SECOND REOPENING PERIOD COMMENTS OF HELIENNE LINDVALL, DAVID LOWERY AND BLAKE MORGAN
Helienne Lindvall, David Lowery and Blake Morgan (collectively, the “Writers”) thank the Judges for the opportunity and respectfully submit the following comments responding to the Copyright Royalty Judges’ notice (“Second Notice”) soliciting comments on additional materials (“Reply”) received by the Judges[1] from the National Music Publishers Association, Nashville Songwriters Association International, Sony Music Entertainment, UMG Recordings, Inc. and Warner Music Group Corp. (collectively, the “Majors”)[2] regarding the so-called [frozen] “Subpart B” statutory rates and terms[3] relating to the making and distribution of physical or digital phonorecords of nondramatic musical works in the docket referenced above (“Proceeding”).
The Writers previously submitted comments[4] (“Prior Comment”) responding to the Judges’ notice[5] (“First Notice”) soliciting comments on the Major’s proposed purported settlement (the “Proposed Settlement”)[6] of the Subpart B rates. The Writers along with attorney Gwendolyn Seale[7] attempted to submit additional comments in response to the Majors’ filing but were not able to timely file that response.[8] The Writers appreciate the Judges’ decision to reopen the comment period in order to afford the public, and those that would be bound by the rates and terms set by the Proposed Settlement,[9] an opportunity to comment on those additional materials filed by the Majors and to further participate in the rulemaking.[10]
I. SUMMARY As a general comment on the record to date in Phonorecords IV, the Writers are mystified by the histrionics that have become associated with this Proceeding both on the record and in the press. A voluntary negotiation is just a deal, often made by people who are paid to always be closing. The Writers believe that Congress intended that voluntary negotiation produce a fair result on a reasonable timetable.
While not directly at issue in the reopened comment period, what is clearly the case is that the settlement of the Subpart B rates has unnecessarily become a major gating item for the streaming side of this Proceeding, geese and ganders being what they are. Despite the extensive voluntary negotiation period for the Subpart B rates by the Majors, the Judges—and, frankly, songwriters around the world–are presented instead with a cornucopia of chaos across the board; the cherry on top is the frozen mechanicals crisis. However, in this season of hope the Writers are confident that the Judges will lead us all out of this daunting situation.
The Writers are not interested in the personalities, the arm-waving or the finger-pointing. They are interested in the results, particularly because neither they nor anyone they authorized had input into the negotiation that produced either the Proposed Settlement or the impasse.
There is at least one easy way to fix this and recognize the intrinsic value of songs: Raise the statutory rate proposal for Subpart B configurations in at least some relation to the streaming rate increase. A song is no less valuable because of the medium in which it is exploited.[11]
As the Writers will argue, just like the voluntary agreement on Subpart B that led to this impasse was reached by the Majors, those same parties can go back to the drawing board to reach an appropriate conclusion with a higher Subpart B rate.
Neither the public nor the songwriters are well served (and frankly neither are the Judges) by thrashing about and waiving arms. This may serve well the people who are paid by the hour but it hasn’t served people who are paid by the song. At all. “Victory” without winning may pass for success in Washington, but it does not in the writer room or at a songwriter’s kitchen table.
The Proposed Settlement is a crystallization of everything that is wrong with the licensing and payment practices that have arisen under the compulsory license regime where no is yes, more is less and the Kool-Aid whispers “Drink Me.”
While the Writers will focus in this comment on the frozen mechanicals issue that has become emblematic of the current crisis, it must be said that the decade-plus MOU [black box] agreements are a backward looking and inequitable insider arrangement that permits a mindset of sloppiness and a “kick the can down the road” mentality that debilitates the entire music publishing business.[12] It’s no accident that the Mechanical Licensing Collective—run by largely the same cast of characters under a jaw-dropping Congressional governance mandate—has been sitting on $424,000,000 of other peoples’ money for nine months during a pandemic with no visible compliance with another Congressional mandate of paying songwriters correctly in Title I of the Music Modernization Act.[13]
The MLC and the sequence of MOUs are both descended from the same ancestors a generation ago. Each have essentially the same business model and each are somehow inexplicably viewed as a “win” for the songwriters. The irony of splicing the genetic code of the ancien régime MOU [black box insider settlements] to the future is not lost on anyone. If the failure to match money and songs in the MOU process is still a problem after fifteen years as well as the much-trumpeted Title I of the Music Modernization Act, it’s not the horse’s fault. It’s the rider’s.
It would be a real pity for the CRB to perpetuate this unfairness by adopting the Proposed Settlement. With respect, it is bad law, bad policy, and a failure to even try to bend the arc of the moral universe. Conversely, rejecting the Proposed Settlement would provide the kind of steely oversight tragically lacking in the current regime. Please let the future have a vote, just once.
The Writers object to the Proposed Settlement for the following reasons and respectfully suggest constructive alternatives. The gravamen of our objection is that (1) the Subpart B rates have already been frozen since 2006 and extending the freeze another five years is unjust; (2) no evidence has been publicly produced in the Proceeding that justifies or even explains extending the proposed freeze aside from the connection to the memorandum of understanding in the MOU4 late fee waiver (“MOU”), a document that the Majors only recently disclosed in their Reply; (3) very large numbers of songwriters and copyright owners of various domiciles around the world and national origins are unlikely to even know this Proceeding is happening and there still is no evidence that the unrepresented have appointed any of the participants to act on their behalf or were asked to consent to the purported settlement before the fact even if they were members of these organizations aside from the respective board of directors; (4) physical sales are still a vital part of songwriter revenue (which the Writers documented in the Prior Comment[14]); and (5) there are many just alternatives available to the Judges without applying an unjust settlement to the world’s songwriters who are strangers to the Proposed Settlement and in particular the MOU component (as the MOU will likely require membership in the NMPA to benefit consistent with prior MOUs).
[2] NMPA, NSAI, Sony Music Entertainment, UMG Recordings, Inc. and Warner Music Group Comments in Further Support of the Settlement of Statutory Royalty Rates and Terms for Subpart B Configurations, Determination of Royalty Rates and Terms for Making and Distributing Phonorecords (Phonorecords IV), Copyright Royalty Board (Aug. 10, 2021).
[3] 37 C.F.R. §385.11(a).
[4] Comments of Helienne Lindvall, David Lowery and Blake Morgan, Determination of Rates and Terms for Making and Distributing Phonorecords (Phonorecords IV) (July 26, 2021) available at https://app.crb.gov/document/download/25533.
[10] As with the Writers prior submission in response to the First Notice, the Writers focus in this comment almost entirely on the Subpart B rates applicable to physical carriers under 37 C.F.R. §385.11(a).
[11] The Judges no doubt will be told many stories about how Subpart B configurations are not meaningful sales compared to streaming so rates deserve to be frozen. This is a novel copyright argument without a statutory basis. The theory is also not based on accurate facts as the Writers discuss extensively in the Prior Comment at paragraph 5 and will not repeat here.
[12] There is a growing backlash to decades of delaying definitive action on song metadata and songwriter payments such as Credits Due campaign of the Ivors Academy and Abba’s Björn Ulvaeus. See generally Chris Cooke, PPL Backs Björn Ulvaeus’s Credits Due Campaign, Complete Music Update (Oct. 4, 2021) available at https://completemusicupdate.com/article/ppl-backs-bjorn-ulvaeuss-credits-due-campaign/
[13] See, e.g., H. Rep. 115-651 (115th Cong. 2nd Sess. April 25, 2018) at 5; S. Rep. 115-339 (115th Cong. 2nd Sess. Sept. 17, 2018) at 5 (“The Committee welcomes the creation of a new musical works database that is mandated by the legislation….Music metadata has more often been seen as a competitive advantage for the party that controls the database, rather than as a resource for building an industry on.” (emphasis added)).
If you ever thought we were too aggressive in our campaign to end the 15 year freeze on statutory royalties for physical, consider the situation of songwriter Hugh Prestwood and his wife, photojournalist Judy Ahrens. Songwriters and photographers are two occupations that are devastated by the digital blight that has visited apocalyptic devastation on creators.
As Hugh says in their GoFundMe page, his songwriting income was destroyed by the massive change in the economics of songwriting that split apart the album format with no commensurate increase in songwriter royalties. Songs became a major driver of wealth for hardware manufacturers and Internet providers (remember dancing cows chanting rip, mix, burn?) in the 2000s, and streaming drives wealth for catalogs and platforms. The doubling effect of Moore’s Law imposes a halving effect on creator royalties. Hugh and Judy are living proof of what happens to an aging population of creators who could not have possibly planned around the digital blight–other than learning to code, I guess.
