Since March (2020), when the emergence of Covid-19 led to a worldwide lockdown and quarantine, this has been a rough year for all of us, and for most people in the music industry. In particular, the pandemic has had a devastating impact on the concert industry, and for artists (and their crews) who rely on performing live and touring to generate their main source of income.
As 2020 comes to an end, and we’re hopefully closer to the distribution of a vaccine, it seemed like a good time to speak again with David Israelite, President & CEO of the National Music Publishers Association (NMPA). He is in an excellent position to know how Covid-19 has affected songwriters and music publishers this year.
In this new interview, Israelite talks in-depth about how songwriters & music publishers have fared this year. In addition, he discusses other important issues such as the growth of music streaming, and the impact of the Music Modernization Act that was passed by Congress and signed into law two years ago. He also talks about the launching of the Mechanical Licensing Collective (MLC), the latest status of the consent decrees that impact the streaming royalties collected by ASCAP and BMI, the upcoming Copyright Royalty Board (CRB) negotiations, and other issues.
For over a decade, Israelite has been at the forefront of the fight to secure higher royalties for music publishers & songwriters. He oversaw the previous CRB trial in Washington, DC, and he was a key player in the signing of the Music Modernization Act (MMA). He is also involved with the Mechanical Licensing Collective, and he’s negotiated licensing agreements with TikTok and Peloton on behalf of the NMPA.
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: Since early this year, the music industry has been hit hard by the pandemic and shutdown. How have songwriters and the music publishing industry been affected?
David Israelite: It’s been a tough year for everybody. If you’re a songwriter or a music publisher, the places where you’ve been impacted the most include those revenue sources that are directly impacted by Covid and challenges with the economy. For example, businesses that are based on advertising revenue, such as broadcast radio, have significantly reduced revenues. Revenues that come from public venues like performance money for general licensing like bars, restaurants and hotels, that’s been devastated. And you’ve also had either a shutdown or a slowdown of producing new movies and television shows where a lot of revenue (synchronization income) comes to the industry through the use of music in those.
But one of the benefits of music publishing and songwriting is that you have very diversified income streams. With some of these income streams, I don’t think we’ll know the true impact for awhile because in the music industry, there’s always a delayed impact because of how long it takes for money to reach the actual pockets of songwriters. For example, with performance rights organizations like ASCAP and BMI, there’s some delay between the activity and when the money flows.
DK: Taking into consideration this delayed payment effect, what do you think will be the decrease in income for songwriters and music publishers?
Israelite: We still don’t know what the impact has been since March. We’ll start collecting data for the calendar year as soon as it’s over. Then we’ll get a better understanding of what the overall impact has been. But one of the interesting stories about this has been the resilience of streaming revenue. We used to be more dependent on a sales model. Things like an economic impact would have a direct and immediate impact on the number of sales of music. But when people are paying for a monthly subscription, unless you start getting cancellations of those subscriptions, the revenue is fairly stable. So it’s been a benefit to be on a streaming access model more than a sales model of the past, because at least mechanical revenue has remained steady.
DK: Has the number of subscribers to streaming companies like Spotify and Apple Music continued to grow this year?
Israelite: Yes, we’ve seen continued growth in subscription models. All the companies report different things at different times, but we think we’re still on an upward trend in terms of the number of paid subscriptions in the United States and worldwide. We still have very strong disagreements over how those models should compensate writers. But the number of subscribers is growing, which is a positive in this environment.
DK: Currently, are you and most executives in the music business still working remotely, instead of being at an office?
Israelite: Yes. At NMPA, we’re still working from home, and I believe most of my members (music publishers) are doing the same. I’ve heard that many of the companies have planned to work remotely through at least the first quarter of next year, if not the second quarter. But obviously, a widespread availability of a vaccine could change that timeline.
DK: So for songwriters who are looking for a new publishing deal, or artists who are looking for a label deal, is this now being done remotely?
Israelite: Yes. But what I think has been amazing, is how adaptive the industry has been to that change. I’ve heard that songwriting sessions are continuing very aggressively, with different styles of writing together through remote technology. There have been songwriter showcases done remotely. We’ve also done meetings with members of Congress and songwriters that are done on Zoom. So I think that the process of creation and the process of the business continues. Everyone’s just adapting the same way that all businesses have been forced to adapt.
I’ve heard from some songwriters that maybe they’ve been more productive writing in this style. For example, one of our NMPA Board members, songwriter Ross Golan, said that he would normally travel to Nashville and then focus on country writing. Or in Los Angeles, he would focus on pop writing. But he’s actually been scheduling multiple sessions a day where he’s able to do both, and so he thinks it’s maybe been more productive.
DK: It’s been about two years since the Music Modernization Act was passed. How has this bill affected the income that songwriters and publishers make now?
