Tag: Music Reports

The Madness of Amazon’s Song Royalty Refund Demand

You can check out any time you like, but you can never leave.
Hotel California, written by Don Felder, Glenn Frey and Don Henley

There’s no opt-out in either the Hotel California or the compulsory song license. And Amazon’s demand for a royalty refund from songwriters demonstrates once again the madness of the Copyright Royalty Board rate-setting procedures. Whether it creates enough ripples in the booming business around buying out songwriter royalties remains to be seen.

How did we get to this point in the circus act? You may have noticed that sliced bread is in close competition with fire and the wheel for second place behind Greatest Human Accomplishments. Both fire and the wheel are yielding to streaming mechanical royalty rates in the Phonorecords III remand negotiations.  Yes, the so-called “headline rates” in Phonorecords III (or “PR III”) are a Nobel-worthy accomplishment.  At least according to the press agents.

And yet something curious has happened.  I’m told that Amazon, through its agent Music Reports (MRI), has posted what is essentially a demand letter in the MRI user portal.  This demand letter instructs publishers who have directly licensed songs to Amazon to pay up because of an overpayment of streaming mechanicals due to the adjustment required by the new-ish Phonorecords III remand rates that finally set the streaming mechanical rates for the industry.  Something similar may be happening at the MLC; we’ll come to that below in just a bit.

In a testament to just how whack the Copyright Royalty Board system actually is, the PR III remand concerns royalties paid from 2018 through 2022.  That’s right—starting six years ago.  This is largely due to the failure of the publishers to obtain a waiver of the PR III decision as a negotiating chip when they gave away the rest of the farm in Title I of the Music Modernization Act (also hailed as a great gift to songwriters). But I’d say it is primarily due to the desire of digital music services like Amazon—including the largest corporations in commercial history—to crush the kitchen tables of songwriters.  Because judging by the massive overlawyering in the Copyright Royalty Board, that sure looks like the motive.

And when it comes to the services crushing the little people, money is no object, even if they spend more on litigation than the royalty increase cost them.  Evidently the sadistic psychic benefit greatly exceeds the cost.

But Amazon evidently has discovered that even after all the shenanigans with PR III, it appears that they paid too much and now they want it back.  That’s right—Amazon shamelessly wants you to cut them a check.  Because a market value over $2,000,000,000,000 is just not enough. I wonder which buffoon advised Mr. Bezos that was a good idea.

Here’s what it looks like on MRI:

A few questions come to mind.  First, realize what Amazon is saying.  They were evidently accounting to publishers at the rates for Phonorecords II during the several years that the PR III rates were on appeal and then re-litigated before the Copyright Royalty Board.  The final PR III rates (sometimes called “remand rates”) issued in August of last year (2023) were supposed to be an improvement over the PR II rates don’t you know.  At least according to the braying that accompanied the announcement.  In fact, the PR III remand rates where it all ended up were themselves supposed to be an improvement, meaning that publishers were to be paid more under PR III than under PR II. Maybe that’s the difference between an increase in the payable rates compared to an increase in the payable royalties.

So if that’s true, and if Amazon paid PR II rates during the lengthy PR III appeal, why is there now an overpayment by Amazon?  An overpayment that they now want you to pay back? Wouldn’t you expect to see the true-up on new rates result in publishers receiving a credit for increased rates?  Especially if the stream counts and subscriber totals stayed the same on these previously-issued accounting statements? (Not to mention this may be happening at other services, too.)

Some of these PR III statements pre-date and overlap with the MLC’s creation and the “license availability date” for the 2021 blanket license established under Title I of the MMA.  That means that if you or your publisher had a direct deal with Amazon during the PR III rate period, there may be overlapping periods when the MLC took over Amazon’s accountings.

It has long been the standard industry practice that overpayments are just debited to your royalty account.  Nobody asks you to cut a check. Debiting your account is not much better–you still have to pay them back, and the so-called “overpayment” will still potentially zero out your MLC accounts, too. If you did a royalty buyout that included an assumption that these royalties would be paid, your financier may come up short under either direct license or MLC.

