The signing of the Music Modernization Act a year ago (in October 2018) was a landmark achievement in the battle for songwriters & music publishers to earn their fair share of royalties from the digital music streaming companies such as Spotify, Apple Music, Google, Amazon and Pandora.
In the past year, there have been several new developments that are impacting the potential income for songwriters & music publishers. Some of the main issues are: (1) the creation of the new Mechanical Licensing Collective, which will administer the new U.S. blanket licensing system for mechanical rights; (2) the upcoming ruling by the Department of Justice on possible changes to the Consent Decrees that govern ASCAP and BMI; (3) the appeal by Spotify, Google, Amazon and Pandora to reduce the mechanical royalty rate determined by the Copyright Royalty Board (CRB) in 2018; and (4) the preparation for the next CRB rate trial, which begins in early 2021.
In light of these developments, we thought this would be a good time to speak again with David Israelite, President & CEO of the National Music Publishers Association (NMPA). Israelite has been at the forefront of the fight to secure higher royalties for music publishers & songwriters. Israelite oversaw the previous CRB trial in Washington, DC, and he was a key player in the signing of the Music Modernization Act (MMA).
In this new interview, Israelite discusses the key issues listed above, plus other issues that affect songwriter & music publisher royalties. He also discusses the outlook for songwriters to earn a living in the music business.
Before we start this interview, here is some information on the NMPA and Israelite. Founded in 1917, the NMPA is the trade association representing all music publishers and their songwriting partners. The NMPA’s mandate is to protect and advance the interests of music publishers and songwriters in matters relating to the domestic and global protection of music copyrights. Israelite has been the head of the NMPA since 2005. He is an attorney who served as Deputy Chief of Staff and Counselor to the Attorney General of the United States, and he was also Chairman of the DOJ’s Task Force on Intellectual Property.
Here is our new Q&A interview with David Israelite of the NMPA:
DK: It’s been one year since the passage of the Music Modernization Act. What are some of the positive results that you’ve seen, as a result of this passage?
David Israelite: The Music Modernization Act had a lot of great benefits in the bill for creators and many of those benefits are already being felt. For artists that made music pre-1972, they’re already seeing an increase in revenue because of the MMA now guaranteeing their rights in pre-1972 copyrights. For songwriters, a lot of the benefits are ones that are set up for the future more than immediate, but we’re seeing some great things. For example, ASCAP and BMI now have more tools to achieve higher rates whenever they go to rate court. And we are all looking forward to the next Copyright Royalty Board (CRB) trial, where we will have a new rate standard which should also help raise the rates for songwriters.
DK: When will the next CRB trial take place?
Israelite: The next CRB trial will start in about 14 months, and it is a two-year process. It will then set rates for the five-year term that begins in 2023. But obviously, what most people think about when they think about the MMA, is the creation of the new Mechanical Licensing Collective (MLC). And that is on track to open its doors on January 1, 2021. There’s a lot going on—the Board of Directors has already been appointed. The Board is in the process of hiring staff, identifying an office location in Nashville, and finalizing vendor agreements with outside vendors who are going to provide services.
DK: With the Music Modernization Act, was it understood that the digital companies would pay for the funding of the MLC?
Israelite: The law made very clear that the digital companies had to fund 100% of the activities of the MLC. What the legislation didn’t do was set a specific amount. And so the way that the bill works, is that if the parties are able to negotiate an agreement, then that will take effect. But if the parties can’t, then the CRB has this one-year trial. So we were prepared from the very beginning to go through this trial, but if the digital companies were able to come to the table with a reasonable proposal of how to fund it, then we’d always be open to doing that, instead of having to throw the number to the judges. After much negotiation, on November 14, a voluntary funding agreement was announced between the MLC and the DLC (Digital Licensing Coordinator, which represents the digital music services).
DK: Earlier this year, the Department of Justice opened a review of the consent decrees that govern ASCAP and BMI, and they’ll be deciding whether or not to make changes. What’s the status of their review?
