Senator Leahy Says Show Me the Money on the MLC

Readers will recall that the MLC is sitting on a pile of other peoples money (i.e., the Mechanical Licensing Collective, the DSPs one-of-a-kind joint venture quango mandated by the good folks from Washington who are here to help). We estimate that the MLC has got at least $500 million socked away at City National Bank in Nashville collecting dust–or interest. More on that later. This would include current black box plus $424 million or so in historical black box it voluntarily paid to the MLC by the DSPs–an inexplicably large sum given all the DSP audits over the years.

Readers will also recall that the U.S. Copyright Office is responsible for the operations of the MLC, or as they say in Washington where all the children are above average and no one is responsible for anything, “has oversight” which usually means “gets to blame somebody else” when the fan takes over. And of course the Congress has oversight of the Copyright Office. Every so often, the head of the Copyright Office gets the rare joy of attending an oversight hearing at the Congress which happened recently and resulted in certain follow up “questions for the record” that get answered in writing.

The MLC and its employees should get one thing straight–they are about to be blamed for some grubby practices when Congress wants you to show them the money. And you will be thrown under the bus, count on it. Just think–you could have stolen the money the old fashioned way. In the dark. But no, you wanted the government to force songwriters to deal with you and you could not stop congratulating yourselves about how smart you were. Well, you wanted it, and now you’ve gotten it.

Senator Patrick Leahy, Chair of the Senate Judiciary Committee, submitted some rather pointed questions about the MLC black box which drew a rather pointed response:

Question: The Mechanical Licensing Collective (MLC), the organization created under the Music Modernization Act to collect mechanical royalties for songwriters and publishers, also has an obligation to identify the owners of musical works that have accrued royalties when the owners are not known. The major publishers who largely control the MLC keep the royalties from unidentified works if the owners cannot be found. Over the past year, the MLC has identified only a tiny fraction of the rightful owners. [You were warned.] The major publishers stand to gain hundreds of millions of dollars from that failure to find rightful owners. We did not intend to create a disincentive for the MLC and major publishers to find the rightful owners of music works.

What can the Copyright Office do to help ensure that the MLC is working to make sure that rightful owners of music works are identified and paid?

Response: The Mechanical Licensing Collective (“MLC”) should make every reasonable effort to ensure that royalties are paid to the rightful owners of musical works. According to the MLC’s first annual report, it has distributed over $420 million under the new blanket license for uses reported in 2021, with a steadily improving match rate reported to be approximately 88% of all royalties. With respect to the historical, pre-2021, unmatched royalties, which were reported to be about $426 million, the annual report says that the MLC recently started distributing those that it has been able to match. It also says that the MLC has begun making associated usage data for historical unmatched royalties available to copyright owners, which will facilitate further claiming and matching. Notably, the MLC plans to wait to process historical unmatched royalties from the Phonorecords III rate period until the Copyright Royalty Judges finalize those rates in the ongoing remand proceeding and digital music providers provide adjusted reports of usage and royalty payments. It is the Office’s understanding that the bulk of historical unmatched royalties come from that period. [More on this PR III issue below]

The Copyright Office has been active on the issue of matching musical works to accurately pay copyright owners. Last year, we issued a report recommending best practices for the MLC to consider to reduce the incidence of unclaimed royalties. The report’s comprehensive recommendations ranged from high-level concepts to detailed suggestions across seven areas: (1) education and outreach; (2) usability of the MLC’s systems, including the public musical works database and claiming portal; (3) data quality; (4) matching practices; (5) holding and distributing unclaimed accrued royalties; (6) measuring success; and (7) transparency. One of the report’s most significant recommendations was that the MLC should hold unclaimed royalties for longer than the statutory minimum period, to maximize its matching efforts and the ability of copyright owners to make claims before any market-share-based distributions are made. We recommended that the MLC should wait to make such distributions of unclaimed royalties based on the evaluation of various objective criteria, like match rates and engagement metrics.

Additionally, the Office and the MLC are each involved in substantial education and outreach efforts to help ensure that publishers and songwriters, especially self-published songwriters, are aware of the Music Modernization Act (“MMA”), understand their rights under the new system, know that they can register their works with the MLC and claim royalties, and know that royalties for unclaimed works will be equitably distributed to known copyright owners.

