value of consideration offered and accepted by each side in the MOU. These unknown factors, as highlighted in the record comments, provide the Judges with additional cause to conclude that the proposed settlement does not provide a reasonable basis for setting statutory rates and terms.
If you’ve tried to get a vinyl record pressed in the last few years, one thing is very obvious: There is no capacity in the current manufacturing base to accommodate all the orders–unless your name is Adele or Taylor Swift, of course. If that’s your name, as if by magic you get your vinyl orders filled and shipped on time.
Jack White spotted the vinyl trend early on–in 2009–and is filling the gap through his Third Man pressing operations. But Jack is calling on the major labels to please compete with him–rather unusual–because it’s the right thing to do in order to meet the demand for the benefit of the consumer. And the elephant in the room of this discussion is that we don’t really have any idea what the vinyl sales would be because demand is not being met by supply.
Not even close.
When a major label abandons a configuration, it’s not really abandoned. It gets outsourced to an independent and as long as there is manufacturing capacity in the system, that independent still takes orders and fulfills those orders by using that manufacturing capacity. The titles still appear in the sales book, orders get taken and returns accommodated.
Major labels also hand off vinyl manufacturing to their “special markets” divisions. For example, if you have ever tried to get vinyl manufactured in a limited run for venue sales on a major label artist (or former major label artist) you will get put through the bureaucratic torture gauntlet for the privilege of paying top dollar on a product that the label will have nothing to do with selling.
But even so, at some point that manufacturing capacity begins to shrink because the majors are getting out of the configuration and they will eventually get out of the manufacturing business altogether. And that creates a great sucking sound as capacity tanks.
I raised this problem in comments to the Copyright Royalty Board about the frozen mechanicals debacle where the smart people have tried to extend the 2006 songwriter rates on vinyl and CDs without regard to rampant inflation and simply the value of songs to sell millions of units. Why? Because vinyl and CDs don’t matter according to the lobbyists. This is, of course, bunk.
The fact is–and Jack White’s plea illuminates the issue–we don’t know what the sales would be if the capacity increased to meet demand. But we do know that sales would be higher. Probably much higher.
You do see entrepreneurs entering the space using new technology. Gold Rush Vinyl in Austin is a prime example of that phenomenon. The majors need to reconsider how to meet demand and keep the consumer happy. They also need to clean up the sales and distribution channel so that it’s easy for record stores to actually get stock, which, frankly is a joke.
Why anyone wants to substitute away from high margin physical goods to low margin streaming goods with a “rich get richer” financial model is a head scratcher. Although maybe I answered my own question.
But–as Trichordist readers will recall, the major publishers and major labels as well as the Nashville Songwriters Association are trying to convince the Copyright Royalty Board that vinyl and CDs are not important and that songwriters should have their mechanical royalty rates frozen again. You do have to ask if Jack White is even aware that the major publishers and major labels are trying to get the Copyright Royalty Board to extend the 2006 freeze on mechanicals for the resurgent vinyl configuration for another five years.
Vinyl and CDs still account for about 15% of revenue on an industry wide basis–I’ll believe that it’s not significant when Lucian Grange says he doesn’t need 15% of billing. Yeah, that will happen.
The only reason that mechanicals for those configurations aren’t higher is because they have been artificially suppressed by the participants at the Copyright Royalty Board telling the judges that the revenue is low so please freeze the rates again. Kind of circular, yes? The current 2006 rate of 9.1¢ would be adjusted to 13¢ in current dollars just taking into account inflation and ignoring the value of the songs to create a nearly vertical chart like this:
Second 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:
The Statutory Importance of Interested, Non-Participant Comments to CRB Decision Making
While Congress may have expressed enthusiasm for joint rate setting proposals being developed through arms-length, independent negotiations among the parties to a CRB rate-setting proceeding (which clearly may not have been what transpired in the present case among vertically integrated parties),[1] Congress was also crystal clear in another of its related statutory directives. Namely, that the CRB also has a duty to ensure that interested, non-participating parties who would be bound by the terms of the negotiated agreement are given the full opportunity to comment upon the proposal as part of the record of the proceeding prior to the proposal’s adoption or rejection by the CRB.
