Getting discovered in the music business has never been easy. Before the pandemic, artists could at least rely on the industry’s historic mainstay to break through — playing as many gigs as possible and hoping to build a following. But with that path closed for now, artists and their label partners are increasingly dependent on Spotify, the undisputed king of music streaming, and its black box algorithms.
That’s why Spotify’s cynical decision to use this moment to launch a new pay-for-play scheme pressuring vulnerable artists and smaller labels to accept lower royalties in exchange for a boost on the company’s algorithms is so exploitative and unfair. Artists must unite to condemn this thinly disguised royalty cut, which apparently has just been released in “beta” mode and is soon expected to enter the market in full force.
By Gwendolyn Seale
Remember the $424 million in historical unmatched royalties (also referred to as black box royalties) delivered to the Mechanical Licensing Collective (MLC) by the streaming services last February that songwriters are waiting to receive?
As a refresher, the Music Modernization Act (MMA) required the streaming services to estimate these “historical” black box royalties going back years, and then pay whatever they came up with to the MLC by February 15, 2021. Why did the services pay this “historical” black box? Because songwriters gave them a safe harbor in the MMA to enjoy a limitation of liability from statutory damages for the services’ prior acts of copyright infringement—services like Spotify, which was being sued into oblivion.
Now here’s the jawdropper. What if I told you that Spotify inexplicably reduced its portion of these historical unmatched royalties by nearly $2.3 million?
According to the MLC, on December 20, 2021 Spotify decreased its transfer of historical unmatched royalties by $2,296,820.15. You can find this information by visiting the MLC’s website here: https://www.themlc.com/spotify-usa-inc-spotify. You may wonder why this occurred. Unfortunately, I cannot provide you with any concrete answers, but I do think it is a more than fair question to raise.
Following the February 2021 data dump and transfer of the historical unmatched royalties to the MLC, the streaming services were given until June (in accordance with the regs) to provide the MLC with their second sets of data. According to the MLC’s Interim Annual Report (https://themlc.com/sites/default/files/2021-12/The%20MLC%20Interim%20AR21%20Hi-res%20FINAL.pdf) “[t]his second set of data contained information regarding works for which DSPs had previously paid some, but not all, of the relevant rightsholders for a given work.” The streaming services then had the right over the summer to amend or adjust the royalties and data provided to the MLC.
It is interesting to compare the historical unmatched royalties transferred by each streaming service in February 2021 with the final transfer amounts reported in summer 2021 — and I invite all of you to do the same (https://www.themlc.com/historical-unmatched-royalties ). What you will quickly realize is that the final transfer amounts for every service—other than Spotify, the Harry Fox Agency’s client, either reflected the same totals from the February dump, or, resulted in a higher amount transferred (like in the cases of Amazon, Apple and Google). At least so far.
You may be thinking, how do we know if this nearly $2.3 million reduction is accurate? Frankly, we do not know, and we forced to trust that Spotify is telling the truth. Regrettably, the MMA negotiators did not get (and may not have asked for) an audit right for songwriters or for the MLC with respect to these historical unmatched royalties. (Although it must be said that publishers with direct deals very likely had the right to audit, and possibly those who licensed to Spotify through Spotify’s licensing agent, the Harry Fox Agency, which was simultaneously acting as a licensors’ publishing administrator may have had an audit right. Have a pretzel and the conflicts make more sense).
I recognize I have the benefit of hindsight here — notwithstanding, I find it unfathomable that the MMA dealmakers did not secure an audit right in connection with what was sure to be hundreds of millions of dollars in unmatched royalties.
It is theoretically possible that Spotify overpaid its amount in historical unmatched royalties back in February 2021. Notwithstanding, and feel free to call me a cynic — how am I to believe that for once Spotify actually made an overpayment in royalties?
How can I trust a company which amassed its billions in wealth by stealing musicians’ works, and has continued to supplement its wealth by fighting for the lowest mechanical royalty rates for songwriters ever?
How can I trust a company that unveiled a payola-like feature offering further reduced nanopenny rates to artists in exchange for “promotion?” (see “Discovery Mode”: https://www.rollingstone.com/pro/music-biz-commentary/spotify-payola-artist-rights-alliance-1170544/ ).