[Here comes the bus.]. The Office is continuing to engage with the MLC and other industry stakeholders, including digital services and songwriters, to monitor the MLC’s progress as it continues to ramp up operations. While the MLC has not indicated that it plans to make a distribution of unclaimed royalties anytime soon, the Office possesses broad regulatory authority to act if necessary to prevent a premature distribution. The statute requires the MLC to give ninety days’ notice before any distribution. We have previously cautioned that making a premature distribution of unclaimed royalties could jeopardize the continuation of the MLC’s designation. 84 Fed. Reg. 32,274, 32,283 (July 8, 2019) (“[I]f the designated entity were to make unreasonable distributions of unclaimed royalties, that could be grounds for concern and may call into question whether the entity has the ‘administrative and technological capabilities to perform the required functions of the [MLC].’”) (quoting 17 U.S.C. § 115(d)(3)(A)(iii)).

One issue that is not discussed in the QFR or anywhere else for that matter is what is happening to the hundreds of millions that the MLC is sitting on. Remember that the MLC is required to pay a government interest rate on black box, and that interest rate has been steadily increasing this year thanks to the Federal Reserve. That interest payment is presumably covered under the MLC’s administrative assessment and government fees charged to music users for the privilege of using the compulsory blanket license.

But wait–there’s more. According to the MLC’s annual report (at p. 4), the MLC invests the black box according to its internal “Investment Policy” established by its board of directors.

Investment Policy: This policy covers the investment of royalty and assessment funds, respectively, and sets forth The MLC’s goals and objectives in establishing policies to implement The MLC’s investment strategy. The anti-comingling policy required by 17 U.S.C. § 115(d)(3)(D)(ix)(I)(cc) is contained in The MLC’s Investment Policy. The Investment Policy was approved by the Board in January 2021.

This raises some interesting points. First and foremost, it is unclear where any trading profits reside. Realize that every CMO is confronted with the decision about what to do with the royalty float and black box, but not every CMO decides to invest these funds in the market. If they do invest the funds, it is generally the case that any trading profits, dividends or interest goes to offset the CMO’s administrative costs that otherwise would be deducted from collected royalties.

However, the MLC’s administrative costs are paid by the users of the blanket license (making the United States, I believe, the only country in history or the world that charges for the use of a statutory license). Therefore, the return on the MLC’s investment of the songwriters’ money would not be used for the same purpose as all the world’s CMOs that follow a similar practice.

Whether the ROI is returned to songwriters or to the users or retained by the MLC is unclear to me from the MLC’s annual report. It is also unclear as to the authority that the MLC’s board (or the Copyright Office for that matter) would have to put the songwriters’ money at risk in the market, what record keeping is made or required of the investments and ROI, or really much of anything at all, aside from the quoted statement above.

It is also unclear how, if at all, the MLC distinguishes between ROI on royalty or the administrative assessment. It would make sense for trading profits on received but unspent administrative assessment funds to offset current or future assessments, but it’s not clear if that is done.

Assuming there are any. Profits, that is.

I was hoping that this topic would be addressed in the oversight hearing, but maybe next time.

Will Sunlight Win at the Copyright Royalty Board in Big Tech’s Latest Credibility Debacle? — Music Technology Policy

The Copyright Royalty Judges stand up to the most dangerous corporations in the world and demand transparency in streaming mechanical rate “settlements.”

Will Sunlight Win at the Copyright Royalty Board in Big Tech’s Latest Credibility Debacle? — Music Technology Policy

The MLC Still Can’t Show the Money

[Editor Charlie sez: Everyone paying attention knew from the time they stopped calling it SIRA II and started calling it Music Modernization Act (a title that conveys exactly zero information about the subject of the bill) that the legislation was designed to lock in the Harry Fox Agency’s death grip on songwriters. And therefore also knew for years that the MLC would be run by the majors and would be serviced by the same HFA database that resulted in many lawsuits against Spotify for being unlicensed. So if the HFA is the best of breed and the gold standard and all the other euphemisms for mediocrity that MLC threw out there, they should have been standing ready to match the $474 million in unmatched that got paid after the 1/1/21 “license availability date” because of their super duper song matching capability. Not only have HFA apparently not matched the lions share of the $474 million, what the MLC has announced as matched is for services that HFA did no work for that we know of. And remember, this is not a cost issue because the services are paying for the cost.

