Tag: Section 115

The AI “License” That Isn’t: A Musician’s Checklist for Spotting a Covenant Not to Sue Censorship Trap in Disguise

If you saw the adverb “forever” in a contract, would it give you pause?  It would me—I would wonder who allowed that to slip through.  As text-to-audio generative AI models desperately try to normalize their shoot-ready-aim ingestion of likely stolen works to support their next round of financing (or in some cases perhaps a VC exit by IPO), it’s likely that we will see some efforts at “licensing” reminiscent of the Napster era. “Licenses” that actually paper over the main act—stop the lawsuit before they start. What will that look like and what should we look for buried in the not so fine print?

Generative AI companies are coming to the negotiating table with “music licensing agreements” (and probably other artists’ too). That sounds encouraging — it suggests they want to do the right thing and pay for the content they use. Trust me, they don’t. What they want is to get away with it.

Not every document titled “license” actually functions like one. Some of these deals are better described as litigation insurance dressed up in licensing language, and if you sign one without reading the small print, you may be giving away far more than you realize. Because as Tom Waits taught us in the classic Step Right Up, the large print giveth and the small print taketh away.

Here’s a practical checklist of red flags to watch for if you want to look past the hype:

☐ Check Whether the “License” Actually Includes a Perpetual “Covenant Not to Sue”

A quick definitional note: a covenant not to sue is a contractual promise in which you agree in advance never to bring a legal claim against the other party — regardless of what happens, regardless of whether you even know you have a claim, and often regardless of whether the conduct at issue would otherwise be something you could sue for or get a court to stop (like with an injunction). Unlike a license, which grants permission and can expire, a covenant not to sue can be a permanent waiver of your right to seek a remedy. It’s the difference between handing someone a key to your house and signing a contract promising you’ll never call the police no matter what they do inside.

A real license gives someone permission to use your work under defined conditions, and when the term ends, so does the permission. Watch out for agreements that include a separate clause in which you irrevocably promise — both during and after the term — never to bring any claim against the company or even its users. If the covenant not only covers copyright, publicity rights, moral rights, defamation, and lawsuits over issues that may not exist yet, you are not licensing your work. You are surrendering your right to enforce your rights, permanently. Or you know, “forever.” Make sure you understand the difference before you sign.

☐ Beware a “Non-Exclusive” License That Binds Your Co-Writers

Remember the 100% licensing debacle back in 2016? Tenants-in-common co-ownership of a copyright means any co-owner can grant a non-exclusive license without the others’ consent — but that principle can be weaponized. If an agreement requires you to represent and warrant that no third-party consent is needed, and that you will not encourage your fellow songwriters to take any position inconsistent with the deal (again with the censorship), you may be dragging your co-writers into an arrangement they never agreed to. Worse, if the covenant not to sue extends to all contributors, your co-writers’ enforcement rights could be compromised by a deal they had no say in. Before you sign, make sure the AI platform isn’t leveraging TIC principles to bind people who aren’t at the table. Here’s why this matters in practice: under TIC co-ownership, a non-exclusive license granted by one co-owner is generally binding on all co-owners, even without their consent. That means if you grant a non-exclusive license — or, more critically, a covenant not to sue — covering the full composition, your co-writer may be unable to bring an infringement claim against the same company for the same use, because the company can point to your grant as a complete defense. The co-writer’s right to sue isn’t technically extinguished, but it’s rendered practically worthless. The result is that one publisher’s signature can neutralize enforcement rights across an entire song’s ownership chain. Ask your lawyer.

☐ Look for a Sweeping Pre-Signing Release

Some agreements bury a broad release of all claims arising before the effective date — known and unknown, suspected and unsuspected. That’s not a license, it’s a preemptive settlement masquerading as a license.  Worse, they may ask you to preemptively waive protections like California Civil Code Section 1542, which exists specifically to protect people in this exact situation. The statute prevents people from accidentally releasing claims they don’t yet know about. If an AI company has been training on your catalog without permission for years, a release like this could function like a contractual safe harbor and eliminate any leverage you had to seek compensation for that unauthorized use, or better yet an injunction. You know, kind of like the Music Modernization Act.  Ask yourself: why does a forward-looking license need a backward-looking release? Aside from wanting a pony.

