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David Israelite (NMPA): ‘DSPs are proposing the lowest rates in history’

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David Israelite, President and CEO of the National Music Publishers’ Association (NMPA), has claimed that digital streaming services are proposing the “lowest rates in history” in the current Copyright Royalty Board proceedings, known as CRB IV, which will determine the mechanical rates paid by digital services for the next five years.

Israelite said music publishers and digital services are going to start the CRB IV proceedings when the rates for CRB III covering 2018-2022 have still not yet been set, due to a legal procedure launched by DSPs, that appealed the 44% rise in rate, from 10.5% to 15.11%, decided in January 2018 by the CRB. Consequently, Spotify, Amazon, Google and Pandora decided to appeal the rates set by the CRB and the final decision has yet to be made. In the meantime, DSPs have been paying the CRB II rates.

“It’s a frustrating process,” said Israelite. “We are getting to start the trial for the next five years and we still don’t know what rates have been set for past five years.”

Decision on CRB III by May

Israelite made comments about the CRB proceedings and general issues affecting music publishers during two back-to-back virtual sessions on February 24: Tom Truitt‘s ‘WHO KNEW The Smartest People In The Room’ which saw him in a discussion with Bart Herbison, Executive Director of the Nashville Songwriters Association International (NSAI), and the second at the invitation of the Los Angeles chapter of the Association of Independent Music Publishers (AIMP).

Regarding the CRB III proceedings, Israelite said March 7 will see the closing arguments from attorneys and the Copyright Judges will then have to make a decision “soon after.” Israelite said his “best guess” was that there should be a decision by May. Then, the US Copyright Office has has 60 days to review the decision from the judges, before publication of the rates.

Once published, the rates will apply retroactively and parties have 30 days if they want to lodge another appeal. “We are looking at July-ish and will know then the rates four and half years after it all started,” sighed Israelite.

Focus on streaming rates

Israelite also alluded to the reason why neither NSAI nor the NMPA advocated for a rise in mechanical rates applied to physical products. Currently, publishers get paid in 9.1c for copy of a physical product. “It is too low, it is not fair, it is not enough,” said Israelite, who then asked: “Do we do we want to litigate that rate in same trial [against record labels] when we are going to litigate against the world’s biggest companies?”

He continued: “We did a lot of analysis. We are not minimising the importance of physical, but let’s say we get a 10% increase, we would spend more on lawyers to get that rate. So the decision was made to focus on streaming rates where the real fight is and not get into a fight on 9.1 cents. We’ve litigated this before to get it up by 1.5 cents.”

Israelite said the upside of that decision was that “record labels are not involved in the trial and they are supportive in our efforts. It is good to have labels on our side and not on the other side of the room.”

Pay the highest tier

Turning to CRB IV, Israelite outlined the position on NMPA and NSAI. “NSAI and NMPA think that the rate should go up, with a top line of at least 20% and get 40% of what record labels get,” said Israelite.

The NMPA and NSAI joint proposal calls for a rate setting taking into consideration four tier tests, and apply to monthly payments whichever delivers more revenue:

  • a per stream rate of $.0015 per month;
  • a rate per subscriber of $1.50 per month;
  • 20% of the service revenue;
  • a 40% share of Total Content Cost (TCC).

“The service runs the four test and pays on whatever is the highest,” said Israelite. The terms exclude discounts applied to Family and Student plans.

Massive cuts in revenue pool

Israelite then turned to the proposals of the main three DSP (excluding Pandora and YouTube Music), which he summed up the following way:

  • Apple (Market Cap $2.68 trillion): Would allow for 10.5% of revenue “headline” rate BUT calls for massive cuts to revenue pool. The proposal eliminates TCC and expands Family discounts as well as the free trial period.
  • Spotify (Market Cap $28.68 billion): Proposes a 10.5% “headline” rate BUT allows for massive carve outs. The proposal eliminates TCC and expands Family discounts as well as the free trial period. It also redefines Bundle Revenue to allow for a zero rate for the music portion of the bundle.
  • Amazon (Market Cap $1.53 trillion): Would allow for 10.54% of revenue “headline” rate BUT calls for massive cuts to revenue pool. The proposal eliminates TCC and expands Family discounts as well as the free trial period.

“If you listen to them, they want to go back to the 2017 structure and say this is the best status quo. But that is not what they are proposing,” warned Israelite.

Lowest rates in history

The risk with the Apple proposal, said Iaraelite, is that it eliminates TCC so it is not possible to compare the publishers’ share with what labels receive from the DSP. In the case of Spotify, the main issue is the change in the definition of what revenue is. In particular, Spotify wants to deduct from the amount considered the share the users spend listening to podcasts.

“Say you have a you have a subscription and you pay 10 bucks, and listen to a lot of podcasts, Spotify will deduct the portion allocated to non-music content,” said Israelite. Amazon’s proposal would also have the consequence of changing the definition of what revenue is calculated and would result in lower payments.