“Give them a chance” you will be told by the smart people, particularly by the non-oversight of the Copyright Office. They had their chance. The game was rigged to begin with–and overseen by the head of lobbying for Spotify. If they’d spent less time rigging the game and less time giving each other awards and listening to the sound of one back slapping, we would not have this problem.

But don’t worry, no one will get fired because you can’t be late if there are no deadlines. And now…back to sleep.]

The @ArtistRights Watch Podcast: Episode 1: The Frozen Mechanicals Crisis with Guest @CrispinHunt

Nik Patel, David Lowery, and Chris Castle feature in this podcast where they discuss the current issues of artists’ rights in the music industry. Find the Artist Rights Watch on your favorite podcast platform here https://linktr.ee/artistrightswatchpod Please subscribe, rate and share!

On the first episode of the Artist Rights Watch, Nik Patel, David Lowery, and Chris Castle sit down with Ivors Academy Chair, Crispin Hunt to talk about the frozen mechanical royalties crisis currently playing out in the United States and how it threatens UK songwriters and indeed songwriters around the world.

Crispin gives us his invaluable analysis of how the frozen mechanicals crisis affects songwriters around the world and the highly effective #brokenrecord and #fixstreaming campaigns that Ivors Academy supports in the UK that has lead to a parliamentary inquiry and legislation introduced in the UK Parliament.

The “frozen mechanicals” crisis is rooted in a private deal between big publishers and their big label affiliates to essentially continue the freeze on the already-frozen U.S. mechanical royalty rate paid by the record companies for CDs, vinyl and permanent downloads. The private deal freezes the rate for another five years but does not even account for inflation. Increasing the royalty rate for inflation, does not actually increase songwriter buying power.

The major publishers and labels have asked the Copyright Royalty Board in the US to make their private deal the law and apply that frozen rate to everyone.

In the past, the music industry has experienced a $0.02 mechanical royalty rate that lasted for 70 years, and with the current mechanical royalty rate of $0.091 being set in 2006, advocates hope it’s not a repeat of the past.

In this Artist Rights Watch episode, we cover its numerous implications and consequences such as controlled compositions clauses, the Copyright Royalty Board, CPI and fixed increases, how the UK compares, and potential resolutions.

Below are some links for further reading on frozen mechanicals and Crispin Hunt:

Take the Artist Rights Watch Survey on Mechanical Royalties

Controlled Compositions Clauses and Frozen Mechanicals. Chris Castle

Controlled Compositions Clauses and Frozen Mechanicals

What Would @TaylorSwift13 and Eddie @cue Do? One Solution to the Frozen Mechanical Problem. Chris Castle

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

The Trichordist posts on frozen mechanicals

https://thetrichordist.com/category/frozen-mechanicals/

The Ivors Academy Joins the No Frozen Mechanicals Campaign

https://thetrichordist.com/2021/06/07/the-ivors-academy-joins-the-no-frozen-mechanicals-campaign/

Year-End 2020 RIAA Revenue Statistics

Crispin Hunt

Below are our social links and terms of use:

Chris: http://www.christiancastle.com/chris-castle

David: https://twitter.com/davidclowery?s=20

https://www.instagram.com/davidclowery/

Nik: https://www.instagram.com/nikpatelmusic/

Website: https://artistrightswatch.com
Facebook: https://www.facebook.com/artistrightswatch
Twitter: https://twitter.com/ArtistRights?s=20

Terms of Use: https://artistrightswatchdotcom.files.wordpress.com/2021/01/arw-podcast-terms-of-use-v-1-i-1.pdf

Update: Copyright Royalty Board Calls for Public Comments on the Frozen Mechanicals Private Settlement–MusicTechPolicy

By Chris Castle

[This post first appeared on MusicTechPolicy]

If you’ve followed the frozen mechanicals debate, you’ll know that one of the asks from commenters was that the Copyright Royalty Board not restrictively parse who could and could not comment on the private party settlement that the settling parties asked the CRB to impose on the world.