Section 801(b)(7)(a)(i) of the US Copyright Act stipulates that:
[T]he Copyright Royalty Judges shall [1] 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 [2] provide to participants in the proceeding under § 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. (Bracketed numbers added for clarity)
More importantly for the purposes of these Comments, Section 801(b)(7)(a)(ii) explicitly sets forth the authority of the CRB to accept or reject the proposed agreements of parties to a proceeding based upon the combination of comments and objections filed both by participants in the proceeding and outside, interested party commenters:
[T]he 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 themif one exists, that the agreement does not provide a reasonable basis for setting statutory terms or rates. (emphasis added)
In the present case, the Major Music Conglomerates (once again counterintuitively joined by NSAI) have chosen to simply ignore the statutory requirements, set forth above, and focus solely on issuing a blanket rejection of the comments of pro se participant George Johnson (who formally objected to the proposed agreement). In fact, in their submission to the CRB of August 10, 2021,[2] the Major Music Conglomerates did not even bother to mention the detailed comments of those many individuals and groups who, on behalf of their constituents comprising a large percentage of the US’ and the world’s music creators, filed detailed comments with the CRB objecting to the proposed frozen mechanical rate deal as unreasonable.
Rather, the Conglomerates opted instead to stand solely on the following, naked assertion:
Mr. Johnson provides no basis for the Judges to reject the Settlement. Mr. Johnson makes unfounded accusations of fraud and inaccurate statements concerning the corporate structure of record companies, but provides no economic reason to believe that the rates in the Settlement are outside the “zone of reasonableness.” This is nothing more than a rehash of arguments he made and the Judges rejected when a similar settlement was presented in Phonorecords III….
Objections to a settlement that is substantially the same as the one adopted in Phonorecords III, absent a showing of changed market conditions that would support a change in the rates and terms for Subpart B configurations at this time, do not permit the Judges to “conclude that the agreement reached voluntarily between the Settling Parties does not provide a reasonable basis for setting statutory terms and rates.” (citation omitted). Thus, as in Phonorecords III, “the Judges must adopt the proposed regulations that codify the partial settlement.”[3] (emphasis added).
This evasive and misleading statement is counter-productive to upholding the Congressional mandate that all interested parties be heard –even those unable to afford the hundreds of thousands of dollars required to participate effectively in the formal rate-setting proceedings.
To repeat the obvious, when they filed the above comments, the Major Music Conglomerates were fully aware that Mr. Johnson was by far not the only person or entity to have filed detailed objections with the CRB to the frozen mechanical proposal, including the extensive comments of the Independent Music Creator groups who are the signatories hereto that had been submitted some two weeks prior to the filing of the Major Music Conglomerates’ comments on August 10, 2021 and reported on and published in the press.[4]
Specifically, some two dozen other organizations and individuals filed or endorsed comments[5] detailing with great specificity the unreasonable nature of the frozen royalty rate proposal made by the Major Music Conglomerates, owing to drastically changed market conditions that include the damage of long-term and now accelerating inflation, the growing length in time of the current freeze, and the demonstrably re-emerging physical phonorecord, download/Non-Fungible Token (NFT) markets amounting to tens of millions of dollars in annual royalty revenue for music creators. Those issues were spelled out extensively in our own Comments of July 26, 2021, and later updated in our Letter of October 20, 2021.
There is little mystery why the Major Music Conglomerates would choose not to acknowledge the existence of these many music creator dissenters, or to comment on what those dissenters had to say. As the CRB itself noted presciently in its Phonorecords III determination, “NMPA and NSAI represent individual songwriters and publishers.” For them to “engage in anti-competitive price-fixing at below-market rates,” would be against the interests of their potential constituents, who would likely “seek representation elsewhere” if they were so concerned.[6]
In the current instance, the Major Music Conglomerates seem to be actively seeking to obfuscate the fact that this result, for whatever reason, is exactly what has transpired. The multiple sets of comments received by the CRB from US and global music creator advocacy groups bluntly criticizing the frozen royalty rate proposal signify the raising of voices of those representing a vast portion of the world’s music creators against the proposal’s obvious inadvisability and irrationality. The isolated support for the proposal by NSAI, an organization that represents only a tiny sliver of US songwriters and composers principally from a single genre and local geographic area (and whose underwritten presence in the proceeding raises significant questions about whether it can truly represent any collection of songwriters and composers – let alone the actual, diverse universe whose rights and livelihoods are presently at stake), has been drowned out by hundreds of thousands of other music creators arguing substantively through their organizational representatives against the thoroughly unreasonable nature of extending frozen rates for another five-year period.