☐ Make Sure “Training Rights” Aren’t Irrevocable in Practice

A license to include your works in a training corpus sounds civilized, but look closely at the removal mechanics (and take a class in “machine unlearning“). If the company is only required to retrain its model a limited number of times per year — say, twice — then even if you pull your catalog, your works may remain embedded in the AI model for months or even “forever”. There are no guarantees that “retraining” will actually remove your works from the model and, in fact, the literature suggests it won’t. And if the covenant not to sue survives the term for anything created while the deal was active (or before the deal was active), the training that already happened is effectively locked in. You may be inadvertently granting a right for yourself and maybe your co-writers that you can never meaningfully take back.

☐ Don’t Pre-Approve a Statutory Streaming License They May Not Be Entitled To

Some AI music platforms aspire to become full on-demand streaming services — and their agreements may include language contemplating exactly that expansion, with provisions stating the company will simply obtain a blanket mechanical license from the Mechanical Licensing Collective under 17 U.S.C. § 115(d). But whether a generative AI platform that creates synthetic music qualifies for the statutory compulsory license designed for traditional on-demand streaming is a genuinely open legal question. If you agree to terms that treat this expansion as a foregone conclusion — or worse, if your covenant not to sue or conditional authorization greenlights streaming functionality by default — you may be conceding the argument before it’s ever litigated. Don’t let an agreement’s assumptions about statutory eligibility become your assumptions. That question should be tested, not waived.

There’s a deeper problem here, too. The Section 115 compulsory license has always contained an anti-piracy prerequisite: you cannot obtain a compulsory license to use a musical composition if the sound recording you’re working from was not lawfully fixed or authorized by the sound recording’s copyright owner. If an AI platform trained its model on sound recordings it ingested without authorization (as is currently being litigated), its entire statutory license theory may be built on a foundation of infringement. The compulsory license was never designed to launder unauthorized use of sound recordings into lawful use of the compositions they embody. By agreeing to terms that treat the platform’s eligibility as settled, you may be implicitly conceding that the platform’s use of those sound recordings was authorized — a concession likely worth far more than anyone is probably paying for it and that can get you sideways with the sound recording owners.

☐ Scrutinize “Guardrail Failure” Safe Harbors

Technical safeguards — input filters, output filters, vocal classifiers — are only as good as the consequences for failure. Be wary of provisions that excuse the AI company from breach liability when its guardrails fail, so long as the failures are characterized as “inadvertent” and “de minimis” which are in the eye of the beholder and just buying a lawsuit.  If the agreement treats guardrail failures as non-breaches by default, you’ve effectively agreed that the company can produce unauthorized outputs of your works without meaningful accountability, as long as it promises to try to fix the problem after the fact with no stick if it fails.

☐ Watch Who Owns the AI Model — and Learned “Insights”

Ownership clauses in AI agreements often go further than you’d expect. The company may claim ownership not just of the AI model, but of all “insights” it learns which can be damn near anything. That “learning” is including those developed using your content. That language could be read to mean that everything the AI extracts, learns, or derives from your catalog belongs to the platform. Make sure you are not inadvertently ceding ownership of the creative intelligence embedded in your works.

☐ Don’t Let a Third Party’s Binding Calculation Determine Your Payment

I am no fan of market share revenue share deals, particularly when the revenue pool is a fixed number. Some revenue pool deals delegate the calculation of your market share — and therefore your payment — to a third party, and then declare that calculation to be binding on you, even if you had nothing to do with calculating either your market share (under the “license” not in general) or your share of the revenue or minimum guarantee. If you have no right to challenge the methodology or the math, or to audit that third party, you could be found to have agreed to be paid whatever someone else decides you’re owed, with no recourse if they get it wrong.

☐ Trace the Revenue Through Every Deduction Before Celebrating the Rate

A headline royalty rate means nothing if it’s applied to a revenue base that has already been carved down by layers of deductions including off the top fees, advertising costs, technical fees, inference compute costs, app-store commissions, performance royalties, and more. Each deduction may sound reasonable in isolation, but stacked together, they can reduce the revenue pool to a fraction of what you’d expect. Always model your actual payout, not just the stated percentage.