Israelite: Yes, this is the most important issue facing songwriters today. The Justice Department has expressed a willingness to consider making changes to the consent decrees that oversee ASCAP and BMI. They took public comment from anyone that wanted to offer opinions on this topic a few months ago, and they received a lot of public comment. The Department of Justice Antitrust Division is now reviewing those comments, and in the very near future, perhaps as early as next week, the professional staff will be making a recommendation to the Head of the Antitrust Division, Makan Delrahim, on what they think the Department should do. And then Delrahim, as the Assistant Attorney General for Antitrust, will decide what he wants to do. There are a lot of possible things that could happen, but we believe the most important change that is needed, is the ability of songwriters and music publishers to be able to withdraw their copyrights for certain purposes where we think the consent decrees are broken. And those places are digital music services, whether they be radio-styled streaming services, or whether they be more interactive, subscription-type services.
We believe that with digital music streaming, both interactive and noninteractive, the consent decrees have not worked well, and we want the consent decrees to allow music publishers and songwriters to leave ASCAP and BMI for the limited purpose of being able to negotiate their deals with digital companies in a free market. And so the number one request from NMPA to the Justice Department, is of all the changes that you’re considering making, the most important one is to give us the right for what’s known as selective withdrawal. This is the ability to be part in ASCAP and BMI for the purposes where it’s making sense, and be out of ASCAP and BMI for those areas where we think a free market is needed to correct the problems that exist with those digital services.
DK: Are ASCAP and BMI in favor of allowing the selective withdrawal? Or are they against this?
Israelite: In their public comment, ASCAP and BMI said that they were studying this issue further. Obviously, this is an issue that is most important to the people who create and own the copyrights, as opposed to the companies that administer them. So quite honestly, the position of ASCAP and BMI about selective withdrawals is one that is probably less important than how the copyright owners feel about it. And in the past, ASCAP and BMI have been supportive of selective withdrawals. If you go back a few years, ASCAP and BMI were completely supportive of this process. The publishers exercised this right, it worked, and then the judges that oversee the consent decrees decided that the current consent decrees don’t allow this. And that’s why we’re having to ask the Justice Department to change the consent decrees, to make clear this will be allowed.
DK: So if the DOJ approves of selective withdrawals, how much more income would songwriters and publishers earn by having the chance to negotiate those rights separately?
Israelite: It’s a great question, and it’s hard to know. I don’t think there’s an answer until we actually get the opportunity to negotiate our rights in a free market. But there are lots of anecdotal evidence, pieces that you can look at, that give you some clue. So in the area of synchronization, which is the one area of the music business where both record labels and their artists, and music publishers and their songwriters, are in a free market, synchronization money tends to be split 50/50 between the two copyrights.
Now if you look at digital radio, in the rest of the world outside of the United States, radio models tend to split their money about evenly between labels and their artists, and publishers and their writers. But with digital radio in the United States, it’s because of the antiquated rules that regulate our industry, that money is currently being split about 5 to 1. For every five dollars that record labels and artists get, the songwriters are only getting one dollar. So if you just looked at how it works in areas that we do have free market power, we believe that there would be a rebalancing of the copyrights in a way that would be significant in terms of how much songwriters would get.
If you look at interactive streaming services, which really are replacements for old sales models…instead of buying copies, you now pay for subscriptions. Today, record labels and artists are getting about 52% of the revenue from those companies. And songwriters and music publishers are getting about 13% of the revenue. So again, you can see this great disparity of how we’re getting paid, and we believe it’s because of the way that we’re regulated. So it’s hard to say exactly how much more writers would make in a world where they could withdraw their rights, but I think all evidence suggests that the value of songs is significantly higher than what we’re currently getting paid under the consent decree rules.
DK: On a separate issue, the NMPA has filed a lawsuit against the fitness company, Peloton. Can you explain the specifics of this case?