How can I trust a company that when faced with reasonable requests about paying musicians fairly, responded with a straight up gaslighting campaign? (see “Loud & Clear” campaign: https://loudandclear.byspotify.com/ )
Remember, this is the company whose executive literally told an independent artist the following in a public forum:
“The problem is this: Spotify was created to solve a problem. The problem was this: piracy and music distribution. The problem was to get artists’ music out there. The problem was not to pay people money.” (See here: https://www.digitalmusicnews.com/2021/06/29/spotify-executive-entitled-pay-penny-per-stream/)
In sum, how can I trust a company that has proven time and time again from its inception that it has never cared about songwriters and artists? Ultimately, I cannot — which makes it utterly difficult for me to trust that Spotify incorrectly overpaid nearly $2.3 million in historical unmatched royalties to the MLC. Granted, if Spotify made misrepresentations here, it could lose its limitation of liability for those past infringements–after years of litigation. But, without the MLC having the right to audit the historical unmatched amounts, determining whether Spotify’s total transfer is correct is essentially futile.
So, if you happen to contact Spotify this week about removing your catalog or canceling your subscription, consider also asking them to provide evidence that they overpaid the MLC $2,296,820.15 in historical unmatched royalties last February. Maybe if we’re lucky, we’ll get another Loud & Clear gaslighting campaign to post about!
[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.” 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.”
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. 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. I write today in reference to that proposed settlement.
This settlement outlines the terms by which mechanical royalty 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. 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. 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. 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. 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, while some 31.6 million CD albums were sold.
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. The 2006 inflation rate was 3.23%. The current year-over-year inflation rate (2020 to 2021) is now 4.16%, 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.
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
 SEUSS. (1971). The Lorax. MLA (7th ed.) Seuss, . The Lorax. , 1971. Print.
 (Phonorecords IV) (Docket No. 21–CRB–0001–PR (2023–2027)).
 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.
 Docket No. 16-CBR-0003-PR (2018-2022) (Phonorecords III).
 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).
 RIAA year-end revenue statistics. https://www.riaa.com/wp-content/uploads/2021/02/2020-Year-End-Music-Industry-Revenue-Report.pdf
 U.S. Bureau of Labor Statistics Consumer Price Index https://www.officialdata.org/articles/consumer-price-index-since-1913/
 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/
Who can forget how Taylor Swift stood up for songwriters, producers and artists against Apple’s bizarre decision to impose a royalty-free three month trial period on the launch of Apple Music. (Of course, songwriters, producers and artists weren’t the only ones involved, but that’s a story for another day.)
What is equally memorable is how fast Apple changed course and all the goodwill that came to Apple as a result. Faster than you can say “Arsenal”, Eddie Cue announced that Apple would scale it back. Lemonade out of lemons. Of course, the issue should have been obvious, but sometimes smart people miss the point like everyone does sometimes. (Rolling Stone has a good short post on the backstory.)
The point of the story is that when you make a mistake, it’s better to fix it quickly than let it fester. So it is with the “frozen mechanical” problem that has become all the rage in recent days. The good news is the problem can be solved with the payment of money. It won’t be easy, but as a great man once said, this is the business we’ve chosen.
The Copyright Royalty Board decides on the statutory rate that’s paid under compulsory content licenses in the United States. For mechanical royalties, the CRB makes that decision every five years which means that if there isn’t a CRB hearing going on at any given moment, wait a little while and there will be one. (Needless to say, the volume of CRB hearings varies directly with full employment for lawyers and lobbyists in Washington, DC.) The “frozen mechanical” issue dates back to 2006 (or 2009 depending on how you count it) when the CRB allowed the end of rising mechanical royalty rates on physical and permanent downloads (and a couple others). However, the sour memories of frozen mechanicals date to 1909–also a story for another day.
Instead, the CRB has allowed a private agreement among the biggest players to become the law. This has happened at least one other time and it appears that it is about to happen again according to public documents filed with the CRB on March 2, 2021 (read it here). Contrast that private agreement to the bitter struggle against the streaming services over streaming mechanicals that is still in the appeal process. Different people paying, same songwriters getting paid.
If you haven’t heard about the tentative settlement by private agreement at the CRB, it admittedly was not well socialized.
The inescapable problem is that any fixed or “frozen” rate determined at one point in time but paid over relatively long periods of time is at the mercy of inflation in the economy that may rise in that intervening time period. The Congress and the industry recognized this harsh truth in the 1976 revision to the Copyright Act and eventually indexed mechanical rates, meaning that they floated upward with the Consumer Price Index. (CPI has its own problems, but it’s a bogey that lots of people use so it’s easier than reinventing the wheel with a bespoke factor.)
Given what has been happening in the economy, it was inevitable that inflation was about to come back strong in the U.S. and global economy. Sure enough, the Department of Labor announced yesterday:
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.8 percent in April on a seasonally adjusted basis after rising 0.6 percent in March, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 4.2 percent before seasonal adjustment. This is the largest 12-month increase since a 4.9-percent increase for the period ending September 2008.