The Copyright Royalty Judges need to understand that there are real consequences to real people when they freeze mechanical royalties. While the Judges are not responsible for all the harms that accrue to songwriters in the rigged statutory licensing and royalty scheme, they do play a part and they can make a difference. Songwriters may not expect the Judges to fix their problems, but they do expect them not to make it worse. Freezing rates for 15 years makes it worse.
The Judges should also understand that they have an opportunity to do something to add fairness back into the system that the Judges effectively control. Creators like Hugh and Judy will never appear in their courtroom alongside the well-heeled lobbyists and lawyers who make millions off of the rate proceedings and the black box in what has become a laughingstock.
Congress, too, needs to listen up. It is well past time for a songwriter advocate to be a permanent part of the Copyright Royalty Board proceedings for mechanical royalty rate settings. A songwriter advocate would speak for people like Hugh and Judy. As Linda said of Willie Lohman in Death of a Salesman, “Attention must be paid.” I’m not asking that songwriters should be able to overrule the lobbyists, although that’s not a bad idea.
But at least hear them out before they’re all gone.
All of the economic indicators are telling us that inflation is going to be around for a while–so songwriters should expect some cost of living adjustment based on the Consumer Price Index when the Copyright Royalty Board sets mechanical royalty rates, especially for the frozen mechanical rate on physical phonorecords. Why do I say that?
The U.S. Consumer Price Index closed 2021 at 7%. That is the highest inflation level since 1982–and remember in 1982 the U.S. had already had a solid two to three years of Federal Reserve Chairman Paul Volker’s anti-inflationary surge after the malaise of the 1970s.
The Producer Price Index for 2021 was measured at 9.7% by the Bureau of Labor Statistics, the largest calendar year increase since 2010. The PPI is a leading indicator of inflation as measured by the CPI because it measures a large basket of raw inputs and future price increases that will affect the CPI in weeks or months.
The University of Michigan survey of consumer sentiment fell to 68.8%, its second lowest level in a decade (the lowest being in November 2021). The survey also measured “confidence in government economic policies is at its lowest level since 2014.” The consumer sentiment survey indicates that consumers expect bad times ahead, or at least expensive times. This can have a pronounced effect on consumer inflation expectations.
Consumer inflation expectations remained unchanged after rising strongly over the last year, particularly the one-year outlook. Inflation expectations can be a self-fulfilling driver of inflation for a number of reasons such as FOMO pricing on homes and cars as well as wages–if you expect inflation to rise x% in the next 12 months, today you will seek wage increases of at least x% (if not more).
All of this tells us that the entire idea of extending the freeze on statutory mechanical royalties gets more absurd by the day. It’s entirely reasonable to “index” statutory mechanical royalties during the current rate setting period of 2023-2027 as we’ll all be very lucky to get through that period without suffering crippling inflation that will further erode the 2006 rates the CRB has used for the past 15 years.
[A little context: The public comments on the majors’ proposed settlement at the Copyright Royalty Board that freezes mechanical royalties on vinyl and CDs are again attracting first rate reporting and arguments. Public comments are designed to help the Copyright Royalty Judges focus on important nuances before they tell us all what’s fair.
Enter the connection between extending the fifteen year-old frozen mechanical rate for another five years in return for what may well be hundreds of millions under the unmatched “late fee waiver” settlement (total settlement value still undisclosed). It’s become obvious after the majors’ 11th hour reply comment in “#FrozenMechanicals Take One” that the majors have tied a settlement on what is essentially the late fee on black box mechanicals at the participating labels to getting a freeze on mechanicals. You can ask yourself how much of a risk it is that major publishers will sue their major label affiliates and what kind of a settlement avoiding that risk might drive.
NMPA 2018 Tax ReturnNMPA 2019 Tax Return
Fair enough, right? Well, maybe not. Thanks to excellent open-source research by Austin music lawyer Gwendolyn Seale in her new frozen mechanicals comment, it turns out that there are a couple of loose ends. First, the National Music Publishers Association’s tax returns for 2018 and 2019 suggest that the organization received several million dollars from the late fee waiver program over two years.
Where that money finally came to rest is unclear but something about the size of that sum sounds like “employee year-end performance bonus” to me although that’s just a guess. (Not the first time the unmatched issue has come up–remember the New York Attorney General back in 2004 who dropped the hammer on labels and at least one publisher who had egregious cases of unpaid royalties to people like David Bowie, John Mellencamp, David Matthews, Dolly Parton and Sean Combs.)
Gwen also did a deep dive on past late fee waiver settlements (commonly called “MOUs”) dating back to 2009 or so. These also had similar connective tissue between past mechanical royalty freezes and the late fee settlement dating back many years. (It would not be a shock if some of the more cold-blooded publishers preferred taking the late fee than the black box royalties because a late fee is an interest payment that may not have to be shared with their writers…just sayin’. Let’s not forget who works for whom.)
Not only is the CRB being asked to repeat the sins of the past with the justification that they accepted it before, Gwen discovered yet another wrinkle in the open-source rules of the prior MOUs–you have to join the NMPA and pay dues in order to get paid with what is ostensibly your own money. See what they did there? That’s probably old news to those who also read the establishment press, but worth mentioning in case you missed it.]
Gwendolyn Seale, Esq.
Chief Copyright Royalty Judge Suzanne Barnett
Copyright Royalty Judge David R. Strickler
Copyright Royalty Judge Steve Ruwe
US Copyright Royalty Board
101 Independence Ave SE / P.O. Box 70977
Washington, DC 20024-0977
SENT VIA ELECTRONIC DELIVERY
IN RE DETERMINATION OF ROYALTY RATES AND TERMS FOR MAKING AND DISTRIBUTING PHONORECORDS (Phonorecords IV)
Honorable Judges,
I am a music lawyer in Austin, Texas, and represent songwriters throughout the state of Texas. I appreciate the judges reopening the comment period with respect to the proposed settlement (“Proposed Settlement”) submitted by the three major labels, the National Music Publishers Association (“NMPA”) and the Nashville Songwriters Association International (“NSAI”) which, if adopted by the Judges, would freeze the statutory mechanical royalty rate at 9.1 cents for physical products and permanent digital downloads through 2027. For reference, my prior comment regarding the Proposed Settlement can be found in the footnote below,[1] and the purpose of this supplemental comment is to highlight the relevance of the Memorandum of Understanding 4 (“MOU4”) between the three major labels and the RIAA on the one hand and the NMPA and a select group of music publishers on the other hand (collectively “MOU Parties”) in the Judges’ consideration of the Proposed Settlement. As the Judges will see below, MOU4 appears to be additional consideration for the Proposed Settlement — consideration which is only able to be enjoyed by NMPA members. Binding the world’s songwriters to this Proposed Settlement when the overwhelming majority of songwriters cannot even reap the benefits of the additional consideration demonstrates there is no reasonable basis to adopt the rates and terms of the Proposed Settlement industrywide, and further, doing so would be patently unjust.
Please note that the views I am expressing here are not made on behalf of any client or the State Bar of Texas.
THE PLAIN LANGUAGE OF MOU4 MORE THAN SUGGESTS IT IS ADDITIONAL CONSIDERATION FOR THE PROPOSED SETTLEMENT
When the three major labels, the NMPA and NSAI submitted their motion to adopt the Proposed Settlement to the CRB, included was the following language that raised concerns during the first round of comments:
Concurrent with the settlement, the Joint Record Company Participants and NMPA have
separately entered into a memorandum of understanding addressing certain negotiated
In my prior comment, I posed the question, “[if] this Memorandum of Understanding is irrelevant to the proposed settlement, why would it be referenced in the motion to adopt the settlement?” At the time of drafting the prior comment, I will honestly say I was not too familiar with the previous MOUs and associated NMPA Late Fee Programs (“Late Fee Programs”). Subsequently, I began perusing through the sparse number of media articles concerning the MOU stemming from Phonorecords I (“MOU1”), along with information listed on the Late Fee Program website, and the text of each MOU to date (MOU1, MOU2 and MOU3). Examining the text of the MOUs was eye-opening; it became readily apparent that each, and their associated Late Fee Programs, would never have come into existence if the MOU Parties had not submitted settlement proposals to the Judges in connection with mechanical rates for physical product and permanent downloads (i.e., the mechanical royalties paid by record companies). In other words, there is no Proposed Settlement without MOU4 and there is no MOU4 without the Proposed Settlement – the two are inextricably intertwined. The longstanding history of this practice is first exhibited in the language from Section 1.0 of MOU2:
This MOU 2 shall not go into effect unless a proposed settlement of the 2013-2017 Proceeding is submitted to the Copyright Royalty Judges for approval, which the Parties anticipate happening promptly after this MOU 2 has been entered into by all Parties[3].
