Let’s Not Miss An Opportunity to Include Startups in the Music Modernization Act–MusicTechSolutions

By Chris Castle
(musictech.solutions)

Who took on the Standard Oil men
And whipped their ass
Just like he promised he’d do?
Ain’t no Standard Oil men gonna run this state
Gonna be run by folks like me and you

Kingfish, written by Randy Newman

If you’re one of the small group that has actually read the Music Modernization Act, I think you’d have to come away with the idea that this is legislation by the big boys for the big boys.  Nowhere is this unfortunate flaw more apparent than in the way that digital media companies “modernize” the way they treat themselves.  No wonder Digital Media Association (Amazon, Apple, Google, Pandora, Spotify) and the Internet Association (Amazon, Facebook, Google, Pandora, Spotify) love it so much–it’s just the same old story from Standard Oil or United Fruit.

But is MMA really intended for the biggest corporations in commercial history playing footsie or should we believe the sales pitch that it is intended for the innovative startups and new entrants?

It is not surprising that startups were apparently excluded from the legislative process that created MMA and are themselves silent–or silenced–observers.  Given that Google, Amazon, Apple and Spotify are on the other side, startups know which side butters their bread and what will happen if they voice any criticisms.  Like the python in the chandelier, nothing really need be said; startups know what happens if they challenge the big boys, particularly Google and Amazon who probably host their companies, serve their advertising or drive traffic to them.

The MMA permits these massive and aggressive incumbents to ultimately decide how much startups pay for access to the blanket license that we are told by DiMA’s CEO will unleash innovation and “fuel the next wave of creativity“.  Yet–if startups can’t afford to buy in to the license, it won’t do them much good, and as drafted the MMA allows their incumbent competitors to decide how much that buy-in will cost any startups or other of the much ballyhooed new entrants.  This all before a startup has to pay royalties to the collective–and in addition to any royalties.

How can this be fair?  It’s easy when your lobbyists write the rules.

The Congress delegates the government’s authority under the Music Modernization Act by creating two main bodies around the new government-mandated blanket license:  The “mechanical licensing collective” which is to represent those with songs to be licensed and the “digital licensee coordinator” which is to represent music users wishing to license those songs under the new blanket mechanical license.  Music users will answer to the “digital licensee coordinator,” presumably under some membership agreement yet to be drafted.

Both these bodies are supposedly approved by the Register of Copyrights (the head of the U.S. Copyright Office), but the Register has the unenviable position of being constrained to appoint certain types of entities or people by statutory criteria in the MMA.

One of those criteria is very majoritarian, if not downright oligopolistic–and I would suggest that for both the collective and the digital licensee coordinator the math alone limits the Register’s choice to one entity.  Here’s the relevant language for how the Register selects the collective:

“[The Register must choose an entity that] is endorsed by and enjoys substantial support from copyright owners of musical works that together represent the greatest share of the licensor market for uses of such works in covered activities, as measured over the preceding 3 full calendar years;”

And here’s the mirror version of the relevant language for how the Register selects the “digital licensee coordinator” (or “DLC”):

“[The Register must choose an entity that] is endorsed by and enjoys substantial support from digital music providers and significant nonblanket licensees that together represent the greatest share of the licensee market for uses of musical works in covered activities, as measured over the preceding 3 full calendar years”

So one thing seems true for both the collective and the coordinator:  They can only be entities enjoying “substantial support” by at least a plurality if not a majority of their respective markets on either side of the same coin.  I’m not quite sure how that definition presents a choice to the Register–more like it allows the biggest players to dictate the Register’s choice.  (How can there be two pluralities much less two or more?)

I would submit that this structure is a long-term recipe for disaster.

Others have and are writing about the conflict-ridden aspects of the collective, so I will focus here on the digital licensee coordinator which is equally, if not more, conflict-ridden than the collective.

By definition then, startups–who are potential music users most in need of the blanket license without having to pay minimum guarantees–are evidently excluded from any possibility of becoming the digital licensee coordinator.  The Congress effectively prohibits the Register from appointing one of them as the DLC, even if they were brave enough to raise their hand (see Yelp in the EU antitrust ruling against Google).

And don’t forget a main selling point of the MMA:  The music users (i.e., the “licensees”) pay an “administrative assessment” to cover the costs of running the mechanical licensing collective.  (An inherent conflict?)  The MMA authorizes the DLC to “equitably allocate the collective total costs across digital music providers…but shall include as a component a minimum fee for all digital music providers.”  (Although note that the assessment as a whole and perhaps the allocation ultimately has to be approved by the Copyright Royalty Judges–and good luck to startups being able to afford to appeal to the CRJs or a higher court.)