Yes, the CPI ignored the Fed and increased like the pesky little devil it is. There’s no reason to think that this is going to stop any time soon. (If you were born after 1960 or so, you may not remember that inflation and stagflation resulted in the prime interest rate peaking at 21.5% in December of 1980. That drove mortgage rates to 13.41% in 1981 (often plus points). And then there were the credit cards. That’s where inflation can lead. Personally, my money is on stagflation in the form of high inflation and high unemployment due to what Secretary Yellen called the scarring effects of the pandemic which the music business is experiencing in spades.)
It just wouldn’t be prudent to enter into a long term contract at a fixed rate that does not take into account inflation. Yet that is exactly what the tentative settlement wants to do with the mechanical rate for physical, downloads, and a couple other categories. Yet, we must acknowledge that it is very difficult to herd the cats to get them to agree to anything. But having gotten everyone to agree to freezing mechanicals and having gotten the CRB to agree to adopt that agreement in the past, it may be the case that the parties can get the CRB to let them increase mechanicals going forward.
In other words, take a lesson from Taylor Swift and Eddie Cue and do a quick course correction before the final settlement gets announced on May 18.
So what would that look like? Precedent suggests that the CRB (and its predecessors) have accepted two principal methods of increasing the rate, which is phased in over time: fixed penny-rate increases and CPI indexing. My suggestion would be to employ both methods in a greater of formula (so popular with streaming).
If phased in over 5 years like other rates, it seems that there could be an immediate step up to compensate songwriters for a rate was frozen starting at the time that physical was still a very significant percentage of sales back in 2006. That stepped up rate could then gradually increase with a greater of a fixed penny increase or CPI. I wouldn’t presume to tell anyone what that step up should be, but if you apply the CPI index, it should probably be about 4¢, bringing the minimum rate to 13¢ from 9.1¢. Given that big–albeit entirely justified–jump, increases over the out years might be more modest.
Now that we know that there’s a strong possibility that inflation will be in our lives for the foreseeable future, the good news is there’s still time to do something about it. The CRB has shown us that they are willing to accept radical changes in the mechanical royalty rate by adopting private settlements, so there seems to be no impediment. I’m not aware of a rule that says the CRB only adopts rules that freeze songwriters in place, so it should work to the songwriters betterment and not just to their detriment.
We should ask, what would Taylor and Eddie do?
By Chris Castle
We all breathed a bit easier when we heard that the $15 billion Save Our Stages legislation authored by Austin Rep. Roger Williams and Texas Senator John Cornyn had passed the Congress and was signed into law last December as part of the $2.3-trillion Consolidated Appropriations Act of 2021. SOS is administered by the Small Business Administration and allows live performance venues, movie theaters, and talent agencies to apply for relief grants if they’ve lost at least 25% of their revenue due to the pandemic up to a maximum of $10 million. Venues employing fewer than 50 full-time (also known as every music venue I know of) can apply for a share of a $2 billion of the fund to cover payroll, rent, utilities, and insurance.
The problem is that the Small Business Administration has failed to implement an application process so that venues can even apply–and months are going by. As states reopen, thriving venues are going to be a big part of the economic recover, particularly in a state like Texas. What’s even more bizarre than the SBA not having an application process in place (or bridge loans or something) is that the City of Austin has managed to distribute millions to the Austin music community while waiting for the legislation, which Rep. Williams and Senator Cornyn got through Congress in record time–which may be because Austin wants to keep the title of “Live Music Capitol of the World” when the live music business reopens.
It is very difficult to understand why the SBA is taking so long to distribute appropriated funds for federal legislation that was bipartisan and not controversial. It’s not just me–Governor Abbot’s Texas Music Office s leading the charge to light a fire under the SBA.
If you want to let you views be known, you can write to the SBA at firstname.lastname@example.org contact your local members of Congress or your state and city economic development offices.
Here’s a letter from Texas Music Office Director Brendon Anthony to the head of the SBA asking for her to expedite the applications:
February 25, 2021
Tami Perriello, Acting Administrator
U.S. Small Business Administration
409 3rd St SW
Washington, DC 20416
Dear Acting Secretary Perriello:
Thank you for all that you do in service of the SBA, on behalf of the American people. And thank you for your organization’s steadfast work assisting small businesses across the state of Texas, and beyond, during the pandemic. At the TMO, we hear firsthand from our constituents that the daily work of the regional SBA offices has provided an invaluable lifeline of resources and information, supporting the livelihoods of countless hardworking Texans.