The key word to examine here is “unless.” MOU2 would not go into effect unlessa proposed settlement was submitted to the CRB in Phonorecords II (2013-2017). If the MOU Parties had not presented the proposed settlement in Phonorecords II to the CRB, MOU2 would have never gone into effect and thus, no Late Fee Program for that time period. A close review of the plain language of MOU2 is critical as it more than suggests MOU2 served as additional consideration for the proposed settlement in Phonorecords II, which extended the 9.1 cent mechanical rate freeze for physical products and permanent downloads that commenced in 2006.
Fast-forward to the language in Section 2 of MOU3, where the same condition is visible:
This MOU 3 is a separate, conditional agreement that shall not go into effect until NMPA and SME submit a motion to adopt a proposed settlement of the 2018-2022 Proceeding as to rates and terms presently addressed in 37 C.F.R. Part 385 Subpart A to the Copyright Royalty Judges, which the Parties anticipate happening promptly after this MOU 3 has been signed by all of the Parties. It is understood that SME, UMG, WMG, RIAA and NMPA will sign this MOU 3 at the outset, and that NMPA will use its best efforts to obtain the signatures of all the music publishers represented on its Board of Directors as additional Parties to this MOU 3 by October 28, 2016. The term of this MOU 3 shall commence on the date when a motion to adopt such a settlement is submitted to the Copyright Royalty Judges (the “Effective Date”), and continue until the End Date…[4]
Despite the removal of the word, “unless,” exhibited in MOU2, and the replacement with the word, “until,” the analysis remains the same. MOU3 appears to have been additional consideration for the proposed settlement in Phonorecords III, which furthermore extended the 9.1 cent mechanical rate freeze for physical products and permanent downloads.[5]
Finally, the same condition is found in MOU4’s language:
This MOU4 is a separate, conditional agreement that shall not go into effect until NMPA, SME, WMG’s affiliate Warner Music Group Corp., and UMG submit a motion to adopt a proposed settlement of the Phonorecords IV Proceeding as to statutory royalty rates and terms for physical phonorecords, permanent downloads, ringtones and music bundles presently addressed in 37 C.F.R. Part 385 Subpart B (the “Subpart B Configurations”), together with (1) certain definitions applicable to Subpart B Configurations presently addressed in 37 C.F.R. § 385.2 and (2) late payment fees under Section 115 for Subpart B Configurations presently addressed in 37 C.F.R. § 385.3, together with certain definitions applicable to such late payment fees presently addressed in 37 C.F.R. § 385.2, for the rate period covered by the Phonorecords IV Proceeding, which the Parties anticipate happening promptly after this MOU4 has been signed by SME, UMG, WMG, RIAA, NMPA, Sony Music Publishing, Universal Music Publishing Group, and Warner Chappell Music, Inc. (the “Initial Signatories”)…
The plain text of MOU4 and likewise, the plain text of MOU2 and MOU3 demonstrates MOU4 serves as additional consideration for the Proposed Settlement. If this is the case, the Proposed Settlement does not provide a reasonable basis for establishing Subpart B rates and terms because MOU4 is consideration which can only be enjoyed by select participants in Phonorecords IV, while songwriters worldwide are bound to rates and terms they do not approve and for which they receive no benefit of the MOU4 bargain. Further, in a stunning display of pretzel logic, if a self-published songwriter even wants to reap the benefits of MOU4, such songwriter would have to join the NMPA as a publisher to participate in Late Fee Program – which would entail paying to join an organization that has agreed multiple times to freeze the mechanical royalty rate for physical and download formats.[6]
Songwriters, including those who have submitted comments in this proceeding, have made it abundantly clear that they do not support extending a mechanical royalty rate freeze. So, the question becomes whether the Judges believe it is just and reasonable to subject songwriters to a rate freeze that they oppose, understanding that they will either never benefit from the additional consideration for the freeze or will have to pay dues to a party proposing the freeze they oppose to benefit from the additional consideration. Therefore, I ask the Judges to please determine whether MOU4 is additional consideration for the Proposed Settlement.
2. IF ALL SONGWRITERS ARE TO BE BOUND TO THE PROPOSED SETTLEMENT, ADDITIONAL TRANSPARANCY IS WARRANTED
The MOU Parties stated in their “Comments in Further Support of the Settlement of Statutory Royalty Rates and Terms for Subpart B Configurations” (“Reply Comment”) that they did not present MOU4 to the Judges as they regarded it to be routine and irrelevant to the Judges’ determination of the Proposed Settlement.[7] The MOU Parties further stated the payments under the previous MOU processes have resulted in hundreds of millions being properly paid to publishers and songwriters and enabled more successful identifications of musical works.[8] Additionally, the MOU Parties contended the history of the MOUs is no secret, pointing to a couple of articles from 2009-2010 and the NMPA Late Fee Settlement website.[9]
While the MOU Parties can generally state MOU4 and prior MOUs are no secret, the MOU process to date has hardly been transparent. While some media outlets published information about MOU1 in 2009-2010, over the last decade there has been virtually no reporting on the MOU program, encompassing MOU2 and MOU3. With respect to MOU1, outlets reported approximately $275 million was paid out from the labels and distributed to publishers via marketshare methodology.[10] Amounts paid out pursuant to MOU2 and MOU3 have not been publicly disclosed – and should be if MOU2 and MOU3 were additional consideration which continued the mechanical rate freeze to the present day.
The MOU Parties further state, “[c]ontrary to the conspiracy theories of others, there is no secret payoff to major publishers or to any other MOU participant.”[11] It is not conspiratorial to simply point out that the public is unaware of the amounts payable to publishers under these MOUs; it is further obvious the major publishers benefit from a settlement system which distributes funds to publishers in accordance with major label and HFA data via marketshare methodology. Additionally, according to the NMPA’s 2018 and 2019 IRS 990 filings, “Royalty Late Fee Program” was listed as an income line-item, reflecting $2,908,988.00 and $768,368.00, respectively, as revenue for the organization. If in fact this line item pertains to commissions taken by the NMPA on prior Late Fee Programs established by the MOUs, there is absolutely a payoff to a MOU participant, albeit, not secret.
Note that I have no issue with the notion of these MOUs and the Late Fee Programs, or which sums are paid out to whom, provided that the MOUs and associated Late Fee Programs are truly irrelevant deals that do not serve as additional consideration for settlements to freeze the statutory mechanical rate for physical and download configurations industrywide.
3. IF THE PROPOSED SETTLEMENT IS NOT WITHDRAWN, THE JUDGES SHOULD APPLY DIFFERENT RATES AND TERMS TO PUBLISHERS AND SELF-PUBLISHED SONGWRITERS WHO DO NOT OPT INTO MOU4 AND THE LATE FEE PROGRAM
Notwithstanding the repeated practice of the CRB adopting settlements freezing the mechanical rate for physical products and permanent downloads proposed by parties who wield the most power in the music business, the current situation is different and should be treated as such. Many songwriters oppose the Proposed Settlement but cannot afford to participate in this proceeding. Songwriters and other key songwriter advocacy organizations oppose this Proposed Settlement, proffering comments that the Proposed Settlement is unreasonable because songwriters do not wish this revenue stream to be frozen for yet another five years during a vinyl resurgence amid a worldwide pandemic that continues to ravage the world’s economy. While there has been considerably more public outcry with respect to this proceeding than those prior, luckily, there are solutions available which will reverse this course and are entirely within the control of the MOU Parties and the Judges.
First, the MOU Parties can withdraw the Proposed Settlement and voluntarily agree to a rate increase for Subpart B configurations – and continue to proceed with their Late Fee Program. This act will not only bring the entire songwriter and music publisher communities together, but also it will serve to extinguish one of the streaming services’ key benchmarks in their testimony (since every streaming service participant in Phonorecords IV is using this Proposed Settlement to justify their abysmal streaming rate proposals).
Alternatively, if the foregoing is not an option, the terms of the Proposed Settlement should apply only to the MOU Parties and the NMPA publishers that subsequently opt-into the Late Fee Program, while the Judges determine different rates to be applied to everyone else. To be clear, again, I have no issue with the concept of MOU4 or the Late Fee Program, rather it is inequitable for songwriters to be bound to the terms of a settlement which they do not support, particularly when they do not receive any benefit from the consideration attached to the settlement.
