Is @MusicReports License Pitch for @OnePeloton the Equivalent of a Poor Person’s Class Action Settlement–Without Court Supervision?

You may have gotten a version of this letter (below) from MusicReports on behalf of their new client Peloton.  (How MRI came to be involved may have more to do with some of the unsavory aspects of the NMPA/HFA conduct alleged by Peloton than it does with the apparent fact that HFA hasn’t made arrangements to have paper NOIs and statements depending on which side of the moral hazard the issue comes up.)  As Billboard also reported:

In its April 30, 2019, counterclaim, Peloton accused the publishers of anti-competitive behavior by engaging in a “coordinated effort” to fix prices and alleged that the National Music Publishers Association had conspired to prevent it from striking deals with the individual companies. A judge though dismissed Peloton’s counterclaims in January.

Which doesn’t mean that Peloton couldn’t appeal that decision, and that also doesn’t mean that NMPA probably really didn’t want them to.  Which may explain why nobody is crowing about the money settlement.

Still, there’s a real question about how this MRI offer even came up in the first place.  Both the Peloton case and the settlement of that case involves only 14 NMPA publishers according to Billboard, but carries the usual false spin no doubt coming from NMPA:

Peloton and The National Music Publishers’ Association (NMPA), the trade association representing all American music publishers and their songwriting partners, announced today (Feb. 27) that they have reached an agreement to  “fully settled the litigation brought last year by 14 NMPA members.”

So for starters, this line is entirely false: NMPA does not represent “all American music publishers and their songwriting partners“.  No matter now much aspirational slack you’re willing to cut someone who claims to represent you when they don’t (also known as gaslighting), there’s one context where you want to be really clear about that stuff–settling lawsuits in your name.  This isn’t the first time they’ve been called on the issue–it also came up in the current appeal of the streaming mechanical rates (see George Johnson papers, “‘Copyright Owners’ [is a t]erm fashioned by NSAI and NMPA, that falsely suggests that they represent all copyright owners, rather than a significant
market share”.)  NMPA has gotten in the nasty habit of telling Congress and the Courts they represent “all American music publishers and their songwriting partners.”  So that’s bullshit for starters.  Now what’s that thing that happens when you mislead a court about standing….?  The memory will jog eventually.

But that issue is brutally relevant here because of the next question:  How did a case involving 14 individual publishers get changed into what is essentially a class action settlement without a fairness hearing or court supervision?  On whose authority?  Of course, Peloton is free to make a voluntary future-facing license offer to anyone any time, but it’s interesting timing.

We haven’t drilled down on the court filings in the case–that’s coming.  But we can only assume that MRI’s offer on behalf of Peloton is phrased the way it is because Peloton did not want NMPA or HFA to be involved in the licensing pitch or the administration of the licensing funds (you’ll see why in a minute).  We haven’t seen the actual license agreement from MRI, but based on the deal points in their pitch letter, it does not appear that (1) the license is a settlement of past claims (but check that issue closely if you decide to opt in as it may be masquerading down in the boilerplate), and (2) there is a pool of money that is to be distributed to those who opt in–and if the pool is not paid out in full, the balance of the pool will be retained by Peloton and is not going to revert to the NMPA (or its members).  In other words, it’s not an MLC-style black box.

By using this pool system, Peloton is able to cap their ultimate royalty payout for indies.  For example, if the deal you never see with the 14 NMPA publishers (or others who have a direct deal) is a pay per play structure with no cap, and MRI offers you a share of a pool, there’s no cap in the pay per click flat rate structure and there is a cap in the pool.  In fact, if you are getting a share of a pool that’s offered to tens of thousands of publishers, you may eventually start to go backwards once you hit the pool cap.  Why?  Because the more publishers that opt in, the smaller the share of the pool for any one song.  Alternatively, the more hits there are, the smaller the share of the pool for the less popular songs.  That may never happen, but it’s worth noting.  That’s why this is kind of like a poor person’s  class settlement without a fairness hearing.  (Also why we have long advocated a per-play rate with no pool.)

And of course remember that this settlement only covers songs.  Songwriter artists, ask how Peloton comes to license your sound recordings or be careful that the MRI song license isn’t masquerading as a sound recording license, too.  There’s a few possible answers to that question, but be sure to ask.

Here’s the letter, we highlighted some stuff that requires futher explanation by Peloton:

Dear Publisher,

We sincerely hope everyone is keeping safe and well in these challenging times.

