Category: Songwriter Rights

Comment to Copyright Office on Termination, the Black Box and Lawlessness at MLC

MLC 2021 US Federal Tax Return 990 https://www.themlc.com/hubfs/Marketing/Website/MLC-Finance_Form990-2021_CEOSigned.pdf


January 5, 2023

By Regulations.gov

Suzanne Wilson
General Counsel and Associate Register of Copyrights
U.S. Copyright Office
101 Independence Avenue S.E.
Washington D.C. 20559

Re:   Notice of Proposed Rulemaking: Termination Rights and the Music Modernization Act’s Blanket License 
         Docket No. 2022-5 Comment

Dear General Counsel Wilson:

Thank you for the opportunity to make this comment on the docket referenced above.[i]    

I am a music lawyer in Austin, Texas and write this comment on my own behalf only and not on behalf of anyone else.  

Others will address the substantive termination issues that are well-described and assayed in the Notice, so I will focus on the procedural tension between The Mechanical Licensing Collective, Inc. (“The MLC, Inc.”) currently designated as the mechanical licensing collective (“MLC”), its officers and directors, and the law as described in the Notice.  

I argue that the need for this Notice is symptomatic of a larger problem in the relationship between Congress and The MLC, Inc. I hope the Office will consider resolving this tension as it has been authorized to do under the Music Modernization Act[ii] such as through regulations establishing the type of code of conduct that is common for other federal contractors.  

This tension is alarming.  The Notice states the MLC “does not follow the Office’s rulemaking guidance”[iii] regarding terminations, and that The MLC, Inc. “declin[es] to heed the Office’s warning….”[iv]  These disclosures are diametrically at odds with the clear intent of Congress in crafting the MLC’s role.[v]

The disclosures confirm clearly that there are governance and oversight controversies at The MLC, Inc. that in my view need to be conclusively disposed of, and quickly.[vi]  These governance issues are symptomatic of what may be much greater problems with the administrative capabilities of The MLC, Inc. that may be metastasizing but have not yet risen to the level of a public inquiry.

The recklessness that gives rise to the Notice also highlights The MLC, Inc.’s general lack of accountability and suggests a conscious disregard for the Copyright Office’s oversight role on a significant matter of law that is not capable of proper resolution through any “business rules.”[vii]  

I also note this troubling statement in the Notice:

But, having reviewed the MLC’s policy, the Office is concerned that it conflicts with the MMA, which requires that the MLC’s dispute policies ‘‘shall not affect any legal or equitable rights or remedies available to any copyright owner or songwriter concerning ownership of, and entitlement to royalties for, a musical work.’’[viii]

It seems clear that The MLC, Inc.’s conscious failure to comply with Congressional intent as well as the Office’s guidance is, or ought to be, a decision of some import that surely must have been taken by someone—that is, one or more persons—employed or appointed by the MLC.  It seems likely to be a subject that would have been reviewed both by its General Counsel and as part of the millions in outside counsel fees[ix] spent by The MLC, Inc.  

The fact that the decision-making process is not readily known is itself of concern and leads one to further consider developing a code of conduct for The MLC, Inc. to assure the Office, the Congress and the public of its administrative capabilities.

Respectfully, I request that you determine how this decision was arrived at and what internal controls The MLC, Inc. has put in place to assure the Congress, the Office and interested parties that these mistakes will not happen again.  This should not be an “oh well” moment and should be taken seriously by The MLC, Inc.

If The MLC, Inc. fails to disclose what it is doing by establishing opaque “business rules”, it is essentially creating de facto regulations that have the practical effect of law or regulations made behind closed doors unless the Office or other oversight agency happens to catch them out.  The public will never know that the business rule was established, how the “business rule” was arrived at, or have a meaningful opportunity to comment such as in response to this Notice.

For example, do the minutes of The MLC, Inc.’s board of directors or statutory committees reflect a discussion or vote on the adoption of the MLC’s policies on termination treatment? Did such a vote implicate any conflicts of interest?  Who determined that there was or was not a conflict of interest in the MLC’s decision to adopt the termination policy, however it was taken?  Were there any dissenting votes recorded?  Did an officer or director of The MLC, Inc. certify the completeness of the record in these findings in the corporate minute book?

This leads to other concerns under public discussion regarding the hundreds of millions of “black box” monies being held by The MLC, Inc. Given that the public has very little information available to it regarding the results and implications of the MLC’s operational decisions, I respectfully request that you determine what, if any, financial implications have arisen as a result of The MLC, Inc.’s reckless failure to comply with the law and the guidance of the Office in implementing its termination policy.  Such determination should likely include any funds[x] that The MLC, Inc. is apparently trading in the market for its own account.[xi]  Any curative action required by the Office should, of course, be retroactive in scope which will require considerable before-and-after accounting disclosures.

It must be asked whether the “business rule” established for terminations increases or decreases the enormous black box which was of considerable interest to Chairman Leahy at the recent Copyright Office oversight hearing at which the Register testified.[xii]  This is particularly true if the implementation of the business rule results in financial harm to interested parties who rely on The MLC, Inc. to get it right.  

The subject of black box came up in the Questions for the Record from Chairman Leahy.  The Copyright Office’s response to Chairman Leahy’s inquiry about the hundreds of millions in black box held by the MLC directed the Chairman to the MLC’s annual report for answers.  

Respectfully, I find this odd.  Chairman Leahy did not ask what the MLC told the world in its annual report; rather he asked, “What can the Copyright Office do to help ensure that the MLC is working to make sure that rightful owners of music works are identified and paid?”[xiii]The question is transitive:  We have oversight of you, you have oversight of The MLC, Inc., therefore we have oversight of the MLC.  

Surely no one is surprised by this.  The question many have is why The MLC, Inc. itself—a quasigovernmental organization operated by inferior officers[xiv] of the United States–is not the subject of an oversight hearing at Senate Judiciary regarding the hundreds of millions it is sitting on.  Maybe next time.

It must also be said that the answer to Chairman Leahy goes on:

Notably, the MLC plans to wait to process historical unmatched royalties from the Phonorecords III rate period [2018-2022] until the Copyright Royalty Judges finalize those rates in the ongoing remand proceeding and digital music providers provide adjusted reports of usage and royalty payments. It is the Office’s understanding that the bulk of historical unmatched royalties come from that period.[xv]

Without getting into the timeline of what came when, how is it exactly that The MLC, Inc. took the decision in February 2021—nearly two years ago–to sit on top of hundreds of millions of other peoples’ money that they were somehow investing under their undisclosed “Investment Policy”?  Was anyone asked?  Who gave the MLC the permission to do this?  Do they not hold the black box corpus in trust for songwriters and copyright owners yet to be identified?  Does this not compound the already painful series of failures that resulted in the black box in the first place, the delay in accounting to songwriters (or their families) under Phonorecords III remand, and still more delay while legions of lobbyists and lawyers argue over the post-remand true up accountings?

The MLC reported $2,529,910 investment income on its 2021 US Federal tax return 990

Respectfully, there is also, of course, a larger question that the Office may consider answering:  If The MLC, Inc. adopts a policy or takes some action outside of the law or its remit, is that policy binding on any future entities designated by the Office as the MLC?  

These are all questions that I would expect to have answers that are readily available to the public given that The MLC, Inc. is in a position of public trust administering a compulsory license on behalf of the United States and has been given great privileges under the MMA.[xvi]

Thank you again for the opportunity to comment.

Very truly yours,

Christian L. Castle

CLC/ko

[i] U.S. Copyright Office, Notice of Proposed Rulemaking, Termination Rights and the Music Modernization Act’s Blanket License 87 FR 64405 (Oct. 25, 2022) (Doc. No. 2022-5) (hereafter “Notice”).

[ii] Orrin G. Hatch-Bob Goodlatte Music Modernization Act, Public Law 115–264, 132 Stat. 3676 (2018) (“MMA”) and specifically Title I thereof.