Israelite: Peloton offers an in-home fitness experience, where you can purchase their bike, and then you can have programming pumped into your home that is similar to what you experience if you were in a spinning studio. It’s a very popular concept, and quite honestly, I think that Peloton has a great bike and programming. The problem is, that for a significant amount of the programming that Peloton has created, they did not have permission to use the music that they were using. This is a situation that is no different than if someone were making television programming or movie programming, where the people making the programming absolutely are required to have a music license before they make that programming. So there’s been a lawsuit filed by 15 different music publishers that currently represent about 2,400 songs that we’ve identified that Peloton has used without permission. And Peloton has responded publicly with just a comical defense. Their answer, if you break it down, is “We have taken some music licenses.” And that’s true—we understand that for some music publishers, they have licensed Peloton. But that does not in any way answer the allegation that you have lots of music for which you do not have a license and have not been paying compensation to the songwriter. So we’ve equated that to the analogy of, if you walked into a store and bought a pair of pants, and on the way out of the store you were caught shoplifting the rest of the outfit, and you’re defense was, “Well, I paid for the pants.” That seems to be what Peloton is saying. So I believe this is a black & white case of copyright infringement, and we will pursue this case to its logical conclusion and I believe we will win.
DK: Also, I read that the NMPA is calling on Congress to investigate the video-sharing app, TikTok, over potential copyright theft. Can you explain this case?
Israelite: The TikTok matter is very similar to the Peloton matter, where we believe they are making programming with music for which they do not have a license. And TikTok’s response is very similar to Peloton’s, in that they have alleged that they have some music licenses, which again may be true, but in no way answers the accusation thay they have other music that they’re using for which they have not secured proper licenses. And so that is not yet in the form of a lawsuit, but it seems clear that TikTok is using at least some music without proper permission. So we are exploring that matter and that’s one to keep an eye on.
DK: I’ve read that some music streaming companies have appealed to reduce the mechanical rate that was determined by the CRB in the last rate trial. What’s the status of their appeal?
Israelite: In the last Copyright Royalty Board trial, music publishers and songwriters won a tremendous victory, where the court ordered the digital companies to increase what they pay us by about 44%—from 10.5% of their revenue to 15.1% over the five-year period. This is a big increase, but it still falls far short of how much record labels and artists are getting paid from these companies.
Four of the five digital companies in the trial have decided to appeal that decision, led by Spotify and Amazon. Apple has decided to sit out the appeal. So we are now in front of an appellate court to defend the decision that was made by the Copyright Royalty Board that increased our rates by 44%. I’m confident that we’re going to win on appeal, but it is troubling that we spent two years in a trial process, millions of dollars, to get a rate result, and we find ourselves having to continue to litigate the question, with these giant digital companies. And this appeal is likely to last all the way past when we start the next Copyright Royalty Board proceeding, which means that the technology companies have basically put us in a perpetual state of litigation against each other.
So you fight out at trial over the rates, and they appeal the decision, and by the time that appeal is getting to a conclusion, you start the next five-year trial. It’s really an unfortunate situation, and I think that Spotify and Amazon need to re-evaluate what they’re doing, because the trial decision was justified, and quite honestly, they’re already underpaying us even with the decision of the trial. So the fact that they’re going to court to try and reverse it, is a real slap in the face of songwriters.
DK: In this appeal, does it help your case that Apple is not part of this appeal, so there’s not a consensus among the streaming companies to reduce this rate?
Israelite: I don’t know how much the appellate court will look at that fact. I think it speaks more to Apple being a better business partner to songwriters, than Spotify and Amazon. So I don’t know if it will have a legal impact, but it sure does have an impact with regard to the relationships between these different competitive companies, and the songwriting community that makes their music businesses possible.
DK: In the past couple years, music streaming companies such as Spotify and Apple Music have announced that they’ve increased their number of paid subscribers. Is the number of paid subscribers still moving up at a solid pace?
Israelite: That’s a great question, and we don’t know the answer in part, because not all of the streaming services will unveil the numbers of their subscribers and their growth rates. But when you try to step back and evaluate all the information that’s available, I think a couple of things stand out. First of all, I think it’s important that people in the music industry understand, that whether you like the move away from ownership models to access models, that’s what’s happening. That’s what consumers want, and there’s nothing the music industry is really going to do to change that shift in terms of consumer behavior. It’s true that some vinyl products are making a comeback and continue to be healthy, but I think everyone needs to accept that we are largely moving to a model of access for a fee, and away from buying copies.
