CMRRA recently had the opportunity to speak with Danielle Aguirre, EVP & General Counsel for the National Music Publishers Association (NMPA), to discuss recent developments for music publishers in the United States. The Copyright Royalty Board (CRB), which sets the US statutory rates payable for certain uses of music, has begun gearing up for a hearing to set the rates for several compulsory licenses under section 115, most notably for interactive streaming services. Also on August 4 the Department of Justice issued a statement after a two year long investigation of the consent decrees that govern the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI). Then on September 16, US New York District Court Judge Louis Stanton issued an order and declaratory judgment that seemed to contradict the DOJ’s statement, at least with regards to BMI.
CMRRA: Tell us a little about the DOJ’s recent statement on the consent decrees for ASCAP and BMI. What was your reaction to the DOJ’s decision?
Aguirre: Certainly we were disappointed, but unfortunately we were also not surprised. As NMPA President & CEO David Israelite has made clear, the DOJ’s position paper was a massive blow to songwriters. Demanding that all musical works be licensed on a 100% basis would undermine the rights of songwriters and could further reduce the royalties being paid from the already unacceptable rates being seen today. But after advocating on behalf of copyright owners before the DOJ throughout the two years leading up to this decision, we expected their interpretation and maintain that it is incorrect.
US copyright law allows for 100% licensing, but that is certainly not the standard or historical practice in music licensing – in fact it’s the opposite. The law clearly allows for musical works to be licensed fractionally and that is how our industry has developed. The DOJ’s position paper ignores these market realities as well as the inherent value in fractional licensing, and that’s disappointing because it contradicts much of what was presented to them. The DOJ ignored clear evidence of not only the market disruption that would result from their interpretation, but also that relevant law and policy pointed towards the opposite finding.
The DOJ lawyers behind the position paper came from an antitrust background, and they approached this matter with a focus on the issue of efficiency. Their perspective was ultimately that there is no efficiency unless a licensee can get a licence immediately, and that’s just not right. In fact, the evidence before them showed that there is great efficiency in ASCAP and BMI collectively licensing fractional ownership interests for both licensees and copyright owners represented by collective organizations.
CMRRA: What did you think of the response from Justice Stanton on the DOJ’s interpretation?
Aguirre: As the federal judge setting rates for BMI, Judge Stanton has years of experience in interpreting the applicable consent decree. His decision showed that the DOJ’s position paper was incorrect and out of step with both legal and market realities.
CMRRA: Where do you think things stand now, legally and for publishers doing business in the US and abroad?
Aguirre: Unfortunately, Judge Stanton’s decision only impacts BMI and not ASCAP, and the DOJ can still appeal the decision, so right now there is a lot of uncertainty. If the DOJ elects to appeal the decision (no later than November 15) then it would go to an appellate Circuit Court to decide the issue, but if they do not appeal then the decision will stand with regards to BMI. How the DOJ’s position paper impacts ASCAP under their consent decree remains to be seen, and will fall to Judge Denise Cote to ultimately determine.
In the wake of Judge Stanton’s decision, the NMPA and other organizations were pleased to see that 18 members of Congress sent a joint letter to US Attorney General Loretta E. Lynch requesting that the DOJ withdraw its position paper. That would be the ideal outcome, as it would help clarify the legal situation and allow both ASCAP and BMI to continue with fractional licensing as they have done previously.
Hopefully the DOJ understands all of this and withdraws their paper and does not appeal Judge Stanton’s decision. Otherwise we could end up seeing even more uncertainty in the context of an appeal, or the possibility of a contrasting decision by Judge Cote with regards to ASCAP.
CMRRA: On the topic of rate setting, could you tell us a bit about the Copyright Royalty Board rate setting process and NMPA role?
Aguirre: Well the current rate-setting process is relatively new in the grand scheme of mechanical rates in the USA. The first proceeding in the current format was in 2006, after the CRB was formed in 2005 (before that the rates were set by a number of different tribunals). In the current formation, three administrative judges sit on the CRB and oversee proceedings to set new rates every five years.
NMPA is participating and has always participated as a representative of the copyright owners, along with the Nashville Songwriters Association International (NSAI). We have advocated on behalf of music publishers and songwriters since the process first began back in 2006 (and even before under other rate-setting formats). As General Counsel to the NMPA, I oversee the hearing process internally and also work with our external counsel, who are assisting us with this hearing.
Starting in 2006, the NMPA participated in the first hearing to set the rates for the years 2008-2012, and then in 2011 we settled with the other parties (including the digital services and the record labels) for the years 2013-2017. Now we are preparing for a new hearing that will be of critical importance for music copyright owners since it will determine the rates payable by interactive streaming services for the years 2018-2022.
CMRRA: Besides NMPA on behalf of the copyright owners, who participates in a CRB rate hearing?
Aguirre: Any party with a significant interest in the royalty rates and the terms of licensing under section 115 is entitled to participate, and over the past year many parties have come forward to make submissions to the CRB. Initially there were over 20 interested parties, but as the proceeding has progressed a number of parties have withdrawn, both due to settlement or other reasons, and there are now a total of eight parties involved in the hearing: NMPA, NSAI, songwriter George Johnson, Amazon, Apple, Google, Pandora and Spotify.