[iii] Notice at 64407.

[iv] Id.

[v] See S. Rep. 115-339 (115th Cong. 2nd Sess. Sept. 17, 2018) at 7 (“Senate Report”).  (“The collective is expected to operate in a transparent and accountable manner.”) 

[vi] I would hope that this failure will be weighed and measured by the Copyright Office as part of The MLC, Inc.’s quinquennial review as is required under the legislative history.  See, e.g., Senate Report at 5 (“[E]vidence of fraud, waste, or abuse, including the failure to follow the relevant regulations adopted by the Copyright Office, over the prior five years should raise serious concerns within the Copyright Office as to whether that same entity has the administrative capabilities necessary to perform the required functions of the collective.”)(emphasis added).

[vii] It must be said that the MLC’s disregard for this particular matter may present a moral hazard (at best) for the publishers represented by at least some of its board members.

[viii] Notice at 64407 (emphasis added).

[ix] Annual Report at 16.

[x] See the MLC’s annual report stating that the MLC invests the black box according to its internal “Investment Policy” established by its board of directors but not made public.  MLC 2021 Annual Report at p. 4 available at https://www.themlc.com/hubfs/Marketing/23856%20The%20MLC%20AR2021%206-30%20REFRESH%20COMBINED.pdf(“Annual Report”) (“Investment Policy: This policy covers the investment of royalty and assessment funds, respectively, and sets forth The MLC’s goals and objectives in establishing policies to implement The MLC’s investment strategy. The anti-comingling policy required by 17 U.S.C. § 115(d)(3)(D)(ix)(I)(cc) is contained in [The MLC, Inc.’s] Investment Policy. The Investment Policy was approved by the Board in January 2021.”) (emphasis added).

[xi] Realize that every CMO is confronted with the decision about what to do with the royalty float and black box, but not every CMO decides to invest these funds in the market. If they do invest the funds, it is generally the case that any trading profits, dividends or interest goes to offset the CMO’s administrative costs that otherwise would be deducted from collected royalties.  However, the MLC, Inc.’s administrative costs are paid by the users of the blanket license (making the United States, I believe, the only country in history or the world that charges for the use of a statutory license). Therefore, the return on the MLC’s investment of the songwriters’ money would not be used for the same purpose as all the world’s CMOs that follow a similar practice.  The continuity in ownership for profits derived from The MLC, Inc.’s trading is also unclear;  if The MLC, Inc.’s existing designation is not continued but securities are being held or profits generated, what happens? 

[xii] Senate Judiciary Committee, Subcommittee on Intellectual Property, Oversight of the U.S. Copyright Office, Responses to Questions for the Record by Shira Perlmutter, Register of Copyrights and Director of the Copyright Office (Sept. 7, 2022), available at https://artistrightswatchdotcom.files.wordpress.com/2022/10/qfr-responses-perlmutter-2022-09-07.pdf. (“Questions for the Record”) (“With respect to the historical, pre-2021, unmatched royalties, which were reported to be about $426 million, the annual report says that the MLC recently started distributing those that it has been able to match. It also says that the MLC has begun making associated usage data for historical unmatched royalties available to copyright owners, which will facilitate further claiming and matching.”) 

[xiii] Id. at 4.

[xiv] President Donald J. Trump, Statement on Signing the Orrin G. Hatch-Bob Goodlatte Music Modernization Act (October 11, 2018) available athttps://www.govinfo.gov/content/pkg/DCPD-201800692/pdf/DCPD-201800692.pdf (“Because the directors are inferior officers under the Appointments Clause of the Constitution, the Librarian must approve each subsequent selection of a new director.”)

[xv] Questions for the Record at 4.

[xvi] See, e.g., Senate Report at 5 (emphasis added).  “For the responsibilities described in subparagraphs (J) [distribution of unclaimed royalties] and (K) [dispute resolution] of paragraph (3), the collective is only liable to a party for its actions if the collective is grossly negligent in carrying out the policies and procedures adopted by the Board of Directors pursuant to section 115(d)(11)(D). Since the Register has broad regulatory authority under paragraph (12) of subsection (d), it is expected that such policies and procedures will be thoroughly reviewed by the Register to ensure the fair treatment of interested parties in such proceedings given the high bar in seeking redress.” 

by Trichordist

No Hits, No Hit Records: The Streaming Mechanicals Poverty Program at the CRB

by Chris Castle

Government intervention into the economy can, and usually does, produce negative externalities (or unanticipated harms). Government interference with price can produce the negative externality of poverty. While we can sue if we are harmed by some negative externalities, we usually can’t sue the government for causing poverty. 

Understanding poverty often considers the government’s interaction with citizens. Do the government’s policies increase poverty or reduce poverty? 

One of those analytical inquiries is whether the government gives the people too much or too little agency in establishing poverty policy. Does poverty policy remember to allow people the ability to have a meaningful effect on their lives and outcomes based on their own efforts and human agency? Or does poverty policy trap them and limit or even take away their agency? 

The Compulsory License as Poverty Program

I can’t think of a better example of the government limiting the outcomes of a class of people than the compulsory mechanical license. Minimum wage tries to influence poverty favorably by establishing a lower bound of fair compensation for employees. Minimum wage policy anticipates that some employers will pay above minimum wage because employees will be able to quit a lower paying job and strive for a higher paying job. 

Employees exercise agency because the government policy does not stop them from doing so and gives them a seat at the table in negotiating their own compensation. Money isn’t the only consideration, but it is a core issue. And employees can walk across the street and get a better paying job. Unlike the minimum wage, the compulsory license places a limit on what the biggest corporations in the world are required to pay a specific class of people–songwriters. 

Neither can I think of a better example of the government working with Big Tech to destroy human agency than the Copyright Royalty Board–which is strangely consistent with Big Tech’s dehumanizing data trafficking business model.

The New Streaming Mechanical Rates

The Copyright Royalty Judges have issued their final ruling on the rates and terms under the government-mandated compulsory license for streaming mechanicals. That ruling is to be published in the Federal Register in the coming days and is based on a settlement among the National Music Publishers Association, Nashville Songwriters International, Amazon, Apple, Google, Pandora, and Spotify.

The CRJs mostly discuss the 20 comments they received on the proposed version of their rule and don’t really spend much time defending why they are adopting the settlement reached by the richest corporations on Earth (and in Earth’s history) on the one hand and–let’s be honest (and we’ll come back to this)–the major publishers on the other hand. The Judges are adopting the deal these parties made essentially because the CRJs can’t find anything unreasonable or illegal about it.

Said another way, the Judges can’t find a reason to take the heat of rejecting it. That’s unfortunate, because they did reject the “frozen mechanicals” settlement as is their role in the Copyright Royalty Board process required by Congress.

I’m not going to argue about the rates and terms of the settlement itself. I could and I know others will, but I’m going to focus on one economic point today: the absence of a cost of living adjustment (or COLA). There are some other points that should also be addressed that are more nuanced and policy oriented which I’ll come to in another post.

It’s important to understand one aspect of the CRB’s procedural nomenclature: Participants and commenters. There is only one individual songwriter who is a participant in Phonorecords IV–a songwriter named George Johnson who represents himself. Being a “participant” means that you are appearing before the Judges as a legal matter. In the case of settlements that the Judges intend to approve and adopt as law, the Judges are required to make those settlements available for public comment which they did. Those comments are posted in the CRB’s docket for the particular proceeding, styled as “Phonorecords IV” in our case today. Note that if the Judges did not make those settlements available, no one who is answerable to the electorate would be involved in the rate setting.

It is important to understand that the voluntary settlement excludes George Johnson from negotiation and drafting of the settlement even though he is a participant. Commenters are also excluded and only find out the terms of the proposed settlement once the Judges post the settlement as a proposed rule and seek public comments.