In case you’re not someone who reviews the Federal Register or the CRB docket on the Friday before a national holiday long weekend, I’m pleased to let you know that the CRB has published for comment just the draft regulations that private party settlement proposed (with a couple of ministerial changes by the CRB).

Comments are due no later than July 26, 2021. Comments need to reference docket number 21-CRB-0001-PR (2023-2027) and can be submitted online through eCRB at https://app.crb.gov according to the Federal Register notice filed by the CRB–if you have registered with the CRB and been approved for an account.

Of course, if you just click on that link provided in the Federal Register notice, the link just takes you to the landing page for the electronic document system at the CRB. There’s no obvious way to know what you had to do in order to file a public comment. I’m sure this oversight is not designed to confuse you, but just another example of the rarefied air they breath at the CRB. If you are used to using Regulations.gov to comment on regulatory agencies like the CRB, you will find this process a bit more complicated and bureaucratic.

As far as I can tell, you register at this link: https://app.crb.gov/register/index and complete the required fields only. They might have told you that in the Federal Register, but you know, busy people. I emphasize the required fields because when you first look at it you may think that only lawyers can register because the CRB asks for your bar number which you probably don’t have. I don’t know why they do this unless they think that lawyers will be the most frequent users, but don’t be put off. You don’t have to be a lawyer to comment and you only have to provide the required fields and get your email address confirmed in order to start the account registration process.

Eventually your account will be activated allowing you to “File a Document”. Naturally, all the days that you have to wait for CRB to activate your account will count against the 30 day comment period and apparently all calendar days will be counted against your 30 days including the days that CRB are closed like the upcoming national holiday on July 5.

So the punchline there is that if you are planning on filing a comment or think that you might be interested, register for an account right away and do not leave your ability to be heard to the tender mercies of the government’s technical support staff.

It is also worth noting that the CRB clearly states that once adopted by the CRB, the private party settlement will apply to everyone:

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.

So they are telling you very clearly that the private party settlement and frozen mechanicals will be the law of the land if the CRB says so. Even though the CRB is all powerful when it comes to your rates, it is important to comment so that there is a full record for appeals.

It is one thing for the CRB to adopt a private party settlement that applies to every songwriter in the world when they reasonably believe that the settlement represents the consensus view.

It’s quite another thing for them to adopt that settlement when they have clear evidence that it does not. And unlike other government regulatory agencies, the way this game is played is that the CRB doesn’t have to have a consultation with anybody, they don’t hold round tables, they don’t do any inquiry. The only people they really have to listen to are the people who can afford to get in front of them which is a very, very expensive process.

These people are referred to by the CRB as the “Participants” and focus on this sentence in the Federal Register notice:

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.

The emphasis on “participants” is in the original–meaning the Judges of the CRB want to make sure you understand that an objection by a mere member of the public is not enough for them to reject a private party settlement under their rules. So any participant in the proceeding who objected in the proceeding should probably also object in the comments just to be sure that they don’t get game-ified.

So what to comment on? Most obviously the frozen rates and that’s a common sense thing given all the reporting on the vinyl boom that entirely undercuts the idea that physical is unimportant (of course Big Tech would like everyone to believe that vinyl is unimportant so they have a carotid crushing stranglehold on songwriters).

But you may also want to ask the CRB to require that the settlement document and the side deal referenced in the proposed settlement also be disclosed so that everyone knows what the consideration is for freezing the rates.

Plus as many commenters astutely raise, how can you approximate a free market rate using a “willing buyer/willing seller” standard when the willing buyer and willing seller are essentially the same entity? This is particularly true when songwriters have publishing deals and have essentially given up their “willing seller” status. Like so many other sloppy drafting glitches in Title I of the Music Modernization Act, this one should have been obvious from the beginning. And maybe it was.

Public comments are a way to get actual market conditions in front of the CRB because there was absolutely none submitted as part of this proposed private party settlement.

More to come on this, but the clock is ticking for any commenters. And if this entire CRB process seems overly complex and bureaucratic compared to even the Copyright Office rulemakings, it does raise the obvious and separate question about why it’s done this way in the first place and why there isn’t an independent advocate for independents.