#FrozenMechanicals Take 2: @sealeinthedeal Finds Some Facts on the NMPA Tax Return and MOU FAQ

[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 Return
NMPA 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.

  1. 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

licensing processes and late fee waivers.[2]

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 unless a 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.

Gwendolyn Seale

November 22, 2021


[1]Prior Comment, available at https://app.crb.gov/document/download/25534.

[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).

[3] Memorandum of Understanding 2 at 1.

[4] Memorandum of Understanding 3 at 2-3.

[5] This analysis is further exhibited by the content in this article, which provides a recap of the 99th NMPA annual meeting: https://www.musicweek.com/publishing/read/us-publishers-push-for-music-industry-unity-at-nmpa-agm/065029.

[6] FAQ 8, available at http://www.nmpalatefeesettlement.com/mou3/faq.php; FAQ 3, available at https://www.nmpa.org/boardmembers/faqs/.

[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).

[8] Id.

[9] Id. 

[10]Publishing Briefs: NMPA Late Fee Site, Melvin Brown, Peermusic, BILLBOARD (Jan. 8, 2010), available at https://www.billboard.com/music/music-news/publishing-briefs-nmpa-late-fee-site-melvin-brown-peermusic-1213394/

[11] See supra note 6.

[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.

#FrozenMechanicals Take 2: Comment of Professor @KCEsq to the Copyright Royalty Board

[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

cc: Ms. Carla Hayden, US Librarian of Congress 

Ms. Shira Perlmutter, US Register of Copyrights 


[1] Available at https://tarzaneconomics.com/undercurrents/copyright-2021

[2] SEUSS. (1971). The Lorax. MLA (7th ed.) Seuss, . The Lorax. , 1971. Print.

[3] (Phonorecords IV) (Docket No. 21–CRB–0001–PR (2023–2027)).

[4] Available at https://app.crb.gov/document/download/25288

[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.

[6] A summary of historical mechanical royalty rates is available from the U.S. Copyright Office at https://www.copyright.gov/licensing/m200a.pdf

[7] Docket No. 16-CBR-0003-PR (2018-2022) (Phonorecords III).

[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).  

[9] https://www.officialdata.org/Rent-of-primary-residence/price-inflation/2006-to-2021?amount=1000

[10] https://www.in2013dollars.com/Milk/price-inflation/2006-to-2021?amount=4

[11] RIAA year-end revenue statistics. https://www.riaa.com/wp-content/uploads/2021/02/2020-Year-End-Music-Industry-Revenue-Report.pdf

[12] MRC 202 Year End Report. https://static.billboard.com/files/2021/01/MRC_Billboard_YEAR_END_2020_US-Final201.8.21-1610124809.pdf

[13] Id.

[14] American Institute for Economic Research. https://www.aier.org/cost-of-living-calculator/

[15] U.S. Bureau of Labor Statistics Consumer Price Index https://www.officialdata.org/articles/consumer-price-index-since-1913/

[16] Abby North, North Music Group Letter to Congress on Frozen Mechanicals and the Copyright Royalty Board, The Trichordist (May 24, 2021) available at https://thetrichordist.com/2021/05/24/northmusicgroup-letter-to-congress-on-frozen-mechanicals-and-the-copyright-royalty-board/

#FrozenMechanicals Take 2: Chelsea Crowell, Erin McAnally, and Abby North Comments to CRB

[Trichordist says: The Copyright Royalty Board reopened the comments on frozen mechanical song royalties in Phonorecords IV rate setting and the filings are coming in, especially from songwriters! We will be posting the comments (or excerpts from the long ones. First up is a straight from the heart contribution from Chelsea Crowell, Erin McAnally and Abby North.]

Copyright Royalty Board 37 CFR Part 385
[Docket No. 21–CRB–0001–PR (2023–2027)]
Determination of Rates and Terms for Making and Distributing Phonorecords (Phonorecords IV)

Interim Chief Copyright Royalty Judge Suzanne Barnett
Copyright Royalty Judge Steven Ruwe
Copyright Royalty Judge David R. Strickler
US Copyright Royalty Board
101 Independence Ave SE
Washington, DC 20024

SECOND REOPENING PERIOD COMMENTS OF ABBY NORTH, ERIN MCANALLY
AND CHELSEA CROWELL

To Your Honors:

Thank you for the opportunity to submit additional comments, now that the details of the
Memorandum of Understanding (MOU4) apparently related to the Subpart B mechanical rate
settlement negotiated by the NMPA, NSAI and three major labels have been made available.