CONCLUSION:
Prior to this Phonorecords IV proceeding, it appears the only person who publicly opposed any settlement to freeze the statutory mechanical rate for physical and download configurations was George Johnson, a pro se self-published songwriter participant. While the Judges’ determination of rates and terms for physical and download configurations in Phonorecords III is final, I believe it is worth briefly revisiting an excerpt from the Judges’ determination which addressed Mr. Johnson’s opposition to the Phonorecords III settlement:
But, Mr. Johnson has not even hinted at evidence to support his argument that the representative negotiators are engaged in anti-competitive price-fixing at below-market rates. The very definition of a market value is one that is reached by negotiations between a willing buyer and a willing seller, with neither party being under any compulsion to bargain.[12]
While Mr. Johnson may not have articulated his opposition to the Phonorecords III proposed settlement in a lawyer-like manner, he clearly understood years ago that there was something awry with respect to these proposed settlements. It is evident that the “something awry” happens to be these MOUs, which I never would have realized had the Judges not reopened the comment period to specifically address MOU4. The representative negotiators in these settlements represent “willing buyers” and “willing sellers” who are effectively the same parties at the corporate level. The “willing sellers” (i.e., the major publishers/ NMPA) are under compulsion to bargain so they can enjoy the compensation associated with the Late Fee Program. When such a settlement is adopted and applied industrywide, we are posed with an end result of “unwilling sellers” (i.e., songwriters worldwide) tethered to below-market rates who will not enjoy the benefits of the additional consideration – MOU4 and the associated Late Fee Program.
The Judges have a duty to all songwriters – from the millions who are unaware the CRB exists, to the millions who do not have the financial resources to participate in CRB proceedings, to the millions who do not speak English (in this country and abroad) and cannot follow this proceeding if they wanted to– to determine whether this MOU4, a side agreement which benefits a select few, is in fact additional consideration for the Proposed Settlement which would freeze statutory mechanical royalty rate for physical products and permanent downloads through 2027. And if the Judges determine this is true and the MOU Parties are unable to withdraw the Proposed Settlement, the Judges should establish different rates and terms to be applied to all other songwriters and publishers.
Thank you for re-opening the public comment period and for your consideration.
[2] Motion to Adopt Settlement of Statutory Royalty Rates and Terms for Subpart B Configurations, Docket No. 21–CRB– 0001–PR (2023–2027) (May 25, 2021) (Proposed Settlement).
[7] Comments in Further Support of the Settlement of Statutory Royalty Rates and Terms for Subpart B Configurations, Docket No. 21–CRB– 0001–PR (2023–2027) (August 10, 2021).
[12] 37 CFR Part 385 [Docket No. 16–CRB–0003–PR] Determination of Royalty Rates and Terms for Making and Distributing Phonorecords (Phonorecords III); Subpart A Configurations of the Mechanical License.
[A little context: As readers will recall, the Copyright Royalty Board is in the middle of two (count ’em, two) simultaneous rate proceedings for the statutory mechanical royalty rates under the reliably absurd Section 115 of the Copyright Act. These two are styled “Phonorecords III” and “Phonorecords IV” respectively. Technically, Phonorecords III was appealed to a higher court (DC Circuit for those reading along at home) and was pretty much rejected and sent back to the Copyright Royalty Board on what’s called “remand” or as it’s know in the vernacular, “nice try.” Phonorecords IV is for the 2023-2027 period and is currently in the discovery phase for streaming mechanicals. MTP readers will also recall that I anticipated an attempt to extend the freeze on physical mechanicals at the 2006 rate of 9.1¢–long since corroded by inflation to a real mechanical rate of about 6¢ given an inflation rate of approximately 33% since 2006. And the majors are vigorously pursuing both a freeze as well as an extension of the pending and unmatched settlements for NMPA members (aka “MOU” for “Memorandum of Understanding” among the insiders) that is tied to the freeze for everyone else. See what they did there? Today we are posting the first of the 2nd round comments on the freeze filed with the Copyright Royalty Board in the Phonorecords IV proceeding. I was kind of hoping that someone would file a comment in support of the freeze but no one did–all comments are opposed. The first up is Professor Kevin Casini’s thoughtful comment. We will be cross posting with the Trichordist.]
November 20, 2021
Hon. C.J. Suzanne Barnett Hon. J. David R. Strickler Hon. J. Steve Ruwe
US Copyright Royalty Board 101 Independence Ave SE / P.O. Box 70977 Washington, DC 20024-0977
Honorable Judges of the Copyright Royalty Board:
I am a Connecticut resident, attorney, and law professor, and the views expressed here are mine, and not necessarily those of any local or state bar association, or any employer. The bulk of this comment appeared in an open letter to this body, and to my senators, dated May 27, 2021. It requested time to comment for those that were not represented by the publishing lobby, the so-called “self-administered” songwriters that were so en vogue during the passing of the Music Modernization Act, and with it, the advent of the Mechanical Licensing Collective. As the preeminent music economist of the day, Will Page, put it in his annual “Global Value of Music Copyright” compendium, “anyone can record a song, but only someone can compose it.”[1] I don’t speak for them, I’ve not been empowered to do so, but because so many of us know “self-administered” means “not administered” I speak to their best interests, even if they don’t know anything about this process. These writers are considered “self-publishing”, but the reality is, they have no publishing. Ironically, it is these independent writers who rely disproportionately on physical sales, direct downloads, and Bandcamp Fridays. In essence, “I speak for the trees.”[2]
On May 18, 2021, a “Notice of Settlement in Principle” was filed by parties to the proceedings before the Copyright Royalty Board about its Determination of Royalty Rates and Terms for Making and Distributing Phonorecords.[3] That Notice was followed on May 25, 2021 by a Motion To Adopt Settlement Of Statutory Royalty Rates And Terms For Subpart B Configurations, filed by the NMPA, Sony, Universal and Warner and NSAI.[4] I write today in reference to that proposed settlement.
This settlement outlines the terms by which mechanical royalty[5] and download rates will remain locked at the current rate of 9.1¢. The same almost-dime for each copy of a work manufactured and distributed. The same almost-dime that it’s generated since 2006. A paltry sum to be certain but a far cry from the 2¢ royalty rate mechanical royalties imposed for the better part of seventy years.[6] Starting in 1977, Congress mandated that the mechanical royalty be increased incrementally until 2006 when the rate of 9.1¢ was achieved. And there it has remained.
This proposed private settlement would extend that 2006 freeze until 2027.
In March 2017, a precursor to Phonorecords IV found the Copyright Royalty Board ruling that interactive streaming services must pay more in mechanical royalties over the course of the next five years.[7] Surely more than a simple inflation adjustment, but nonetheless a sign that the CRB thought costs and values needed to become more aligned for streaming—which is paid by the streaming platforms unlike the physical and download mechanical which is paid by the record companies. Now comes Phonorecords IV, and a proposed settlement from the major publishers and their affiliated major labels. Before this proposal can be accepted by the CRB, I asked for the simple opportunity of public comment. This COurt saw fit to grant that request, and I express my appreciation.
As you well know, in nearly all other administrative proceedings public comment is an integral and indispensable component of the process. To see that the CRB may allow for a public comment period by members of the public beyond the participants in the proceeding or parties to the settlement is a step in the right direction, and my hope is that this development will be broadcast far and wide so that the CRB, and in turn, Congress, may get a full picture of the status of mechanical royalty rates, especially from those that are historically underrepresented. “Public comments” should be comments by the public and made in public; not comments by the participants made publicly.
I have a great deal of respect and admiration for the work put into the landmark copyright legislation that came about at the end of 2018, and for those that made it happen. So too for the members of the CRB, and in this space, I thank those Judges for taking the time to read a letter from an adjunct law professor with no economic stake in the outcome, but rather an interest in, and duty of, candor to the Court.
In an age of unprecedented political polarization, the consensus built in the passage of the Music Modernization Act showed that politics aside, when it’s time to make new laws that fix old problems, Congress can still get the job done. I know well the sweat-equity poured into its creation by the very same people that propose this settlement. I have found myself on the same side fighting the same fight as them many times. They have proven capable of navigating your halls and taking on those that would seek to devalue (or worse) the work of the songwriter, and musician. In this instance, I would like to see them fight the fight yet again. recognize the reasoning and intention behind the proposed settlement. Commenting by the public is a way for that to happen.[8] I commend this Court for re-opening the comment period to allow for as much dialogue, and information, as possible.