Overall, for Israelite, these are the “worst rates ever.” He added: “They have made their proposals, and how they describe them is that they want rates to go back to 2017. But it’s way worse than that because in their proposal they do a lot of things that result in proposing the lowest rates in history.”

Change the dynamic

Israelite went on to discuss what he believes is the “radio divide” when it comes to remuneration. Historically, terrestrial radio in the US does not pay for the use of sound recordings, and with the DMCA, non-interactive digital radio stations started to pay for sound recordings. Israelite pointed out that even with a restricted framework, labels and performers were collecting more from radio — through SoundExchange and direct deals — than songwriters and publishers.

In 2020, songwriters and publishers received $635.4m from radio (terrestrial and digital), when labels and performers received $974m from SoundExchange ($1.2bn with direct deals), and that amount only comes from digital radio.

“Artist and labels collected twice the amount songwriters and publishers did, despite the fact they only collect from non-interactive radio. Yes, they get screwed by radio, but we get screwed way worse, despite the fact that we collect from terrestrial and they don’t,” said Israelite, who believes that the gap will have continued in 2021, for which figures are not yet available. “We have to change the dynamic,” said Israelite, which is his way of saying that rates paid by digital radio stations should be increased.

Support performance rights on recordings

“The good news is that when the Music Modernisation Act was passed, the PROs got two important tools: they now have the benefit of a random judge [to set the rates] and they get to introduce evidence in the trial. Before the MMA, they would not have been allowed to introduce how much labels get paid. Now they can, which means that’s a powerful piece of evidence which shows that we are underpaid by digital radio.”

He added: “We get one seventh of the money paid for music when it should be 50-50.”

Israelite also voiced his support for the introduction of a performance right on sound recordings, through the American Music Fairness Act. “We are one hundred percent in support of these efforts,” he said.

Keep fighting

“The current version [of the law] is one we endorse and we join with artist and labels to fight for a performance right. But we do not want to be unrealistic. It is very unlikely that this bill will pass. The argument in this case is right, but it does not matter when comes to the politics of this.”

He said the AMFA is co-sponsored by 34 Representatives in the House, when at the same time 211 have signed a resolution against it. He also noted that the AMFA did not yet get a companion bill in the Senate.

Nonetheless, the are “reasons to keep fighting,” said Israelite. “I support it 100% and I do not believe it will pass.”

Give away a digital future

One of the reasons according to him that will make it hard for the bill to pass is that “every member of Congress has a broadcaster in their district, but music is concentrated in Los Angeles, New York and Nashville.”

He brushed away the idea entertained by broadcaster that they could come with a solution by making a deal introducing performance rights on terrestrial radio, but in exchange receive a cut with the digital rate. “This is a non-starter for labels,” he quipped. “Why would labels give away digital, which is the future?”

Israelite highlighted the importance of a fully licensed digital eco-system by disclosing that 29.1% of digital revenue came from sources that originally claimed they did not have to pay songwriters. “We fought, we won and now we make almost a third of revenues from YouTube, Triller, TikTok, Roblox…” rejoiced Israelite, who said that now, following the settlements with Roblox and Twitch, the only major platform that has not been licensed so far is Twitter. Israelite said the NMPA will put maximum pressure on Twitter, in particular by sending dozens of take down notices.

Aggressive take down strategy

“Twitter, to date, is not willing to engage in good faith negotiation,” explained Israelite. “So we started a very aggressive take down strategy.”

He also invited rights holders to be vigilant with the new companies taking advantage of web3, whether it is NFTs, blockchain, metaverse or VR. He noted that there was “enormous opposition” from some players to license music and pay rights holders. “But we will have to fight,” he said. “One would hope that these companies will launch with the goal to be legit, but most are not.”

He warned there were companies for example, that pretend that blockchain changes the laws of copyright. “We will be very vigilant,” said Israelite. “The idea that you use blockchain does not mean you can avoid license and not pay for music.”

Opportunities in the metaverse

He added there are also companies in the NFT market already being “bad actors” by making profits on the back of artists by using likeness, names and sometimes music.

“Copyright law is clear: because a song is embedded in an NFT does not prevent from being licensed,” he said.

For Israelite, the metaverse is an area of “immense opportunities for songwriters and publishers,” providing “incredible chances to monetise music. But, he added, it was “very important to be diligent in enforcing the law and not starting on wrong foot with companies using music and not license it.”

Emmanuel is a Washington, DC-based freelance journalist, blogger and media consultant, specialising in the entertainment business and cultural trends. He was the US editor for British music industry trade publication Music Week. Previously, he was the editor of Impact, a magazine for the music publishing community (2007-2009), the global editor of US trade publication Billboard (2003-2006), and the editor in chief of Billboard’s sister publication Music & Media (1997-2003).

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