This is particularly true for publishing administrators.  If a service were to debit an administrator’s account, that might result in the administrator having to go out of pocket in order to pay some of their publishers for the amount of the demand. If that overpayment is large enough, that administrator may owe royalties to publishers that did not have the benefit of the overpayment. This is pretty elementary math, 2 plus 2 being what it is. You don’t even have to carry the 1.

However, great news!  Amazon will give you an interest-free payday loan so you can pay down your new debt over six months. Or before they send it to collection.

Now the MLC—it’s entirely possible that Amazon is pulling the same stunt under the statutory license. However, it appears that MLC is doing what is normally done in these situations and will be debiting and crediting as necessary.  If you’re concerned, it would be worth checking and asking for an explanation from the MLC.

Even so, it does not change anything about why there is an overpayment in the first place.  If there were ever a situation that cried out for an intensive royalty compliance exam, this is it.  It is hard to believe that all this to-ing and fro-ing with your royalty payments across multiple rates in multiple accounting periods hasn’t resulted in mistakes.  No crime, it’s complex.  That’s why we have audits. At a minimum, Amazon needs to provide publishers with a detailed breakdown of how the repayment was determined along with an explanation of where the rates changed that caused the overpayment.

That’s why Amazon and any other similarly situated service should welcome an extensive audit.  In fact, the MLC should just include the true-up (or true-down in Amazon’s case) in their already-noticed audit of Amazon. This episode also raises the question of who else is going to pull the same stunt.

This slice of life demonstrates once again how unworkable the entire Copyright Royalty Board system is for streaming mechanical royalties. The services get to drag out appeals forever, and songwriters pay the consequences. But like the man said, you can never leave. And the Music Modernization Act just got every one locked in even deeper.

[A version of this post first appeared on MusicTechPolicy]

by Trichordist

Copyright Office Regulates @MLC_US: Selected Public Comments on MLC Transparency: @MusicReportsInc

This post first appeared on Artist Rights Watch.

[Editor Charlie sez: The U.S. Copyright Office is proposing many different ways to regulate The MLC, which is the government approved mechanical licensing collective under MMA authorized to collect and pay out “all streaming mechanicals for every song ever written or that ever may be written by any songwriter in the world that is exploited in the United States under the blanket license.”  The Copyright Office is submitting these regulations to the public to comment on.  The way it works is that the Copyright Office publishes a notice on the copyright.gov website that describes the rule they propose making and then they ask for public comments on that proposed rule.  They then redraft that proposed rule into a final rule and tell you if they took your comments into account. They do read them all!

The Copyright Office has a boatload of new rules to make in order to regulate The MLC.  (That’s not a typo by the way, the MLC styles itself as The MLC.)  The comments are starting to be posted by the Copyright Office on the Regulations.gov website.  “Comments” in this world are just your suggestions to the Copyright Office about how to make the rule better.  We’re going to post a selection of the more interesting comments.

There is still an opportunity to comment on how the Copyright Office is to regulate The MLC’s handling of the “black box” or the “unclaimed” revenue.  You can read about it here and also the description of the Copyright Office Unclaimed Royalties Study here.  It’s a great thing that the Copyright Office is doing about the black box, but they need your participation!

This comment from Music Reports gives some interesting insights into how The MLC is favoring the NMPA’s formerly wholly-owned Harry Fox Agency (HFA) which has been on the wrong side of most of the licensing debacles.  Chris posted some analysis on MediaNet’s comment about criticisms of the HFA-The MLC contract as well as its rather odd timeline as revealed at The Copyright Office roundtables on the next cluster jam, the unclaimed royalties.  At least that has the entertainment value of watching them steal in plain site with the Copyright Office drinking game of who will make the excuses for them this time like we don’t notice.  We’re not big MRI fans (or MediaNet fans for that matter), but when they’re right, they’re right.