☐ Beware Conditional Authorizations That Expand the Deal Without Your Active Consent

Some agreements include provisions for future features such as API access, enterprise customer pricing, new product versions, downloads, or interactive streaming that automatically activate once a majority of other rightsholders sign on. If the trigger is what other labels or publishers do rather than what you approve, you may find that the scope of the license has expanded well beyond what you agreed to, without any additional negotiation or compensation.  And remember what they say about if everyone else was running off a cliff.

☐ Censorship Clauses: Don’t Agree to Never Contradict the Deal

Representation and warranty sections sometimes include a covenant that you will not take, or encourage your artists or songwriters to take, any position at any time (whether during or after the term and whether or not truthful) that is inconsistent with the hoorah narrative about AI or the applicable license. Read that carefully. It could be interpreted to prevent you — or your writers — from ever publicly criticizing the deal, advocating for stronger protections, or supporting legislation that conflicts with the agreement’s framework, even years after it expires even if the AI platform is in breach.  Aside from censoring your freedom of speech, this has nothing, and I mean nothing, to do with a license.

☐ Understand What Walled Garden Actually Means for Your Writers

A service that restricts AI-generated content to a “walled garden” with no downloads sounds contained. But if users can generate unlimited content using your works, share tracks or links to tracks across social media, and the company retains the right to expand into other product lines (including non-AI product lines like an on-demand streaming service) all within the same agreement, any “walled garden” may be pretty ephemeral.

☐ Confirm That Your Minimum Guarantee Is Actually Guaranteed

A minimum guarantee that is “fully recoupable” against future royalties is not a floor — it’s an advance. If the service underperforms, you keep the advance, but if it succeeds, the guarantee is just an interest-free loan. Make sure you understand whether the guarantee represents real minimum compensation or simply front-loaded royalties you would have earned anyway. Also, plan for both failure and success—if you’re a publisher or label, how on earth are you going to be able to account to your songwriters or artists while you’re recouping any minimum guarantee or afterwards?

☐ Demand Flow-Down Protections in the Platform’s Terms of Service

An AI platform’s Terms of Service are where your contractual protections actually meet the end user — and if the ToS doesn’t carry your rights forward, your rights may exist only on paper, if at all. Before you sign, confirm that the agreement requires the platform’s user-facing ToS to include, at a minimum:

  • An ownership disclaimer — users must acknowledge they acquire no copyright or ownership interest in AI outputs that embody your works.
  • A reverse-engineering prohibition — users must be prohibited from extracting, reconstructing, or isolating your works from the model’s outputs.
  • A downstream training restriction — users must be barred from using AI-generated outputs containing your works to train their own AI models.
  • User indemnification that flows to you — if a user misuses your works, you shouldn’t have to rely solely on the platform to make you whole.
  • A meaningful commercial-use definition and enforcement mechanism — if the deal says “personal, non-commercial use only,” the ToS needs to define what that means and impose real consequences for violations, not just account revocation. Remember, “non-commercial” has been used for text and data mining exceptions in various countries that are huge and unintended exceptions to copyright.
  • An anti-circumvention clause — users should be explicitly prohibited from attempting to bypass input/output filters and guardrails, not just prevented by technology that may fail.
  • Publisher review and approval rights over ToS language — if the agreement references ToS protections as part of your deal, you should have the right to review and approve the actual language implementing them.

If the platform isn’t required to flow these protections down to users, then the guardrails in your agreement are a ceiling, not a floor.

☐ Ask Whether Any Other Rightsholders Are Getting Equity — and Whether You Are, Too

If the agreement includes an MFN clause promising you’ll receive the “most favorable economic terms” offered to any other licensor, ask the obvious follow-up: are large rightsholders receiving equity stakes in the AI platform as part of their deals like the majors and Merlin did with Spotify? We’ve seen this movie before. When streaming platforms launched, labels negotiated equity positions that dramatically increased the total value of their agreements — value that was never shared with publishers or songwriters. If an AI company is offering stock, warrants, or other equity consideration to labels while offering publishers only cash royalties and a minimum guarantee, then the MFN clause is cosmetic. The “most favorable economic terms” aren’t favorable at all if they exclude the most valuable component of the deal. Before you accept the premise that you’re being treated equally, ask what the royalty rate would look like if nobody were getting equity. That’s the number that tells you whether the cash terms are fair on their own — or whether they’re subsidized by equity you’ll never see.