Plus the MMA authorizes the DLC to “[e]ngage in efforts to enforce notice and payment obligations with respect to the administrative assessment….”  AND the DLC also gets to set the “dues” payment for each “member.”

So if a startup wants the blanket licence, they have to pay a share of the assessment apparently determined by a representative of their biggest competitors PLUS a membership fee.  And then they get to pay royalties to the collective.  Note that this is a radical departure from the current law and adds another gatekeeper in between songwriters and their money.

If a startup fails to make all these payments, they can lose the blanket license even if they have paid all royalties on time.  No one can tell you what the minimum fee will be or the startup’s share of the assessment.  In fact, as new startups will likely enter the allocation for “membership” all the time, a real time percentage allocation for each “member” of the DLC will likely change pretty much constantly.  Plus the collective can enforce the blanket license royalties and the DLC can enforce the assessment payments and membership “dues” (aka rents).

“Modernization” legislation is an excellent opportunity to level the playing field for these companies that are no doubt afraid to challenge the incumbents like Google (known for being specially vindictive to any startup that challenges them–see Foundem and the European Union’s multi-billion euro antitrust litigation against Google).

It’s also important to realize that there is an exponential difference between the group of companies that the Register takes instruction from on the MLC compared to the group instructing the Register for the DLC.  Candidates for the DLC include Amazon, Apple, Google and Spotify–three of the biggest companies in commercial history plus the streaming platform that is easily the dominant actor in its relevant market both in the U.S. and many other countries.  This basically assures that no startup will ever be included as the DLC absent a government-mandated rotation.

The Music Modernization Act is a great opportunity to do something positive for the market rather than continue to reenforce the most dominant incumbents in history (see 60 Minutes, “The Power of Google“).  After all, it was their own carelessness and “permissionless innovation” that got us to this point.

Here’s some free advice to Congress:  Go wild.  Require appointing a startup or two or three as the DLC from time to time.  And since you’re dictating many attributes of the MLC’s board, if you really want to go truly off the reservation, require one of those startups to be from some place like Austin, Athens, Northern Virginia or Salt Lake–anywhere but Silicon Valley.  Wouldn’t that be real modernization rather than real entrenchment?

As a wise old Member of the Texas Congressional delegation once told me, they get to climb the ladder to the American Dream like everyone else.  What they don’t get to do is pull the ladder up behind them once they get to the top.

By limiting the choices of who can be the DLC, the government is mandating control to only the biggest of the big.  And giving them an antitrust exemption as the cherry at the top of the ladder.

 

Head of Justice Dept Antitrust Division to Speak At Publisher Conference–can end of ASCAP/BMI Consent Decrees be coming?

Really great news!  It was recently announced that the head of the Justice Department’s Antitrust Division will speak at the National Music Publishers Association annual meeting in June!

This year’s keynote will be presented by United States Department of Justice (DOJ) Assistant Attorney General for the Antitrust Division, Makan Delrahim.

As David said a few weeks ago before this announcement, Mr. Delrahim is reviewing hundreds of DOJ consent decrees that have accumulated over the decades to see if these government orders should be continued.  This review includes the ASCAP and BMI consent decrees that Mr. Delrahim specifically mentioned in an address at Vanderbilt Law School earlier this year.  He seems to have come to this idea all by himself.

What’s really great about this is that it could mean the end of consent decrees in a relatively short period of time.  Since it’s never happened before, we don’t know exactly how the end of the consent decrees would impact ASCAP and BMI, but presumably the impact would be positive and quick. Goodbye rate court!  The smart money would probably be on existing rate court cases continuing, but disallowing new cases.  (Mr. Delrahim has been clear that the enforcement side would remain in place, meaning we guess that actual antitrust law violations would be dealt with case by case, just no ongoing regulatory oversight by unelected rate courts.  Example would be Global Music Rights awesome antitrust case against the broadcasters after the broadcasters brought one against GMR.)

It could possibly open the door to both organizations getting into the mechanical licensing administration business in competition with whatever comes of the collective established by the Music Modernization Act (which permits voluntary licenses outside of the collective).  In fact, BMI has already said they intend to pursue licensing outside of performances because their consent decree allows them to do so unlike ASCAP’s:

BMI is also evaluating the option of licensing beyond the performing right. We have long believed our consent decree allows for the licensing of multiple rights, which is why four years ago we asked the DOJ to amend our decree to clarify that ability, among other much-needed updates.