Thus is the specious nature of the Major Music Conglomerates’ central claim –that the CRB has neither the authority nor sufficient reason to reject the proposed mechanical rate freeze as unreasonable– demonstrated. Fulfilling all statutory requirements, a participant in the proceedings (George Johnson) has objected to the privately negotiated deal concocted by the vertically integrated Conglomerates. Further, numerous interested commentators who “would be bound by the terms, rates, or other determination set by the agreement” have joined with Johnson in providing to the CRB amply detailed comments demonstrating significant, multiple changes in circumstances that make the proposed agreement unreasonable and irrationally flawed in 2021.
Under such circumstances, the CRB would be well within the scope of its statutory authority to either “decline to adopt the agreement as a basis for statutory terms and rates for participants that are not parties to the agreement,” or to reject it altogether. We prefer the latter, but respectfully suggest that it should most certainly do one or the other.
Moreover, the assertion by the Major Music Conglomerates that the CRB lacks sufficient reason or authority to review the Memorandum of Understanding (“MOU”)[7] negotiated and agreed upon concurrently with the Frozen Rate Proposal for its effect on that rate proposal, is equally without merit. In their submission of August 10, 2021, the Conglomerates go so far as to claim that they “did not present the MOU to the Judges because they viewed it as routine, and irrelevant to the Judges’ decision-making concerning the Settlement.” To put it mildly, the Songwriter and Composer community views this statement with uneasiness as it pertains to the general issues of fairness and transparency in the Phonorecord IV proceeding, and hopes the CRB shares our concerns.
It suffices to say that two agreements –negotiated side by side with one another at the same time by the same parties regarding details of the same general matter—inarguably stand a substantial chance of being inter-related through both their content and potential quid pro quos. We therefore believe it obvious that in evaluating the fairness and reasonableness of one, the terms and scope of the other should be considered as a matter of course for reasons of both best practices and common sense.
[1] As stated in our Comments of July 26, 2021, it is by no means clear that the “negotiations” which took place among the vertically integrated participants in developing the frozen mechanical royalty rate proposal were at arm’s length. “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[1] upon whom “those rates and terms [will be] binding.” See, Comments of July 26, 2021 at 8-9.
[7] According to the Major Music Conglomerates: “Specifically, this memorandum of understanding (“MOU”) provides for (1) participating record companies and music publishers to work collaboratively on licensing processes to improve clearance of new releases, (2) a procedure for bulk distribution of mechanical royalties accrued by participating record companies that are not otherwise payable, and (3) late fee waivers when participating record companies follow specified clearance procedures for new releases.” See, https://app.crb.gov/document/download/25577 at 6.
SECOND REOPENING PERIOD COMMENTS OF HELIENNE LINDVALL, DAVID LOWERY AND BLAKE MORGAN
Helienne Lindvall, David Lowery and Blake Morgan (collectively, the “Writers”) thank the Judges for the opportunity and respectfully submit the following comments responding to the Copyright Royalty Judges’ notice (“Second Notice”) soliciting comments on additional materials (“Reply”) received by the Judges[1] from the National Music Publishers Association, Nashville Songwriters Association International, Sony Music Entertainment, UMG Recordings, Inc. and Warner Music Group Corp. (collectively, the “Majors”)[2] regarding the so-called [frozen] “Subpart B” statutory rates and terms[3] relating to the making and distribution of physical or digital phonorecords of nondramatic musical works in the docket referenced above (“Proceeding”).
The Writers previously submitted comments[4] (“Prior Comment”) responding to the Judges’ notice[5] (“First Notice”) soliciting comments on the Major’s proposed purported settlement (the “Proposed Settlement”)[6] of the Subpart B rates. The Writers along with attorney Gwendolyn Seale[7] attempted to submit additional comments in response to the Majors’ filing but were not able to timely file that response.[8] The Writers appreciate the Judges’ decision to reopen the comment period in order to afford the public, and those that would be bound by the rates and terms set by the Proposed Settlement,[9] an opportunity to comment on those additional materials filed by the Majors and to further participate in the rulemaking.[10]
I. SUMMARY As a general comment on the record to date in Phonorecords IV, the Writers are mystified by the histrionics that have become associated with this Proceeding both on the record and in the press. A voluntary negotiation is just a deal, often made by people who are paid to always be closing. The Writers believe that Congress intended that voluntary negotiation produce a fair result on a reasonable timetable.