Now What: When an AI company presents you with a “licensing agreement,” read it like a litigator, not a dealmaker. (When presented with a contract, dealmakers look at the money, litigators look at the remedies.). The title of the document matters far less than what’s inside it. If the agreement includes a perpetual covenant not to sue, a retroactive release of claims, and an ownership clause that captures everything the AI learns from your work, what you’re being offered isn’t a license — it’s capitulation with a royalty attached.

Know what you’re signing. Read it yourself, don’t buy the hoorah.

by thetrichordist

Phonorecords V and the “39 Steps” Problem: Time for the CRB to Fix Streaming Mechanicals

Everybody knows that the boat is leaking, everybody knows that the captain lied….
Everybody Knows by Leonard Cohen

We are now well into the next Phonorecords proceeding at the Copyright Royalty Board (CRB) where the government sets mechanical royalty rates for songwriters. Readers may remember that the last rate-setting was Phonorecords IV where Trichordist helped spread the word about the attempted end run around songwriters to freeze physical rates (vinyl & downloads) at 9.1¢ for another five years but instead resulted in an increase to 12¢ plus a cost of living adjustment which has now increased to 13.1¢. (In a demonstration of humility and lack of pomposity, these proceedings are given Roman numerals like the Super Bowl, so the current example of gladiatorial combat is titled Phonorecords V.)

Inside the years-long litigation-like proceeding, there is an issue hiding in plain sight inside the existing and ancient streaming mechanical royalty rate structure that we fondly call “the 39 steps” in honor of John Buchan, Alfred Hitchcock and Richard Hannay. Despite the blood lust for complexity from the ancien régime that clings to its one sided royalty pool, there is one part of this unfair business practice that the CRB can and should address this time around.

Start with the basics. The streaming mechanical formula—the so-called “39 steps”—is built on a simple premise: we are calculating royalties for the use of musical works protected by the Copyright Act. The inputs and deductions in that formula are not abstract accounting categories. They are supposed to reflect real payments for real statutory rights.

That premise is now under pressure because of…wait for it…artificial intelligence and the AI slop that is flooding the market.

The rise of generative AI has introduced a new category of output that does not fit neatly within the Copyright Act. The U.S. Copyright Office has made clear that works generated entirely by AI are not copyrightable, and that protection exists only to the extent of meaningful human authorship in a proportion yet to be determined. (Courts have moved in the same direction, and the Supreme Court’s denial of cert in Thaler v. Perlmutter leaves that framework intact.)

Yet the streaming mechanical formula has no explicit mechanism to deal with AI slop. That creates a risk on two fronts.

We have to consider the royalty pool itself. The compulsory mechanical license applies when the exclusive rights of a copyright owner in a musical work are implicated. If a so-called “AI track” is not a protected musical work, then there is a serious question whether it belongs in the section 115 system at all. Treating non-copyrightable output as if it were a statutory musical work risks diluting the pool for actual rightsholders.

And then, of course, we have the Step 2 deduction for performance royalties. The regulation allows services to subtract payments for the public performance of musical works before calculating the payable pool. But what happens if a service characterizes payments to a platform like AIMPRO as “performance royalties”? If those payments are not, in fact, for the public performance of a copyrightable musical work, they should not reduce the pool. Otherwise, the 39 steps formula starts to leak money, and eventually leak in a big way.

Not only that, but if the U.S. Copyright Office ultimately articulates a workable “human authorship” framework for AI-assisted works during the Phonorecords V rate period, the downstream impact on the Copyright Act section 115 system could be profound: for the first time, the “39 steps” calculation may have to accommodate fractional copyrightability within a single work. Instead of treating a musical work as an either/or, services and the MLC could be forced to parse which portions of a track are attributable to human authorship and therefore eligible for royalties, and which are not. That would introduce a new layer of allocation on top of an already complex formula—effectively embedding micro-level authorship determinations into macro-level royalty calculations—and raising the administrative, evidentiary, and dispute-resolution burdens across the entire system.