A year ago, I made the unilateral decision to pivot our consulting company, Ecco Artist Services, to purposefully work with, and advocate for, the traditionally and historically underserved and underrepresented in the music industry. Freezing the growth of rates for physical and digital sales that are already digging out of the residual effects of 70 years at 2¢ strikes at the heart of that community’s ability to generate revenues from their music.
Now, it’s no secret the trade association for the US music publishing industry is funded by its music publisher members, and of course, as a professional trade organization, the association is bound to represent those members. Publishers have long enjoyed a better reputation amongst industry insiders than “the labels,” and for good reason, but the fact remains that writers signed to publishing deals are in contractual relationships with their publishers, and their interests are not always aligned. Such is the state of play in a consumer-driven marketplace, and especially now that publishers and labels are consolidating their businesses under the same tents. They, it seems, are the forest. An indie songwriter is but a tree.
Unfortunately, the independent songwriter lacks the resources to participate fully in the process, and although a signed songwriter may believe her interests and those of her publisher are one and the same, they may not always be. It would seem the economic analysis the publishers undertook in deciding the mechanical royalty was not worth the heavy cost and burden of fighting is the same calculus the writers need not do: they couldn’t afford the fight no matter the decision.
But I ask: if the mechanical royalty covered by the proposed settlement is a dying source of revenue, why would the fight be so onerous? By the RIAA’s 2020 year-end statistics, physical sales and downloads accounted for 15% of the music marketplace.[11] That’s a $12.2 billion marketplace, and that 15% amounts to $1.8 billion. Now, I know attorney’s fees can be exorbitant in regulatory matters, but I would think we could find a firm willing to take the case for less than that. As for sales, in 2020, 27.5 million vinyl LPs were sold in the United States, up 46-percent compared to 2019 and more than 30-fold compared to 2006 when the vinyl comeback began,[12] while some 31.6 million CD albums were sold.[13]
Median wages in the US, adjusted for inflation, have declined 9% for the American worker. Meanwhile, since the 9.1¢ rate freeze, the cost of living has gone up 31%, according to the American Institute of Economic Research[14]. The 2006 inflation rate was 3.23%. The current year-over-year inflation rate (2020 to 2021) is now 4.16%[15], which is all really to say, simply, an accurate cost-of-living increase would have a mechanical rate of at least 12¢ per sale. Twelve cents! You would think that would be an easy sell, but the streaming rates are fractions of that rate. The reality is a song would need to be streamed 250 times to generate enough money to buy it from iTunes. As my dear friend Abby North put it, the royalty amount for the digital stream of a song is a micro penny.[16]
An adjustment for inflation should require no briefing, let alone argument. If songwriters were employees, this would simply be line-item budgeted as a “cost-of-living adjustment.” If songwriters were unionized it would be a rounding error, but I digress.
Even if it is true that the mechanical revenue is a lost and dying stream, by the RIAA’s own figures, there stand to be billions of dollars at stake. An opportunity to be heard, without having to sign with a publisher and then hope that publisher takes up the fight you want, maybe that’s all the independent writers of the industry—and, indeed, the world–need to be able to win.
An inflation-adjusted cost-of-living update to the mechanical statutory royalty rate should be of no issue. Those independent, self-published writers affected by the decision of the CRB have been given the opportunity to voice their concerns through public comments. I hope that the CRB considers the disparities in bargaining power among those on the “writers’ side” of this issue before it makes its final decision. Please note, I pass on judgment on those that serve their constituencies, I just know there is no substitute for direct action, direct aid, or direct advocacy.
I want to close this time by thanking the Board, and Copyright Office, all for their continued attention to the universe of copyright, licensing royalties, and the economy that exists therein, and specifically the recently retired CJ of Copyright Royalty Board Jesse Feder, for allowing this opportunity, and so many other. It is my sincere hope (and effort) that the tone and tenor of these negotiations, deliberations, and litigation proceedings can be focused on the issue at hand, with collaborative results the goal, but when that cannot be, I trust the Copyright Royalty Board will see both forest and trees.
Kevin M. Casini New Haven, CT
Attorney-at-Law, Adj. Professor, Quinnipiac Univ. School of Law
[5] The term “mechanical royalty” dates back to the 1909 Copyright Law when Congress deemed it necessary to pay a music publishing company for the right to mechanically reproduce a musical composition on a player-piano roll. As a result, music publishers began issuing “mechanical licenses”, and collecting mechanical royalties from piano-roll manufacturers. The times, and the tech, changed, but the name stuck.
[8] The CRB arguably has the statutory obligation to publish the Motion in the Federal Register for public comment, but may have the discretion to construe those commenting to the participants in the proceeding and the parties to the settlement. 17 U.S.C. § 801(b)(7).
Long story. But a private agreement between major publishers and major labels was part of the Copyright Royalty Board settlement. Seemed sleazy to many songwriters. We protested and the judges did right thing. Reopened comments. https://t.co/IDoV0wuzcR
In an unusual–if not historic–move, the Copyright Royalty Board has decided to re-open public comments in the controversial “frozen mechanicals” rate hearing to set the government rate for mechanical royalties paid on physical records and downloads. It is absolutely crucial that the Judges have reopened the comments because it indicates that they are bending over backwards to demonstrate their interest in being fair and deliberative and not allowing themselves to be used to bootstrap an unfair freeze on mechanical royalties. (If you need to catch up, there are many posts on Trichordist about “frozen mechanicals“.)
The Board gave this reason for reopening the comments:
The Joint Submission [by the NMPA, NSAI and the major labels] included arguments that the MOU is irrelevant to the Judges’ consideration of the proposed partial [frozen mechanicals] settlement and proposed regulations and that the MOU does not call into question the reasonableness of the proposed partial settlement and proposed regulations. Because interested parties other than those who submitted the Joint Submission may have been unable to adequately view or comment upon the MOU prior to the close of the Judges’ extended comment period, the Judges are reopening the comment period. The Judges will allow 30 days for comments [from October 19] regarding the impact, if any, that the MOU should have on the Judges’ consideration of whether the proposed partial settlement and proposed regulations provide a reasonable basis for setting statutory rates and terms.
Quick recap–remember that the NMPA, NSAI and the major record companies decided to keep the freeze on mechanical royalties for physical and downloads that these same groups and companies decided to impose on the world back in 2006. If these people win this argument before the Copyright Royalty Board, the rate will be frozen at 9.1¢ for another five years–until 2027. NMPA and the major labels also made a side deal (called an “MOU”) as a quid pro quo that appeared to be additional incentive to the NMPA to accept the frozen mechanical rate that applied to every songwriter but includes undisclosed payments.
What is particularly offensive about this freeze is that the majors and a lot of indie labels have “controlled compositions” clauses in their recording agreements that give them all kinds of downside protection against rate increases. These include a “rate fixing” clause that freezes the mechanical rate for songs at the rate in effect when the recording is initially released. That’s why there are still many songwriters paid at the 2¢ rate that hasn’t been around since 1977. So giving a rate increase is not anywhere near a 1:1 cost increase for the record companies.
David joined with Helienne Lindvall and Blake Morgan to file a comment asking for the Copyright Royalty Board to give the NMPA and NSAI the deal they made but raise royalty rates for songwriters who don’t get the benefit of the MOU payments (whatever they are). Many other distinguished songwriters, songwriter advocacy groups (12 in total) and publishers filed their own comments opposing the freeze.
[Chris Castle says: Here’s the context of this post. As it turns out, the CRB extended the filing deadline for comments due to what they said was a technical difficulty, although we have yet to meet anyone who couldn’t file their comment on time. This extension seems contrary to the CRB’s February revised rules for filings by participants. The CRB procedures presciently have an email filing procedure in the case of technical problems arising out of their “eCRB” document filing system. It will not surprise you to know that the NMPA, NSAI, and major labels filed what is essentially a reply comment after the close of business on the last day of the extension, after at least our if not all commenter accounts were disabled, the practical effect of which was that no one could respond to their comments through the eCRB, i.e., on the record.
We tried, and drafted a reply to the most important points raised in the majors’ comment. We emailed our comment to the CRB during business hours on the next day in line with the CRB’s own “Procedural Regulations of the Copyright Royalty Board Regarding Electronic Filing System” (see 37 CFR §303.5(m)) or so we thought. But not so fast–we were told by an email from a nameless person at the CRB that we would need to file a motion in order to get approval to file the comment less than 24 hours late for good cause–which of course, we are not able to do since we are not “participants” in the proceeding. See how that works? According to this person’s email, we’d also need to contact CRB technical support to get our accounts reopened which would make the comment later still even if we were able to file a motion. Instead, we decided to just post our reply comment on the Internet. A wider audience. Unfortunately not part of the record, but we’ll see what happens.]