While not directly at issue in the reopened comment period, what is clearly the case is that the settlement of the Subpart B rates has unnecessarily become a major gating item for the streaming side of this Proceeding, geese and ganders being what they are. Despite the extensive voluntary negotiation period for the Subpart B rates by the Majors, the Judges—and, frankly, songwriters around the world–are presented instead with a cornucopia of chaos across the board; the cherry on top is the frozen mechanicals crisis. However, in this season of hope the Writers are confident that the Judges will lead us all out of this daunting situation.
The Writers are not interested in the personalities, the arm-waving or the finger-pointing. They are interested in the results, particularly because neither they nor anyone they authorized had input into the negotiation that produced either the Proposed Settlement or the impasse.
There is at least one easy way to fix this and recognize the intrinsic value of songs: Raise the statutory rate proposal for Subpart B configurations in at least some relation to the streaming rate increase. A song is no less valuable because of the medium in which it is exploited.[11]
As the Writers will argue, just like the voluntary agreement on Subpart B that led to this impasse was reached by the Majors, those same parties can go back to the drawing board to reach an appropriate conclusion with a higher Subpart B rate.
Neither the public nor the songwriters are well served (and frankly neither are the Judges) by thrashing about and waiving arms. This may serve well the people who are paid by the hour but it hasn’t served people who are paid by the song. At all. “Victory” without winning may pass for success in Washington, but it does not in the writer room or at a songwriter’s kitchen table.
The Proposed Settlement is a crystallization of everything that is wrong with the licensing and payment practices that have arisen under the compulsory license regime where no is yes, more is less and the Kool-Aid whispers “Drink Me.”
While the Writers will focus in this comment on the frozen mechanicals issue that has become emblematic of the current crisis, it must be said that the decade-plus MOU [black box] agreements are a backward looking and inequitable insider arrangement that permits a mindset of sloppiness and a “kick the can down the road” mentality that debilitates the entire music publishing business.[12] It’s no accident that the Mechanical Licensing Collective—run by largely the same cast of characters under a jaw-dropping Congressional governance mandate—has been sitting on $424,000,000 of other peoples’ money for nine months during a pandemic with no visible compliance with another Congressional mandate of paying songwriters correctly in Title I of the Music Modernization Act.[13]
The MLC and the sequence of MOUs are both descended from the same ancestors a generation ago. Each have essentially the same business model and each are somehow inexplicably viewed as a “win” for the songwriters. The irony of splicing the genetic code of the ancien régime MOU [black box insider settlements] to the future is not lost on anyone. If the failure to match money and songs in the MOU process is still a problem after fifteen years as well as the much-trumpeted Title I of the Music Modernization Act, it’s not the horse’s fault. It’s the rider’s.
It would be a real pity for the CRB to perpetuate this unfairness by adopting the Proposed Settlement. With respect, it is bad law, bad policy, and a failure to even try to bend the arc of the moral universe. Conversely, rejecting the Proposed Settlement would provide the kind of steely oversight tragically lacking in the current regime. Please let the future have a vote, just once.
The Writers object to the Proposed Settlement 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 and extending the freeze another five years is unjust; (2) no evidence has been publicly produced in the Proceeding that justifies or even explains extending the proposed freeze aside from the connection to the memorandum of understanding in the MOU4 late fee waiver (“MOU”), a document that the Majors only recently disclosed in their Reply; (3) very large numbers of songwriters and copyright owners of various domiciles around the world and national origins are unlikely to even know this Proceeding is happening and there still is no evidence that the unrepresented have appointed any of the participants to act on their behalf or were asked to consent to the purported settlement before the fact even if they were members of these organizations aside from the respective board of directors; (4) physical sales are still a vital part of songwriter revenue (which the Writers documented in the Prior Comment[14]); and (5) there are many just alternatives available to the Judges without applying an unjust settlement to the world’s songwriters who are strangers to the Proposed Settlement and in particular the MOU component (as the MOU will likely require membership in the NMPA to benefit consistent with prior MOUs).
[2] NMPA, NSAI, Sony Music Entertainment, UMG Recordings, Inc. and Warner Music Group Comments in Further Support of the Settlement of Statutory Royalty Rates and Terms for Subpart B Configurations, Determination of Royalty Rates and Terms for Making and Distributing Phonorecords (Phonorecords IV), Copyright Royalty Board (Aug. 10, 2021).
[3] 37 C.F.R. §385.11(a).
[4] Comments of Helienne Lindvall, David Lowery and Blake Morgan, Determination of Rates and Terms for Making and Distributing Phonorecords (Phonorecords IV) (July 26, 2021) available at https://app.crb.gov/document/download/25533.
[10] As with the Writers prior submission in response to the First Notice, the Writers focus in this comment almost entirely on the Subpart B rates applicable to physical carriers under 37 C.F.R. §385.11(a).
[11] The Judges no doubt will be told many stories about how Subpart B configurations are not meaningful sales compared to streaming so rates deserve to be frozen. This is a novel copyright argument without a statutory basis. The theory is also not based on accurate facts as the Writers discuss extensively in the Prior Comment at paragraph 5 and will not repeat here.
[12] There is a growing backlash to decades of delaying definitive action on song metadata and songwriter payments such as Credits Due campaign of the Ivors Academy and Abba’s Björn Ulvaeus. See generally Chris Cooke, PPL Backs Björn Ulvaeus’s Credits Due Campaign, Complete Music Update (Oct. 4, 2021) available at https://completemusicupdate.com/article/ppl-backs-bjorn-ulvaeuss-credits-due-campaign/
[13] See, e.g., H. Rep. 115-651 (115th Cong. 2nd Sess. April 25, 2018) at 5; S. Rep. 115-339 (115th Cong. 2nd Sess. Sept. 17, 2018) at 5 (“The Committee welcomes the creation of a new musical works database that is mandated by the legislation….Music metadata has more often been seen as a competitive advantage for the party that controls the database, rather than as a resource for building an industry on.” (emphasis added)).
My name is Monica Corton, and I am the CEO and Founder of Go to ElevenEntertainment, a newly formed independent music publishing company that is funded. I have been in the music publishing business for over thirty years, twenty- seven of which were spent as the Senior Executive Vice President of Creative Affairs & Licensing at Next Decade Entertainment. My experience is in all areas of music licensing, registrations, and royalty payments, and my former clients included the catalogs of the band Boston, Harry Belafonte, Vic Mizzy (the “Addams Family Theme” and “Green Acres Theme”), Sammy Hagar, and many more.
It is my understanding that the CRB judges are being asked to accept a Motion to Adopt a freeze or a non-rate increase for all mechanical licensing uses for physical phonorecords, i.e., CDs and vinyl, permanent digital downloads, ringtones and music bundles (whenmultiple songs are downloaded in groups) for the Rate Period of 2023 to 2027. The rates for these types of uses have been frozen and have not increased for any music publisher or songwriter since 2006. In the past, the National Music Publishers Association (“NMPA”) has explained these freezes as a necessary component to their negotiation for an increase in the digital streaming rates for mechanical licenses. For many years (2006-2021), I have gone along with this explanation, but after fifteen (“15”) years of having noincrease on any physical product or digital downloads, I now believe it is completely unfair and no longer justifiable for music publishers and songwriters, particularly the
independents and DIY creators (do-it-yourself), to have been denied an increase in these rates after fifteen (15) years of allowing record labels to get away without paying any increase whatsoever, and now face being blocked from a raise for another five (“5”) years.
I originally wrote comments to you on July 26, 2021, and I have included thosecomments below. As there was an extension provided, I felt I should augment my former submission to you with a practical reason for why I believe that physical and digital download mechanical royalty rates should increase, at least by a cost of living, forsongwriters and publishers for the Rate Period 2023-2027.
The one format in physical product that seems to be surging now is vinyl. If one visitsthe Amazon.com shop, new releases of vinyl are selling anywhere from
$24.98 to $49.99 at retail. Generally, the wholesale selling price for a label is half of the retail selling price. Therefore, in this scenario, the labels are making anywhere from $12.49 to $24.99 per unit. Under the current physical mechanical rate which would stay the same if you decide not to increase the royalty rate for physical copies and digital downloads, a publisher would be paid $.91 per record with a ten (10) song cap (standard practice) for the right to use all the songs on that release. However, most singer/songwriters have what is called a controlled composition clause in their recording agreement which requires that they agree to a reduced rate of 75% of the statutory rate with a cap of ten (10) songs. This means that the real rate for most singer/songwriters onan album is $.6825 for all the songs on any given album.