Israelite: The Music Modernization Act is two years old, but most of the economic benefits are just now going to be realized. Obviously, there were several different things in the bill that will have a positive impact on songwriters. Maybe the most significant one is the creation of this new entity called the Mechanical Licensing Collective (MLC), and the MLC goes live in one month, on January 1st. Songwriters will start to see the benefit of that in the next year. That benefit will include the fact that they will no longer have any commissions taken out of their mechanical revenue. They’ll get paid a dollar on the dollar. They will also have the benefit of a public and transparent database, and the ability to claim any of the unmatched money from the past which was not properly matched. So if you’re a songwriter, you will have no more commissions, and you’ll have the ability to look backward for any of your royalties that were not properly addressed to you and paid. There’s also a public database, where you can make sure that all your music is entered correctly, so that every streaming service will now be paying you accurately going forward. So those are enormous benefits to songwriters that will start in January.
DK: With the MLC starting, does that mean a music publisher will get royalty statements and checks directly from MLC if they sign up with MLC?
Israelite: Yes, and they don’t even have to sign up with the MLC, although it’s better if they do, to make sure that all their information is accurate. What will happen is the streaming companies will largely take a new blanket license from the MLC and have to pay the MLC full freight, and pay all the administrative costs going forward. And you’re going to have a more accurate system. You’re going to have a system that is no longer paying for itself out of the royalty pool, which is the only society in the world where that’s going to be true. Songwriters have gotten so used to paying for their own administration, which has never been fair. And now the MLC will operate with all of the administrative costs coming from the users of the music, not the creators of the music, which is an enormous benefit.
DK: Music streaming is both a performance income and a mechanical income. So will the MLC collect the mechanical part of the royalties, and the PROs will collect the performance part?
Israelite: Yes, the PROs will continue to collect the performance part. But what the songwriter will now have the benefit of, is that when they are paid their mechanical royalties through the MLC, they will now have the accurate template that can also be used on the performance side as well.
The mechanical part is going to be the majority of the revenue, probably about 2/3 of the interactive streaming revenue. And 1/3 will be from performance. But for that 1/3 that’s performance, you’ll have the mechanical database to compare it to, to make sure that you’re getting paid everything from your PRO as well.
DK: I didn’t realize that 2/3 of the streaming royalties come from the mechanical side.
Israelite: Let me explain why. Before 2018, the headline rate for streaming companies was 10.5% of revenue. And that money was being divided up about half and half between mechanical and performance. But when we won the rate increase in the last CRB to take that rate from 10.5% up to 15.1% of revenue, all of the growth in that rate was mechanical. So now all of a sudden, under a 15.1% rate structure instead of a 10.5%, it will be about 2/3 mechanical and about 1/3 performance because the increase from 10.5% to 15.1% is all from mechanical.
DK: What is the current status with the consent decrees that affect ASCAP and BMI? Has the DOJ made a ruling regarding the consent decrees?
Israelite: They have not. We are waiting on the DOJ to make a decision about the consent decrees. Obviously, we are about to experience a change in the presidential administration. This means, if the current administration (under President Trump) doesn’t act before the end of the presidential term, then this issue will get kicked over to a new administration with new political leadership in the DOJ. But we are still hopeful that Makan Delrahim, the Head of the Antitrust Division, will make a decision before he leaves office in January. But obviously, it’s going to carry over into the new Biden administration, and we don’t yet know who’s going to run the Justice Department or the Antitrust Division. So there has been some wrinkles thrown into the process because of the timing.
DK: In 2021, will there be a new Copyright Royalty Board rate hearing and potential trial?
Israelite: Yes, that process will start in January for the next CRB, which we’re calling CRB-4.
DK: When does the hearing or trial start for CRB-4?
Israelite: The actual hearing won’t start for some time. It’s almost a two-year process. The first thing that will happen is that interested parties will have to file with the court in January. Then there’s what’s called a voluntary negotiation period, where the parties are expected to get together privately and see whether they can resolve the issues without going to trial. Then you start the process of a trial, which means discovery and document production, and all of that leads to a trial that won’t take place until 2022. But the process begins this January.
DK: In our interview from a year ago, we talked about TikTok and Peloton, and whether they were paying a fair share of royalties to songwriters & publishers. Recently, I read that the NMPA has reached partnership agreements with TikTok and Peloton. Is that correct?
Israelite: Yes, we’ve reached agreements with both TikTok and Peloton. These are two success stories, where the companies probably did not license music in the proper way from the very beginning, but then it led to an ultimate settlement over the past, plus a partnership looking forward. So now, both companies are considered good actors and are generating significant new revenue streams which is really exciting. And it’s a good lesson for other companies that build business models using music, that it will always be easier and cheaper to license the music properly at the beginning of the process. Currently, there are several other companies that we’re taking a close look at, that we don’t feel license music properly. One of them is called Triller, which is a competitor to TikTok. Another is Twitch which is owned by Amazon. But with regard to TikTok and Peloton, they both are now licensing music and most importantly, they have addressed all of the use of their music looking backward, before we got around to figuring out the way that they can license properly moving forward.