Unless commenters persuade the Judges to reject a settlement (which MTP reader will recall happened in the “frozen mechanicals” proceeding), this means that the only people who have a meaningful opportunity to affect the outcome are the important people: The National Music Publishers Association, Nashville Songwriters International, Amazon, Apple, Google, Pandora, and Spotify, that is, “Big Tech.”

Nobody else.

It should be noted that the smart money is betting that the next session of Congress will not be a pleasant experience for any of these DSPs based on public statements of a number of Members, including House Judiciary Chairman-select Jordan. It will be easy for songwriters to point to the latest insult in the form of the streaming mechanical ruling as yet another example of that special combination of Big Tech, the compulsory license and the nine most terrifying words in the English language. One novel issue of law at least at the CRB that the Copyright Office may wish to opine on is what happens if one or more participants in a proceeding negotiate an oppressive voluntary agreement but cease to exist when it is put into effect. Just sayin.

But songwriters will be able to point to the poverty-creating externality of the compulsory rate and the human agency-destroying effect of Congress’s Copyright Royalty Board.

The Failure to COLA

As the Judges confirm in the streaming mechanicals ruling, George Johnson and the commenters who opposed the settlement all support some version of a cost of living adjustment applied to the statutory rate. A COLA is the standard government approach to preserving buying power in a number of areas of the economy driven by government intervention including the physical mechanical royalty for the same songs.

However, since the important people did not agree to a COLA as part of their settlement for the streaming mechanical, the Judges evidently believed they were unable to add a COLA in the final rule because it might disturb the “negotiation” by the biggest corporations in commercial history and God know we wouldn’t want to do that. They might get mad and there’s no poverty at Big Tech.

The Judges authority is an issue that one day may be decided in another forum, perhaps even the Supreme Court. I’m not so sure the role of the Judges was to ignore the utility of a COLA and merely scriven into law the deal the lobbyists and lawyers made while ignoring George and all the public comments in this case supporting a COLA.

This is of particular interest because the Judges had just adopted a COLA in Phonorecords IV for physical records and permanent downloads and have adopted COLAs in other compulsory licenses (and have done so for many years). It must be said that one reason there is a COLA in the “Subpart B” proceeding for physical royalties is because the Judges themselves suggested it when they rejected the initial Subpart B settlement. Presumably the Judges could have done the same thing in the streaming mechanicals proceeding despite the tremendous political clout wielded by Big Tech, at least for the moment.

For some reason, the Judges decided not to treat likes alike when it involved the richest corporations on Earth.  This means that the exact same writers with the exact same songs will have the value of the government’s compulsory rate protected by a COLA when exploited on vinyl but not when the exact same song and the exact same writers on the exact same recordings are streamed.

If that’s not arbitrary, I’m looking forward to the explanation. I’m all ears.

Bootstrapping for Rich People

One might think that this unequal treatment wasn’t arbitrary because the Judges are directed by Congress to favor adopting as the law applicable to all songwriters voluntary settlements agreements on rates and terms reached among some or all of the participants in a proceeding like Phonorecords IV. Of course Congress made it so expensive to be a participant in a proceeding (and that negotiation) that it’s likely that if you are both a participant and also a party to any voluntary settlement, you must be one of the rich kids.

What is very interesting about Phonorecords IV is that the proceeding was divided between physical and streaming mechanicals. Although the publisher representatives were the same (NMPA and NSAI), the music users were, of course different: The major labels were in the physical negotiation and the DSPs were in the streaming. Faced with strident opposition from commenters and continued opposition from George Johnson, the major labels came up with a solution that included a COLA and got the publishers to agree. That solution increased the minimum penny rate from 9.1¢ to 12¢ as a base rate with an annual COLA. 

Why this difference between labels and DSPs? Could it be because the labels understand that they are in the age of the songwriter and they need to be certain that songwriters thrive? You know, no hits, no hit records? Could it be because the DSPs are so blinded by leverage, wealth and political power that they and their THIRTY SIX LAWYERS lack this understanding?

The label deal was acceptable to a lot of people, albeit begrudgingly in some cases, but it closed. And the deal was a step toward what I would call the primary goal of government rate setting–stop bullying songwriters with insulting rates while repeating nonsense talking points that nobody in the trenches believes for a second. It should not be forgotten that the label deal also came with a renewed commitment to finding a way toward a longer table with more people at it to negotiate these deals in the future. We’ll see, but the labels should expect to be reminded about this in the future.

But–nothing like this common sense approach to inclusion happened on the streaming side with DSPs. Why not? Probably because the rich kids were calling the shots and did not give a hoot about what the songwriters thought. They used their situational leverage as participants throughout the Phonorecords IV proceeding to jam through an insulting deal no matter how much they embarrassed themselves in the process. The conduct of the DSPs–and did I mention their THIRTY SIX LAWYERS–was the complete opposite of how the major labels conducted themselves.

You may notice that I refer to the DSPs and the labels as calling the shots in these negotiations. There’s a very simple reason for that–the government has put its thumb on the scale because of the compulsory license. Songwriters can’t say “no” (much less “Hell, no”), so are forced to fight a rear guard action because the outcome is predetermined–unless the settling parties do something to change that outcome. To their great credit, the labels did. But to their great–and highly predictable–shame the DSPs–and did I mention their THIRTY SIX LAWYERS–didn’t. The way the government has constructed the CRB procedures songwriters are thrown into the arena to engage in what amounts to slow motion begging and managed decline.

When the Judges’ ruling is subject to legal review, this arbitrary distinction may be difficult to defend and the Judges certainly don’t put much effort into that defense in their ruling. They say, for example:

[T]he Judges observe the broad increases within the Settlement, including the headline percentage rate applicable to Service Revenue, the percentage of Total Content Costs, and each of the fixed per subscriber elements. The Judges find that the structure and increases are a reasonable approach to providing an organic cost of living adjustment.

In other words, the DSPs and the Judges are pushing a “trickle down” approach that a rising tide lifts all boats. They ignore the underlying algebra that is the flaw at the heart of the “big pool” royalty calculation that’s as true for songwriters as it is for artists. The more DSPs keep prices the same and the more songs are added to the big pool denominator, the lower the per-song royalty trends (particularly for estates because the numerator cannot grow by definition). If the rate of change in the denominator is greater than the rate of change in revenue or the number of songs being paid out in the numerator, the Malthusian algebra demands that the per-writer rate declines over time. It may be less obvious in streaming mechanicals due to the mind bending greater of/lesser than formula, TCC, etc., but gravity always wins. 

Why COLA?

There is a common misapprehension of what the COLA is intended to accomplish as well as the government’s compulsory license rate. A COLA is not an increase in value, it is downside protection to preserve value. Stating that the headline rate increases over time so you don’t need a COLA compares apples to oranges and gets a pomegranate. It’s a nonsense statement.

Plus, no element of the Judge’s list of producer supply side inputs have anything to do with cost items relevant to songwriters providing songs to DSPs (or publishers and labels for that matter). The relevant costs for COLA purposes are the components of the Consumer Price Index applicable to songwriters who receive the government’s royalty such as food at home, rent, utilities, gasoline and the like. That’s why you have a COLA–otherwise the real royalty rate declines BOTH because of inflation AND because of the Malthusian algebra. And that creates the negative externality of poverty among songwriters and discourages new people from taking up the craft.

There’s a reason why Big Tech never wants to talk about per-stream rates on either recordings or songs. That’s because if you explained to the average person or Member of Congress what the rates actually were in pennies, the zeros to the right would make it obvious how insulting the entire proposal is to songwriters. 

One of the surest ways to cause poverty is for the government to cap income and destroy human agency. But this is what has happened with the streaming mechanicals. Songwriters are crushed again by Big Tech–and did I mention their THIRTY SIX LAWYERS?

