@NorthMusicGroup Letter to Congress on Frozen Mechanicals and the Copyright Royalty Board

May 13, 2021 – By Email

Senator Dianne Feinstein                                           Senator Alex Padilla
United States Senate                                                  United States Senate
331 Hart Senate Office Building                                 B03 Russell Senate Office Building
Washington, D.C. 20510                                             Washington, D.C. 2010

Re: Potential Settlement of Mechanical Royalty Rates in CRB Phonorecords IV  

Dear Senators Feinstein and Padilla:

I am a California-based music publisher.

I’m writing to you to express my concern regarding the private party settlement submitted to the Copyright Royalty Board by the NMPA, NSAI, UMG, WMG and SME related to the Phonorecords IV physical and download mechanical rate.

My father-in-law was the composer and songwriter, Alex North. Alex worked for years, crafting scores to Hollywood feature films, and writing songs to accompany picture.

In 2015, Alex’s score to A STREETCAR NAMED DESIRE was added to the Library of Congress’ National Registry, as a recognition of the music’s importance as part of the fabric of United States arts and culture.

Alex composed the score to a 1955 film entitled UNCHAINED. The theme to that film became the melody to the song “Unchained Melody,” with the lyric written by Hy Zaret.

“Unchained Melody” has been recorded by thousands of artists, in all styles and genres. The lyric has been adapted to at least 20 different languages. “Unchained Melody” is among the most popular wedding songs of all time. Listeners still download recordings of “Unchained Melody.” They still buy CDs and vinyl releases.

I am the music publishing administrator of  “Unchained Melody,” on behalf of my family and the Zaret family. I also administer over one hundred thousand other copyrights on behalf of legacy songwriters and their families, and on behalf of current songwriters and composers.

Songwriters struggle to earn a living wage. With the advent of digital streaming, physical and download sales have certainly declined. However, they have absolutely not disappeared. Anybody who says this royalty stream does not matter is simply not telling the truth.

The royalty amount for the digital stream of a song is a micropenny. Unless it is a top songwriter with hundreds of millions to billions of streams, there is an excellent chance that songwriter still may be driving Uber to support herself and her family.

It takes hundreds of streams of a recording to equal the 9.1 cent mechanical publishers receive for a physical sale or download. That’s why this physical and download mechanical rate is so important.

Vinyl sales are strong for many retailers including Amazon and Best Buy. CDs remain a significant media format, and many listeners still prefer to “own” rather than temporarily cache the music they listen to.

Increasing the statutory mechanical rate to simply adjust for inflation will dramatically (and positively) effect songwriters’ and publishers’ bottom lines. This fight is akin to the battle for an increased minimum wage.

Major music publishers do not face the same struggles as independent publishers and songwriters. Major publishers are part of multi-national conglomerates that own both the major publishers and major record labels. Major publishers that agree to fix the statutory rate simply are leaving more money in the pockets of the labels that are their sister companies.

Those of us that do not have sister companies have no such opportunity. That’s why we must fight to be heard.

Each quarter, I process statements from approximately 100 domestic and global sources, many of which include mechanical royalties for physical and download media. Each quarter, I make distributions to the multiple families that are heirs to, and owners of these copyrights. Songwriters and their families depend on royalties for food, mortgages, education and more.

From the initial publication of “Unchained Melody” in 1955 through 2005 (approximately 50 years!), the statutory mechanical rate was fixed at 2 cents. Starting in 1977, the mechanical royalty incrementally increased from 2¢ to 9.1¢ per unit until 2006.  But since 2006, the statutory rate again was frozen and remains so.  The private settlement would extend that freeze until 2027.

I ask that you review the Copyright Royalty Board practices and consider allowing songwriters and independent publishers – who do not speak through trade organizations or major multi-national corporations — to voice their concerns through public comments that the CRB takes into account before it makes its final decision.

Best, 

Abby North

Guest Post: What Would @TaylorSwift13 and Eddie @cue Do? One solution to the frozen mechanical problem

By Chris Castle [this post first appeared on the MusicTechSolutions blog]

Who can forget how Taylor Swift stood up for songwriters, producers and artists against Apple’s bizarre decision to impose a royalty-free three month trial period on the launch of Apple Music. (Of course, songwriters, producers and artists weren’t the only ones involved, but that’s a story for another day.)

What is equally memorable is how fast Apple changed course and all the goodwill that came to Apple as a result. Faster than you can say “Arsenal”, Eddie Cue announced that Apple would scale it back. Lemonade out of lemons. Of course, the issue should have been obvious, but sometimes smart people miss the point like everyone does sometimes. (Rolling Stone has a good short post on the backstory.)