As Director of the Texas Music Office (TMO), a division of the Office of the Governor’s Economic Development & Tourism Office, my team and I represent the more than 210,000 constituents and their permanent jobs within the Texas music industry. We implore you to accelerate opening the application window for the U.S. Small Business Administration’s (SBA’s) Shuttered Venue Operators Grant in order to help provide a bridge to saving one of the first industries impacted by Covid -19 mitigation,and ultimately one of the last industries that will be able to fully re-open.
As of February 2020, combined, the music industry and music education in Texas directly accounted for $4.4 billion in annual earnings, and just over $ I 0.8 billion in annual economic activity. The ripple effects associated with the direct injection related to music business and music education in Texas bring the total impact to $8.8 billion in earnings and $27.3 billion in annual economic activity.
Although most music fans around the world are familiar with our state’s largest music brands like Austin City Limits Festival and the SXSW Music Conference, it’s the small venues and historic dancehalls where Texas musicians cut their teeth which are currently impacted by closure. These hallowed venues are the testing grounds for our chart-topping artists like Beyonce, Selena, Willie Nelson, George Strait, Travis Scott, and so many more.
As each week passes, we lose more and more small music venues to permanent closure. The Shuttered Venue Operators Grant will be a crucial stopgap to helping our state’s music industry survive, providing the state’s music venues a bridge to help them weather this catastrophic event
On behalf of the Texas Music Office and its constituents from all across the state, please take the necessary steps to open applications for the Shuttered Venue Operators Grant so that the Texas music industry and the thousands of individuals employed by the state’s small venues – may live to see another day, as the permanent closure of these venues would be immeasurable to our state’s economy and culture.
Director, Texas Music
Office Office of the Governor
The venues really need our help to pry loose the money from the SBA that has already been appropriated by Congress. I don’t ask for this often, but the Trichordist audience is very effective at contacting their governments. Remember, that’s email@example.com
By Chris Castle
[T-Editor says: This post first appeared on MusicTechPolicy]
The Dog Who Didn’t Bark On the Mirror
There seems to be some concern about pre-Music Modernization Act confidential lump sum payments of accrued black box monies under direct licenses or settlement agreements. Services are promoting the idea that these payments must be deducted from the cumulative black box payments required for services to get the benefit of the limitation on liability and reach back safe harbor.
That limitation on liability, of course, comes with a condition that the services use “good faith, commercially reasonable efforts” to match works to copyright owners. Uses that remain unmatched are then turned over to the Mechanical Licensing Collective for matching and distribution.
The Digital Music Providers [“DMPs”] are now promoting the payment of black box as an option for which they can elect to take the limitation on liability. The Digital Licensee Coordinator [representing the DMPs] tells us “If the regulations make it less likely that a DMP will be able to rely on that liability protection when it needs it—i.e., if it increases the risk that a court would deem a DMP to not have complied with the requirements in section 115(d)(10)—a DMP could make the rational choice to forego the payment of accrued royalties entirely, and save that money to use in defending itself against any infringement suits.”
The SOCAN company MediaNet tells us that absent some aggressive concessions by the Congress to essentially re-write the Copyright Act in their favor, “MediaNet may decline to take advantage of the limitation on liability, which may deprive copyright owners of additional accrued royalties.”
The DMPs have somehow managed to convince themselves that payments of unallocated sums under settlement agreements (which they weren’t required to match before the MMA) and payments of unallocated sums under the MMA’s black box (which they are required to match under the MMA) are a “double payment.” While easy to say, “double payment” makes it sound like someone paid twice for the same thing. That would be bad if it were true.
But it’s not.
Betting and Strangers
Certain DMPs and certain publishers made settlement agreements of prior unpaid royalties. We don’t know exactly what gave rise to those agreements but we do know that they covered unmatched (and therefore unallocated) black box payments. Because the payments were unmatched, they were necessarily a lump sum payment to the participating publisher (although the amounts may have been reduced by commissions for administering the lump sum distributions under so-far confidential settlements).
At the time of the settlement, nobody did the work to match the unallocated. This is important for at least two reasons: Because the works were not matched, the lump sum couldn’t have been allocated to specific works owned by strangers to the settlement. Therefore there was no initial payment to those strangers, the strangers were not represented in the transaction, the strangers did not authorize the settlement of their claims, and there was no legal basis for the parties to settle ripe but inchoate claims the strangers could have made had they been asked.
The lump sum settlement was evidently based on market share of the then-unallocated black box. Market share payments would be a typical way to avoid doing the work of matching. It’s like a DMP saying to a publisher “I’ll make you a bet—if you have 10% market share of the known knowns, I’ll bet that the most I owe you for then known unknowns is 10% of the cash value of the unallocated black box. Particularly if you are the first payment.”