Of course, the last thing that anyone would want is for the DOJ to end the consent decrees, just to be replaced by some other bunch of regulations or bureaucracy.  For once, broadcasters will just have to suck it up.

So it’s a great idea that NMPA is inviting Mr. Delrahim to speak to the publishers who are most in the position to take advantage of a new dawn in songwriter freedom.  Many if not most of the NMPA members will be in the voluntary licensing category under MMA and outside the collective.  They would be in a fantastic position to support a one-stop shop for performance and mechanical licensing from ASCAP and BMI in line with what SESAC/HFA can offer, and presumably GMR could do as well.

@RobertBLevine_: Federal ‘Transparency’ Bill Endangers Songwriters’ Leverage for Getting Paid — Artist Rights Watch

On the surface, at least, the “Transparency in Music Licensing Ownership Act,” introduced in the House of Representatives on July 20 by Congressman Jim Sensenbrenner (R-WI), seems like a copyright bill that could help untangle the online music business….but the devil is in the details.

via @RobertBLevine_: Federal ‘Transparency’ Bill Endangers Songwriters’ Leverage for Getting Paid — Artist Rights Watch

The 21st Century Marketing Restriction: No licensing for Artificial Intelligence — Artist Rights Watch

If you let your record company license your recording for AI algorithmic music a la Orwell’s “versificator”, it’s like Silicon Valley making you train your replacement.

By Chris Castle

After the money, one of the most important parts of a recording artist negotiation is the “marketing restrictions”.  These are restrictions on what the record company or music publisher can do with your work–what type of licenses they can, or more frequently cannot, grant to third parties, for example.  Essentially, whatever is not prohibited is permitted.

Marketing restrictions also have a temporal element–during or after the term, recouped or not recouped.  There are some restrictions that are acknowledged to be verboten and are usually easy and unrestricted concessions.  An example of these would be licensing for certain types of commercials such as tobacco, firearms, grooming or hygiene products and alcohol.

Stewart Dredge has an excellent article this week in the Guardian which brings to mind Laura Kobylecky‘s post on MusicTechPolicy drawing comparisons between Spotify’s “fake artist” problem and “The Next Rembrandt” with echoes of the fictional  “versificator” operated by Big Brother’s “Music Department” in 1984.  According to Stewart, there are dozens of AI music startups getting funded that all essentially do the same thing.  Using a library of recordings (sometimes called a “corpus”), the algorithms “create” new recordings based on the songs and recordings in the corpus.  Google is, of course, a leader in the space (not that different from how they used Google Books to train their translation algorithm, a process called “corpus machine translation”–the librarians will be next).

Those recordings can then be sold or licensed at a very low price which, as Laura and others have noted, can be used to drive down the royalties payable to all other artists on digital music services.

This is, of course, not dissimilar to Silicon Valley companies hiring lower paid foreign workers and ordering the employees who they are to replace participate in training their replacements.  The difference is, of course, that those recordings have to come from somewhere.

It’s time to start adding to the list of marketing restrictions that the song or recording cannot be licensed for AI purposes of any kind.

via The 21st Century Marketing Restriction: No licensing for AI — Artist Rights Watch

If Only Artists and Managers Had Listened To Us : Spotify Per Stream Rates Keep Dropping

We hate to say we told ya so, but… Below is our post from September 2015. Two years ago we predicted the inevitable truth of the all you can eat Spotify subcription model. Like many of our predictions and proposals (example; windowing titles) we’ve had to wait for the industry to catch up to us. Today, two years later, Digital Music News confirms our prediction.

Read the report from Digital Music News by clicking the headline link here.

Exclusive Report: Spotify Artist Payments Are Declining In 2017, Data Shows | Digital Music News

Our original post from 2015 is below…


Spotify Per Play Rates Continue to Drop (.00408) … More Free Users = Less Money Per Stream #gettherateright

Down, down, down it goes, where it stops nobody knows… The monthly average rate per play on Spotify is currently .00408 for master rights holders.

PerStreamAvg_Jun11_July15

48 Months of Spotify Streaming Rates from Jun 2011 thru May 2015 on an indie label catalog of over 1,500 songs with over 10m plays.

Spotify rates per spin appear to have peaked and are now on a steady decline over time.