And don’t forget–if no one writes hits, no one has hit records. Eventually, this will become a catalog business and American culture will be impoverished right along side the impoverishment of songwriters.

by thetrichordist

Senator Leahy Says Show Me the Money on the MLC’s Black Box

Readers will recall that the Mechanical Licensing Collective, Inc. aka the MLC, is sitting on a pile of other peoples money (remember that the Mechanical Licensing Collective is the digital music services’ one-of-a-kind joint venture quango mandated by the good folks from Washington who are here to help). We estimate that the MLC has got at least $500 million socked away at City National Bank in Nashville collecting dust–or interest. More on that later. This would include current black box accruing since January 1, 2021 plus $424 million or so in historical black box that was voluntarily paid to the MLC by the DSPs in February 2021–an inexplicably large sum given all the DSP audits over the years. 

And the clock is ticking, tick tock, tick tock.

Readers will also recall that the U.S. Copyright Office is responsible for the operations of the MLC, or as they say in Washington where all the children are above average and no one is responsible for anything, “has oversight” which usually means “gets to blame somebody else” when the fan takes over. And of course the Congress has oversight of the Copyright Office. Every so often, the head of the Copyright Office gets the rare joy of attending an oversight hearing at the Congress which happened recently and resulted in certain follow up “questions for the record” that get answered in writing. 

The MLC and its employees should get one thing straight–they are about to be blamed for some grubby practices when Congress wants you to show them the money. And you will be thrown under the bus, count on it. Just think–you could have stolen the money the old fashioned way. In the dark. But no, you wanted the government to force songwriters to deal with you and you could not stop congratulating yourselves about how smart you were. Well, you wanted it, and now you’ve gotten it.

Senator Patrick Leahy, Chair of the Senate Judiciary Committee, submitted some rather pointed questions about the MLC black box which drew a rather pointed response:

Question: The Mechanical Licensing Collective (MLC), the organization created under the Music Modernization Act to collect mechanical royalties for songwriters and publishers, also has an obligation to identify the owners of musical works that have accrued royalties when the owners are not known. The major publishers who largely control the MLC keep the royalties from unidentified works if the owners cannot be found. Over the past year, the MLC has identified only a tiny fraction of the rightful owners. [You were warned.] The major publishers stand to gain hundreds of millions of dollars from that failure to find rightful owners. We did not intend to create a disincentive for the MLC and major publishers to find the rightful owners of music works.

What can the Copyright Office do to help ensure that the MLC is working to make sure that rightful owners of music works are identified and paid?

Response: The Mechanical Licensing Collective (“MLC”) should make every reasonable effort to ensure that royalties are paid to the rightful owners of musical works. According to the MLC’s first annual report, it has distributed over $420 million under the new blanket license for uses reported in 2021, with a steadily improving match rate reported to be approximately 88% of all royalties. With respect to the historical, pre-2021, unmatched royalties, which were reported to be about $426 million, the annual report says that the MLC recently started distributing those that it has been able to match. It also says that the MLC has begun making associated usage data for historical unmatched royalties available to copyright owners, which will facilitate further claiming and matching. Notably, the MLC plans to wait to process historical unmatched royalties from the Phonorecords III rate period until the Copyright Royalty Judges finalize those rates in the ongoing remand proceeding and digital music providers provide adjusted reports of usage and royalty payments. It is the Office’s understanding that the bulk of historical unmatched royalties come from that period. [More on this PR III issue below]

The Copyright Office has been active on the issue of matching musical works to accurately pay copyright owners. Last year, we issued a report recommending best practices for the MLC to consider to reduce the incidence of unclaimed royalties. The report’s comprehensive recommendations ranged from high-level concepts to detailed suggestions across seven areas: (1) education and outreach; (2) usability of the MLC’s systems, including the public musical works database and claiming portal; (3) data quality; (4) matching practices; (5) holding and distributing unclaimed accrued royalties; (6) measuring success; and (7) transparency. One of the report’s most significant recommendations was that the MLC should hold unclaimed royalties for longer than the statutory minimum period, to maximize its matching efforts and the ability of copyright owners to make claims before any market-share-based distributions are made. We recommended that the MLC should wait to make such distributions of unclaimed royalties based on the evaluation of various objective criteria, like match rates and engagement metrics.

Additionally, the Office and the MLC are each involved in substantial education and outreach efforts to help ensure that publishers and songwriters, especially self-published songwriters, are aware of the Music Modernization Act (“MMA”), understand their rights under the new system, know that they can register their works with the MLC and claim royalties, and know that royalties for unclaimed works will be equitably distributed to known copyright owners.

[Here comes the bus.]. The Office is continuing to engage with the MLC and other industry stakeholders, including digital services and songwriters, to monitor the MLC’s progress as it continues to ramp up operations. While the MLC has not indicated that it plans to make a distribution of unclaimed royalties anytime soon, the Office possesses broad regulatory authority to act if necessary to prevent a premature distribution. The statute requires the MLC to give ninety days’ notice before any distribution. We have previously cautioned that making a premature distribution of unclaimed royalties could jeopardize the continuation of the MLC’s designation. 84 Fed. Reg. 32,274, 32,283 (July 8, 2019) (“[I]f the designated entity were to make unreasonable distributions of unclaimed royalties, that could be grounds for concern and may call into question whether the entity has the ‘administrative and technological capabilities to perform the required functions of the [MLC].’”) (quoting 17 U.S.C. § 115(d)(3)(A)(iii)).

One issue that is not discussed in the QFR or anywhere else for that matter is what is happening to the hundreds of millions that the MLC is sitting on. Remember that the MLC is required to pay a government interest rate on black box, and that interest rate has been steadily increasing this year thanks to the Federal Reserve. That interest payment is presumably covered under the MLC’s administrative assessment and government fees charged to music users for the privilege of using the compulsory blanket license.

But wait–there’s more. According to the MLC’s annual report (at p. 4), the MLC invests the black box according to its internal “Investment Policy” established by its board of directors.

Investment Policy: This policy covers the investment of royalty and assessmentfunds, respectively, and sets forth The MLC’s goals and objectives in establishing policies to implement The MLC’s investment strategy. The anti-comingling policy required by 17 U.S.C. § 115(d)(3)(D)(ix)(I)(cc) is contained in The MLC’s Investment Policy. The Investment Policy was approved by the Board in January 2021.

This raises some interesting points. First and foremost, it is unclear where any trading profits reside. Realize that every CMO is confronted with the decision about what to do with the royalty float and black box, but not every CMO decides to invest these funds in the market. If they do invest the funds, it is generally the case that any trading profits, dividends or interest goes to offset the CMO’s administrative costs that otherwise would be deducted from collected royalties.

However, the MLC’s administrative costs are paid by the users of the blanket license (making the United States, I believe, the only country in history or the world that charges for the use of a statutory license). Therefore, the return on the MLC’s investment of the songwriters’ money would not be used for the same purpose as all the world’s CMOs that follow a similar practice. 

Whether the ROI is returned to songwriters or to the users or retained by the MLC is unclear to me from the MLC’s annual report. It is also unclear as to the authority that the MLC’s board (or the Copyright Office for that matter) would have to put the songwriters’ money at risk in the market, what record keeping is made or required of the investments and ROI, or really much of anything at all, aside from the quoted statement above. 

It is also unclear how, if at all, the MLC distinguishes between ROI on royalty or the administrative assessment. It would make sense for trading profits on received but unspent administrative assessment funds to offset current or future assessments, but it’s not clear if that is done.

Assuming there are any. Profits, that is.

I was hoping that this topic would be addressed in the oversight hearing, but maybe next time.

by theinvisiblestagehand

Trickle-Down Streaming Mechanical Royalties Will be Be Up for Discussion

You may have noticed that a cost of living adjustment for statutory royalties was front and center in the recent (and still ongoing) physical mechanicals rate setting. Unfortunately, the idea of a COLA seems to have disappeared in the streaming mechanicals proceeding.