We all have to be grateful to the Copyright Royalty Board for re-opening comments on the frozen mechanicals crisis. That is an indication that the Judges do not intend to be a rubber stamp and let the rich use the CRB to bootstrap their private deal onto every songwriter in the world.
We want to stongly encourage you to file your own comments in the frozen mechanicals hearing, tell your own stories and give your own point of view about how to handle the crisis. If you want to file a comment, you need to register for an account at the Copyright Royalty Board. Chris Castle has a helpful guide to setting up your account.
In a word: Stagflation. Maybe. In more words, classic stagflation occurs when supply side shocks lead to the costs of goods increasing while the real economy declines. We certainly have had and continue to have supply side shocks and it’s hard to tell what the real economy is doing because of distortion. Due to the COVID pandemic, the global economy has been hit with a cascading series of supply side shocks. For example, one shock is due to supply chain disruptions which look something like this:
If you’ve ever been on one of the very large cargo ships, you will know that is a big mofo. (When a sailor looks at all those elephants churning up the water, you can’t rule out a collision which could have really big problems depending on where and how bad that collision is.)
There currently are something like 500,000 shipping containers sitting on ships off of the Port of Los Angeles that can’t unload. That means someone has ordered the goods in the containers, perhaps paid in advance all or part of the cost of those good, but can’t get the goods to sell. And that’s just Los Angeles. That’s also called a supply side shock.
A supply side shock may cause an increase in the prices of the goods that are available to sell which causes a shift in the aggregate prices in the economy as a whole.
Another supply side shock may occur when inflation causes the price of goods to increase over the level that a firm can eat to avoid passing on the cost to their customers. This causes earnings to decline and eventually share prices to decline. If the market does not re-establish equilibrium fairly quickly, right after earnings decline, the price may get passed on to the consumer which may cause demand to drop which will ultimately cause earnings to decline. This is cost-push inflation which is a bit different from what you normally hear about too many dollars chasing too few goods or demand-pull inflation.
So to recap: cost-push inflation is a decrease in the aggregate supply of goods and services caused by an increase in the cost of production, and demand-pull inflation is an increase in aggregate demand from one or more or all of households, business, governments, and foreign customers.
Inflationary pressure is compounded by an increase in the money supply, especially a sharp increase in the money supply.
All this should be sounding familiar if you follow the news.
The Stagflation Three Point Play
Historical examples of stagflation events in the US are particularly related to energy cost shocks and OPEC’s use of oil embargos to influence US foreign policy and support for Israel. We’ll come back to this, but remember that the crippling stagflation of the 1970s was largely due to one input–energy. The gas lines of the 1970s and heating oil price increases were particularly profound and the resulting stagflation influenced the increase in interest rates to a prime rate of 21.5% in December of 1980 after President Jimmy Carter lost reelection. It may be hard to comprehend a prime rate of 21.5% in this low interest rate environment, but don’t feel bad–it wasn’t so easy to understand then, either. The shys were jealous.
Could it happen again? At this point, I think it’s hard for anyone to rule it out entirely, so the probability is a positive integer. What did songwriters do during the stagflation era of the 1970s? Unlike most of the rest of the peacetime economy, songwriters had mechanical royalties set by the government at a fixed price. Starting in 1909, the federal government set songwriter royalties at 2¢ per unit and never changed the price until 1978. Needless to say, the stagflation of the 1970s destroyed the government’s fixed songwriter royalties. By 1978 it’s not an overstatement to say that songwriters earned a negative royalty rate if you adjusted for inflation. This was all due to the government’s wage controls on songwriters. (You can argue that this is the primary reason songwriters get paid so little today.)
Why did this happen? Government mandated wage and price controls were common in wartime–during World War II, military expenditures exceeded 40% of gross domestic product (GDP) so the government had an interest in controlling labor and materials costs. They accomplished this through the War Labor Board and the Office of Price Administration. If that sounds positively Soviet, it was. Unlike songwriter royalties, the government mandate was temporary.
By the time the 1976 revision to the Copyright Act rolled around, songwriters lobbied effectively for their statutory mechanical rate to be increased. However, given the rampant inflation of the time, they needed protection because even with prices reset after five year periods, inflation could easily eat away any gains. That’s one reason why after the 1976 revision, mechanical rates gradually increased and eventually were increased based on the Consumer Price Index (called “indexing”) for many years.
If you followed the recent commentary opposing an extended freeze of the mechanical royalty rate for physical and downloads, the inflation issue is front and center once again. And if you observe the current state of the economy and the likely future, you’ll understand why indexing may be crucial to preserving the value of whatever mechanical royalty is set by the Copyright Royalty Board, the songwriter’s version of the WWII era Office of Price Administration. And who would bet against inflation?
Of course, the CRB heard absolutely no evidence on the inflation issue from the NMPA, NSAI and the major labels that essentially put their finger in the air and decided to freeze rates. That’s not the end of the story, though. The relevant information on inflation is readily available in the public domain and the CRB can take notice of it if they want.
Remember, the 1970s stagflation was a highly unusual economic condition caused by a supply side shock of one input–energy. Here’s a few examples of current supply side shocks from multiple inputs. I think it should give everyone pause before they rule out a need to index the statutory rates for songwriters.
The “PCE” and “Core PCE” are indexes that economists monitor (such as the economists at the Federal Reserve) to track inflation trends. So let’s see what these metrics tell us about the inflationary trends that would be an argument to support indexing mechanical royalties.
“Core PCE” is another look at consumer prices that excludes the cost of food and energy which doesn’t make much sense to you and me, but is another way to look at underlying inflation trends for economists. This is important because it can influence decisions about interest rates at the Federal Reserve.
For perspective, here’s a five-year look at PCE and at PCE excluding food and energy:
The data tell us that the five year inflationary trend is up and to the right with an increasing slope. It is the sharpness of that increasing slope that gives pause–the inflationary trend has been up since 1959 per the following chart, but the steepness over the last 12 months is unusual.
Overall US Inflation Rate
The PCE and Core PCE is confirmed by the overall U.S. inflation rate as measured by the U.S. Bureau of Labor Statistics:
You see the trend here. Inflation has sharply increased. Consider the last twelve months–inflation has more than quadrupled.
Do we think it will continue to increase or will it decline? Let’s consider the inputs that can cause that supply side shock we talked about above.
Residential Rent Prices
According to Zillow, “[t]ypical U.S. rents grew 9.2% year-over-year in July, according to the Zillow Observed Rent Index (ZORI) — the fastest recorded by Zillow records in data that reaches back through 2015 — to $1,843/month. Projecting forward historical ZORI values from February 2020 — the last full month before the COVID-19 pandemic hit the U.S. in earnest — we estimate that the U.S. ZORI in July was 2.9% ($52) higher than where it would have been if the last roughly 18 months had been more ‘normal.’ “
After dipping last spring, rents around the U.S. have not only recovered but are now blasting past their pre-pandemic levels. In 44 of the nation’s 50 largest metro areas, rents have surpassed where they were before the health crisis, according to data from Realtor.com. Nationwide, the median rent reached a record high of $1,575 in June, an increase of 8% from a year ago.
Cotton
Cotton is a commodity that finds its way into many goods. The Wall Street Journal reports that cotton prices have surged to their highest level in a decade, but that Levis won’t be passing on the cost increase to consumers–yet. Remember cost-push inflation?
Levi’s commentary on the cotton-pricing issue should soften some of those fears—at least in the near term. On its earnings call Wednesday evening, the apparel company said that much of its own cotton prices have already been negotiated for the first half of 2022 and that it expects its cost of goods sold to increase 1% in the first half of 2022 compared with 2021 levels. For the second half of 2022, the company said it might be able to negotiate prices that will lead to a mid-single-digit percentage increase in costs compared with 2021 levels. Cotton accounts for about a fifth of the cost of producing Levi’s jeans.
Food Inflation
If you’re going to just look at the core PCE without food and energy, you can’t just ignore those two key inputs if you want to know what is going on at the micro level. We’ll look at both food inflation as well as inflationary effects on a few key energy components, especially for touring bands. Consider this chart of food inflation in the US over the last twelve months which itself is slightly higher than the core PCE.
Propane
Propane–also known as heat–is a lot more relevant to consumers particularly as we head into winter. Propane generators are of particular interest to anyone who suffered a power outage during a polar vortex–ahem–and as you can see, propane prices are already through the roof.
Same story for natural gas and heating oil.