Therefore, the label is making anywhere from $11.8075 to $24.3075 of which a small portion will be paid to the artist for artist royalties and some portion will be paid for the expense of making the record and distributing it. The songwriter and the publisher will thereafter, divide the $.6825 in half so that the songwriter will eventually receive $.3412 for the ENTIRE ALBUM of songs, often recording and releasing more than ten songs because creatives tend to release 12-14 songs on any given album which further reducesthe mechanical rate per song.
I ask you, does it seem fare to you that the record label should make $11.875 to
$24.3075 per record and the singer/songwriter who wrote EVERY SONG ON THE ALBUM will make $.3412?
Songwriters rarely get a say in any of these hearings. Digital rates have devastated whole swaths of our creative songwriter community. Please consider that after fifteen (15) years,it’s time to increase the physical mechanical rate and the digital
download rate for songwriters and publishers. We must create some kind of parity for songwriters in the sale of physical product and digital downloads, or our musicecosystem will begin to fail.
President Lynn Robin Green LANSDOWNE MUSIC-WINSTON MUSIC PUBLISHERS BLOOR MUSIC-HOFFMAN HOUSE MUSIC
PO BOX 1415 BURBANK, CA 91507
I have been a Music Publisher 45 years and the FREEZING of the statutory mechanical rate which hasn’t been raised in many many years CAUSES us undue continual financial hardship.
The low streaming rates have decimated our earnings for my Writers and Administrated Publisher Clients for the last six years and have have forced us into a corner financially to try to make up for this deep loss of revenue. I administrate also 39 Publishing firms here and these streaming losses are continual.
The Mechanical sales and Sync licensing fees are our only solid source of revenue to try to compensate for these deep losses. Its imperative that THE MECHANICAL RATES BE unfrozen asap and REMADE for REALISTIC FACTUAL inflation considerations of 2021 and for a willing seller/buyer in todays actual market.
We can’t survive if this RATE of 9.1 cts IS NOT raised and adjusted FAIRLY by the CRB for these very urgently important considerations. The Parties who are trying to freeze the rates here are highly conflicted and their sole interests are purely as Parties to Technology deals- and are self projected- and they SIMPLY violate any FAIRNESS OF MECH RATES FOR ALL PUBLISHERS AND SONGWRITERS concerned.
Please listen, please consider the Creators and the Independent Music Publishers who would suffer undue catastrophe level FURTHER financial loss if that RATE is DEEMED frozen for any more additional years whatsoever. WE absolutely URGENTLY need this rate increase NOW, its beyond crucial to our way of business and I implore the CRB to listen to the Independents and Creators and KNOW the truth and hard reality of what THIS important decision represents for our future.
WE MUST RAISE the mechanical rates, and help save this business of publishing from being plundered for large Corporate interests, WITHOUT FAIR or competitive compensation for small independent businesses.
Only drug dealers and Big Tech refer to their “customers” as “users.”
We really appreciate how Trichordist readers have stuck with the story we have been telling about the treachery afoot at the Copyright Royalty Board in the current review of statutory mechanical royalty rates. This is kind of dry stuff but it sure has resulted in a lot of passion from the songwriting community.
That passion is directed at the frozen mechanical–the collaboration between the big publishers and big record companies to “freeze” the statutory mechanical royalty for physical goods at 2006 levels despite the current inflationary crises and debasement of the value of even the frozen rate itself. We will have more to publish on that subject to call your attention to the voices of songwriters and publishers opposing the freeze.
Ask yourself this question: Is there any reason that a songwriter who opposes a freeze on mechanicals–the only question they were asked to respond to by the Copyright Royalty Board–would ever support a reduction in the streaming mechanical? Would anyone say, oh, well if Spotify is asking for a reduction, then by all means? If you thought the passion against frozen mechanicals ran high, you ain’t seen nothing yet.
But in one of the great acts of self-sabatoge that they are so good at, that passion is currently being hijacked by some of the biggest companies in commercial history to somehow convince us that less is more. Remember–these are the same people who benefit from the sick mass manipulation and addiction practiced and normalized by the Stanford Persuasive Technology Lab.