Note that it’s different music users on the physical mechanicals than on streaming. The physical mechanicals are paid by record companies and streaming mechanicals are paid by some of the biggest corporations in history, namely Amazon, Apple and Google and other wealthy public companies like Spotify and Pandora/SiriusXM. All these companies have market capitalizations greater than the gross national product of some countries. 

You may have also noticed that after years of frozen subscription rates, Apple is the first of the streaming subscription services to raise rates by $1 on several of its services including Apple Music. Tim Ingham is asking if Spotify will follow (you know, one of those price fixing agreements inferred from conduct). Who knows, but what’s interesting about this is the effect it will have on streaming mechanical rates, or more pointedly the effect that the Big Tech cartel would like you to think it will have.

The calculation for streaming mechanicals is absurdly complicated. You do have to wonder which of the genii came up with that one. About the only thing that is certain is that the negotiation of that rate every five years (and judicial appeals occasionally) guarantees employment for lots of lawyers and lobbyists on both sides, although definitely skewed toward Big Tech’s share of the 46 lawyers on the docket.

The streaming rates are so bizarre that the Copyright Royalty Judges seem to have lost trust in the process and have issued two separate orders instructing the participants in the streaming mechanical proceedings to either disclose or “certify” that they have come clean with the Judges as to any side deals that may have artificially lowered the rates–the second order makes for interesting reading.

Unlike the physical mechanical, the settling parties rejected a cost of living adjustment in these historically inflationary times. Why they rejected a COLA is hard to understand aside from the fact that they thought they could get away with it.

One thing that is clear, however, is that any argument that a COLA is not necessary with streaming mechanicals because the rate is theoretically based on increases or decreases in revenue is a particularly insulting form of trickle down gaslighting. 

It must be said that the record company group of music users that pays the physical mechanical rate voluntarily agreed a COLA on their rates that is currently pending approval by the Judges. There really is no excuse for the streaming services to rely on the discredited trickle down theory to pawn off their Rube Goldberg royalty structure on songwriters for streaming mechanicals.

by Trichordist Editor

Sorry Dave: Breaking Google’s Hold on Government May Be Harder Than You Think

We’ve all been predicting that Google will get broken up by government for any one of a host of reasons. It’s not just songwriters watching the overlawyered lawfare in the Copyright Royalty Board that produces the insulting trickledown royalty structure that you need a team of accountants to understand. Big Tech lawfare is everywhere and it’s even more insidious than you might think. Big Tech spreads their gold around the world to control politicians and conflict lobbyists and lawyers so their combined headlock on laws and markets is hard to comprehend. And then there’s the academics. We’ve been screaming from the rooftops about the censorious Google for years and Google still leads the charge against creators in particular and human decency in general.

Lots of politicians will tell you they want to break up Google and Facebook but will Google and Facebook tell them “I”m sorry Dave, I’m afraid I can’t do that.”

Eamon Javers at CNBC has a story that shows the most recent example of just how difficult it will be to get Google out of the government. Mr. Javers reports “How Google’s former CEO Eric Schmidt helped write A.I. laws in Washington without publicly disclosing investments in A.I. startups”.

Yes, that’s right: Shady Uncle Sugar is back in the news, this time with added corruption and even less transparency than a Google royalty audit. Mr. Javers reports that the crux of Uncle Sugar’s latest grift is that he was appointed by former House Armed Services Committee Chair and Club Raytheon plankowner Mac Thornberry to something called the National Security Commission on Artificial Intelligence. This “commission” is one of those “independent commission” thingys, but this one on AI didn’t exist before Uncle Sugar arrived.

Where the hell did that commission come from? Smells like astroturf to us. A complete fabrication Truman Show-style designed to push Eric Schmidt and Google even deeper into the AI business and the Washington swamp. Remember, Google acknowledges it ran AI research in cooperation with the Chinese government–in China–for years under the leadership of Stanford/Google University Professor Fei Fei Li. Keep an eye on that one.

According to the Commission’s website:

Section 1051 of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (P.L. 115-232) established the National Security Commission on Artificial Intelligence as an independent Commission “to consider the methods and means necessary to advance the development of artificial intelligence, machine learning, and associated technologies to comprehensively address the national security and defense needs of the United States.

And of course, you won’t be surprised to know that China has taken the lead on developing model AI regulations and business practices. Which brings us to Mr. Javers reporting and the National Security Commission on Artificial Intelligence.

We’ll keep poking around on this “commission”, but this entire commission thing smells like a Washington lobbyist (perhaps Shady Uncle Sugar himself) got the government to pay for a study and put the US government’s stamp of approval on its work product. With Sugar running the whole show. Full on astroturf. And remember–the very best astroturf constructs an alternate reality that is controlled by the special interests. Interests don’t get more special than Shady Uncle Sugar who is too special for his shirt and is so special it hurts.

Curiously, right about the time that Uncle Sugar started touting the Commission’s work product, China has some work product of its own along similar lines:

On September 6, 2022, the Shenzhen government passed China’s first local regulation dedicated to boost AI development – Regulations on Promoting artificial Intelligence Industry in Shenzhen Special Economic Zone (the Shenzhen AI Regulation), which will take effect on November 1, 2022.

The Shenzhen AI Regulation aims to promote the AI industry by encouraging governmental organizations to be the forerunners in utilizing related technology and increasing financial support for AI research in the city. It also establishes guidelines for public data sharing to organizations and businesses involved in the sector.

But of course the kicker with the ex-Googler Schmidt brought his own Sugar to the party as Javers tells us:

In short, the commission, which Schmidt soon took charge of as chairman, was tasked with coming up with recommendations for almost every aspect of a vital and emerging [AI] industry. The panel did far more under his leadership. It wrote proposed legislation that later became law and steered billions of dollars of taxpayer funds to industry he helped build — and that he was actively investing in while running the group.

That’s right–if you think the government is going to break up Google, just realize that Google doesn’t want to get broken up because it is all working so well with zero oversight whether they are bamboozling government oversight in Congress or ravaging songwriters at the Copyright Royalty Board. It’s hard to get them out of the government when they are the government. If the Oracle case showed us anything, it showed us that Google’s reach is far and wide. Their special brand of evil knows no boundaries. And we never have gotten an explanation for why Eric Schmidt suddenly left Google.

“Open the pod bay doors” is not going to get it done. We must have an answer when they say “I’m sorry, Dave, I’m afraid I can’t do that.”

by thetrichordist

Will the Copyright Royalty Board approve Big Tech’s attempted cover-up? 

By Chris Castle

[This MusicTechPolicy post appeared on Hypebot]

There’s an old saying among sailors that water always wins. Sunlight does, too. It may take a while, but time reveals all things in the cold light of dawn. So when you are free riding on huge blocks of aged government cheese like the digital music services do with the compulsory mechanical license, the question you should ask yourself is why hide from the sunlight? It just makes songwriters even more suspicious. 

This melodrama just played out at the Copyright Royalty Board with the frozen mechanicals proceeding. Right on cue, the digital services and their legions of lawyers proved they hadn’t learned a damn thing from that exercise. They turned right around and tried to jam a secret deal through the Copyright Royalty Board on the streaming mechanicals piece of Phonorecords IV. 

To their great credit, the labels handled frozen physical mechanicals quite differently. They voluntarily disclosed the side deal they made with virtually no redactions and certainly didn’t try to file it “under seal” like the services did. Filing “under seal” hides the major moving parts of a voluntary settlement from the world’s songwriters. Songwriters, of course, are the ones most affected by the settlement–which the services want the CRB to approve–some might say “rubber stamp”–and make law.

To fully appreciate the absolute lunacy of the services attempt at filing the purported settlement document under seal, you have to remember that the Copyright Royalty Judges spilled considerable ink in the frozen mechanicals piece of Phonorecords IV telling those participants how important transparency was when they rejected the initial Subpart B settlement.  

This happened mere weeks ago in the SAME PHONORECORDS IV PROCEEDING.