Gasoline
If you’re planning a ground tour, keep an eye on the price of gasoline, also up and to the right.
10 Year US Treasury Bonds
You may not be aware of it, but practically everything in your financial life is affected by the 10 Year US Treasury bond. The “10 Year” is used as a reference point for a multitude of financial instruments and interest rates around the world. This includes mortgage rates and credit card rates. As you can see, over the past 12 months, the yield on the 10 Year treasury note has increased or nearly doubled. And remember that the bond market is orders of magnitude larger than the stock market. The bond market is also run by sophisticated traders–I’ve never heard of day traders in the bond market.
You want to keep a good eye on the 10 year because the Federal Reserve plans to “taper” which is one of those fancy names like “quantitative easing” that sounds like a caramel macchiato but is actually not. What that means in a nutshell is that the Federal Reserve plans on buying fewer treasury bonds than they have done–sopping up however much debt that Congress wants to take on. (Some people say this is a lot like printing money–remember that increasing the money supply is one of the causes of inflation, particularly sharp increases in the money supply.)
A cynic–certainly not me–might say that the Federal Reserve keeps the interest rates low because if the U.S. government ever had to pay anything like a market interest rate, the country would go under. But this cannot go on forever, hence “tapering”.
People may disagree with this “printing money” analogy, but the money supply has substantially increased in the last 12 months and it came from somewhere.
Conclusion
If you stayed with me this far, thank you. I hope I’ve persuaded you that it in the current environment it is highly dubious that songwriters should ever agree to a fixed mechanical rate for any configuration that is not indexed to inflation. Even if you don’t think that stagflation is around the corner, we are certainly seeing considerable inflation in a number of inputs–the supply side shock that is the hallmark of a period of stagflation may not come solely from energy this time. Just because energy was the culprit before doesn’t mean that the economy will not succumb to stagflation by a thousand cuts in the future.
If anyone connected to The Mechanical Licensing Collective, Inc. quango brings up the $424,000,000 black box payment that the MLC received in February as part of services claiming their safe harbor under the Music Modernization Act Title I giveaway, it’s usually in the context of claiming credit for the payment as in “Aren’t we great, we got the services to pay $424,000,000 of black box money owed to songwriters.” (Followed shortly by so where’s my bonus?)
Notice what’s not mentioned in that sentence? True, some services paid some money to the MLC which was required by Title I in order for the major infringers like Spotify to enjoy yet another safe harbor. But the payment was not made to songwriters or publishers–it was made to the MLC quango, which is where it sits today, seven months later.
How could this be, you say? Very simple. Nobody made sure that the MLC was in a position to pay the money out before they took the money in. This is the kind of thing that you would make sure is tied down in the two-plus years the MLC was operational before they got the money. You know, like when did Noah build the Ark? Before the rain.
This is the kind of thing you might expect to be mentioned in the MLC’s annual report which was due June 30 but seems to have been delayed. What should have happened, of course, is that the Copyright Office in its supposed oversight role for the MLC quango should be closely reviewing MLC’s progress with paying out a half billion of other people’s money. This is what you would expect from a bit-in-the mouth hard-driving approach to oversight of hundreds of millions that Congress tasked to the Copyright Office.
Ask yourself (or maybe the Library of Congress Inspector General) whether you think that a pre-New Deal federal agency that has never had enforcement powers is culturally suited to the kind of rigorous prosecution that the oversight role requires? Having created the MLC self-licking ice cream cone, does anyone seriously think that the Copyright Office will rock the boat, particularly when the lawyers seem very interested in landing a job at Spotify (regulated by the Copyright Office) or the National Association of Broadcasters both of which have an ontologically hostile relationship with songwriters? Do you think anyone at the MLC is looking over their shoulder because they’re afraid of the Copyright Office? And if they don’t fear the oversight, what incentive do they have? Nobody else will be twisting their arms.
So should it come as a surprise to anyone that people are asking “where’s my money?” Or that no one is answering?
[Chris Castle says: Here’s the context of this post. As it turns out, the CRB extended the filing deadline for comments due to what they said was a technical difficulty, although we have yet to meet anyone who couldn’t file their comment on time. This extension seems contrary to the CRB’s February revised rules for filings by participants. The CRB procedures presciently have an email filing procedure in the case of technical problems arising out of their “eCRB” document filing system. It will not surprise you to know that the NMPA, NSAI, and major labels filed what is essentially a reply comment after the close of business on the last day of the extension, after at least our if not all commenter accounts were disabled, the practical effect of which was that no one could respond to their comments through the eCRB, i.e., on the record.
We tried, and drafted a reply to the most important points raised in the majors’ comment. We emailed our comment to the CRB during business hours on the next day in line with the CRB’s own “Procedural Regulations of the Copyright Royalty Board Regarding Electronic Filing System” (see 37 CFR §303.5(m)) or so we thought. But not so fast–we were told by an email from a nameless person at the CRB that we would need to file a motion in order to get approval to file the comment less than 24 hours late for good cause–which of course, we are not able to do since we are not “participants” in the proceeding. See how that works? According to this person’s email, we’d also need to contact CRB technical support to get our accounts reopened which would make the comment later still even if we were able to file a motion. Instead, we decided to just post our reply comment on the Internet. A wider audience. Unfortunately not part of the record, but we’ll see what happens.]
SUPPLEMENTAL COMMENTS OF HELIENNE LINDVALL, DAVID LOWERY, BLAKE MORGAN AND GWENDOLYN SEALE OBJECTING TO PROPOSED SETTLEMENT OF SUBPART B RATES
This comment is in reply to the comment[1] filed by the Copyright Owners and the Joint Record Company Participants (the “Majors”) time-stamped after the close of business on August 10, 2021 and made available on the CRB docket the morning of August 11, 2021, i.e., after the deadline established by the Judges in the Proposed Rule published at 86 FR 33601 that would codify the Proposed Settlement.[2]
We ask the Judges’ leniency in permitting our late-filed supplemental comment to be made a part of the record in hopes that our responsive discussion will be helpful to the Copyright Royalty Board in resolving the frozen mechanicals crisis.
This comment is filed on behalf of Helienne Lindvall, David Lowery and Blake Morgan who timely filed their comment on July 26, 2021[3] in accordance with the proposed rule. This comment is also filed by Gwendolyn Seale who timely filed her own comment[4] in accordance with the proposed rule. Their respective biographical information may be found in their previously filed comments.
We will briefly discuss what we think are the essential points the Judges should consider that the Majors have raised in their comment.
I. Discussion
A. Authority: As multiple commenters have stated, it is unclear whether the NMPA and NSAI have been authorized by their respective memberships of over 300 music publishers and over 4,000 songwriters to propose and/or accept a settlement freezing the statutory rate for Subpart B configurations through 2027. Thus, we ask the Judges to seek out evidence demonstrating that self-published songwriters and independent publishers have authorized the NSAI and NMPA to accept this Proposed Settlement. We do not question the integrity of the Majors, but we do have questions about the negotiation process that have yet to be answered.
References to a broad “consensus” must be questioned because there is both a lack of evidence of consensus and also evidence in the record that at least 12 international songwriter groups object to the Proposed Settlement. Independent songwriters, including Ms. Lindvall, Mr. Lowery and Mr. Morgan, also object. It seems simple enough for the Judges to require some evidence of consent to the Proposed Settlement given the awesome power of the government that the Judges are essentially asked by Congress to delegate to the Majors through a voluntary negotiation. This seems to us to be good cause for further verification of authority to make the deal in the first place.
B. The Judges Predicted the Current Opposition in their Phonorecords III Determination:
The Majors rely on a citation that both demonstrates the foresight of the CRB and on balance tends to support our position that the NMPA and the NSAI likely lack the requisite authority to negotiate on behalf of all the world’s songwriters. The Majors invite the Judges to participate in a thought experiment[5] that actually serves quite well to highlight the issues we have raised in the respective comments regarding both the authority of the NMPA and NSAI and the implied below-statutory rates bootstrapped indirectly by means of the freeze:
As the Judges have noted, “NMPA and NSAI represent individual songwriters and publishers,” and would not “engage[] in anti-competitive price-fixing at below-market rates,” since they must “act[] in the interest of their constituents” lest their constituents “seek representation elsewhere.” [Phonorecords III] at 15298.[6]
Respectfully, the problem is way beyond seeking representation elsewhere—the problem is that there was likely no “representation” in the first place if you take “representation” in the legal sense (such as that of a common agent) which we gather is how the Judges intended the use of the word. Likewise, there is a difference between an agent’s principal and a “constituent”, i.e., a difference between one who expressly authorizes an agent to represent them in certain circumstances and one who is allowed to vote on who that representative is to be. Neither is the case for many songwriters who have commented in the record for the current proceeding. We will leave their record to speak for themselves as to why they have sought “representation elsewhere” but it appears that it is for the same reason that they are not participants in the proceeding—they can’t afford the justice and this is why they ask the Judges to give special weight to their comments in the CRB’s deliberations.
