We will release the results of our most recent MLC awareness questionnaire soon, but here’s an interesting data point: 47% of respondents did not feel their voice was heard in crafting the Music Modernization Act. It would be interesting to see if any other survey has asked that question and what the results were.
Dylan Smith at Digital Music News asks the question, “Is the MLC Putting Smaller Streaming Platforms out of Business?” We’ve raised this very question long, long ago, back in early 2018 when the Music Modernization Act was getting passed and the chorus of braying by MLC supporters was at a fever pitch. Everyone ignored the obvious flaws in the legislation, especially the anticompetitive nuances that Dylan has highlighted today.
But understand–this issue is not new. We raised it in the blogs, and Chris raised it to Congressional staff directly–he said the response was a hangdog “I know, I know. It’s what the parties wanted.”
In other words, Congressional staff knew it was stupid, but were being railroaded into doing it anyway by “the parties” (plural) and there are so many hours in the day. When staff said “the parties” back in 2018 before there was an MLC, guess who they meant? One of those parties was the Digital Media Association which still runs the “Digital Licensee Coordinator” or the DLC–which is essentially the companies with trillion-dollar market caps who we think of as Big Tech. (The DLC’s membership application is here.)
And as you will see, it’s more like is the DLC putting smaller streaming platforms out of business. (See the DLC membership assessment fees “explainer” for DLC members.)
And since the DLC appears dominated by Google, Amazon and Spotify, maybe the real issue is that it’s Thursday, so of course Big Tech wants to keep competition weak and vulnerable to being shut down or acquired. And the MLC and its promoters did nothing to stop it because of the pact between the MLC and the DLC that they would each keep anyone out of the vicinity of the Copyright Royalty Judges who might get in their way.
Of course the most ludicrous part of this is that these trillion-dollar companies don’t just eat the cost of running the DLC since by the time you get finished reading this post, they will have collectively grossed some sum well, well in excess of the annual operating costs.
But–as we will see, there may be some hope for brave startups to challenge the insider deal that penalizes them without giving them an opportunity to speak up for themselves.
As Dylan writes in DMN:
According to the document [establishing the insiders’ allocation of the fee structure], digital service providers have to cover the MLC’s startup fee ($33.5 million) via a “startup assessment,” or “the one-time administrative assessment for the startup phase of the Mechanical Licensing Collective.” This payment must be made alongside the first annual bill, which is due on February 15th, 2021; the second annual fee disclosure is due in November of the same year and must be paid by January of 2022, for a considerable overall obligation.
Total-wise, platforms “that have a Unique Sound Recordings Count” – or the average number of “royalty-bearing” works streamed or downloaded each month – of less than 5,000 will pay an annual minimum fee of $5,000, to a $60,000 annual minimum fee for those with over 5,000 such works. For DSPs that break the 5,000 threshold, it appears that 2021 will bring with it a low-end bill of $120,000.
Significantly, our source proceeded to indicate: “That’s just the minimum – the total assessment is dependent on market share, which is basically unpredictable at this point. And that’s on top of mechanical royalties for those who use the blanket license.”
This completely out of whack cost structure was obviously a major, major flaw in the Music Modernization Act–specifically the incredibly muddled and meandering Title I which established the Mechanical Licensing Collective and the DLC. The chickens are now coming home to roost.
As Chris wrote in Newsmax Finance on August 20, 2018:
[T]he problem [with the MMA] doesn’t come from songwriters. It comes from the real rule makers—Amazon, Apple, Facebook, Google and Spotify. And startups know which side butters their bread.
Public discussion of MMA has focused on the song collective and the compulsory blanket license for songs, but the mandated digital services collective is more troubling given the size of the players involved…Rule taker startups are governed by the rule maker DLC, but have no say in the DLC’s selection.
Like Microsoft’s anonymous amici, startups know their place —especially against Google, Amazon, and Facebook, whose monopoly bear hug on startups includes hosting, advertising and driving traffic.