The key point is that the CRB does not need to resolve all questions of AI copyrightability to act here for purposes of the 39 Steps. It can simply clarify what is already in the statute and the regulation: The formula applies only to payments that correspond to rights in nondramatic musical works, and deductions are limited to payments that genuinely compensate the public performance of such works. That is not a policy innovation outside the scope of the CRB’s mandate from Congress. It is a classification rule.

If there is doubt about whether a category of material such as purely generative AI output qualifies as a “musical work” for these purposes, that is a question the CRB can refer to the Register of Copyrights in a pinch. But the CRB should not leave the door open for the mechanical royalty pool to be diluted by payments for things that fall outside the Copyright Act altogether. If you get a paycheck every week this may not be that important to you, but if you live off of royalties it damn sure is.

This may also be the moment to ask a more fundamental question: whether the industry should abandon the “39 steps” construct altogether. Whatever its historical justification—particularly in Phonorecords I back in 2009, where publishers were trying to shield early services like MusicNet from crushing retroactive exposure—the current formula has outlived its usefulness. Today, it functions less as a fair pricing mechanism and more as a constraint, allowing services to use their complementary oligopoly market power to effectively cap mechanical royalties by anchoring them to a royalty pool determined in part based on what labels get paid. The result is a structurally odd feedback loop in which sound recording deals influence the value of adjacent musical works. A cleaner alternative would be a flat, escalating penny-rate framework, like what the Judges adopted for both physical and downloads as well as webcasting royalties—simpler, more transparent, and far less susceptible to strategic manipulation.

We have been here before. The history of section 115 is, in many ways, the history of closing gaps between statutory language and market behavior.

Phonorecords V presents another such moment.

The CRB should take it.

by Trichordist

Kafka’s Hypothetical Market Strikes Again: The DSPs’ Latest Move to Silence Songwriters by Throwing GMR Out of Phonorecords V

If you want to understand how the streaming services really view songwriters, look no further than their joint motion to exclude Global Music Rights (GMR) from Phonorecords V. It is not subtle. It is not principled. It is an attempt to narrow the field to those voices the services already know how to manage. (All of these services are being investigated by the Texas Attorney General “over alleged payola schemes in which they accept bribes to artificially promote certain songs, artists, or content.”)

Services’ Joint Motion to Exclude GMR (For Filing)Download

The Services—Spotify, Apple, Amazon, Pandora, and Google—argue that GMR lacks a “significant interest” because it licenses performance rights rather than mechanical rights. That argument is technically obvious and substantively hollow, a mile wide and an inch deep, if that. GMR represents songwriters whose mechanical royalties are directly at issue in this proceeding. The idea that those songwriters somehow lose their “significant interest” because their representative also licenses performance rights is not just formalism. It is exclusion by design.

Let’s be clear about what is at stake. GMR affiliates include some of the most commercially significant songwriters in the world—writers like Drake, Bruno Mars, The Weeknd, Pharrell Williams, Nicki Minaj, Post Malone, Pearl Jam, Prince, and Tyler, the Creator. Nobody else in this proceeding speaks for them. Not the NMPA, which represents publishers. Not the services, who are adverse. And certainly not a system that already tilts toward the parties who can afford to litigate at scale.

When songwriters affiliated with Global Music Rights made a choice about how to license their work, they chose a free market model. They chose to be represented by GMR and to negotiate performance royalties directly with users, in arm’s-length, private negotiations reflecting real-world value. That decision matters. It reflects a preference for market pricing over regulatory pricing, and for merit over compulsion.

But the moment you shift from performance rights to mechanical rights, that choice disappears. Why?

Well, that’s a good question, but the answer for now is that under section 115 of the Copyright Act, those same songwriters are forced into a compulsory license regime administered in large part through the CRB which sets the rates. They cannot opt out. They cannot negotiate freely. Instead, their work is swept into a statutory system where rates are set through a complex, expensive, and heavily lawyered process that bears little resemblance to a functioning market. It is a hypothetical market.

