NMPA CEO David Israelite Discusses Music Royalties During The Pandemic, The Latest On Copyright Royalty Board Hearings, And The Growth Of TikTok And Other Income Streams
With the pandemic having lasted for almost two years now, it’s been a rough period for almost everyone in the music industry, and particularly for touring artists and people working in the concert industry. However, some royalties for songwriters & music publishers have actually increased in the past two years, thanks to the growth in income from music streaming, and the rise in platforms such as TikTok.
With the start of 2022, 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 the pandemic has affected songwriters and music publishers, and he is directly involved with many other issues.
In this new interview, Israelite talks in-depth about how songwriters & music publishers have fared during the past two years. In addition, he discusses other important factors such as the opening of the Mechanical Licensing Collective (The MLC) a year ago, the status of the latest Copyright Royalty Board (CRB) hearings, and the increase in income from TikTok and other new sources.
Now in his 17th year as President & CEO of the NMPA, 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, Peloton, Roblox and Twitch on behalf of the NMPA.
Before we start this interview, here is some information on the NMPA and Israelite. Founded in 1917, the NMPA (which is based in Washington, DC) 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. Before joining the NMPA in 2005, Israelite, who is an attorney, 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 now been almost two years since the start of the pandemic. How has the income for songwriters and publishers been affected during this period?
David Israelite: We are going to start receiving data soon on calendar year 2021, where we will get a much better picture of what’s been happening. But anecdotally, I believe that overall we’re going to see revenue growth in 2021. And while some sectors clearly have been hurt by Covid, there have been other sectors that have experienced growth, and I believe it will lead overall to a fairly healthy picture, despite the challenges of Covid.
DK: For the previous year 2020, what did the data show?
Israelite: For the calendar year 2020, the industry did experience significant growth—almost double digit growth. Obviously, a good portion of the year was impacted by Covid. However, because of the nature of royalties, oftentimes royalties are distributed from a previous period. So although it was March 2020 when you started to feel the impact of Covid, it probably means it was only affecting the calendar year less than half the year based on the financial picture. But we still had significant growth in 2020. And again anecdotally, I’m hopeful we’re going to see the same thing in 2021, despite some revenue streams being negatively impacted by Covid.
DK: What revenue streams have been impacted in a positive way, and which ones have been negatively affected?
Israelite: On the positive side, we’re still seeing growth in streaming services, which is a significant contributor to the overall financial pie. I also think that you’re seeing growth in a lot of the new media platforms, whether it be gaming or in-home fitness or social media. Those have grown during the pandemic, and they will all have a healthy contribution to the overall picture. The areas where there have been some negative impact are advertising-based models like radio that have been challenged. And general licensing for public venues has been challenged significantly. Also, the halt of production of movies and television has impacted that income stream of music that is produced for those.
DK: If in 2022, the Omicron variant subsides and things hopefully become more normal, do you envision the growth of music streaming to continue, and advertising-based models like radio to improve their income?
Israelite: I do. I’m very bullish on the industry in the short term and in the long term.
DK: It’s now been a year since the Mechanical Licensing Collective (the MLC) officially launched and is open for business. Can you give me a progress report on The MLC?
Israelite: Yes, the MLC has now been in operation for a full year, starting in January 2021. I am very proud to have seen that The MLC is already matching the royalties to songwriters better than the digital companies did at anytime before. There are many metrics of success, but one of the most important is the match rate, and The MLC has been doing a fantastic job and has improved the matching process already in its first year. It has also been able to stay on schedule with the receipt of royalties and the distribution of royalties, despite having to start operations during a period of shutdowns during Covid.
DK: Are all the digital streaming companies using The MLC to pay songwriters & publishers?
Israelite: Yes, the digital streaming services are all using The MLC, so they’re taking their license from it and they’re submitting their royalties to it. Then The MLC is making those distributions out to music publishers. The database is going to be a constant work in progress, but we now have a public, transparent database of ownership which anyone can have a copy of, which I think is one of the biggest improvements in the industry that we’ve seen from The MLC. So overall, I would give them a grade of an A+ even though there’s still always work to do.
DK: What are some improvement that The MLC can make?
Israelite: We can always improve the match rate. The one question that a lot of people have about it, is with the unmatched royalties that were turned over to The MLC, it was a large sum of money because the services were not doing such a good job of matching. And I think there’s been some confusion in the community about that pool of money that’s been called the historical unmatched money. None of that has been distributed yet, but that’s because the law was very clear that The MLC is supposed to try to match that money first before there would be any distribution of unmatched money. So that’s a three-year process of The MLC going through the batch of unmatched money from the past and trying to find the proper owner. They’re doing that both through an internal process of hand-matching…going through the records with a human element. And with the outside vendors who are re-running all of the reports using the system and they’re matching as much as they possibly can. But there won’t be any distribution of that money from the unmatched part of it, until there’s been a complete effort which will take about three years to get that money matched.
Also, one of the things that happened immediately on January 1st of 2021, was that songwriters & music publishers no longer had any commission taken off the top of their royalties. This is the first place in the world where there’s been royalty distributions from mechanicals or performances without there being a cost to the songwriters and publishers to do it.
DK: In recent news, several top artists such as Bruce Springsteen, Paul Simon and Bob Dylan have sold their publishing catalogs. Why do you think they’re selling their catalogs now, and what has caused these catalogs to increase in value?
Israelite: It’s a great question, and a very hot topic in the industry. I think every individual seller might have a different list of answers to why he or she decided to sell at that moment. But I think generally there are several factors that are in play with these catalog sales. First, prices are at a historic high, and I think that’s because the value of songs has become more fully realized in the marketplace. And so people that have considered selling before, they’re looking at the prices and thinking that now might be a good time.