We are contacting you on behalf of our client, Peloton Interactive, Inc. (“Peloton”), with a license opportunity for their streamed fitness content solution, which allows subscribers to access world class instructor-led exercise and meditation classes through Peloton hardware devices and digital platforms.

This offer is the opportunity for your catalog to be featured in a platform that is part of a growing and supportive community.  [What does “featured” mean?  Can you be non-featured?]

Founded in 2012 and headquartered in New York, Peloton is the largest interactive platform that brings the energy and benefits of studio-style workouts to the convenience and comfort of home. With hundreds of classes produced monthly across twelve fitness disciplines, and a library of thousands of on-demand classes [that include thousands of songs] taught by a roster of elite instructors, Peloton delivers real-time motivation and curated playlists from the world’s greatest artists and writers.  [This sounds like pop hits, right?]  The brand’s immersive content is accessible through the Peloton Bike, the Peloton Tread, and the Peloton App, which is available for both iOS and Android, accessible via most tablets, mobile devices and computers[How is that different than webcasting or Spotify?]

Peloton is changing the way people think about health and wellness and are motivated to work out, and music is a key component of their programming, helping the instructors deliver engaging and inspirational classes in Peloton’s home fitness ecosystem. With over 2,000,000 monthly users and a comprehensive, socially-connected experience geared towards helping members reach their personal fitness potential, each class is designed to be both efficient and irresistible.  [If music is a key component…they must be paying a lot?]

For more information, visit http://www.onepeloton.com.

The main deal points of Peloton’s license offer are as follows [what are the others?]:

Grant of Rights:  Peloton is seeking the right to create, store, transmit, and publicly perform compositions in and in connection with fitness videos on its hardware and digital platforms.  [How is this not a public facing music service?]

Royalty:  Licensor’s share of two revenue pools, one based on plays of your compositionsby users of the Peloton Bikes, Peloton Tread, and other “hardware,” and the other based on plays of your compositions by users of the Peloton App, each of which are calculated at different rates depending on currency of the territory involved (please see the license for details).  [Why do the rates depend on the currency?  How are these tracked?  Probably not very well since they got sued.]

Accounting & Payment:  60 days following the applicable calendar quarter. [60 days?  60?  Really?  And why not monthly? They left out an audit right, check the license.  We can almost guaranteed there is no audit right.]

Territory:  Worldwide [how does this work with foreign societies?]

Term:  Three years following the Effective Date with one year auto-renewals.

Takedown Rights:  As soon as possible, but in no event later than 30 days of receipt of notice or the identification of the relevant Composition; provided, that the takedown request is made on a non-discriminatory basis. [This is essentially a waiver of statutory DMCA takedown rights (if DMCA even applies to Peloton) and creates a new safe harbor for Peloton.  Bad bad bad….]

To review and consider Peloton’s license offer:

Click HERE to log into your MusicReports.com account and review the proposed license agreement. If it is acceptable to you, simply check the box to confirm you have read the agreement, then click the “I Agree” button to accept the terms. You can then download a full copy of the agreement from the “My Licenses” page in your account.

If you need help accessing your account or setting up an account for the first time, contact RoyaltyServices@MusicReports.com

If you have any questions specifically about the opt-in license offer, please send your inquiry to LicenseOffers@MusicReports.com

Best regards,
Music Reports, Inc.

What it looks like is that Peloton is making a pitch that is not approved by any court that is going out to all the publishers (and indie songwriters) that are not represented by NMPA.  Which based on the Spotify, pending and unmatched and YouTube settlements implies that there may–may–be another bucket of settlements that the NMPA did have the authority to make that were both retroactive and future licenses.  But you’ll never know that.

The fact of the Peloton offer is further confirmation of the reality that the NMPA does not “represent” (as in have the authority to speak or negotiate for)  “all” songwriters and publishers.  If they did, wouldn’t this be structured like the Spotify and pending and unmatched settlements?

The really great news is that the head of music for Peloton is going to be speaking at the AIMP webinar today and hopefully he can answer these questions.  Starting with whether Peloton infringed indie publishers copyrights.

Reality is that Peloton is trying hard to get it right, and should never have been sued in the first place, particularly when there are actual criminals like TikTok in the market that has no publishing licenses whatsoever.  There’s where your litigation budget should be getting spent, not chasing exercise bikes.