Only the NMPA’s 300 or so publishers are potential parties to the MOU, assuming the opt in
terms are the same as those of MOU3 (http://nmpalatefeesettlement.com/mou3/faq.php). The
publishers that opt in to the MOU4 settlement will receive money for their participation, and in
exchange for this money, the NMPA Board members have agreed to freeze the Subpart B
mechanical rate at the $.091 rate that’s been in place since 2006.

In this exchange, NMPA publishers have a stream of revenue (the MOU4 money) that offsets the
negative effect of the lack of rate increase in the Subpart B mechanical.

Although foreign CMOs could opt into the current MOU3 settlement, rightsholders that are not
NMPA members may not opt in and will not receive the buffer that the MOU4 money provides,
yet they are subject to the frozen mechanical rate that is an apparent condition of the negotiation
related to the proposed settlement of the Subpart B rates and terms.

Thousands, if not tens of thousands of songwriters in the world have songs published or
administered by those NMPA publishers that are party to the rate freeze settlement, but neither
these songwriters nor the vast number of songwriters around the globe were given a say in the
decision to freeze the mechanical rate.

The concern we have is not that there is a settlement. The concern is that the settlement does not
provide for a base rate greater than $.091, plus annual increases to adjust for inflation.

To quote the NMPA’s Supplemental Comments: “…mechanical royalties from Subpart B
configurations now constitute only a small part of total mechanical royalty revenue in the U.S.,
and that share is expected to get smaller during the period covered by this proceeding.”

That concept only resonates with a corporation that aggregates thousands or millions of
copyrights.

To an individual songwriter or a small rightsholder, it doesn’t matter if Subpart B mechanicals
constitute 1% or 15% or 50% of total royalties. Why? Because every single penny counts.

When an individual is paying a mortgage, tuition or a car payment, every single penny counts.
When a health crisis occurs, every penny counts. When existing off the very low streaming
royalties generated by even a hit song, every penny counts.

Physical and download mechanicals are still an extremely relevant revenue stream to individual
songwriters and small publishers.

At the current retail price of $.99 for a download, the $.091 mechanical is 9.2%.

The streaming royalty pool for songs is roughly 10.5% of the total, possibly as much as 15.1%,
per the CRB III hearing results (after all this time, still under appeal). The NMPA has suggested
an increase of the streaming royalty rate to 20%. This would be an exceptional improvement.

How is the download royalty not at least the same percentage as the streaming royalty?

Why is the value of a downloaded song less than that of one that is streamed?

We suggest the Subpart B rate and the streaming mechanical rate (based on percentage) should
be on no less than a most favored nations basis with one another.

To songwriters and most publishers, every royalty type and every revenue stream matters. The
move from physical to digital, the unbundling of albums in favor of singles and the unlivable
streaming royalty rates absolutely substantiate the need for an increase in Subpart B mechanicals,
at least to reach the percentage paid on the streaming side, and with periodic adjustment for
inflation. 3

We appreciate the opportunity to submit these additional comments, and we ask the Judges to
recognize that songwriters and small publishers are individuals who do not have the luxury of
collecting royalties from the aggregation of hundreds of thousands of works.

It is not fair that songwriters signed to the NMPA publishers have a frozen mechanical rate
forced on them, and it is remarkably egregious that non-NMPA publishers and their writers are
also forced into this horrible reality.

Respectfully,

Abby North, North Music Group LLC
Chelsea Crowell, Songwriter
Erin McAnally, Songwriter/Factory of Strange Tones

Don’t Forget: CRB Comments Due Monday on Frozen Mechanicals

If you were wondering why your mechanical royalty is still 9.1¢ on vinyl and downloads, it’s because the rate was set by the government through an agency called the Copyright Royalty Board.  As it turns out, the Copyright Royalty Board is currently deciding what your mechanical royalty should be for 2023-2027 on physical and downloads. 

You probably noticed that your mechanical hasn’t increased since 2006–nearly a generation of songwriters have grown up with that frozen rate. (For more background on this, read Chris’s post on frozen mechanicals and controlled compositions.) 