That being said, that doesn’t mean it’s necessarily bad news. We have always suggested that you can have a very healthy music industry with enough penetration of paying subscribers. So we are watching the growth in paid subscribers closely because it appears to be continuing to grow. The question is whether it’s continuing to grow at a fast enough pace, that we’re going to see the type of growth rates we’ve seen the last couple of years. And we just don’t know that yet. I think there are things that can be done to help that. Competition is good, and so having choices in the marketplace about how to get your music streaming is an important factor.
I think that Spotify today is the only company that offers a free-to-the-consumer model with interactive streaming, where you can rely on advertising dollars. And I think Spotify could do a lot more to move those customers over to paying subscribers, because the economics of a free model are terrible compared to the economics of a customer that pays the monthly subscription. And I think international growth is obviously an important factor in this, because you have a very large world out there with people with access to internet signals, that can really drive the growth rates if we can approach the rest of the world in a smart way. So I’m optimistic about it, but I can’t speak to the growth trend lines of all interactive streaming. We know that there’s been some concern about slowdown, but I think overall we’re looking at a pretty healthy market right now. We’ve had four straight years of growth after a period of some really difficult times, because of the theft models and the move away from ownership models.
DK: I want to ask you about sync licensing for film & TV. With all the new TV shows and movies being created by Netflix, Amazon Prime, Hulu and now Apple, are songwriters & music publishers earning more income from sync use?
Israelite: Yes. I think that what you’ve seen, with the explosion of programming that’s available through lots of different outlets today, there are more and more opportunities for music to be synchronized with movies and television. Obviously, some of the dynamic is just moving the viewers away from traditional broadcast outlets to alternate outlets. To some extent, you’re just shifting where the money goes as opposed to growing the money. But there’s definitely a larger market for synchronization today than ever before. I think one of the recent challenges we have, is that there’s been a more aggressive push by some of the people making that programming to not pay the composers in the proper way. And so you’ve seen some examples of where people making programming will ask composers to either sell out their copyrights completely like a work-for-hire, or to retitle the ownership of those compositions so that the person doing the programming is listed as a co-owner and thus receives performance money down the line. Or examples of where composers are being asked to give away their synchronization for free, so that they can later earn the downstream revenue from performance payments. These are all troubling trends, because that’s never how people who license music for film and TV behaved in the past. And I think you’re seeing what the entry of a lot of smaller players or more technology-based players, with more aggressive attitudes towards licensing music. But overall, I think that you do have a growing market for synchronization and more opportunities for more composers to get music placed in film and TV.
DK: Overall, with these latest developments, are you generally optimistic that more songwriters in the coming years will be able to earn a living?
Israelite: Yes, I believe that we are looking at a very bright future for songwriting, because what you see is that songs have an enormous amount of value, not just for the music and enjoyment by music fans, but by the integration of those songs into so many different business models. And so the challenge is to make sure that the compensation is adequate. But the opportunities that are there are amazing. If you just look at the two examples we’ve talked about with regard to legal problems—Peloton and TikTok—these are two companies that have created enormous value for their companies based on using songs. Those are the types of opportunities that maybe didn’t esixt in the past. You wouldn’t have that type of exploitation of music in the past. So the opportunities are out there—there’s a tremendous amount of value being created. Our challenge is to always make sure that the people making the music are getting their fair share of the revenue that’s being generated.
The other thing that I think is important, is for songwriters, that when this new Mechanical Licensing Collective opens its doors and begins its business, songwriters have an obligation to interact with the new Mechanical Licensing Collective to make sure that we know how to find them, that their copyrights are registered properly so they can get paid. It’s part of the business of being a songwriter, is to take some responsibility for making sure that you’re receiving the money that you’re owed. And the MLC is a wonderful new tool to do that because there will be transparency, and there will be public databases. But writers need to also make sure that they play their role in making sure the information is accurate and they can be found.