The MMA authorizes these aggressive incumbents to effectively decide the price to startups for the “modernized” blanket license. Why? Because the MMA requires users of the license to pay for the lion’s share of the “administrative assessment,” the licensees’ collectivized administrative cost payment that the CBO estimates will be over $222 million for eight years….
Why should the government only permit one game in town? Rather than have the DLC run by the usual suspect monopolists, why not allow competition?
This is important–if startups can’t afford to buy-in to the license, it does them no good, and their biggest competitors decide the price of that license through the DLC.…
“Modernization” should make licensing easier: level the playing field for startups and protect them from famously predatory competitor incumbents, as well as copyright infringement lawsuits from the rule takers.
These are all good reasons for the private market solution. Competition at least gives startups hope for the pursuit of fair treatment.
“The parties” and everyone else ignored this warning (and of course, since it wasn’t included in a press release, the trade press did no investigation). This is exactly what Dylan is focused on in DMN. It was only a matter of time until the invoice for startups came due.
That invoice arrived as part of the “administrative assessment” hearing mandated by Congress in Title I. This is a curious procedure before the Copyright Royalty Judges that expressly excluded anyone from participating who might get in the way of the check that would reunite the Harry Fox Agency with its former owners. That order by the CRJs is the document that Dylan links to.
In a blog post at the time on MTP, Chris drilled down on the nuances of this settlement for the administrative assessment (which is what gives teeth to the mechanism to sandbag startups:
Notice two things: First, the CRJs’ adopt the position of the MLC and the DLC that the only people who could object to the settlement were “participants”. Who might that be? Why the DLC and the MLC, of course. There were other participants, most prominently the Songwriters Guild of America. SGA was hounded out of the proceeding because the MLC apparently did not want to include SGA in the negotiation of a settlement.
I can understand the complexity of a three-way negotiation with those pesky songwriters about a matter that affects all the songwriters in the world who have ever written a song or that may ever write a song. Those songwriters might really get in the way. What I do not understand, however, is why the songwriters would not be afforded the opportunity to at least comment on the settlement that carries the awesome power of the Leviathan behind it. I do understand how the rules came to be written the way they are, however.
And this leads to the other thing to observe about this ruling. “Because there were no non-settling participants…the proposed settlement was unopposed.” Rather tautological, right? How can the settlement be opposed if those who might oppose it are not allowed to do so?
Let’s be clear what “opposition” means in this context. You could just as easily say “improve” or “make fair”. And lest you think that this is yet another example of sloppy legislative drafting in the mistake-prone Title I, this time I don’t think it’s a mistake. I think it is exactly what the drafters intended.
This is all pretty darkly typical swampy behavior by the insiders and their lobbyists dedicated to lawyering their way to an unfair court order masquerading as a good thing for songwriters. Of course.
Here’s the ray of sunshine:
After the world “unopposed” the CRJs drop a footnote. And it is this footnote that is probably the most important point to the unrepresented songwriters and startups who either couldn’t afford to participate or who were afraid of back alley retaliation if they did.
“The Judges have been advised by their staff that some members of the public sent emails to the Copyright Royalty Board seeking to comment on the proposed settlement agreement.Neither the Copyright Act, nor the regulations adopted thereunder, provide for submission or consideration of comments on a proposed settlement by non-participants in an administrative assessment proceeding. Consequently, as a matter of law, the Judges could not, and did not, consider these ex parte communications in deciding whether to approve the proposed settlement. Additionally, the Judges’ non-consideration of these ex parte communications does not: (i) imply any opinion by the Judges as to the substantive merits of any statements contained in such communications; or (ii) reflect any inability of the Judges to question, [on their own motion without a filing from a participant] whether good cause exists to adopt a settlement and to then utilize all express or reasonably implied statutory authority granted to them to make a determination as to the existence…of good cause [to reject the settlement now or in the future].“
This footnote is very, very important. I would interpret it to mean that the CRJs may anticipate that they are directly or indirectly appealed or their decision is examined by the Congress that has ultimate oversight.
Note that the Judges clearly anticipate reviewing the assessment for “good cause” without a filling from the DLC or the MLC. It’s not clear exactly how that might happen, but it might be as simple as a startup complaining to the CRJs in an email.