The NMPA, NSAI and the major labels are trying to get the Copyright Royalty Board to extend the freeze another five years with not even an inflation increase. (For more background on frozen mechanicals, The Trichordist has a bunch of posts about it.)

The public does get to comment on these rates. The frozen rates are so bad that the comments were all opposed to the proposed settlement. The comments were so negative that the Copyright Royalty Board took the unprecedented step of re-opening the public comments.

That reopened comment period ends on Monday, November 22. You still have time to comment so make sure you set up your commenter account with the Copyright Royalty Board.  Chris has a good post on MusicTech.Solutions that explains how to get your account.

Your comments matter! The Copyright Royalty Board has to take into account the public’s participation in the rules they make and nobody has ever objected to the frozen mechanical rate before (mostly because nobody knew it was happening back in Washington, DC). And here we are 15 years later.

@theblakemorgan: American middle-class musicians are worth fighting for #IRespectMusic–Artist Rights Watch

[Editor Charlie sez: Our friend and supporter Blake Morgan has an important opinion post on the bi-partisan American Music Fairness Act (AMFA) in The Hill, a long-time and influential DC insider journal. Blake tells the human story of why artists need the AMFA legislation and the #IRespectMusic campaign.]

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Rep. Ted Deutch and Blake Morgan

We musicians are used to fighting. For our livelihoods, our families, our dreams. In recent years we’ve fought battles we’ve neither sought nor provoked, against powerful corporate forces devaluing music’s worth. Streaming companies, music pirates, and AM/FM radio broadcasters who, in the United States, pay nothing––zero––to artists for radio airplay.

It’s shocking, but true: The United States is the only democratic country in the world where artists don’t get paid for radio airplay. Only Iran, North Korea, and China stand with the United States in this regard. ADVERTISEMENT

Broadcasters make billions of dollars each year off our music, and artists don’t earn a penny. This impacts not only the artist, but session musicians, recording engineers, songwriters. Virtually everyone in music’s economy. 

Isn’t being paid fairly for one’s work a bedrock American value?

Read Blake’s post on The Hill and sign the #IRespectMusic campaign and tell Congress you want fairness for artists!

Please take our Songwriter MLC Awareness Survey–Artist Rights Watch

Please take a few minutes (4 or so) to help us understand how the Mechanical Licensing Collective and the Copyright Office is doing getting the word out about signing up with the MLC and getting paid royalties (including your share of the $424 million black box/unmatched payment that has been sitting at MLC for months).

Your response are anonymous and we’ll post the results when we get a threshold number of responses. We’d really appreciate your help!

To take the survey on Survey Monkey, click here.

Isn’t this a crime? @silvermanjacob: Inside Jedi Blue, Facebook’s Shady Deal With Google–ArtistRightsWatch

As a torrent of bad press consumes Facebook — or whatever the company may soon be renamed — it’s worth remembering that to become an industry-dominating social-media Goliath, sometimes you need a little help from your friends. Perhaps they’re better described as co-conspirators.

Over the past year, a series of court filings by 15 state attorneys general have exposed what amounts to secret collusion between Google and Facebook to rig the online ad market in their favor and to keep out competitors. Details keep percolating up — last week, a New York judge unsealed yet more documents shining light on the arrangement — but we’ve already learned a great deal, revealing just how far two tech giants will go to preserve their lucrative hold over online advertising. (A Google spokesperson said the claims in the suit are “baseless” and riddled with inaccuracies.”)

Read the post on New York Magazine

A Potential Solution in Phono IV To the Streaming Services’ “Lowest In History” Rate Proposals : Withdrawing The Settlement To Freeze

By Gwendolyn Seale

Last week, participants in Phonorecords IV filed the public versions of their written direct statements with the Copyright Royalty Board (CRB) – and since, countless articles have surfaced from the major music media outlets with headlines reading, “Streaming Services Propose Lowest Rates in History for Songwriters”(see here: https://www.musicbusinessworldwide.com/spotify-and-other-streaming-services-propose-lowest-royalty-rates-in-history-for-songwriters/) and tuneful soundbites equating this proceeding to a “war” (Id). 