But the Major’s thought experiment and speculation continues in an interesting coda regarding below statutory licensing (generally not permitted as a matter of contract in likely tens of thousands of co-publishing and administration agreements):
And certainly it would not be in the interest of any major publisher to agree to extend a below-market mechanical royalty rate to the competitors of its sister record company.[7]
While the thought experiment and speculation sound innocuous, consider what is being said here. First, the Majors identify their interest as that of “major publishers”; not all publishers, not all songwriters, but “major publishers.” Then the Majors go on to say that it would not be in the interest of the major publishers to give a “below market” rate to their sister record company’s competitors.
Of course, there is no market rate in the U.S. and essentially never has been; the Judges have the unenviable task of divining a market rate to be made statutory. We would therefore modify the thought experiment to include “below statutory”. Now we are left with the assertion that major publishers use the statutory rate to protect their record company affiliates from competition—not that they fulfill their role as true blue fiduciaries for their songwriters by refusing to grant below-statutory rates (either directly or indirectly), but rather being hard on the competitors of their affiliates. And they are using their market power to impose a rate on the world that they seem to say protects their affiliates. Extending the frozen mechanical rate certainly doesn’t protect their songwriters—the Judges have ample evidence that many songwriters object to the extension. But in the Majors’ own words we now know cui bono, and the benefit goes back to Phonorecords III and likely earlier.
But let us extend the thought experiment a little bit further. Who is an unrelated “competitor” of the three major labels and all their distributed labels, DIY operations like The Orchard, joint ventures and so on and on and on? That must be a pretty small group of true independents who have cobbled together a distribution network for the Subpart B configurations to deal with the logistics of manufacturing, warehousing, shipments, returns, and the like—branch distribution is what makes a major label a major. Perhaps the Majors could provide some examples of these “competitors”? Clearly though, the citation demonstrates that the Judges sensed many years ago the very situation now unfolding on the record in the frozen mechanicals crisis.
C. Comparisons to Largely Unopposed Prior Rulemakings Compare Apples to Oranges: We understand that the Majors claim to have proposed a similar settlement in Phonorecords III resulting in a freeze of the statutory rate for Subpart B configurations, and that the Judges then-adopted that settlement. We also understand that there was little if any formal objection to that freeze in Phonorecords III at least by comparison to the number of objecting commenters in Phonorecords IV. The Judges are now presented with a significant number of objectors who entirely reject the application of the Proposed Settlement to the world in a kind of bootstrapping move. Respectfully, comparing the field in Phonorecords III to Phonorecords IV is comparing apples to oranges and creating a pomegranate.
We also acknowledge the millions of dollars that the NMPA asserts that it spent litigating these rates some fifteen years ago, but this assertion perhaps proves too much. The cost of participating in any of these proceedings is exactly the reason why objecting songwriters understandably rely entirely on the Judges to seek fairness and justice. They cannot afford to participate in these proceedings themselves and trust the Judges to balance all the facts not just the arguments of rich people and corporations.
Not only do the Majors gloss over the songwriters’ objections, but their reasoning is actually fallacious. Because both proceedings are called “Phonorecords” does not make them similar in regard to the frozen mechanicals crisis. The facts on the ground are wildly different between III and IV. Moreover, we hear a subtext in the Major’s argument that if a configuration experiences declining sales, that is a reason for the government to reduce the royalty rate. Aside from a lack of statutory authority, this is also fallacious reasoning because the Majors have produced no evidence that the per-unit price for Subpart B configurations has declined, and if anything, we are informed that the dealer price has increased in the case of vinyl.[8]
We respectfully ask that the Judges consider these flaws in the Majors’ positions and give them their due weight.
D. The Elusive MOU: The Majors tell the Judges that:
The MOU entered into contemporaneously with the Settlement is irrelevant to the Judges’ consideration of the Settlement, and does not call into question the reasonableness of the Settlement.[9]
Respectfully, if the MOU is “irrelevant” to the settlement, why did they bring it up at all? Recall that we previously asked the Judges to question whether the MOU was additional consideration for extending the frozen mechanical rates. While others may have, we did not concern ourselves with whether the MOU was a “sweetheart deal” as we knew nothing about it. Rather our issue was whether the MOU was a quid pro quo of additional consideration for the frozen rates that was enjoyed by a limited group of participants in the settlement but was not enjoyed by strangers to the deal who were still subject to the frozen rate. Indeed, it appears that this is exactly the case. While we appreciate that the Majors have now disclosed the MOU as part of their Reply, nothing in the Majors’ comment ameliorates this fundamental concern.
A significant reason why the concern still exists is language in the now-disclosed MOU that certainly has the ring of a quid pro quo directly related to extending the frozen Subpart B rates in Phonorecords IV:
This MOU4 is a separate, conditional agreement [the quid] that shall not go into effect until [the quo] NMPA, SME, WMG’s affiliate Warner Music Group Corp., and UMG submit a motion to adopt a proposed settlement of the Phonorecords IV Proceeding as to statutory royalty rates and terms for physical phonorecords, permanent downloads, ringtones and music bundles presently addressed in 37 C.F.R. Part 385 Subpart B (the “Subpart B Configurations”), together with (1) certain definitions applicable to Subpart B Configurations presently addressed in 37 C.F.R. § 385.2 and (2) late payment fees under Section 115 for Subpart B Configurations presently addressed in 37 C.F.R. § 385.3, together with certain definitions applicable to such late payment fees presently addressed in 37 C.F.R. § 385.2, for the rate period covered by the Phonorecords IV Proceeding, which the Parties anticipate happening promptly after this MOU4 has been signed by SME, UMG, WMG, RIAA, NMPA, Sony Music Publishing, Universal Music Publishing Group, and Warner Chappell Music, Inc. (the “Initial Signatories”).[10]
To the contrary, a fair reading of the MOU suggests, and may even require, that the consideration for the MOU is tied directly to extending the frozen rates in the Proposed Settlement.
Moreover, we can revisit the authority issue raised above given language in the MOU. Consider the following post-closing condition imposed on the NMPA by the plain terms of the MOU:
It is understood that only the Initial Signatories will sign this MOU4 at the outset, and that NMPA shall use its best efforts to obtain the signatures to this MOU4 by all of the remaining Parties within two (2) weeks thereafter.[11]
If the NMPA had the authority to bind these many publisher “Parties” to the MOU, why would there be a need to impose such a post-closing condition on the NMPA? There may be an explanation for this structure, but it is not obvious to us.
We also find it somewhat unusual that neither the Reply of the Majors nor the now-disclosed MOU reference a dollar figure that is changing hands as far as we can tell. This could be a lot of cash. In the 2009 Billboard article cited by the Majors, the MOU that was the subject of that reporting was valued at “up to $264 million.” [12] However “routine” the MOU process is, a $264 million payment in a “pennies business” is not routine. We would appreciate a further disclosure of the amount at issue in the current MOU. As they say, it is evidently not a secret.
Respectfully, it does not appear that one can completely exclude the relevance of the MOU as consideration for extending the freeze on Subpart B royalties at least on the face of the documents provided. As strangers to the deal do not have the opportunity to subject these assertions to the crucible of cross-examination, we hope the Judges can welcome the reliance on them of those who cannot afford to participate in this proceeding.
II. Conclusion
In conclusion, we respectfully ask the Judges to consider the foregoing comments along with the many heartfelt and well-reasoned comments by others in Phonorecords IV. Unfortunately, as is too often the case in the music business, we think that the sum and substance of the Majors’ argument is that “we are the wealthy and therefore we win.”
We do not have to remind the Judges that this is the antithesis of our Constitutional system of government.
Respectfully submitted.
Christian L. Castle
Gwendolyn Seale
[1]Comments in Further Support of the Settlement of Statutory Royalty Rates and Terms for Subpart B Configurations, Docket No. 21–CRB– 0001–PR (2023–2027) (August 10, 2021)(Reply).
[2]Motion to Adopt Settlement of Statutory Royalty Rates and Terms for Subpart B Configurations, Docket No. 21–CRB– 0001–PR (2023–2027) (May 25, 2021) (Proposed Settlement).
The Trichordist 
You must be logged in to post a comment.