CMRRA: Do you have any particular focuses for this particular proceeding?
Aguirre: This proceeding will focus on interactive streaming rates, which have obviously increased in importance over the last five years as the music industry has moved towards streaming as the primary delivery method to consumers. This trend is expected to continue and so our focus for the 2018-2022 period is to improve the rates payable by interactive streaming services to ensure that there is a fair value to songwriters and music publishers reflected in the rates.
During the last proceeding in 2011, streaming was still relatively small and not nearly as much of a focus as it is today. In fact, none of the digital services participating in this proceeding has launched an interactive service at that point. That was part of the reason that there was a settlement in 2011 instead of a full hearing, as the business landscape was completely different and streaming only accounted for a very small portion of industry revenues. All of the parties wanted to avoid the great expense and process of a full hearing, and so we agreed to the current rates at a time when it was not clear how the industry would move forward. In the five years since there have been drastic changes to the music business, and streaming has become unbelievably important. Now it is of the utmost importance to secure rates that are more reflective of what songwriters deserve.
Above all else we need to achieve a fair wage for songwriters by recognizing the inherent value of musical works. The current licensing model is structured as a percentage of revenue, we need to change that structure so that songwriters are paid in accordance with the inherent value of their work instead of the success of a given service’s business model. Accordingly, in this proceeding we are focusing on achieving royalty rates that are set on a per stream and per user basis.
CMRRA: That sounds a lot like how we have handled things in Canada, with royalty rates that include minimums payable on a per subscriber or per stream basis. What did you think of the proposal by Apple to pay 9.1¢ USD per every 100 streams?
Aguirre: Apple seems to agree with NMPA that there should be an inherent value of song that is agnostic of service and the same across all business models. The NMPA does not agree with the specific rate that Apple has proposed, as we think it is far too low to effectively capture the essential value of each musical work. But that said, it’s positive to see a digital service recognizing the core principal that we are fighting to secure. Historically we have found that songwriters’ interests are often at odds with the digital services, for a lot of different reasons. Some services are not interested in maximizing their revenues (and thus their royalties payable) because they have competing interests such as expanding their user base. This has led to a lot of tensions between copyright owners and the digital services specifically on this point of the rates payable under section 115, and so we are happy to see positive developments in principal from some business leaders.
CMRRA: What does the timetable look like over the coming months with regards to the coming proceeding?
Aguirre: Our direct case is due on November 1, 2016 – that’s a legal brief that includes argument, proposed regulation language, as well as statements from witnesses (such as music publishing executives and financial staff) and experts. This broadly sets out what NMPA believes the royalty rates should be and provides our justification, and it currently includes more than 15 witness and expert statements. Right now we are finalizing this for submission and after that the discovery process begins, which will include questions and documents from the NMPA and its publisher members, as well as the digital services and the other parties involved in the hearing. Following that discovery process (including any rebuttals to arguments following discovery), the formal hearing is set to start on March 8, 2017.
CMRRA: Once the hearing starts, how long does it take to get a decision?
Aguirre: A formal decision is required by December 15, 2017, with rates to go into effect January 1, 2018. If for any reason the decision is not ready by December 15 then the current rates apply for however long it takes to get a decision, but the deadline puts in some pressure to move forward. The hearing and final determination process will take six to eight months, and hopefully at the end the CRB judges will understand that the rates have to be raised to capture the value of the musical works being offered by the digital services. We look forward to a decision that will help songwriters and music publishers in the years to come as streaming continues to become the dominant model in the music business.
CMRRA: Lastly, on the topic of streaming models, can you tell us a little about NMPA’s settlement with Spotify earlier this year?
Aguirre: The key focus of that settlement was to ensure that money being held by Spotify was properly paid out music publishers. Its focus is solving the problem of identifying who to pay, but it’s a two-fold issue. Firstly, most digital services have not been interested in making the investment required to build an infrastructure capable of identifying the correct owners of musical works. Second, we need to ensure the services are actually paying out everything they owe to copyright owners. So the settlement was designed in such a way as to address those two issues to ensure that Spotify is properly identifying and paying out royalties to music owners and, to the extent proper ownership cannot be identified, find a fair way to distribute that money to musical work copyright owners.
This is a major issue industry-wide, and it impacts everyone involved in licensing under Section 115 as well as other parties with related concerns about understanding musical works and identifying their owners. There are huge digital services operating right now that are simply accruing royalty liability without knowing who to pay. It’s generally agreed that the compulsory licensing regime under section 115 was never meant to apply on the scale it has been used by digital services, and that’s why the compulsory licensing regime doesn’t work in the digital context.
NMPA is working to resolve this problem, and to get ahead of related issues that we have begun to see cropping up in the context of this lack of information. There are digital services that are accruing royalty liability so that they know how much they owe, but they don’t know who they owe and they are not necessarily putting that money into a trust account until the owners of musical works can be found. That’s not an acceptable solution anymore and so we need to work with services like Spotify to ensure that we don’t allow those kinds of problems to develop. NMPA believes that an answer to these problems could be found by having both sides work together more closely, and that’s the thinking we took into the Spotify settlement.