The Coming COLA Adjustment for Mechanical Royalties on Physical and Downloads

By Chris Castle

We’re about to experience an historical event—the U.S. government’s statutory mechanical rate for physical and permanent downloads will increase twice in 12 months.  This is because the record companies agreed in “Phonorecords IV” to raise the statutory mechanical rate from 9.1¢ to 12¢ for physical and permanent downloads (with corresponding long-song royalties) effective January 1, 2023.

This is quite a change from the frozen rate that lasted for 17 years.  Not only did the labels agree to increase the rate to 12¢, they agreed to index that increased rate to inflation annually starting in 2024.

Indexing requires increasing the 12¢ rate to current inflation based on a “COLA” or “cost of living adjustment” by applying an uplift formula to the 12¢ rate.  That formula itself is a function of the Bureau of Labor Statistics Consumer Price Index which itself comes in a number of varieties. A common version of CPI that the record companies agreed to is the “Consumer Price Index for All Urban Consumers (U.S. City Average, all items),” or “CPI-U.”   The CPI-U is weighted toward the cost of living for urban consumers.  (Compare CPI-U to the “CPI-W” or Consumer Price Index for Urban Wage Earners and Clerical Workers which is used by Social Security, for example.)

We have experienced a time of high inflation for the last few years and given the indicators, we are likely to continue to suffer with inflation for years to come.  So the labels’ agreement to a COLA protects the purchasing power of the hard-won mechanical royalty for physical and downloads and may end up being a critical deal point over the 5 year rate period covered by Phonorecords IV.

The statutory basis for the COLA is found in 37 CFR §385.11(a)(2):

Annual rate adjustment. The Copyright Royalty Judges shall adjust the royalty rates in paragraph (a)(1) of this section each year to reflect any changes occurring in the cost of living as determined by the most recent Consumer Price Index for All Urban Consumers (U.S. City Average, all items) (CPI–U) published by the Secretary of Labor before December 1 of the preceding year. The calculation of the rate for each year shall be cumulative based on a calculation of the percentage increase in the CPI–U from the CPI–U published in November, 2022 (the Base Rate) and shall be made according to the following formulas: for the per-work rate, (1 + (Cy−Base Rate)/Base Rate) × 12¢, rounded to the nearest tenth of a cent; for the per-minute rate, (1 + (Cy−Base Rate)/Base Rate) × 2.31¢, rounded to the nearest hundredth of a cent; where Cy is the CPI–U published by the Secretary of Labor before December 1 of the preceding year. The Judges shall publish notice of the adjusted fees in the Federal Register at least 25 days before January 1. The adjusted fees shall be effective on January 1.

One must have the published CPI-U in order to make the COLA calculation.  The CPI is published by Bureau of Labor Statistics (technically “by the Secretary of Labor”) on a regularly published schedule.  If the regulations require that the relevant CPI-U must be published before December 1, that will be the CPI-U for October to be published next week on November 14 because the CPI-U for November won’t be published until December 12 (which of course is after December 1).

According to the Cleveland Federal Reserve, month over month inflation for November is projected to be pretty much the same as October.  So based on the Phonorecords IV Subpart B formula, the minimum statutory rate will likely increase from 12¢ to approximately 12.41¢ starting January 1.

Keep an eye out for the October CPI-U next week when it is announced by BLS at 8:30am ET on November 14.  The Copyright Royalty Board is to publish the new COLA-adjusted mechanical rate in the Federal Register, on or about December 8.  And remember that the same calculation with then-current CPI-U will apply in December 2024, 2025, 2026 and 2027.

Remember, this COLA rate increase only applies to physical and permanent download configurations, not to streaming.  This is because the services refused to engage on the topic.  There’s really no good explanation for why the streaming services refused to give a COLA.  A COLA really should be mandatory given that the government essentially takes away the songwriters’ ability to bargain for their inflation expectations during a five year rate period.

by thetrichordist

Sy Damle Strikes Again

[This post first appeared on MusicTechPolicy referenced by David in his post below from X]

Remember the millions of flawed “address unknown” NOIs that the Copyright Office allowed to be filed by the largest corporations in commercial history, including Google, because they were unable to locate the copyright owners? Aside from the sheer hilarity of the statement “Google can’t find [X]” it is almost certain that the absence of the line of researchers at the Copyright Office at the time suggests that the big tech companies never really did all the research and were allowed to file false statements with the government. Any guesses as to which Copyright Office lawyer was principally involved in allowing them to get away with that massive charade to the tune of approximately 100,000,000 notices? (See my article from the ABA Entertainment & Sports Lawyer.). That might be the one who left the Copyright Office for the riches of private practice shortly after the incident. Mr. Damle also has pretty consistently represented the Digital Licensee Coordinator. More on that later.