And now they are trying to use that trickery and psychology on songwriters to gaslight them into ignoring reality and supporting the chaos at the Copyright Royalty Board.
We will be posting a series of excerpts from public filings in coming days. If you want to skip ahead, you can read this letter from Chris Castle to the Copyright Royalty Board roasting the services for twisting the words of Helienne Lindvall, David Lowery and Blake Morgan.
If you ever thought we were too aggressive in our campaign to end the 15 year freeze on statutory royalties for physical, consider the situation of songwriter Hugh Prestwood and his wife, photojournalist Judy Ahrens. Songwriters and photographers are two occupations that are devastated by the digital blight that has visited apocalyptic devastation on creators.
As Hugh says in their GoFundMe page, his songwriting income was destroyed by the massive change in the economics of songwriting that split apart the album format with no commensurate increase in songwriter royalties. Songs became a major driver of wealth for hardware manufacturers and Internet providers (remember dancing cows chanting rip, mix, burn?) in the 2000s, and streaming drives wealth for catalogs and platforms. The doubling effect of Moore’s Law imposes a halving effect on creator royalties. Hugh and Judy are living proof of what happens to an aging population of creators who could not have possibly planned around the digital blight–other than learning to code, I guess.
The Copyright Royalty Judges need to understand that there are real consequences to real people when they freeze mechanical royalties. While the Judges are not responsible for all the harms that accrue to songwriters in the rigged statutory licensing and royalty scheme, they do play a part and they can make a difference. Songwriters may not expect the Judges to fix their problems, but they do expect them not to make it worse. Freezing rates for 15 years makes it worse.
The Judges should also understand that they have an opportunity to do something to add fairness back into the system that the Judges effectively control. Creators like Hugh and Judy will never appear in their courtroom alongside the well-heeled lobbyists and lawyers who make millions off of the rate proceedings and the black box in what has become a laughingstock.
Congress, too, needs to listen up. It is well past time for a songwriter advocate to be a permanent part of the Copyright Royalty Board proceedings for mechanical royalty rate settings. A songwriter advocate would speak for people like Hugh and Judy. As Linda said of Willie Lohman in Death of a Salesman, “Attention must be paid.” I’m not asking that songwriters should be able to overrule the lobbyists, although that’s not a bad idea.
But at least hear them out before they’re all gone.
All of the economic indicators are telling us that inflation is going to be around for a while–so songwriters should expect some cost of living adjustment based on the Consumer Price Index when the Copyright Royalty Board sets mechanical royalty rates, especially for the frozen mechanical rate on physical phonorecords. Why do I say that?
The U.S. Consumer Price Index closed 2021 at 7%. That is the highest inflation level since 1982–and remember in 1982 the U.S. had already had a solid two to three years of Federal Reserve Chairman Paul Volker’s anti-inflationary surge after the malaise of the 1970s.
The Producer Price Index for 2021 was measured at 9.7% by the Bureau of Labor Statistics, the largest calendar year increase since 2010. The PPI is a leading indicator of inflation as measured by the CPI because it measures a large basket of raw inputs and future price increases that will affect the CPI in weeks or months.
The University of Michigan survey of consumer sentiment fell to 68.8%, its second lowest level in a decade (the lowest being in November 2021). The survey also measured “confidence in government economic policies is at its lowest level since 2014.” The consumer sentiment survey indicates that consumers expect bad times ahead, or at least expensive times. This can have a pronounced effect on consumer inflation expectations.
Consumer inflation expectations remained unchanged after rising strongly over the last year, particularly the one-year outlook. Inflation expectations can be a self-fulfilling driver of inflation for a number of reasons such as FOMO pricing on homes and cars as well as wages–if you expect inflation to rise x% in the next 12 months, today you will seek wage increases of at least x% (if not more).
All of this tells us that the entire idea of extending the freeze on statutory mechanical royalties gets more absurd by the day. It’s entirely reasonable to “index” statutory mechanical royalties during the current rate setting period of 2023-2027 as we’ll all be very lucky to get through that period without suffering crippling inflation that will further erode the 2006 rates the CRB has used for the past 15 years.
[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 ReturnNMPA 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.
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
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 unlessa 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.
[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).
[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).
[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.
The Trichordist 
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