Were the services expecting the Judges to say “Just kidding”? What in the world were they thinking? Realize that filing the settlement–which IF ACCEPTED is then published by the Judges for public comment under the applicable rules established long ago by Congress–is quite different than filing confidential commercial information. You might expect redactions or filings under seal, “attorneys eyes only,” etc., in direct written statements, expert testimony or the other reams of paper all designed to help the Judges guess what rate a willing buyer would pay a willing seller. That rate to be applied to the world under a compulsory license which precludes willing buyers and willing sellers, thank you Franz Kafka. 

When you file the settlement, that document is the end product of all those tens of millions of dollars in legal fees that buy houses in the Hamptons and Martha’s Vinyard as well as send children to prep school, college and graduate school. Not the songwriters’ children, mind you, oh no. 

The final settlement is, in fact, the one document that should NEVER be redacted or secret. How else will the public–who may not get a vote but does get their say–even know what it is the law is based on assuming the Judges approve the otherwise secret deal. It’s asking the Judges to tell the public, the Copyright Office, their colleagues in the appeals courts and ultimately the Congress, sorry, our version of the law is based on secret information.

Does that even scan? I mean, seriously, what kind of buffoons come up with this stuff?  Of course the Judges will question the bona fides and provenance of the settlement. Do you think any other federal agency could get away with actually doing this? The lawlessness of the very idea is breathtaking and demonstrates conclusively in my view that these services like Google are the most dangerous corporations in the world. The one thing that gives solace after this display of arrogance is that some of them may get broken up before they render too many mechanical royalty accounting statements.

To their credit, after receiving the very thin initial filing the Judges instructed the services to do better–to be kind. The Judges issued an order that stated:

The Judges now ORDER the Settling Parties to certify, no later than five days from the date of this order, that the Motion and the Proposed Regulations annexed to the Motion represent the full agreement of the Settling Parties, i.e., that there are no other related agrements and no other clauses. If such other agreements or clauses exist, the Settling Parties shall file them no later than five days from the date of this order.

Just a tip to any younger lawyers reading this post–you really, really, really do not want to be on the receiving end of this kind of order.

Reading between the lines (and not very far) the Judges are telling the parties to come clean. Either “certify” to the Judges “that there are no other related agreements and no other clauses” or produce them. This use of the term “certify” means all the lawyers promise to the Judges as officers of the court that their clients have come clean, or alternatively file the actual documents.

That produced the absurd filing under seal, and that then produced the blowback that led to the filing of the unsealed and unreacted documents. But–wait, there’s more.

Take a close look at what the Judges asked for and what they received. The Judges asked for certification “that there are no other related agrements and no other clauses. If such other agreements or clauses exist, the Settling Parties shall file them no later than five days from the date of this order.”

What the Judges received is described in the purportedly responsive filing by the services:

The Settling Participants [aka the insiders] have provided all of the settlement documentsand, with this public filing, every interested party can fully evaluate and comment upon the settlement. The Settling Participants thus believe that the Judges have everything necessary to “publish the settlement in the Federal Register for notice and comment from those bound by the terms, rates, or other determination set by the” Settlement Agreement, as required under 37 C.F.R. 351.2(b)(2). The Settling Participants respectfully request that the Judges inform them if there is any further information that they require.

Notice that the Judges asked for evidence of the “full agreement of the Settling Parties”, meaning all side deals or other vigorish exchanged between the parties including the DSPs that control vast riches larger than most countries and are super-conflicted with the publishers due to their joint venture investment in the MLC quango.

The response is limited to “the settlement documents” and then cites to what the services no doubt think they can argue limits their disclosure obligations to what is necessary to “publish the settlement”. And then the services have the brass to add “The Settling Participants respectfully request that the Judges inform them if there is any further information that they require.” Just how are the Judges supposed to know if the services complied with the order? Is this candor?

It must also be noted that Google and the NMPA have “lodged” certain documents relating to YouTube’s direct agreements which they claim are not related to the settlement to be published for public comment. These documents are, of course, secret:

[And] are not part of the settlement agreement or understanding of the settling participants concerning the subject matter of the settlement agreement, and do not supersede any part of the settlement agreement with respect to the settling participants’ proposed Phonorecords IV rates and terms. Further, the letter agreements do not change or modify application of the terms to be codified at 37 C.F.R. 385 Subparts C and D, including as they apply to any participant. Rather, the letter agreements simply concern Google’s current allocation practices to avoid the double payment of royalties arising from YouTube’s having entered into direct agreements with certain music publishers while simultaneously operating under the Section 115 statutory license.

You’ll note that there are a number of declarative statements that lets the hoi polloi know that the Data Lords and Kings of the Internet Realms have determined some information involving their royalties is none of their concern. How do you know that you shouldn’t worry your pretty little head about some things? Because the Data Lords tell you so. And now, back to sleep you Epsilons.

So you see that despite the statements in the group filing to the CRB that the “Settling Participants” (i.e., the insiders) claim to have provided all of the settlement documents required by the Judges, Google turns right around and “lodges” this separate filing of still other documents that they think might be related documents with some bearing on the settlement that should be disclosed to the public but they apparently will not be disclosing without a fight. How do we know this? Because they pretty much say so:

Because the letter agreements are subject to confidentiality restrictions and have each only been disclosed to their individual signatories, each such music publisher having an extant direct license agreement with Google, Google and NMPA are lodging the letter agreements directly with the Copyright Royalty Judges, who may then make a determination as to whether the letter agreements are relevant and what, if anything, should be disclosed notwithstanding the confidentiality restrictions in each of the letter agreements.

Ah yes, the old “nondisclosure” clause. You couldn’t ask for a better example of how NDAs are used to hide information from songwriters about their own money.

The Judges noted when rejecting the similar initial frozen mechanical regulations that:

Parties have an undeniable right of contract. The Judges, however, are not required to adopt the terms of any contract, particularly when the contract at issue relates in part, albeit by reference, to additional unknown terms that indicate additional unrevealed consideration passing between the parties, which consideration might have an impact on effective royalty rates. 

So there’s that.

What this all boils down to is that the richest and most dangerous corporations in commercial history are accustomed to algorithmically duping consumers, vendors and even governments in the dark and getting away with it. The question is, if you believe that sunlight always wins, do they still want to hide as long as they can and then look stupid, or do they want to come clean to begin with and be honest brokers.

As Willie Stark famously said in All the King’s Men, “Time reveals all things, I trust it so.”

by Trichordist Editor

Thinking Outside the Pie: @legrandnetwork Study for GESAC Highlights Streaming Impact on Choking Diversity and Songwriter Royalties

By Chris Castle

[This post first appeared in MusicTech.Solutions]

Emmanuel Legrand prepared an excellent and important study for the European Grouping of Societies of Authors and Composers (GESAC) that identifies crucial effects of streaming on culture, creatives and especially songwriters. The study highlights the cultural effects of streaming on the European markets, but it would be easy to extend these harms globally as Emmanuel observes.

For example, consider the core pitch of streaming services that started long ago with the commercial Napster 2.0 pitch of “Own Nothing, Have Everything”. This call-to-serfdom slogan may sound good but having infinite shelf space with no cutouts or localized offering creates its own cultural imperative. And that’s even if you accept the premise the algorithmically programed enterprise playlists on streaming services should not be subject to the same cultural protections for performers and songwriters as broadcast radio–its main competitor.

[This] massive availability of content on [streaming] platforms is overshadowed by the fact that these services are under no positive obligations to ensure visibility and discoverability of more diverse repertoires, particularly European works….[plus]  the initial individual subscription fee of 9.99 (in Euros, US dollars, or British pound) set in 2006, has never increased, despite the exponential growth in the quality, amount of songs, and user-friendliness of music streaming services.

Artists working new recordings, especially in a language other than English, are forced to fight for “shelf space” and “mindshare”–that is, recognition–against every recording ever released. While this was always true theoretically; you never had that same fight the same way at Tower Records.