So we end up in a strange place, a Kafkaesque place. The same songwriter who can negotiate directly for the public performance of their work is denied that freedom when it comes to the reproduction and distribution of that same work. One side of the market is competitive and arms length. The other is managed and hypothetical.

That is not a neutral design choice. It is a structural constraint—one that continues to shape outcomes in favor of the services.

The Services claim that GMR lacks a “direct financial interest” in the outcome. That is a remarkable position. The entire proceeding is about setting the value of musical works in streaming. If the rate goes down, songwriters get paid less. If the rate goes up, they get paid more. That is the definition of a direct financial interest. The Services’ attempt to redefine “direct” to exclude the very creators whose works are being priced is not statutory interpretation. It is outcome engineering.

The Services also argue that GMR’s interest is merely “indirect” or “attenuated.” This requires ignoring the bargaining power of the songwriters who effectively are GMR. But this is the same playbook the services have used for years: isolate each rights silo, then argue that no one outside the narrowest licensing box is entitled to speak. The result is a fragmented system where the only voices that remain are those structurally aligned with the services’ preferred outcome.

Then there is the efficiency argument—the Services’ claim that allowing GMR to participate would make the proceeding “lengthy, complex, and expensive.” As opposed to what? Nasty, brutish and short?

That would be more persuasive if it were not coming from the very companies that have turned CRB proceedings into multi-year, multi-million-dollar wars of attrition. These are the largest corporations in commercial history (at least one of which is an adjudicated monopoly) arguing that the problem is too many songwriters having a voice.

Let’s call this what it is: a coordinated effort by a handful of dominant platforms to use their collective market power—and their litigation budgets—to shape the CRB process in their favor. The same companies that work relentlessly to drive down the royalties paid to songwriters are now trying to limit who is allowed to advocate for those songwriters to get fair treatment in the first place.

And here is the practical reality the Services are ignoring: even if the Judges exclude GMR, they are not solving the problem. They are postponing it. When the decision is released for public comment, the absence of these voices will not go unnoticed. It will be exposed—and it will undermine the legitimacy of the outcome. Because they’ll be back for comments which will attack the entire proceeding as arbitrary.

The CRB process already leans heavily toward those who can afford to participate. That is a structural fact. But actively excluding a representative of major songwriters—on the theory that those songwriters do not have a “significant interest” in how their own royalties are set—crosses a different line.

The Judges should reject this motion out of hand.

Because if the people who write the songs do not have a seat at the table, then whatever this process is—it is not a willing buyer, willing seller marketplace. Excluding GMR would raise the question of whether it was ever intended to be one.

by Trichordist Editor

@wordsbykristin: Legal Fights, Transparency & Neutrality: DiMA’s CEO On Improvements Streamers Suggest for the MLC

Kristin Robinson makes another important contribution to the artist rights conversation with her interview of Graham Davies, the new head of the Digital Media Association. Graham comes to DiMA from a background in the artist rights movement at our friends the Ivors Academy in the UK. We have high hopes for Graham who brings his intellect to clean up a long, long line of mediocrity at the DiMA leadership who are from Washington and here to help.

Kristin’s interview highlights DiMA’s recent filings in The Reup–the redesignation of the MLC by the Copyright Office that we’ve highlighted on Trichordist. He also has some well thought out analysis on how the MLC is not HFA, however similar the two may seem in practice.

This is an important interview and you can find it on Billboard (subscription required).

Here’s an example of Graham’s insight:

Do you think a re-designation every five years is not enough on its own?

I think it’ll be interesting to see what the re-designation process brings forward from the Copyright Office. Maybe the Copyright Office leans in on governance and says, “We’ve heard enough, and we can come forward with ideas.” But the re-designation process is a different thing than a governance review, which would bring in a special team to actually dig into governance-related issues and bring forward recommendations and proposals that could then be implemented. It would be something more specific and something the MLC could just do. You wouldn’t need the Copyright Office to sponsor it, though they could if they wanted to.

by Trichordist Editor

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 streaming. Surprised? 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:

by Trichordist