So it seems to us that it’s only an MLC issue in that both the MLC and the DLC are each complicit in keeping outsiders away from the decisions about the administrative assessment and how it will be tagged to startups or smaller services. You know, “the parties” decided how the little people are to make do.
The Copyright Office announced that it is extending deadlines for certain filings including the compulsory mechanical license:
The Acting Register of Copyrights is extending the temporary adjustments to certain timing provisions under the Copyright Act for persons affected by the COVID-19 national emergency. The Coronavirus Aid, Relief, and Economic Security (CARES) Act authorizes the Register to temporarily adjust statutory deadlines for copyright owners and other affected parties if she determines that a national emergency declared by the President is generally disrupting the normal operation of the copyright system. Under this authority, the Copyright Office has announced adjustments relating to certain registration claims, notices of termination, and section 115 notices of intention and statements of account [as required for the compulsory mechanical license for songs].
These emergency modifications originally were set to expire on May 12, 2020. Because, however, the disruptions caused by the national emergency remain in effect, the Acting Register is extending them for up to an additional sixty days, or through July 10, 2020. For further details, please visit the Office’s Coronavirus page.
There are a number of deadlines relating to Title I of the Music Modernization Act (the massive amendment to the compulsory mechanical license that created the blanket compulsory license and the MLC which is now “The MLC”). These deadlines are suspended under the new emergency powers of the Copyright Office. The emergency powers last for the duration of the declared national emergency as do the suspensions of deadlines. When do you think the national emergency will get undeclared? Our bet is that it will last well into at least first quarter of next year because so much stimulus and state economic relief depend on the existence of a declared national emergency.
And what else happens in first quarter of next year? Wanna guess?
The suspension of deadlines could also apply to the launch of “The MLC.” Our bet is that the Copyright Office will not extend the hard wired January 1, 2021 “License Availability Date” (which is the date that the new blanket compulsory license is available to music services) but will extend the deadlines that The MLC is required to send statements and payments to songwriters, publishers and potentially foreign authors societies (like SACEM) who theoretically collect mechanical royalties from The MLC and not under a direct license.
There’s also the potential for new deadlines in the regulations that are currently being drafted that may include disclosures for things like whether The MLC can actually function. Things like that.
It’s unclear if the Copyright Office is also empowered to suspend the payment deadlines from the digital services to The MLC under the “administrative assessment” that involves the payment of $60 million of startup and operating costs or thereabouts. Even if the emergency powers could include those payments, our bet is that those millions and millions and millions will flow just fine in the time of the virus. Songwriters may go hungry, but some payrolls will get paid.
According to the Copyright Office notification:
While the MMA’s most significant change is to establish a new, blanket license for digital music providers (DMPs) to be administered by a mechanical licensing collective (MLC), this blanket license is not yet available. DMPs and other licensees must continue to comply with section 115’s conditions on a song-by-song basis during the current transition period. The emergency relief outlined below is directed at obligations accruing during this transition period and is unrelated to activities of the MLC. [So far.] This relief is also necessarily limited to obligations related to the statutory section 115 license and is unrelated to obligations that stem from direct licensing agreements between private parties….
The Copyright Office has become aware that, as a result of the COVID-19 national emergency, some entities, including at least one DMP and its licensing administrator, may be prevented from serving NOIs and SOAs in a timely manner due to an inability to physically process paper notices and statements resulting from a shutdown of corporate offices….
List of Affected Works and Licenses: Entities making use of this adjustment must track how they use it and must maintain a record of licenses by copyright owner for which they have made use of the adjusted timing provisions. They must also keep a list of the affected musical works. Over time, the Office expects the list of licenses with respect to the number of copyright owners to remain the same, or decrease, as copyright owners opt-into electronic delivery, while the list of affected works may increase as new sound recordings continue to be released.