This is not theoretically true on streaming platforms–it is actually true because these tens of millions of historical recordings are the competition on streaming services. When you look at the global 100 charts for streaming services, almost all of the titles are in English and are largely Anglo-American releases. Yes, we know–Bad Bunny. But this year’s exception proves the rule.

And then Emmanuel notes that it is the back room algorithms–the terribly modern version of the $50 handshake–that support various payola schemes:

The use of algorithms, as well as bottleneck represented by the most popular playlists, exacerbates this. Furthermore, long-standing flaws in the operations of music streaming platforms, such as “streaming fraud”, “ghost/fake artists”, “payola schemes”, “royalty free content” and other coercive practices [not to mention YouTube withholding access to Content ID] worsen the impact on many professional creators….

This report suggests solutions to bring greater transparency in the use of algorithms and invites stakeholders to undertake a review of the economic models of streaming services and evaluate how they currently affect cultural diversity which should be promoted in its various forms — music genres, languages, origin of performers and songwriters, in particular through policy actions.

Trichordist readers will recall my extensive dives into the hyperefficient market share distribution of streaming royalties known as the “big pool” compared to my “ethical pool” proposal and the “user centric” alternative. As Emmanuel points out, the big pool royalty model belies a cultural imperative–if you are counting streams on a market share basis that results in the rich getting richer based on “stream share” that same stream share almost guarantees that Anglo American repertoire will dominate in every market the big streamers operate.

Emmanuel uses French-Canadian repertoire as an example (a subject I know a fair amount about since I performed and recorded with many vedettes before Quebecoise was cool).

A lot of research has been made in Canada with regards to discoverability, in particular in the context of French-Canadian music, which is subject to quotas for over the air broadcasters which however do not apply to music streaming services. The research shows that while the lists of new releases from Québec studied are present in a large proportion on streaming platforms, they are “not very visible and very little recommended.” 

It further shows that the situation is even worse when it is not about new releases, including hit music, when the presence of titles “drops radically.” It is not very difficult to imagine that if we were to swap Québec in the above sentence with the name of any country from the European Union [or any non-Anglo American country], and even with music from the European Union as a whole, we could find similar results.

In other words, there may be aggregators with repertoire in languages other than English that deliver tracks to streamers in their countries, but–absent localized airplay rules–a Spotify user might never know the tracks were there unless the user already knew about the recording, artist or songwriter. (Speaking of Canada, check the MAPL system.)

This is a prime example of why Professor Feijoo and I proposed streaming remuneration in our WIPO study to allow performers to capture the uncompensated capital markets value to the enterprise driven by these performers. Because of the market share royalty system, revenues and royalties do not compensate all performers, particularly regional or non-featured performers (i.e., session players and singers) who essentially get zero compensation for streaming.

Emmanuel also comments on the imbalance in song royalty payments and invites a re-look at how the streaming system biases against songwriters. I would encourage everyone to stop thinking of a pie to be shared or that Johnny has more apples–when the services refuse to raise prices in order to tell a growth story to Wall Street or The City, measuring royalties by a share of some mythical royalty pie is not ever going to get it done. It will just perpetuate a discriminatory system that fails to value the very people on whose backs it was built be they songwriters or session players.

We must think outside the pie.

by trichordist

A Response to A2IM’s Objection to the New Statutory Mechanical Rates: Part 3

Continued from Part 1 and Part 2

By Chris Castle

The American Association of Independent Music, the independent label trade association, filed comments with the Copyright Royalty Board opposing increasing the mechanical royalty to songwriters from the “frozen rates” to the 12¢ (plus cost of living adjustment) settlement rate of the participating record companies with the NMPA and NSAI. I wrote a reply to the A2IM comment that was timely filed with the CRB–barely. I will repost that comment in a few parts here on MTP. As I had about 10 minutes to write the comment due to the lateness of the A2IM filing, I will add some bracketed language to make it a bit less inside baseball.

The A2IM comment starts out claiming that the organization supports songwriters making more money, but then rejects the settlement that would demonstrably pay songwriters a higher rate because they don’t like the per-unit penny rate. That argument sounds a lot like “make it up on volume” which we’ve heard before.

Unfortunately, A2IM chose not to participate in the Phonorecords IV proceeding and came in a bit late to the party complaining of the check. Nobody stopped them from participating; it appears they put it all on red and it came up black. This is important because unlike independent songwriters who cannot afford the cost of participating at the CRB hearings, A2IM could have participated but evidently chose not to.

As I told the Judges in my comment, I will focus on a few issues raised by A2IM regarding the CRB settlement process in general, the penny rate structure of the mechanical royalty system in the United States, and their proposal that mechanical licensing for physical configurations be handed over to the Mechanical Licensing Collective.

A2IM raises an interesting point that mechanical rates should be different for new releases than for catalog titles. It sounds like they are asking for songwriters on new releases to take an even greater haircut than they already do given the effect of controlled composition clauses–which are justified by the same “investment” (largely recouped from artist royalties) that would be used to justify a further reduction in rates. 

I agree that it is rather insane to expect the Judges to come up with a single rate that treats every song as the same when we all know that’s not true and never has been true.

Accordingly, the copyright law should make it easier for a hit songwriter to charge a higher rate for new releases because after all, the statutory rate is the “minimum”. Why shouldn’t a hit songwriter (or really any songwriter) be able to charge, say, double statutory for new releases, particularly if they are being courted to provide an unproven artist with a song for a single (often already produced). So while there may well be support for rejecting what A2IM describes as a one-size-fits-all approach, it may not come with the result they are looking for. 

It must also be understood that when A2IM asks the Copyright Royalty Board to change the entire century-old mechanical royalty rate from an inflation-adjusted fixed penny rate to a percentage of wholesale is a vast undertaking. That’s why I made the following general comment to the judges:

As a general comment, all of these ideas must be examined under the authority delegated to the CRB by Congress, particularly in light of the Supreme Court’s recent ruling in West Virginia et al v. Environmental Protection Agency et al.  [This case radically cut back the authority of administrative agencies like the CRB to vastly alter their Congressional mandate. Otherewise, the administrative state become effectively a fourth–and unaccountable–branch of government. At first blush, it appears to me that all of these ideas, whatever one thinks of the merits, will require Congress to act.

Mechanical Licensing Collective

The idea that the MLC will just take over the mechanical licensing process for configurations that Congress specifically held back from their portfolio [a few years ago] supports the idea that Congress would need to act in order to accomplish what A2IM wants to do.

I would respectfully point out to the Judges that the MLC has been sitting on top of at least $500,000,000 of other people’s money on the streaming side for a year or more and still can’t manage to get it matched and most importantly paid.  There is also a growing anecdotal belief in the indie publisher community who actually deal with the MLC that there is no musical works database constructed as instructed by Congress—that database appears to be entirely resident at HFA, an MLC vendor.  That seems odd and would be a good question for the Judges to ask of the MLC at the next administrative assessment. [I’ve found that people who are fans of a central planning approach to create a static database for a dynamic dataset like songs are usually people who themselves have never built one from the ground up.]

Plus, the MLC will not be able to do this additional work on physical accounting for free.  I simply cannot imagine that the DLC will welcome the opportunity to provide free accounting services for access to the compulsory license when their own members pay up front a share of the millions that have vanished into the MLC in return for what I cannot say.  

We must ask that if the A2IM members cannot afford the modest increase in mechanical royalties for their own songwriters—many of whom are their own artists—how will they afford a share of the administrative assessment plus the transaction costs of switching over to an entirely new accounting system plus what will almost certainly be frequent audits by the MLC.