It is absolutely accurate that the streaming services are pushing for abysmal rates and terms in Phono IV. Some services like Amazon, Pandora and Spotify actually advocate to a return of the rates and terms from prior rate setting “wars” in Phono I (2006) and II (2011).   Others, like Apple, suggest applying the rates and terms that are determined by the CRB in Phono III – which, mind you, covers 2018-22, and is being litigated simultaneously despite 2022 commencing in two months – because what an awesome system is this Copyright Royalty Board! Nevertheless, there is something that has been conveniently omitted from each of these media articles: “the why.” Why are the services proposing the “lowest rates in history?” What justification do the services provide for their positions? Unfortunately, the answer is not as simple as the streaming services playing the role of “the villains” in the “war” for songwriters’ livelihoods.

When you download the hundreds of pages of the services’ written direct testimony from the CRB, and wade through the arguments in the mire of heavily redacted passages, there is a surprising common theme used to bolster every last one of their positions: the proposed settlement by the NMPA, NSAI and the three major labels to freeze rates for physical product like vinyl and permanent downloads (the Subpart B configurations) (see here: https://app.crb.gov/document/download/25288).

Simply put, every service used the NMPA and NSAI proposed settlement for physical as a benchmark to support their abysmal rates on streamingSurprised? Me, too. But for reference I’ve included some excerpts from the services’ filings at the end of this post. 

For those in need of catching up to this point, The Trichordist has chronicled this proposed settlement and the reactions thereto (i.e. “the Frozen Mechanicals Crisis” see here: https://thetrichordist.com/category/frozen-mechanicals/ ).  Songwriters, music publishers, and songwriter advocates penned articles for The Trichordist and some wrote comments to the CRB objecting strongly to the NMPA and NSAI settlement.  Some also wrote their representatives in Congress, expressing their dismay over this important revenue stream being frozen yet again for another five years due to a private settlement between “willing buyers” and “willing sellers” who are one and the same person at the corporate level. What’s more, Texas Congressman Lloyd Doggett submitted a letter to the Librarian of Congress and the Register of Copyrights inquiring about the matter (see here: https://thetrichordist.com/2021/07/18/letter-from-congressman-lloyd-doggett-about-frozen-mechanicals-to-librarian-of-congress-and-register-of-copyrights/).

Now that it is crystal clear the proposed settlement is being seized upon by the services as a way to benchmark and justify their lower-than-ever rate proposals (also called “hoist with your own petard”), it is time for the highly paid representatives of the copyright owners in this proceeding to truly rethink their strategies. This result was predictable – as I mentioned in my last post here: https://thetrichordist.com/2021/06/25/guest-post-by-sealeinthedeal-a-foreseeable-result-of-the-phonorecords-iv-private-settlement-opening-pandoras-box/ , “[i]t did not take a soothsayer to foresee this result; the private settlement opened Pandora’s box – begetting misery for every songwriter.” 

More disturbing, they should have seen this coming a long way off because they got called out for doing essentially the same thing in Phonorecords III.  For context, when there was a lull in the pace of Phono IV, I began delving through the filings in the Phono III remand. Much to my unsurprise, an expert witness for Pandora in that proceeding, Professor Michael Katz, foreshadowed the current debacle. Not only did he use the physical settlement to make the case that the streaming mechanicals rate in the 2012 settlement was a ’good benchmark,’ but also, even more disastrously, used this argument to rationalize the 2012 rate being too high in testimony filed on April 4, 2021. Chris Castle referred to this issue as the “Streaming Royalty Backfire: 

“If you want to argue that there is an inherent value in songs as I do, I don’t think freezing any rates for 20 years gets you there.  [Physical mechanical rates were first frozen at 9.1¢ in 2006.] Because there is no logical explanation for why the industry negotiators freeze the rates at 9.1¢ for another five years, the entire process for setting streaming mechanical rates starts to look transactional.  In the transactional model, increased streaming mechanicals is ultimately justified by who is paying.  When the labels are paying, they want the rate frozen, so why wouldn’t the services use the same argument on the streaming rates, gooses and ganders being what they are?  If a song has inherent value—which I firmly believe—it has that value for everyone. Given the billions that are being made from music, songwriters deserve a bigger piece of that cash and an equal say about how it is divided.”