The sad truth is that this entire MLC exercise has become about the rich getting richer from a data land grab for independent songwriters and publishers who have been duped into thinking it’s all for their benefit.  It was all so predictable, but nobody listened.  This is what they wanted, and now they’ve got it.  How about a rule that says if you had your fingerprints on any part of the debacle of the last 20 years, you are immediately disqualified?  Bye bye HFA, NMPA, MRI, MediaNet.  Unfortunately that is not and never will be the rule because these are the same people who make the rules and are the same people who gave songwriters frozen mechanicals from 1909-1978 and are still freezing the 9.1¢ statutory royalty for fourteen years.

MRI could have done with some editing, but stick with it, they make a lot of sense.]

Read Music Reports entire comment here.

Music Reports generally agrees with, endorses, and echoes the views of MediaNet as stated in the response to the NOI it filed today.

Music Reports also takes note of the MLC’s selection of HFA as a major provider of the capabilities required for its core operations. While the MLC is narrowly limited by the MMA to the principal purpose of administering the blanket license for Section 115-compliant audio-only streaming music services in the United States, and specifically prohibited from storing data about or administering public performance licenses, HFA/SESAC is not so constrained.

On the contrary, HFA/SESAC is free, as a non-regulated, for profit commercial music rights administration service, to administer any type of mechanical licenses. Moreover, SESAC, administers performance rights on a for-profit basis in competition with other PROs. Being hired by the MLC does not change the fact that HFA/SESAC is in competition with other commercial music rights administration services that are not the beneficiaries of a long term, highly-paid contract with the MLC. This is fair enough, so far is it goes.

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But as noted above, the boundaries between HFA/SESAC’s database and that which the MLC must build and make publicly available are completely unknown [want to bet that’s because they don’t exist?], as is the timeframe during which the former will substitute for the latter, and whether a proprietary MLC database built independently of HFA’s data will ever be the basis on which the MLC renders royalty distributions.

What is known, however, is that the MLC will enjoy publicity generated by its own statutory mandates (subsidized by the DLC), by the DLC itself, and by the Office, all of whom are authorized and required to devote budgetary allocations to direct publishers’ attention to registering their rights data with the MLC (the database of which is, for the foreseeable future, that of HFA/SESAC). Notwithstanding that the primary purpose of these provisions may be to publicize the existence of the database and of available unclaimed royalties, the consequence will be the direction of resources toward the focus of copyright owners’ attention on just one of several important, pre-existing music rights registries. This is in effect a set of reinforcing government subsidies of which one private enterprise, in competition with other marketplace actors, is the beneficiary.

To the extent HFA/SESAC directly benefits unfairly from a privileged place in the data ecosystem by virtue of this arrangement, the goal of the MMA to create a healthier music rights administration ecosystem will be perversely harmed by the creation of an uneven playing field that penalizes the investments in data made by other services. To be sure, other commercial services are free to compete with HFA to offer services to the MLC and others in the marketplace. But over time, a privileged place in the market’s information flow may distort competition to the determent of copyright owners and their administrators, DMPs, and the public.

Luckily, the Office can prevent this result quite simply by requiring that the MLC provide access to its public database on a competition-neutral basis.

As was noted above, there is an important temporal aspect to the management of music rights data. In order for two administrators to efficiently interoperate, they must be able to have a more or less shared contemporary view of the data about the works they are administering, even if they don’t always agree on every detail.

Therefore, the specific prescription called for here is a combination of the points made in the previous sections above: (a) the Office should use its authority under the MMA to adopt such regulations as it deems necessary to clarify that the public database which the MLC must establish and maintain will be identical to or at least contain the same data as the database on which the MLC will distribute royalties; (b) the MLC should make its public database available contemporaneously with the commencement of its royalty distribution efforts; and (c) the MLC must offer eligible parties bulk, machine-readable access to such data “on a basis that is both comprehensive and as frequent as necessary to efficiently manage the licensing and royalty distribution activities of the mechanical licensing collective itself, and not less than daily access to changed information within a day of any change to such information.”

by thetrichordist