Conclusion 

In short, while A2IM’s comments are well-intentioned and I understand that they feel overlooked in the process, believe me they are not alone.  There are a lot of people in the community who take their objections to heart and are willing to parlay about all these ideas in the future. Unfortunately, I don’t think there is support for derailing the process at the 11th hour which should come as no surprise to anyone.

by thetrichordist

A Response to A2IM’s Objection to the New Statutory Mechanical Rates: Part 2

By Chris Castle

This post first appeared on MusicTechPolicy, continued from Part 1

The American Association of Independent Music, the independent label trade association, filed comments with the Copyright Royalty Board opposing increasing the mechanical royalty to songwriters from the “frozen rates” to the 12¢ (plus cost of living adjustment) settlement rate of the participating record companies with the NMPA and NSAI. I wrote a reply to the A2IM comment that was timely filed with the CRB–barely. I will repost that comment in a few parts here on MTP. As I had about 10 minutes to write the comment due to the lateness of the A2IM filing, I will add some bracketed language to make it a bit less inside baseball.

Unfortunately, A2IM chose not to participate in the Phonorecords IV proceeding and came in a bit late to the party complaining of the check. Nobody stopped them from participating; it appears they put it all on red and it came up black. This is important because unlike independent songwriters who cannot afford the cost of participating at the CRB hearings, A2IM could have participated but chose not to.

As I told the Judges in my comment, I will focus on a few issues raised by A2IM regarding the CRB settlement process in general, the penny rate structure of the mechanical royalty system in the United States, and their proposal that mechanical licensing for physical configurations be handed over to the Mechanical Licensing Collective.

The Longer Table

I actually was pleased to join A2IM at their annual Indie Week conference recently in New York on a panel devoted to this very topic.  I am well aware that they believe their members will be disproportionately affected by the increase in cost although I have not seen the data.  After many years in the music business, I will take on faith for purposes of this letter that they are correct.

I completely concur that the negotiation process for CRB needs a relook if not an overhaul.  I made the point on the A2IM panel that David Lowery and I intend to host a conference devoted largely to this subject [on November 15] at the University of Georgia at Athens.  Dr. Lowery and I are both of a mind that this issue needs to be vetted by the Copyright Office in their roundtable format.

However, I do not concur that the Subpart B resolution should be derailed at the 11th hour because of these structural issues that lawmakers no doubt will need to resolve.  The time for A2IM to have made their views known in Phonorecords IV has long passed.  They had the opportunity to participate in the proceeding, which individual songwriters could not afford to do, and they did not.  They had the opportunity to comment on the first and second comment periods for what became the rejected settlement and they did not.  They had the opportunity to insert themselves in the second settlement and appear not to have done so until filing a comment on the last day at the 11thhour.

Derailing the settlement for this purpose at the 11th hour is inappropriate.  Whether the Judges can even accomplish what is asked of them, I respectfully leave to Your Honors to decide, but I do think there’s a question of authority here.  I do support including all these topics being on the table for Phonorecords V as do many other commenters.

What is the Actual Cost to Labels of the New Rates?

While I am prepared to take disproportionate impact on faith, I am less prepared to take disproportionate financial impact without more data.  There is an assumption that A2IM labels all will have a one-to-one increase in costs because of the new rates, whatever they end up being.  I’m not so sure about that and would want to know a few things including the following.

Many indie labels operate on a revenue share basis with their artists (or licensors).  In those revenue share deals, the artist or licensor is paid a percentage of revenue that includes all mechanical royalties.  In that structure, the new rates have arguably zero impact on the [independent] label.

Because of rate fixing dates in deals [with controlled compositions clauses] where the label does pay the mechanicals, the new rates would only apply to records delivered during the rate period, i.e., after January 1, 2023.  Term recording artist agreements would typically include a controlled compositions clause as the Judges have noted in the Withdrawal Notice.  In such an arrangement, the label would be paying a modest increase and could easily tell the artist that unless the artist-songwriter agreed to take still lower rates based on the previously frozen rates, the label would be unable to release their records.

A2IM does make a good point about the bull-headedness of the DSPs on permanent download rates.  Perhaps the Judges could refer this issue to the Register for subsequent referral to the Department of Justice Antitrust Division to investigate these pricing practices.  Congress seems focused on these kinds of issues at the moment.

[It is unfair for A2IM to complain of being excluded from settlement negotiations by the labels who did participate in the proceedings and who did negotiate a settlement with the NMPA publishers who also participated in the proceedings. Participating in the proceedings is a threshold condition for participating in a settlement of the proceedings. It’s hardly the case that the major labels conspired against the indies this time. If A2IM labels were concerned about being included in these negotiations there are a number of steps they could have taken, starting with participating in the bifurcated Subpart B proceeding–a much less expensive proposition than the streaming side.

There is also a threshold question–that A2IM does not really address–as to whether the CRB has the authority to unilaterally change U.S. mechanical licensing structure that Congress initiated in 1909 and has been based on a penny rate ever since, not to mention hundreds of thousands of term recording artist agreements and licenses incorporating those statutory rates. The entire US recording industry is built on statutory rates and controlled compositions clauses, not to mention the valuations of music publishing catalogs. 

That change requested by A2IM is a question of such “magnitude and consequence” that it should require Congress to act based on both the CRB’s statutory authority, the U.S. Supreme Court’s recent holding in West Virginia vs. EPA as well as common sense. Not to mention there are other reasons why getting a CRB case before the Supreme Court could backfire and disrupt a process that in other important ways is working quite well.]

by theinvisiblestagehand

@MMercuriadis on the @CMAgovUK’s Whiff on the Streaming Report

Hipgnosis CEO Merck Mercuriadis had a strong statement in Music Week about the Competition and Markets Authority’s swing and a miss at the obviously absurd music streaming system as it was clearly identified by the groundbreaking report from the Digital Culture Media and Sport Select Committee of the UK Parliament. Given the good work done by the DCMS committee, the CMA report is simply insulting to those Members of Parliament.

Bob Welch and Reggie Jackson, Game 2 1978 World Series

Unfortunately the CMA report reads like a lobbyist’s press release and Mercuriadis lays it down and calls them out. Even though this is a little inside baseball in the UK, Trichordist readers understand that the underlying issues involve every songwriter and involve every artist regardless of where you live and regardless of where you claim as home. Mercuriadis is exactly right, the money is there it’s just not getting to the right people.

The battle continues.

“[Hipgnosis] would like to thank the Competition and Markets Authority for acknowledging in its report today the lack of transparency in the music streaming market, and for highlighting the continued dominance of the market by the major labels and recorded music, along with the severely adverse impact this is having on songwriters’ ability to earn a living,” he said. “However, with 70% of all those responding to the CMA consultation calling for reform, it is regrettable that the CMA is not minded to investigate and address the clear failures its study identified.

“The Digital Culture Media and Sport select committee in its July 2021 report on the economics of music streaming – ‘Music streaming must modernize. Is anybody listening?’ – called for the CMA to address the economic impact of the music majors’ dominance.

“Today the CMA has not acted to address the impact on the creative songwriting community, and this is a missed opportunity to follow up on those concerns raised by Members of Parliament on the Digital Culture Media and Sport select committee. It is a disappointment for songwriters who earn pitiful returns from streaming, not because there is not enough to go round, but simply because it is not being shared fairly and equitably.”

Mercuriadis added: “Hipgnosis will continue to call for fundamental reform of a broken system which does not recognise the paramount role of the songwriter in the music ecosystem. We have always believed that the ultimate solution lies within the music industry itself and we will continue to advocate on behalf of songwriters with the major recorded music companies to push for a fair and equitable split. There would be no recorded music industry without songwriters.

“Legislative and government authorities have the power to redress the economic imbalance where major recorded music companies that own and control the major publishing companies are purposefully undervaluing the songwriter’s contribution. The Intellectual Property Office [UK’s Copyright Office] has a key role to play in redressing the imbalance and we will continue to support its work and efforts.

“Hipgnosis will continue to campaign for change at the highest levels, using our success to advocate and fight on behalf of the songwriting community and to take the songwriter from the bottom of the economic equation to the top.”

by thetrichordist