Why not do the matching at the time? We’ll come back to that.
The settling publisher feels they made a good bet and accepts the terms. The DSP adds one additional post closing condition—the bet must be secret. The settling publisher will likely voluntarily distribute the monies to their own songwriters on a ratio of earnings (similar to market share), so it can’t be entirely secret. And there are no secrets in the music business. But given these realities, why must the bet be secret?
To keep the strangers to the bet in the dark.
If the bet is announced, strangers to the bet may decide they need to look into how much they are owed. They may not be willing to take a bet. They may want what the statute contemplates—good faith commercially reasonable efforts to actually match.
After the DMPs negotiated their safe harbor in the MMA—remembering that the black box payment was never sold to songwriters as optional—it became apparent that all the strangers were now going to be paid for all the uses that were never matched as a part of the lump sum bet. All the DMPs efforts to keep the strangers in the dark were going to be exposed. And exposed all at once. To what end is this secrecy? Probably for the same reason the DMPs have never posted the unmatched (unlike Royalties Reunited or the AFM-SAG/AFTRA Trust Funds.
Who’s At Fault?
The settling publishers have done absolutely nothing wrong here. They could have pressed for matching but chose to take the bet. Could be high, could be low, but seemed like a good bet at the time.
Plus, by making the bet, they did not take anything away from strangers. The DMPs still owed an obligation to the strangers. The settling publishers did not owe the strangers anything.
This is why the bet is not a double payment so long as the settling publishers are not claiming any uses that were released and settled, which they are not as far as we can tell.
If the DMPs made a bad bet, that’s on them.
The DMPs cannot now reduce a cumulative unmatched black box by the prior bets they made. And of course, as transactions are matched, the unknown knowns become known knowns and are paid out. In order to accomplish the purpose of the statute, all the transactions must be reported.
The MMA “deal” was for cumulative payment of the black box. If settling publishers end up having matched works in the black box—when the unknown become known—those per-transaction payments can be offset to the extent they were covered by a prior release agreed to by a bettor.
But what they cannot do is simply say I made a bet with these guys, so I’m going to claw that back from what I owe to other people who are strangers to the bet. That’s not a double payment either to the bettor or the stranger to the bet.
Letter of Misdirection
I also do not understand a conversation about letters of direction in this context. As known unknowns get matched, the DMP should render a statement.
If the known unknown becomes a known known, that statement will reflect at a minimum the title, copyright owner and the usage as well as whatever other metadata the regulations require. The now known knowns will either be payable as matched works or have already been covered by a settlement and release for the corresponding period.
In the former case, the payable royalty will be available. In the latter case, the royalty will have already been paid as part of the settlement. If that settlement royalty is included in the corresponding black box, that settled usage would be deducted as already paid, which would have a corresponding reduction in the total amount of accrued but unpaid royalties. That’s not a letter of direction, that’s an offset against otherwise payable royalties due to matching.
Alternatively, the settling publisher would not be allowed to make a claim for the periods subject to the release because they have no live claims, assuming a total settlement and release for the corresponding accounting period.
Said another way, whatever transactions are in the pending file stay in the pending file with accrued royalties until claimed. Prior settlements can only be deducted from the transaction lines in the pending file that are for songs owned or controlled by publishers that fall under a prior settlement.
Tolling the Statute of Limitations
The way the DMPs have actually harmed the strangers is by keeping quiet on this idea that the reach back safe harbor is optional. They could have raised this issue during the drafting of MMA and after. But they waited until they had scared away anyone except Eight Mile Style from suing while in theory statutes of limitations ran out starting on 1/1/18 at a minimum. They used the MMA as a kind of in terrorem stick.
That is grossly unfair. This has to be changed so that strangers who didn’t make the bet, who didn’t get the payment, and who were silent with their ripe claims since 1/1/18 are not harmed.
It’s all fine for the DLC to say they do a cost benefit analysis and elect not to take the safe harbor while allowing strangers to be duped. They should not be able to fool both Congress and the strangers. Any statute of limitations running since 1/1/18 should be tolled, perhaps under the Copyright Office emergency powers.
Songwriter Black Box Payments
It is rare for a songwriter to have a royalty claim on unallocated catalog-wide payments such as black box monies absent a specific negotiated deal point. This is a point of some contention with songwriters, so the Copyright Office should look into it as part of the black box study if nothing else.
This black box issue that keeps coming up may be many things, but a double payment it’s not.