Another fake enterprise seems to have been uncovered by Politico this week, this time apparently in what I think is Mr. Damle’s latest assault on creators, his fascination with Open AI. As Politico reports:

The message in the open letter sent to Congress on Sept. 11 was clear: Don’t put new copyright regulations on artificial intelligence systems.

The letter’s signatories were real players, a broad coalition of think tanks, professors and civil-society groups with a stake in the growing debate about AI and copyright in Washington.

Undisclosed, however, were the fingerprints of Sy Damle, a tech-friendly Washington lawyer and former government official who works for top firms in the industry — including OpenAI, one of the top developers of cutting-edge AI models. Damle is currently representing OpenAI in ongoing copyright lawsuits.

Damle did not sign the letter, and did not reply to multiple attempts to contact him with questions about his involvement. But data contained in a publicly posted PDF of the letter show the document was authored by “SDamle,” and three signatories confirmed to POLITICO that Damle was involved in its drafting and circulation. Two of them said they were first made aware of the letter by Damle, and signed it at his invitation.

The letter’s covert origin offers a window into the deep and often invisible reach of Big Tech influence in the Washington debate over AI — a fast-moving part of the policy landscape where Congress is hungry for outside advice, and which is still new enough to create strange political bedfellows. Signatories included the American Library Association, the progressive nonprofit Public Knowledge and the free-market R Street Institute. 

Oh my. This bears all the hallmarks of Google policy washing, while the company is at the same time engaging in a charade with artists through the YouTube AI Music Incubator. And as usual, Mr. Damle is only too happy to accommodate.

Oh snap. It’s Tuesday.

by Trichordist

Fakery Abounds: DLC Lawyer Caught

Read up on MusicTechPolicy. Remember the “DLC” is the Digital Licensee Coordinator who represents the services against songwriters and pays for the MLC. Talk about your interlocking boards!

by thetrichordist

@modernistwitch on @songtradr’s Bandcamp Layoff Tragedy

by thetrichordist

BMI’s Happy Talk Campaign Has Failed

By Chris Castle

According to Billboard, Complete Music Update, and the awesome MusicAlly, nobody appears to be buying what they’re selling over to the BMI. For what seems like the second time in less than 30 days, Artist Rights Alliance, Black Music Action Coalition, Music Artists Coalition, SAG-AFTRA and Songwriters of North America rejected the hummina, hummina, hummina happy talk from BMI’s comms shop which comes out to trickle down mixed with a rising tide.

It’s really a shame because it would have been so easy to provide concrete answers if for no other reason than SAG-AFTRA is on a war footing already and is likely not going to back down. And with SAG-AFTRA comes the AFL-CIO which for BMI’s benefit are unions, see, unions that have been down this path before and are…oh, yes…on strike right now. How close are we to signs like this showing up outside of BMI HQ in New York? It’s OK, Larry and Sergey didn’t think they’d get one, either. Thank goodness we have the smart people to guide us. But BMI should look closely at this picture of a Google labor action and think about what they’d do if it happened to them.

When the CEO is trying to sell the company, in a very real sense they are auditioning for continued employment. Do you think this helps or hurts? Friends don’t let friends become a closing condition.

[This post first appeared on MusicTechPolicy]

by thetrichordist

The Videogame Industry is Larger Than Film and TV Combined, Why Aren’t They Paying Musicians Fairly?

The videogame industry is larger than the film and tv industries, combined. Despite this, most if not all of the composers creating original videogame music are not paid the same as they would be doing the same work for films and tv shows. Here’s why.

Composers who create the music for your favorite films and tv shows are paid a fee which generally covers the actual hard costs of writing, producing and recording the music for that show. Most of the time that fee doesn’t leave a lot for the composer to live on after the hard costs listed above. However, film and tv composers also typically receive a royalty in the form of an additional payment when the film or show is broadcast or streamed.

This is called a public performance royalty. In most countries the composers are also paid in the same manner for theatrical exhibition (the United States is one of the few countries that does not pay this).

In addition to the public performance royalty most countries also pay a mechanical reproduction royalty. Both of these royalties may vary slightly from territory to territory but both are long established norms for the composer as the songwriter, and hence the creator of the copyright of the original music.

It is these royalties that have long been established as an essential form of compensation that allows composers to actually make a living. Videogame Composers however do not receive these long established payments that their film and tv composer counterparts receive.

To be fair to the videogame industry the early distribution methods of games and gameplay operated in a very different manner than that of film & tv. Even in the 90s for example, games were still distributed on cartridges and music was written for the hardware chipset of each console (or standard pc soundcard).

Since that time the videogame industry has evolved significantly with emerging technologies bringing the gameplay closer to traditional media in user experience and workflow. In fact the videogame industry has grown so large, that its annual revenues now exceed those of the film & tv industries combined. Unfortunately for videogame composers, they are still being compensated under a business model that is half a century old, where music was played by a chipset, not a live orchestra (and the commercial internet was in its infancy).

Game composers are now working under many of the same requirements and expectations as film and tv composers, delivering massively epic scores recorded at major studios with large classical orchestras. In fact, the process of writing music for videogames is a larger and more complex process and requires writing much, much more music due to the scale of the games.

The distribution methods of games has changed as well with many now streamisng in real-time multiplayer modes across a range of consoles, computers, phones and tablets. Some streaming games are free to play, but generate billions of dollars from in-game purchases. Videogame Composers do not participate in any of these revenues created by the new distribution technologies (both downloads or streaming).

The current labor strikes in Hollywood by Writers and Actors highlight and underscore the changing economic realities for creatives presented by these new distribution technologies such as streaming media. A similar situation affects the videogame industry who are transitioning from physical transactional sales to various types of streaming models. Streaming equals broadcast. Broadcast requires both public performance and mechanical reproduction royalties (although these may differ slightly from territory to territory). Streaming is not a transactional model. Streaming is a real-time broadcast and delivery of the media. This is not controversial. Even audio only interactive music streaming services are also bound by these same long established standards and norms.

There is talk of SAG (the Screen Actors Guild) extending the reach of their strike from traditional linear media to video game production. It should be noted that film & tv composers are barred from unionizing and have no collective bargaining power. It is against this backdrop that Videogame Composers recognize their need to advocate for the same royalties that have been long established by traditional media which are currently being reevaluated and updated for the streaming era.

In conclusion, now is the time for this fundamental and long overdue misaligned inequity to be addressed and resolved. A healthy industry is one the invests in itself, its talent and its next generation of creatives who will continue to ensure the growth of the business.

by Trichordist Editor

Press Release: Rep. @DeboarahRossNC Introduces Protect Working Musicians Act of 2023 #IRespectMusic

Rep. @DeborahRossNC Introduces Protect Working Musicians Act of 2023 #IRespectMusic

September 19, 2023

Today, Congresswoman Deborah Ross (NC-02) introduced the Protect Working Musicians Act of 2023. This legislation will give small independent artists and music creators the power to collectively negotiate with both streaming platforms and generative artificial intelligence (AI) developers for fair compensation.

Under current laws, small and independent musicians have little ability to bargain for market value rates for the use of their music by global streaming platforms, such as Spotify and Apple Music. Instead, they are forced to accept whatever terms are offered by these platforms, while also having almost no ability to engage with AI companies who routinely scrape and use their music without permission or consent. This legislation allows independent artists to band together and collectively negotiate with large streaming platforms and AI developers, without the obstacles of antitrust laws. 

“North Carolina has long been home to outstanding artists and a vibrant music scene that plays a vital role in our state’s culture and economy,” said Congresswoman Ross. “Working musicians and small independent labels face urgent challenges to their livelihoods posed by the market power of streaming platforms as well as the explosion of AI applications that use their work without licensing or pay. This legislation will help give small, independent music creators a level playing field, empowering them to stand together for fairer compensation and giving them a voice in important negotiations that will determine the future of the music industry.” 

The Protect Working Musicians Act is endorsed by the American Association of Independent Music (A2IM) and the Artist Rights Alliance (ARA).

“Musicians today are fighting for fair treatment on so many fronts, including both in the online streaming marketplace and against the growing threat posed by AI companies who exploit creators’ work without permission,” said Jen Jacobsen, ARA Executive Director. “The ‘Protect Working Musicians Act’ will give small and independent artists a shot at facing these challenges by allowing them to negotiate collectively with the large and powerful entities who profit from musicians’ hard work. We thank Rep. Ross for her leadership in empowering creators with tools to navigate this ever-changing market.”

“Thank you, Rep. Deborah Ross, for championing the rights of artists through the introduction of the Protect Working Musicians Act,” said Dr. Richard James Burgess MBE, President & CEO of A2IM. “The PWMA would help level the playing field for indie artists who struggle to make a living from the mega corporations that control the streaming marketplace.” 

“I’m so grateful to my fellow North Carolinian Deborah Ross for fighting for independent music and the future of creativity,” said singer-songwriter Tift Merritt, Co-Chair of the Artist Rights Alliance. “Artists, songwriters, and independent labels have never needed each other more, and this legislation will ensure our voices are heard and we receive fair pay for our work.” 

“The Protect Working Musicians Act is a necessary tool for independent artists and labels to compete in today’s marketplace and receive fair compensation for their work from streaming platforms and AI companies,” said ARA Co-Founder John McCrea of CAKE. “It is amazing that it even needs to be said, but people who make things have a fundamental right to negotiate with the giants who use and distribute their work.” 

“We at Merge would like to thank Congresswoman Ross for endorsing the North Carolina music scene as the strong cultural and economic force it is and taking this step to make sure we can compete and succeed in the digital world,” said Laura Ballance, Co-Founder, Merge Records and member of the band Superchunk.

The bill text is available here. 

by Trichordist Editor