‘Only the songwriters suffer in this messed up, inequitable streaming licensing scheme,’ says Jody Dunitz, a former exec at Sony Music Publishing. Here’s her case for nixing the mechanical, sunsetting the MLC, and shifting the action to ASCAP, BMI, SESAC, and other PROs.
This year has featured lots of handwringing about Spotify’s bundling antics and their impact on mechanical royalties. That revenue is taking a big hit.
But don’t cry for the major publishers who oversee 70% of the revenue-earning songs in the United States. Their paychecks are secured by the label bosses whose streaming revenue hasn’t lessened one bit.
Only the songwriters suffer in this messed up, inequitable streaming licensing scheme.
Given the labels’ dominance of the negotiating hierarchy, song rights revenue can never top 20% of the finite streaming revenue pot. Subscriber rate hikes mean the pot gets bigger (which Spotify and the labels love), but the song share of the pot doesn’t change.
Against that reality, direct licensing of mechanicals won’t fix anything. That’s simply a head fake fantasy promoted by the head of the National Music Publishers’ Association (NMPA), David Israelite. It runs contrary to all principles of copyright law. Further, the idea that hundreds of publishers would negotiate thousands of songs separately with each streaming service is ridiculous and would crash the whole streaming business. The NMPA knows it, and the labels know it.
But there are actual practical fixes to this problem.
One is to “update” the US Copyright Act to eliminate the fiction that streaming triggers any mechanical royalty at all.
The simplified solution is to codify the position that the only “right” attached to musical compositions in streaming services is the “public performance” right. (For the history of mechanical licensing in streaming, sink your teeth into this.)
In such a case, ASCAP and BMI (and the other minor PROs) would negotiate the full song royalty on behalf of all publishers and writers, collect 100% of all monies due, and distribute them through their very efficient payment systems. Combining the rights would take them outside the scope of Section 115’s compulsory license applicable to mechanical (reproduction) rights, eliminate the mess that would engulf direct licensing of mechanicals, and achieve Israelite’s purported goal of “market-based” negotiations.
There’s another huge benefit to songwriters if this reform were to prevail. The songwriters’ share of performance income flows directly to them. If all streaming revenue connected to songs were deemed “performance” income, the writers’ share would follow and flow directly to them. The publishers, of course, would hate this idea.
They like the fiction of “mechanical income” because it allows them to collect 100% of royalties so designated and use them to recoup writer advances and other costs. They also love the idea that with direct licensing, they could negotiate advances and non-recoupable fees from Spotify – just like the labels. And the best part is they wouldn’t have to share those monies with the writers, just like the labels keep their collected advances and fees from artists.
Publishers love Israelite’s calls for such action. Songwriters should hate it.
The other option is to force all content stakeholders—labels, publishers, and songwriters—to arbitrate their respective share of the streaming revenue pot in a single hearing.
The most pernicious aspect of the US scheme for licensing streaming rights is that rates are set separately, in disconnected arenas, for each discrete element of streamed music. The labels negotiate the recordings’ rates directly with the streaming services. A government tribunal (under Section 115) sets rates for streaming mechanicals after long, costly hearings punctuated with obtuse testimonies by competing economists. Lastly, rates for performance income are set by yet another negotiation between the PROs with the services. This is nuts.
The content stakeholders know very well that each of them contributes an indispensable part of streamed music. They understand that these disjointed negotiations can never lead to an equitable split of the whole pot.
So why not adopt the standard app store model?
In the app store model, the platform takes a percentage off the top for its costs and profit margin and the content owners split the rest. Let the labels, publishers, and songwriters negotiate their respective shares among themselves. Employ (through clear legislation) the services of an “arbiter” panel to conduct hearings and allocate the content shares. The federal copyright tribunal empowered under the current Section 115 has a history of accepting negotiated “settlements” to finalize rate procedures. There is precedent for such negotiations.
The only rub in the arbiter plan is that the songwriters, the most beleaguered community in this brawl, have no authentic industry-wide advocate to conduct negotiations for them.
NMPA is not a trusted agent for songwriters. The only viable industry representatives for songwriters are ASCAP and BMI.
Both are explicitly chartered to serve and protect songwriters (as well as publishers). They are well-funded and experienced negotiators. They should declare their allegiance to songwriters and forsake the publishers for this purpose (who can use their true agent, NMPA). In this mess, they should rise to the occasion and confront the label/publisher cabal obstructing royalty parity.
Both roads lead to a prominent role of the PROs. It is time to fix this debacle.