Second, I think that some people are looking at the prospect of capital gains tax rates going up, therefore there’s a motivation to sell under the current capital gains rate before they might go up. Third, I think for some older songwriters and artists, there’s a decision that for estate planning, it’s better to make decisions about who’s going to manage the catalogs of copyrights before you pass, instead of having that become something your heirs have to deal with.
DK: What are the main reasons that have caused catalogs to increase in value?
Israelite: I think there are many factors that go into play with this. One of the outside factors contributing to this are that you have interest rates at a low point, and you have the bond market that is not paying large dividends. Therefore, people with capital are looking for other places to deploy their capital. Then when it comes to music assets, they are a very attractive place for people to deploy their capital because they’re relatively safe and stable. They have historic performances that are attractive to investors, and I think that the value of songs is increasing because there are all these new applications on how to use songs.
One of the ways to evaluate a catalog, is you look at the historical performance of a catalog and then you project out what you think the revenue might be from that catalog into the future. Back when the industry wasn’t changing much, that was a fairly simple exercise. But what is changing rapidly now is that there are new income streams that never existed before. Therefore, people who are valuing catalogs understand that they’re not only looking at traditional income streams, but they’re also projecting what new income streams might be coming in. That’s causing the value of the song and copyright to go up. Here’s one statistic that I think is shocking. In the year 2020, about 29% of the revenue from the entire industry, for all songwriters and music publishers, came from sources that originally claimed they didn’t have to pay at all. You can divide them into different categories, from social media to gaming to in-home fitness. But these sources eventually were challenged, and they now pay, and that is contributing almost 1/3 of our revenue. So if you were just looking at the old model of physical sales and radio play, you wouldn’t be capturing all of these new income streams that are now contributing almost 1/3 of the bottom line. And I think that a lot of these investors who come from the financial world, they are very sophisticated and smart, and they see what’s happening, which is that the value of songs is going up.
DK: What’s the latest status of the Copyright Royalty Board hearings, and the negotiations between music companies and the big streaming companies?
Israelite: The Copyright Royalty Board process is broken. What we call CRB-3, which is for the time period between 2018 and 2022, those rates were announced in January 2018. And as we sit here today early in 2022, the last year of the five-year period, we still do not have a final decision. This is because the giant technology companies are dragging out the process with legal appeals, and the process itself doesn’t allow for any certainty during the appeal process. So there’s a great deal of frustration that in the fifth year of the term, we still don’t know what the rates are going back to the first year of the term. There is going to be a hearing in the spring, and we’re hopeful that it might be the last step in the process for a final decision on the appeal of the CRB-3 rates. So we might know the answer sometime in the middle of 2022, on what the rate has been since January of 2018.
While this is going on, we have already started the process of CRB-4, which will culminate in a trial sometime this year that will lead to a new rate decision to set rates starting in 2023 for another five-year term. And so for the first time ever, you have overlapping CRB trials where the appeal of CRB-3 is going on while we are litigating CRB-4.
DK: If it’s uncertain what the royalty rate is starting from 2018, what is the rate that the streaming companies are currently paying songwriters & publishers?
Israelite: It’s a great question. What has happened during the appeal of CRB-3, is that the digital streaming services are paying us as if it’s 2017. So they’re using the rate structure that existed before the 2018 decision. What that means is, the streaming services are currently paying us at 10.5% of their revenue instead of what they should be paying us, which is 15.1% of revenue. So we are currently collecting about 1/3 less than we should be collecting while this appeal goes on. Now, if we are successful in the appeal, it is retroactive, so these streaming services will owe money for their underpayment over the period of time.
DK: In the past couple years, TikTok has become a very important way for artists to promote their music. Has TikTok royalties become a major income stream for songwriters & publishers?
Israelite: Yes, TikTok has become a major force in the music industry. It has been one of the most downloaded apps in the world. Many record labels and artists are using TikTok to introduce new music. They’re making decisions about releases based on TikTok activity. I’m very pleased that TikTok decided to do the right thing and license the songwriting and publishing industry. We entered into an initial agreement with them that covered both the past and going forward. And now they’re in the marketplace, and those deals will be negotiated directly between TikTok and music publishers. I think it’s one of the examples, as we discussed earlier, of a new revenue stream that we couldn’t have anticipated. It’s going to be a major contributor toward revenue from a platform that didn’t used to exist.
DK: Thank you David for doing this interview. Are there other issues that are important to songwriters & publishers that you’d like to mention?
Israelite: I think one of the issues that we’re very focused on is what’s going on with digital radio. For a very long time, broadcast radio—meaning AM/FM radio—was one of the largest contributors of revenues to songwriters. And broadcast revenue is still a very important stream of revenue. But as the world starts to move toward digital radio—meaning platforms like XM Sirius, Pandora Radio, iHeart Radio—we are seeing a very troubling change in the environment where record labels and artists are starting to receive the vast majority of money from digital radio platforms. While in the United States, record labels and artists don’t receive anything from broadcast radio which is wrong, and we think that they should. In most of the world, radio models divide the money about 50/50 between the label & artist on one side, and the publisher & songwriter on the other side. But for digital radio in the United States, we’re starting to see a gap of about 6 to 1 in favor of artists, in terms of how the money is being divided. And that is a crisis for songwriters and music publishers, because broadcast radio will probably migrate to all-digital radio eventually. So we have been working with performance rights organizations in discussing the problem and we are very supportive of anything that they do to try to rectify that problem. But it’s something that I think songwriters need to be aware of. that digital radio is not sharing money fairly with songwriters in the same way that broadcast radio is.