Hmmm…”at least one DMP and its licensing administrator” eh? Wonder who that is? Why wouldn’t they just say the names? Wouldn’t you need to know that if you wanted to look for this “List of Affected Works and Licenses”? Particularly because maintaining a “List of Affected Works and Licenses” sounds like a potentially tall order if the DMP would happen to be Spotify and “its licensing administrator” would happen to be HFA. Our bet is that HFA is the prime beneficiary of this emergency treatment.
(You may be asking why HFA would be Spotify’s “licensing administrator” because you thought that HFA represented publishers. Well, they do both. This has been a topic of discussion from time to time, particularly in some of the many lawsuits against Spotify for failing to license songs. Don’t worry, there’s no conflict of interest there don’t you know.)
But…when you go to HFA’s website you see this new link at the top of the page above the navigation bar:
We expected that if you clicked on that link it would take you to HFA’s “List of Affected Works and Licenses”. Not so fast. Here’s what you see:
We gather that HFA has no intention of doing the work to post a “List of Affected Works and Licenses” even though posting that list is a key component of the benefit they get from changing the law…sorry…the emergency rules that were announced for their benefit.
Instead, this paragraph says how they’re handling the Copyright Office announcement:
So you’ve been instructed little publishers. That’s all the compliance you’re going to get.
Instead of posting a list, HFA states that they have notified all the affected publishers and have given them instructions on how to set up an online account. This probably means that the publisher was already an HFA publisher but hadn’t set up an online account to receive NOIs. Or if you are not an HFA publisher but are a Spotify publisher who HFA services for Spotify, then it’s possible that you got a notice in your Spotify statement that you needed to set up a new HFA online account in order to receive your statements and NOIs in the future.
You will supposedly still get your HFA paper check, you just won’t get the statement for what it means until you sign up (and maybe give HFA your data if you are not already an HFA publisher).
So according to HFA’s website you already know who you are, and HFA will send you notices electronically once you sign up–even though they have already “temporarily transitioned” you to electronic statements and NOIs that you won’t get until you sign up if you happened to notice that you were “notified.”
Our bet is that your last paper statement from HFA probably had a cover letter or other “notice” that you may not have read or read closely because you weren’t expecting it.
And when the national emergency is over–whenever that may be–HFA will transition you back to paper statements. Particularly if the national emergency ends after the License Availability Date and you get sucked into the compulsory blanket license?
And of course the service’s matching obligations to get their safe harbor under MMA will go forward smoothly and not be affected. (You know, the one they’re being sued for by Eminem’s publishers?)
Easy peasy, right? What could possibly go wrong? That entire process will go smooth as glass, we are so sure. Probably not. We’re about as sure about that as we are that absolutely no one will do anything about HFA’s failure to comply with the emergency regulations after they got the emergency suspension for their benefit announced to every songwriter and publisher in the world. For as King Louis XIV of France said, I am the law and the law is me.
Get it? Got it? Good.
Lots to drill down on, thanks to the Copyright Office for all the work on these which must have been a tremendous effort.
It has been patently obvious from the first discussions of the Mechanical Licensing Collective several years ago that transitioning from a century of song-by-song licensing was going to be a highly costly and highly complex process. The MLC was sold to songwriters on the idea that there would be no administrative costs to song copyright owners for participation in the MLC. Why? Because the services were going to pay for those administrative costs. Like the world’s songwriters, we take them at their word.
Zero means zero.
Now that it is time to actually implement the MLC, addressing those administrative costs have become front and center. The Copyright Office has put a number of issues out for public comment for purposes of drafting regulations covering that implementation including what metadata must be delivered to the MLC. Those regulations are a significant inflection point for driving the industry toward metadata standards that start in the recording studio and end at the distribution point.
If we fail to seize this opportunity, it is not a very big leap to see a true morass at the MLC. But before we deal with the prospective solution, the Copyright Office needs to address the retrospective problem. Remember, the MLC is charged by the U.S. Congress with the task of licensing all songs in copyright that have ever been written or that ever may be written and is exploited under the blanket license. The first clause of that disjunct is every song in copyright that has ever been written–in any language–and that’s a lot of songs. And even more metadata.
