Music Industry and Big Tech Aim to Streamline Mechanical Licensing

Oct 20, 2017

Benom Plumb, Assistant Professor of Music Industry Studies at the University of Colorado Denver, reviews the biggest stories of the week affecting music royalties. He is a music industry professional, not an attorney.

Music Industry & Big Tech Groups Discuss Legislative Proposal To Solve Digital Licensing Problems   (Billboard)

Benom’s Take: According to a speech made by National Music Publisher’s Association President, David Israelite to the Association of Independent Music Publishers, various music industry and big tech groups are currently negotiating legislation that aims to solve one of the biggest problems in digital mechanical licensing.

The proposal would create a new entity (proposed name, “SongExchange”) that would pool publisher song data and create a licensing mechanism for digital music services and record labels to accurately license and pay royalties to songwriters and music publishers. Instead of each digital service having to match every recording in its service to every songwriter and publisher, “SongExchange” would do the matching.

This kind of system would first of all benefit Spotify, Amazon, Apple, et al. A blanket system streamlines the licensing process and could reduce many of today’s problems associated with matching songwriters, publishers, payment data and song splits. In turn, this would help reduce copyright infringement claims for non-licensing and payment. Essentially, a music user just pays the money and the collection agency sorts out the thorny details of who gets what.

A big part of this proposed “fix” is based on a licensing mechanism known as “blanket” licensing. This system is what the performing rights organizations (ASCAP, BMI, SESAC) typically use with radio stations and TV networks for public performance royalties. The term “blanket” is used analogous as a blanket covers the whole body, a “blanket license” covers an entire body of musical works (i.e., not piecemeal licensing, song by song).

The idea is that the music user pays one bulk/flat license fee to a collection agency to gain access to an entire body of work(s). The user is then free to use the music (as the license dictates) and free from further licensing or royalty obligations until the term of the license expires. The collection agency will process the licenses and payments, match payment data, etc. and then pay the royalties to the appropriate parties.

Israelite is selling the idea to the music publishing community by emphasizing it wouldn’t have to pay for the new entity’s creation, database or overhead. Israelite says the music users, labels and digital services, would pay the costs. In addition, music publishers and songwriters would own and run this new digital mechanical licensing system.

The proposal has some interesting connotations worth noting.

On one hand, Israelite’s proposal is a noble one that causes a “paradigm change about how we think about data ownership.”  The objective here is a “consensus bill” agreed to by all parties: publishers, songwriters, record labels and digital music services. A blanket licensing system and a common database would ease licensing tensions and reduce copyright infringement claims.

However there are two concerns to also consider. First, royalty rates would still be decided and handed down via the Copyright Royalty Board (CRB). The CRB is a government mandated “rate court” established under Copyright Law to set royalty rates for various things, including music.

While this proposal will have the CRB switch their rate-setting methods to be based on “willing buyer, willing seller,” the CRB does not seem to recognize the “value gap” between musical compositions and sound recordings, as well as between various streaming services. The CRB is legally barred from viewing comparative market data for sound recordings vs. compositions. That means that while SongExchange would make it easier to get licenses, the issue of increasing payment for those licenses remain.

Additional, it’s worth asking whether one more collection entity thrown into the mix going to solve these problems? The U.S. licensing system is already so splintered that it’s difficult for licensees (and creators) to keep up. Why don’t we incorporate these ideas and fix the existing system without re-inventing the wheel? Adding one more U.S. collection and licensing agency to the mix could just muddy the waters even more.

As Israelite states, this is far from a “done deal.” Too many questions and “what ifs” remain. How will this entity distinguish itself and not conflict with Harry Fox Agency digital mechanical licenses? How will the entity royalty formulas be set up? Will the CRB even be able to set fair market rates approximating “willing buyer, willing seller” without additional market data? Will the database conflict or work in tandem with the proposed joint ASCAP-BMI database?

I think before we get ahead of ourselves, we must answer the “value” question. What is the fair market value of this royalty? As Israelite says in the article, too much time is spent arguing over the licensing process while “...the value of the song is more important than the process.”

And now for this week’s other headlines: