#FrozenMechanicals Crisis: Comments to CRB by Twelve International Songwriter Groups Opposing Frozen Mechanicals Part 1

[We’re going to break this excellent CRB comment into two parts, so check back tomorrow for Part 2. You can find the whole post on MusicTechPolicy]

[Editor Charlie sez: This post demonstrates that no single songwriter group–including NSAI–speaks for every songwriter in the world and that songwriters around the world do not want their incomes smashed. So that’s a bit of a pickle.]

COPYRIGHT ROYALTY BOARD (CRB)

In re DOCKET NO. 21-CRB-0001-PR-(2023-2027)

Making and Distributing Phonorecords (Phonorecords IV)

Notice of Proposed Rulemaking re: 37 C.F.R. Part 385 Subpart B

Comments Submitted by the Songwriters Guild of America, Inc.,  the Society of Composers & Lyricists, Music Creators North America, and the individual music creators Rick Carnes and Ashley Irwin

These Comments Are Endorsed by the Following Music Creator Organizations:

Alliance for Women Film Composers (AWFC). https://theawfc.com

Alliance of Latin American Composers & Authors (AlcaMusica) https://www.alcamusica.org

Asia-Pacific Music Creators Alliance (APMA), https://apmaciam.wixsite.com/home/news

European Composers and Songwriters Alliance (ECSA), https://composeralliance.org

The Ivors Academy (IVORS), https://ivorsacademy.com 

Music Answers (M.A.), https://www.musicanswers.org

Pan-African Composers and Songwriters Alliance (PACSA), http://www.pacsa.org

Screen Composers Guild of Canada (SCGC), https://screencomposers.ca

Songwriters Association of Canada (SAC), http://www.songwriters.ca

I. Introduction

The following Comments are respectfully submitted by the signatory organizations Songwriters Guild of America, Inc. (“SGA”),[1] Society of Composers & Lyricists (“SCL”),[2] and Music Creators North America (“MCNA”),[3] and by the individuals Rick Carnes[4] and Ashley Irwin[5] (the parties sometimes collectively referred to herein as the “Independent Music Creators”).  These Comments have also been endorsed by the national and international music creator groups additionally listed above.  Together, these commenters and endorsers advocate for and represent the interests of hundreds of thousands of independent songwriters, composers and lyricists in the United States (US) and throughout the world.  

The Independent Music Creators speak today (i) in strong opposition to any rulemaking that would result in the adoption by the CRB of a proposed, continuing freeze on mechanical royalty rates for physical phonorecords, permanent downloads, ringtones, and music bundles, and (ii) against other, non-transparent elements that may be presented to the CRB by the National Music Publishers Association (“NMPA”), the Nashville Songwriters Association International (“NSAI”), and the major record labels Universal Music Group Recordings (“UMG”), Sony Music Entertainment (“SME”), and Warner Music Group Corp (“WMG”).   

II.  Statements of Interest

SGA is the longest established and largest music creator advocacy and copyright administrative organization in the United States run solely by and for songwriters, composers, and their heirs.  Its positions are reasoned and formulated independently and solely in the interests of music creators, without financial influence or other undue interference from parties whose interests vary from or are in conflict with those of songwriters, composers, and other authors of creative works.  Established in 1931, SGA has for 90 years successfully operated with a two-word mission statement: “Protect Songwriters,” and continues to do so throughout the United States and the world.  SGA’s organizational membership stands at approximately 4500 members.  SGA is represented by signatory Rick Carnes, who is signing as an individual music creator and copyright owner, and as an organizational officer.

SCL is the premier US organization for music creators working in all forms of visual media (including film, television, video games, and musical theatre).  It has a membership of over 2000 professional composers and lyricists, and is a founding co-member –along with SGA and other independent music creator groups– of MCNA.  SCL is represented by signatory Ashley Irwin, who is signing as an individual music creator and copyright owner, and as an organizational officer.

MCNA is an alliance of independent songwriter and composer organizations that advocates and educates on behalf of North America’s music creator community. As the only internationally recognized voice of American and Canadian songwriters and composers, MCNA, through its affiliation with the International Council of Music Creators (CIAM), is part of a coalition that represents the professional interests and aspirations of more than half a million creators across Africa, Asia, Austral- Oceania, North and South America, and Europe.  MCNA is represented by signatories Rick Carnes and Ashley Irwin, who are signing as organizational officers.

Of particular relevance to these comments, SGA, SCL and MCNA are also founding members of the international organization Fair Trade Music,[6] which is the leading US and international advocacy group for the principles of transparency, equitable treatment, and financial sustainability for all songwriters and composers.

III.  History of US Statutory Mechanical Royalty Rate-Setting 

As the CRB is well aware, the establishment of a compulsory mechanical rights licensing system, and the setting of a statutory mechanical royalty rate for the manufacture and distribution of sound carriers reproducing musical compositions, has its roots in the US Copyright Act of 1909.  Section 1 (e) of that law provided that once a musical composition had been distributed for the first time on a sound carrier in the US, any other party (i.e., a record company) was free to make and distribute its own recorded version of such composition so long as such party abided by the formalities set forth in the law, and paid a total of 2 cents for each unit of each composition distributed.  Thus began one of the most notorious miscarriages of economic justice in the history of the international music industry. 

By 1978, the tiny US record industry of the early twentieth century had grown into a multi-billion dollar, multi-national corporate entertainment empire that dominated the international music marketplace.  A good deal of the credit for such growth, it is widely acknowledged, is attributable to the fact that the intervening years were marked by one of the greatest periods of creative songwriting and composing that the world had ever seen, centered principally in the United States.  Those 20th century (and later 21st century) songs, composers and lyricists created the foundation on which the American record industry’s domination of global music sales was constructed, and on which it still rests.[7] 

Surreal as it may still seem, however, for that entire seventy-year period of phenomenal record industry growth between 1909 and 1978, the US mechanical royalty rate remained static at 2 cents per composition. According to US Consumer Price Index (CPI) statistics during those seven decades, the buying power of 2 cents in 1909 required the approximate equivalent of 14 to 15 cents in 1978.[8]  A songwriter or composer would have needed to earn about 750% of the original 2 cent royalty rate to have maintained his or her cost-of-living standard.  And yet no increase whatsoever had taken place.

Congress, despite enduring the intense lobbying of the recording industry not to take action, did finally raise the US statutory mechanical rate in 1978 under the “new” US Copyright Act of 1976.  It did so, however, by raising the rate by just 37.5%, to 2.75 cents.  Immediately thereafter, the entire record industry (claiming coincidence rather than collusion) immediately introduced and expanded the concept of the “controlled composition clause” into nearly every American recording contract.[9]  The practical effect of that essentially non-negotiable provision was to contractually freeze and then de-value the new US statutory mechanical royalty rate to 75% of its new level — driving it back down to two cents.

The outcry from the US and global music creator community over the ensuing years was substantial enough to result in gradual rises in the statutory mechanical royalty rate phased in every five years under the statutory rate-setting provisions of the 1976 Copyright Act (with some increases based upon negotiated cost of living increases tagged to various measurements under the CPI).  That process continued until its current 9.1 cent royalty rate zenith was reached in 2006.[10]  And there it has stayed, applicable not only to musical compositions manufactured and distributed in physical phonorecord form, but to permanent downloads in the realm of digital phonorecord deliveries and to certain other uses also specified in 37 C.F.R. Part 385 Subpart B (“Subpart B”). 

Subsequently, the Copyright Royalty Board opted in the rate-setting proceedings Phonorecords I (2006), Phonorecords II (2011) and Phonorecords III (2016) to adopt “roll forward” recommendations regarding the 9.1 cent royalty rate relative to Subpart B, principally without the formal objection of music creators.  In those years, members of the songwriter and composer community were forced to focus on pleading for substantial increases in the pitifully low digital streaming rates that were driving most music creators either into poverty or out of the music industry altogether.  That same drastic problem, unfortunately, remains for music creators.  Streaming royalty rates continue to be the subject of ongoing federal litigation brought by copyright users in the digital music distribution industry to negate rate increases mandated in Phonorecords III.  The case is currently on remand back to the CRB.  

Thus, economic circumstances for songwriters and composers –after fifteen years of a 9.1 cent rate applicable to Subpart B uses– are more dire than ever.  That is especially true in light of the hardships brought on by the recent pandemic.  The vast majority of songwriters and composers simply cannot abide a continuation of this financially strangling status quo any longer.  To do so would be to rubber stamp the extension of a second era of frozen mechanical royalty rates applicable to the sale of physical phonorecords and permanent downloads, for a period that would now stretch to over twenty years and counting (2006-2027). 

To put the effect of such result into numerical perspective, even a simple cost of living application to the subject statutory mechanical royalty rate since 2006 would have already yielded a 2021 royalty rate of 12 cents under CPI measurements.[11]  The 9.1 cent rate, in other words, has already been devalued by one third in real dollars since its implementation.  That leaves aside the historical legacy of the 2-cent rate from 1909, which would in 2021 dollars equal over 55 cents pursuant to those same CPI formulas.[12]  While no one is suggesting this latter extrapolation be considered dispositive on the issue of new rate-setting, it does starkly demonstrate the outrageous unfairness that has been imposed on the music creator community over a period of more than an entire century.[13]

Nevertheless, on March 2, 2021, the three major, multinational record conglomerates UMG, SME and WMG, the US music publisher trade group NMPA (whose largest members include the music publishing affiliates of those major record companies), and inexplicably, the Nashville Songwriters Association International (collectively, the “Settling Parties”), filed a Notice of Settlement in Principle (the “March 2 Notice”)[14] with the CRB, stating as follows:

Once they reach a definitive agreement concerning the Settlement, the Participants expect to propose to the CRJs [Copyright Royalty Judges] that the royalty rates and terms presently set forth in 37 C.F.R. Part 385 Subpart B, and the related definitions and late fees for Subpart B Configurations presently addressed in Subpart A, should be continued for the rate period at issue in the Proceeding [through 2027]. 

One participant in the Phonorecord IV proceedings, pro se music creator and music publisher George Johnson, filed his objections to the adoption with the CRB on April 19, 2021.  He noted specifically the unfairness of the proposed roll forward of the frozen Subpart B royalty rate proposals,[15] among his other objections that also included a substantial lack of transparency by the Settling Parties.   

The remainder of the music creator community, none of whose members seem in any way to have been consulted concerning the anticipated settlement noted in the March 2 Notice by the Settling Parties, were similarly taken aback by the Settling Parties’ actions.   Not only were they blindsided by the pending decision to recommend a continued freeze of the royalty rates and other terms contained in Subpart B, they were also agitated by the lack of more detailed disclosure by the Settling Parties concerning the following statement contained in the March 2 Notice:

NMPA, UMG, WMG and SME have also reached an agreement in principle concerning a separate memorandum of understanding addressing certain related issues.

With a pending deadline of May 18, 2021 set by the CRB for the filing by the Settling Parties of a final proposed settlement, the signatories to these Independent Music Creator Comments –in reliance on, among other provisions, §801 (b) (7) of the US Copyright Act– sent a letter to the CRB dated May 17, 2021[16] stating as follows:

In the interests of justice and fairness, we respectfully implore the CRB to adopt and publicize a period and opportunity for public comment on the record in these and other proceedings, especially in regard to so-called proposed “industry settlements” in which creators and other interested parties have had no opportunity to meaningfully participate prior to their presentation to the CRB for consideration, modification or rejection. In the present case, hundreds of millions of dollars of our future royalties remain at stake, even in a diminished market for traditional, mechanical uses of music. To preclude our ability to comment on proposals that ultimately impact our incomes, our careers, and our families, simply isn’t fair.

Thereafter, the Settling Parties informed the CRB on May 18, 2021 that they had reached an agreement that mirrored the terms set forth in their prior March 2 Notice, but did not file a motion asking the CRB to adopt their settlement.  This procedural anomaly raised alarms among the members of the independent music creator community, who once again had not been consulted in any way by the Settling Parties regarding their settlement discussions, or concerning the subsequent filings announcing agreement on the royalty rate freeze. 

In a second letter to the CRB dated May 24, 2021,[17] the Independent Music Creator signatories to these Comments once again conveyed their concerns:

We believe that this procedural omission (whether permissible or not) may well be calculated to delay and/or compromise the ability of the independent music creator and music publishing communities to file comments in a timely manner, and could result in irreparable harm to our ability to present our views and pose our questions, for example, if one or more of the settling parties subsequently withdraws from the proceeding.  Simply put, we believe the settling parties are seeking to stifle timely discussion and dissent through delay, a strategy which should be rejected as antithetical to due process.

On the next day, the Settling Parties acted to file their “Motion to Adopt Settlement of Statutory Royalty Rates and Terms For Subpart B Configurations” (“the May 25 Motion to Adopt”).[18]  That motion contained the following statement by the Settling Parties:

In all material respects, the Parties propose that the current regulatory provisions applicable to Subpart B Configurations, and Late Fees solely as they concern Subpart B Configurations, remain in effect. They propose a few minor editorial changes to the applicable regulatory language, which are shown below with additions in bold and underlined text and deletions in bold with a strikethrough. To the extent that the provisions set forth below are also applicable to configurations other than Subpart B Configurations, such matters are outside the scope of the Settlement.

The May 25 Motion to Adopt contained no further elaboration concerning the statement originally made in the Settling Parties’ March 2 Notice that “NMPA, UMG, WMG and SME have also reached an agreement in principle concerning a separate memorandum of understanding addressing certain related issues.”

One month later, on June 25, 2021, the CRB published in the Federal Register its Notice of Proposed Rulemaking[19]addressing the May 25 Motion to Adopt filed by the Settling Parties, stating in pertinent part as follows:

The Judges may decline to adopt the agreement as a basis for statutory terms and rates for participants not party to the agreement if any participant objects and the Judges conclude that the agreement does not provide a reasonable basis for setting statutory terms or rates. See §801(b)(7)(A).[20] (Emphasis and Footnote added). If the Judges adopt rates and terms reached pursuant to a negotiated settlement, those rates and terms are binding on all copyright owners of musical works and those using the musical works in the activities described in the proposed regulations….

The Judges solicit comments on whether they should adopt the proposed regulations as statutory rates and terms relating to the making and distribution of physical or digital phonorecords of nondramatic musical works. Comments and objections regarding the rates and terms and the minor revisions must be submitted no later than July 26, 2021.

By submitting these Comments today, the Independent Music Creator community seeks to respectfully explain the myriad reasons why adoption by the CRB of the Settling Parties’ May 25 Motion to Adopt (including the proposed royalty freeze) would not only be inconsistent with the provisions of the US Copyright Act, but will cause great harm to the US and global songwriter and composer communities.  We likewise urge circumspection by the CRB concerning the possibility of any potential “insider” or “self-dealing” settlement arrangement among related companies and trade associations that may have been carried out at the expense of those music creators whom Congress intended (pursuant to Article I §8 of the US Constitution) to be the beneficiaries –not the victims– of the statutory mechanical royalty rate-setting process.

Continued in Part 2

Coalition of Songwriter Groups Call on Copyright Royalty Board for Fairness and Transparency on Frozen Mechanicals

[Editor T says this is a letter from a coalition of US and international songwriter groups to the Copyright Royalty Board about the frozen mechanical issue. If you want to write your own comment to the Copyright Royalty Board about frozen mechanicals, send your comment to crb@loc.gov]

MUSIC CREATORS
NORTH AMERICA

May 17, 2021

Via Electronic Delivery

Chief Copyright Royalty Judge Jesse M. Feder
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

To Your Honors:

As a US-led coalition representing hundreds of thousands of songwriters and composers from across the United States and around the world, we are writing today to express our deep concerns over the “Notice of Settlement in Principle” recently filed by parties to the proceedings before the Copyright Royalty Board concerning its Determination of Royalty Rates and Terms for Making and Distributing Phonorecords (Phonorecords IV) (Docket No. 21–CRB–0001–PR<(2023–2027)). For reasons explained below, several highly conflicted parties to this proceeding have apparently agreed to propose a rolling forward to the year 2027 of the current US statutory mechanical royalty rate for the use of musical compositions in the manufacture and sale of physical phonorecords (such as CDs and vinyl records). This proposal (and related industry agreements yet to be disclosed by the parties— see, https://app.crb.gov/document/download/23825) should neither be acted upon nor accepted by the CRB without the opportunity for public comment, especially by members of the broad community of music creators for whom it is financially unfeasible to participate in these proceedings as interested parties. It is our livelihoods that are at stake, and we respectfully ask to be heard even though we lack the economic means to appear formally as parties. If procedures are already in place to accommodate this request, we look forward receiving the CRB’s instructions as to how to proceed.

The current U.S statutory mechanical rate for physical phonorecords is 9.1 cents per musical composition for each copy manufactured and distributed. That rate has been in effect since January 1, 2006. It represents the high-water mark for US mechanical royalty rates applicable to physical products, a rate first established in 1909 at 2 cents. That 2-cent royalty rate, in one of the most damaging and egregious acts in music industry history, remained unchanged for an astonishing period of sixty-nine years, until 1978. Nevertheless, the recording industry now seeks  to repeat that history by freezing the 9.1 cent rate for an era that will have exceeded twenty years by the end of the Phonorecords IV statutory rate setting period.

Inflation has already devalued the 9.1 cent rate by approximately one third. By 2027, 9.1 cents may be worth less than half of what it was in 2006. How can the US music publishing industry’s trade association, and a single music creator organization (which represents at most only a tiny sliver of the music creator community) have agreed to such a proposal?

The answer to that question is an easy one to surmise. The three major record companies who negotiated the deal on one side of the table have the same corporate parents as the most powerful members of the music publishing community ostensibly sitting on the other side of the table. Songwriter, composer and independent music publisher interests in these “negotiations” were given little if any consideration, and the proposed settlement was clearly framed without any meaningful consultation with the wider independent music creator and music publishing communities, both domestically and internationally.

How on earth can these parties be relied upon to present a carefully reasoned, arms-length “Settlement in Principle” proposal to the CRB under such circumstances, fraught as they are with conflicts of interest, without at least an opportunity for public comment? Further, how can these parties be relied upon in the future to argue persuasively that mechanical royalty rates applicable to on-demand digital distribution need to be increased as a matter of economic fairness (which they most certainly should be), when they refuse to seriously conduct negotiations on rates applicable to the physical product the distribution of which is still controlled by record companies (who not so incidentally also receive the lion’s share of music industry revenue generated by digital distribution of music)?

The ugly precedent of frozen mechanical royalty rates on physical product has, in fact, already served as the basis for freezing permanent digital download royalty rates since 2006. Is this the transparency and level playing field the community of songwriters and composers have been promised by Congress through legislation enacted pursuant to Article I, Section 8 of the Constitution?

The trade association for the US music publishing industry is supported by the dues of its music publisher members, the costs of which are often in large part passed along to the music creators affiliated with such publishers. It is thus mainly the songwriter and composer community that pays for the activities of that publisher trade association, a reality that has existed since that organization’s inception. Still, the genuine voice of those songwriters and composers is neither being sought nor heard. Further in that regard, we wish to make it emphatically clear that regardless of how the music publishing industry and its affiliated trade associations may present themselves, they do not speak for the interests of music creators, and regularly adopt positions that are in conflict with the welfare of songwriters and composers. Their voice is not synonymous with ours.

Unfortunately, the music creator community lacks the independent financial resources –in the age of continuing undervaluation of rights, rampant digital piracy and pandemic-related losses–to rectify these inequities by expending millions more dollars to achieve full participation in CRB legal and rate-setting proceedings. Clearly, such an inequitable situation is antithetical to sound Governmental oversight in pursuit of honest and equitable policies and results.

In the interests of justice and fairness, we respectfully implore the CRB to adopt and publicize a period and opportunity for public comment on the record in these and other proceedings,especially in regard to so-called proposed “industry settlements” in which creators and other interested parties have had no opportunity to meaningfully participate prior to their presentation to the CRB for consideration, modification or rejection. In the present case, hundreds of millions of dollars of our future royalties remain at stake, even in a diminished market for traditional, mechanical uses of music. To preclude our ability to comment on proposals that ultimately impact our incomes, our careers, and our families, simply isn’t fair.

Finally, we request that this letter be made a part of the public record of the Phonorecords IV
proceedings. We extend our sincere thanks for your attention to this very difficult conundrum
for music creators, and further note that your consideration is very much appreciated.

Respectfully submitted,

Rick Carnes
President, Songwriters Guild of America

Ashley Irwin
President, Society of Composers and Lyricists
Officer, Music Creators North America Co-Chair, Music Creators North America

List of Supporting Organizations
Songwriters Guild of America (SGA), https://www.songwritersguild.com/site/index.php
Society of Composers & Lyricists (SCL), https://thescl.com
Alliance for Women Film Composers (AWFC). https://theawfc.com
Songwriters Association of Canada (SAC), http://www.songwriters.ca
Screen Composers Guild of Canada (SCGC), https://screencomposers.ca
Music Creators North America (MCNA), https://www.musiccreatorsna.org
Music Answers (M.A.), https://www.musicanswers.org
Alliance of Latin American Composers & Authors (ALCAMusica), https://www.alcamusica.org
Asia-Pacific Music Creators Alliance (APMA), https://apmaciam.wixsite.com/home/news
European Composers and Songwriters Alliance (ECSA), https://composeralliance.org
Pan-African Composers and Songwriters Alliance (PACSA), http://www.pacsa.org

cc: Ms. Carla Hayden, US Librarian of Congress
Ms. Shira Perlmutter, US Register of Copyrights
Mr. Alfons Karabuda, President, International Music Council
Mr. Eddie Schwartz, President, MCNA and International Council of Music Creators (CIAM)
The MCNA Board of Directors
The Members of the US Senate and House Sub-Committees on Intellectual Property
Charles J. Sanders, Esq.