The point of the story is that when you make a mistake, it’s better to fix it quickly than let it fester. So it is with the “frozen mechanical” problem that has become all the rage in recent days. The good news is the problem can be solved with the payment of money. It won’t be easy, but as a great man once said, this is the business we’ve chosen.

The Copyright Royalty Board decides on the statutory rate that’s paid under compulsory content licenses in the United States. For mechanical royalties, the CRB makes that decision every five years which means that if there isn’t a CRB hearing going on at any given moment, wait a little while and there will be one. (Needless to say, the volume of CRB hearings varies directly with full employment for lawyers and lobbyists in Washington, DC.) The “frozen mechanical” issue dates back to 2006 (or 2009 depending on how you count it) when the CRB allowed the end of rising mechanical royalty rates on physical and permanent downloads (and a couple others). However, the sour memories of frozen mechanicals date to 1909–also a story for another day.

Instead, the CRB has allowed a private agreement among the biggest players to become the law. This has happened at least one other time and it appears that it is about to happen again according to public documents filed with the CRB on March 2, 2021 (read it here). Contrast that private agreement to the bitter struggle against the streaming services over streaming mechanicals that is still in the appeal process. Different people paying, same songwriters getting paid.

If you haven’t heard about the tentative settlement by private agreement at the CRB, it admittedly was not well socialized.

The inescapable problem is that any fixed or “frozen” rate determined at one point in time but paid over relatively long periods of time is at the mercy of inflation in the economy that may rise in that intervening time period. The Congress and the industry recognized this harsh truth in the 1976 revision to the Copyright Act and eventually indexed mechanical rates, meaning that they floated upward with the Consumer Price Index. (CPI has its own problems, but it’s a bogey that lots of people use so it’s easier than reinventing the wheel with a bespoke factor.)

Given what has been happening in the economy, it was inevitable that inflation was about to come back strong in the U.S. and global economy. Sure enough, the Department of Labor announced yesterday:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.8 percent in April on a seasonally adjusted basis after rising 0.6 percent in March, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 4.2 percent before seasonal adjustment. This is the largest 12-month increase since a 4.9-percent increase for the period ending September 2008.

Yes, the CPI ignored the Fed and increased like the pesky little devil it is. There’s no reason to think that this is going to stop any time soon. (If you were born after 1960 or so, you may not remember that inflation and stagflation resulted in the prime interest rate peaking at 21.5% in December of 1980. That drove mortgage rates to 13.41% in 1981 (often plus points). And then there were the credit cards. That’s where inflation can lead. Personally, my money is on stagflation in the form of high inflation and high unemployment due to what Secretary Yellen called the scarring effects of the pandemic which the music business is experiencing in spades.)

April 2021 DOL Inflation

It just wouldn’t be prudent to enter into a long term contract at a fixed rate that does not take into account inflation. Yet that is exactly what the tentative settlement wants to do with the mechanical rate for physical, downloads, and a couple other categories. Yet, we must acknowledge that it is very difficult to herd the cats to get them to agree to anything. But having gotten everyone to agree to freezing mechanicals and having gotten the CRB to agree to adopt that agreement in the past, it may be the case that the parties can get the CRB to let them increase mechanicals going forward.

In other words, take a lesson from Taylor Swift and Eddie Cue and do a quick course correction before the final settlement gets announced on May 18.

So what would that look like? Precedent suggests that the CRB (and its predecessors) have accepted two principal methods of increasing the rate, which is phased in over time: fixed penny-rate increases and CPI indexing. My suggestion would be to employ both methods in a greater of formula (so popular with streaming).

If phased in over 5 years like other rates, it seems that there could be an immediate step up to compensate songwriters for a rate was frozen starting at the time that physical was still a very significant percentage of sales back in 2006. That stepped up rate could then gradually increase with a greater of a fixed penny increase or CPI. I wouldn’t presume to tell anyone what that step up should be, but if you apply the CPI index, it should probably be about 4¢, bringing the minimum rate to 13¢ from 9.1¢. Given that big–albeit entirely justified–jump, increases over the out years might be more modest.

Now that we know that there’s a strong possibility that inflation will be in our lives for the foreseeable future, the good news is there’s still time to do something about it. The CRB has shown us that they are willing to accept radical changes in the mechanical royalty rate by adopting private settlements, so there seems to be no impediment. I’m not aware of a rule that says the CRB only adopts rules that freeze songwriters in place, so it should work to the songwriters betterment and not just to their detriment.

We should ask, what would Taylor and Eddie do?