Chris Castle

The proposed settlement did not just open Pandora’s Box, it also opened Spotify’s, Google’s, Amazon’s and Apple’s boxes (don’t mind me, I’m Greek and enjoy every opportunity to make mythology references). So, when posed with the question, “why advocate for this settlement to freeze,” even following the filings of the services, the NMPA’s David Israelite provides the following commentary (heard most recently during last Wednesday’s Town Hall via zoom):

 (1) he refers to folks who articulate this concern as professional critics who like to blog from their couches, and that there’s a lot of misinformation going around;

 (2) the NMPA has previously (as far back as Phono I) tried to press for an increase to no avail after spending millions of dollars; and 

(3) the NMPA wishes to focus efforts on the streaming services as they do not wish to fight multiple fights at once and potentially risk the labels proposing an even lower than 9.1 cent rate. 

To respond to this commentary  — first, it is difficult to believe the major labels would propose a lower than 9.1¢ rate if the publisher negotiators did not cave if for no other reason that the willing buyer and the willing seller standard ought to work the other way, too.  However, if anyone has evidence to support this “labels will screw us” rationale, please reach out to me and I will immediately withdraw that premise. Notwithstanding, even in the hypothetical event that the labels counter with a lower than 9.1 cent rate, is it not the job of the prime representative of the “copyright owners” at the NMPA and NSAI to firmly state that this rate has been frozen for nearly 20 years and no longer will “we” (including their sister publishers) stand by this? In response to the other two points, I understand that I have spent no money in these proceedings and that I do not have the resources to do much more than write about this from the couch in my apartment in Austin, Texas. But, for what it is worth, I believe that an important part of advocacy is being open to critique, listening and learning – even if it is something that you do not wish to hear. 

Speaking of, the buried lede is that the CRB has reopened the public comments on the proposed settlement to freeze physical mechanicals – the CRJs are at least willing to listen and learn. Maybe they don’t think we’re couch commenters.

Now, I do not believe in presenting a laundry-list of problems without proffering potential solutions, and luckily, there is a solution that is entirely within the control of the parties that settled: withdraw the proposed settlement to freeze the mechanical rates for Subpart B configurations. Go to the labels and negotiate a voluntary increase. Submit that increase proposal to the CRB. This act will not only bring the entire songwriter and music publisher communities together, but it will also serve to extinguish one of the services’ key benchmarks in their testimony.

While we’re on the topic of strategies, I want to end on one note. Now is not the time to pit what artists are earning from digital radio in relation to what songwriters are earning ( see here: https://variety.com/2021/digital/opinion/digital-radio-guest-column-david-israelite-nmpa-1235092330/ ). One of the great things about working with songwriters in Texas happens to be that many are also recording and performing songwriter/artists. Thus, they value the rates from digital radio that are applied to recording artists, and they welcome the victory achieved by SoundExchange in Web V (which resulted in a rate increase plus index of rates in accordance with inflation — which seems wiser by the day and winter is coming). 

Instead, it is time for the focus to be on achieving the best possible results in Phono IV by expanding the revenue stream, not taking money from others which only benefits the services. 

THE RECEIPTS: Petard-Hoisting Excerpts from the Services’ Testimony

(Note: PDD = “permanent digital downloads,” and WBWS = the “willing buyer willing seller” standard which the Copyright Royalty Judges (CRJs) are to use as the basis for determining rates in this proceeding, pursuant to the Music Modernization Act.)

AMAZON

PANDORA:

APPLE:

GOOGLE:

SPOTIFY:

Copyright Royalty Board Reopens Public Comments in Controversial #FrozenMechanicals Hearings

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.

And then something strange happened as we reported on August 16 with a copy of the brief joined by Austin music lawyer Gwendolyn Seale:

[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.

Why Songwriters Should Care About Inflation Protection for Mechanical Licenses

[This post first appeared on MusicTech.Solutions]

By Chris Castle

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:

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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.

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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.

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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.)

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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.

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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.



Personal Consumption Expenditure Index (US Govt. Bureau of Economic Analysis)

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.

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“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.

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For perspective, here’s a five-year look at PCE and at PCE excluding food and energy:

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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.

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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:

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You see the trend here. Inflation has sharply increased. Consider the last twelve months–inflation has more than quadrupled.

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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.’ “

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And CBS news confirms the data:

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.

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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.

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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.

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Same story for natural gas and heating oil.

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Gasoline

If you’re planning a ground tour, keep an eye on the price of gasoline, also up and to the right.

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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.

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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.

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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.