Per stream rates are dropping because the amount of revenue is not keeping pace with the  number of streams. There are several possible causes:

1) Advertising rates are falling as more “supply” (the number of streams) come on line and the market saturates.

2) The proportion of  lower paying “free streams”  is growing faster than the proportion of higher paying “paid streams.”

3) All of the above.

This confirms our long held suspicion that as a flat price “freemium” subscription service  scales the price per stream will drop.  As the service reaches “scale” the pool of streaming revenue becomes a fixed amount.  The pie can’t get any larger and adding more streams only cuts the pie into smaller pieces!

The data above is aggregated. In all cases the total amount of revenue is divided by the total number of the streams per service  (ex: $4,080 / 1,000,000 = .00408 per stream). Multiple tiers and pricing structures are all summed together and divided to create an averaged, single rate per play.

Big Tech’s Latest Artist Relations Debacle: Mass Filings of NOIs to Avoid Paying Statutory Royalties (Part 3) — Music Tech Solutions

As we saw in parts 1 and 2 of this post, New Boss companies like Google are playing on a loophole in the Copyright Act’s compulsory license for songs to shirk responsibility for song licensing from the songwriters or other copyright owners, get out of paying royalties and stop songwriters from auditing. Not only have Google targeted long tail titles, but also new releases and songs by ex-US songwriters who are protected by international treaties. This is exactly the kind of rent seeking behavior by crony capitalists that gives Big Tech a bad name in the music community.

via Big Tech’s Latest Artist Relations Debacle: Mass Filings of NOIs to Avoid Paying Statutory Royalties (Part 3) — Music Tech Solutions

Gently Down The Stream (Songwriters Streaming Royalties Explained) | SONA [VIDEO]

Thank You Songwriters Of North America (SONA)

Songwriter Would Need 288 Million Spins To Equal Average Spotify Employee Salary

Screen Shot 2016-05-26 at 8.12.33 PM

 

Spotify just posted their financials and Paul Resnikoff at Digital Music News was quick to point out that the average Spotify employee salary is $168, 747.

Contrast that to the plight of songwriters.  There would be no music business without the fundamental efforts of songwriters. Yet, there is not a free market in songs.  The federal government sets compensation for songwriters/publishers based on a percentage of revenue.  An abysmal below market rate.  In effect a subsidy for streaming services.   Last I checked this rate was working out to about $0.00058 per spin.    This includes both the public performance (BMI/ASCAP) and the streaming mechanical  (IF they happen to pay it).

Best case scenario, if a songwriter retains all publishing rights to their song then a songwriter would need 288,104,634.15 spins to earn the reported average salary of a Spotify employee.

Any questions?

++++++++++++++++++++++++++++++++++++++++++++++++++++

Related see this post on failure of techies to understand that streaming services are subsidized by government mandates

https://thetrichordist.com/2016/05/27/clueless-spotify-defender-illustrates-tech-ignorance-about-federal-cap-on-songwriter-pay/

 

After Skipping Spotify, The 1975 Scores a Number 1 Album | DMN

“After avoiding Spotify entirely and focusing the release on iTunes and a variety of physical formats, the band achieved a number one album in several countries.  According to Billboard and its counting partner Nielsen Music, The 1975’s just-released album, I Like It When You Sleep, for You Are So Beautiful Yet So Unaware of It, sold 98,000 units in the US alone, a chart-topping tally.”

READ THE FULL STORY AT DIGITAL MUSIC NEWS:
http://www.digitalmusicnews.com/2016/03/08/despite-skipping-spotify-the-1975-gets-a-us-number-one/


 

Three Simple Steps To Fix The Record Business in 2016… Windows, Windows, Windows… (2015)

 

How to Fix Music Streaming in One Word, “Windows”… two more “Pay Gates”… (2014) 

 

Why Spotify is not Netflix (But Maybe It Should Be) (2013)

Spotify Hit With $150 Million Class Action Over Unpaid Royalties | Billboard

Vocal artist rights advocate David Lowery brings a massive action against the largest streaming service.

Camper Van Beethoven and Cracker frontman David Lowery, retaining the law firm of Michelman & Robinson, LLP, has filed a class action lawsuit seeking at least $150 million in damages against Spotify, alleging it knowingly, willingly, and unlawfully reproduces and distributes copyrighted compositions without obtaining mechanical licenses.

READ THE FULL STORY AT BILLBOARD:
http://www.billboard.com/articles/business/6828092/spotify-class-action-royalties-david-lowery-cracker-150-million

#irespectmusic