The MLC “global rights database” is an empty vessel that must be filled and how that vessel is filled–and the cost of filling it–must be addressed now. It is hard to believe that an organization that in the last nine months has failed to launch a website beyond what anyone could throw up with a Squarespace account is going to hit their January 1, 2021 deadline (the “License Availability Date”).
In addition to public comments, the Copyright Office is arranging for calls with interested parties provided that the party initiating the call document the discussion in a letter that is posted on the Copyright Office website. You can read the letters here–if you know what to look for. These calls tend to focus on some of the more bread and butter issues that one would have thought would have been resolved before any entity was designated as the MLC. This is particularly confusing since the services get the benefit of the MMA safe harbor immediately, but may not be able to account to songwriters for the foreseeable future. And the blanket license was kind of the point of the whole exercise. And, of course, the coronavirus is the tailor-made WFH excuse that will mask a thousand failures.
I want to call your attention to an excellent confirming letter by Abby North that hits many of these issues head on. We’re really glad that she raised these issues with the Copyright Office so that the Office gets the perspective of independent publishers and songwriters who are expecting the MLC to cover the cost of preparing and delivering their metadata.
This passage is particularly illuminating:
Realistically, rightsholders with more than just a few works must have access to batch works registration tools: an excel spreadsheet template must be created and made available, and a method for that spreadsheet to be validated and then imported into the works database must be made available.
For the MLC database to have truly comprehensive, standardized and accurate works data and be compatible with global Collective Management Organizations (CMOs), the MLC must accept CWR as a works registration format. The MLC must also provide or support an affordable tool for creation of CWR files.
Common Works Registration (CWR) is the works registration standard utilized by most collection management organizations around the world.
There are multiple concerns related to the use of Common Works Registration (CWR) by the MLC. The first concern is pricing and availability of CWR software.
CWR is currently available as part of very expensive rights management software used by many mid- sized and large publishers. For rightsholders who do not have the budget or need for such rights management tools, there must be reasonably priced CWR availability to all rightsholders that need to register many musical works.
The second issue relates to whether a publisher IPI will be required by the MLC for a rightsholder to be allowed to submit a CWR file.
Currently, only publishers (as opposed to writers) may receive CWR Submitter IDs and be recognized as submitting parties. To affiliate as a publisher with ASCAP costs $50. To affiliate as a publisher with BMI costs $250. It is not reasonable to require a rightsholder to pay to get a publisher IPI, just so that rightsholder may submit CWR files to register its works.
The CWR specifications indicate a writer may be a CWR submitter. However, according to my research querying many of the world’s largest CMOs, those CMOs do not accept CWR files directly from writers, unless the writer is also a publisher with a CWR Submitter ID.
One reason for this is that the file-naming requirements within the CWR spec require a CWR Submitter ID. Another reason is simply that Writers thus far have not attempted to submit CWR files.
It would be advisable for the MLC to accept works registration files in the CWR data standard, but modify the CWR specified file-naming convention such that a submitter could be a rightsholder with no CWR Submitter ID.
I commend North Music Publishing’s comment to you as Abby North raises may critically important points that I fear will be swept under the rug.
It is important to note that there is a huge difference between ASCAP and BMI charging to affiliate and the costs of complying with the MLC’s registration formalities. (Realize that MLC registration formality is different than a copyright registration filed with the Copyright Office.) ASCAP and BMI compete with each other and unlike the MLC neither affiliation is required by the Copyright Act.
Another difference is that ASCAP and BMI are not funded by the music users (or collective licensees) and neither represented to songwriters that the music users would pay the entire cost of administration–including submitting metadata, tax documents, correcting mistaken registrations, and otherwise complying with the MLC’s formalities. This is particularly mystifying to ex-US songwriters who have quite a different experience with their local collecting societies.
Because if “the services will pay for it” doesn’t include these out of pocket costs taken–there’s that word again–by the Congress by imposing the formality in the Music Modernization Act, then it looks like the only thing that “administration” does cover is the tens of millions of the cost of the MLC’s rather luxurious overhead. Overhead that looks even more luxurious with each passing day in the time of the virus.
If these issues that Abby North raises do not get fixed, there is really something wrong going on.