Independent labels are deeply concerned that US web ‘radio’ services such as Pandora and iHeartRadio may soon be permitted to pay less for their music than for tracks from the majors.
If that sounds like a arbitrarily unfair system, well, that’s exactly what it is.
It could literally mean that a stream of a Taylor Swift track – signed to independent label Big Machine – generates less money than a play of a track from the likes of Psy (Universal), New Kids On The Block (Sony) or Paris Hilton (Warner).
(You’ll have noticed that I’ve picked some less-than-stellar major label signings, there. It doesn’t make the statement any less true. Also, let the record show that Warner Bros really did release an album by Paris Hilton in 2006.)
This widespread worry amongst indies has been set into motion by the Copyright Royalty Board (CRB) in the US, which has just asked the market’s Copyright Office if it can be permitted to set variable statutory royalty rates for recorded music.
Aka: One rate for some, another rate for others.
“WHAT’S REALLY SHOCKING IS THE TWO SUPER-MAJORS SUPPORTING MULTIPLE STATUTORY RATES.”
MBW INDEPENDENT LABEL SOURCE
Important caveat: there has been no official indication so far that this request is linked to an intention to pay independent artists less than those signed to major labels.
However, suspicion is rife amongst the independent community that’s exactly what’s being cooked up.
What’s more, accusations are also flying that Sony and Universal are helping drive this potential outcome with a behind-the-scenes lobbying campaign.
Outcry, as you’d imagine, is loud and abundant.
The owner of one large global label, speaking under condition of anonymity to MBW, said: “It is bad enough that the regulatory authorities are even considering one rate for the big and one rate for the small; it is bad enough that this battle, so crucial for the future of culture, diversity and entrepreneurship is being pitched in such an arcane corner of the industry playing field. But what is really shocking is the positioning of the two super-majors and their mouthpiece, the RIAA, supporting multiple statutory rates.”
Before we return to that suggestion, let’s briefly explain exactly how this fear and loathing has come to pass.
The CRB’s request for the ability to deploy multi-tiered licensing rates arrives shortly after some very significant developments in US music licensing.
Last week, Pandora was crowing: the US Copyright Office decreed that certain direct licensing agreements, including Pandora’s deal with Merlin – the commercial body which represents 20,000 indie labels – were admissible as potential benchmarks in future rate-setting decisions.
[UPDATE: MBW now understands that the Merlin/Pandora agreement follows the US statutory rate of $0.0014 per stream – which applies to most labels, including the majors – but above a certain threshold of plays, that number dips very slightly to $0.0013 per stream. This could obviously act as an incentive for Pandora to play more independent music.]
Hundreds of billions of streams take place on Pandora every year, so those $0.0001s really do add up.
Merlin CEO Charles Caldas argues that the deal struck by Merlin, although slightly smaller in number than the CRB rate, was “not done blindly”.
For starters, it is widely-known that Pandora has been fiercely lobbying to reduce the statutory per-stream payout to labels via SoundExchange: that $0.0014 is not set in stone, in other words, but Merlin’s deal is.
“The direct iRadio deals with the major labels, and the Clear Channel direct deals – as exposed in the recent CRB hearings – were a clear indication to us of which way the tide was flowing,” commented Caldas, referencing a 2013 direct agreement between Warner Music Group and iHeartMedia, the owner of iHeartRadio.
“WE NEEDED TO ACT DECISIVELY TO PROTECT THE INTERESTS OF THE LABELS WE REPRESENT, AND TO ENSURE WE WERE NOT LEFT BEHIND AS THE MARKET SPED TOWARDS AN UNCERTAIN FUTURE.”
CHARLES CALDAS, MERLIN
“[They were] a warning sign to us that we needed to act decisively to protect the interests of the labels we represent, and to ensure we were not left behind as the market sped towards an uncertain future.
“We were extremely mindful in our [Pandora] deal to preserve our support for, and the health of, the statutory regime.”
The Merlin deal with Pandora, he notes, was ‘inherently tied to the statutory rates’ and ensured that artists continued to be paid directly via SoundExchange.
Caldas added: “Despite Pandora’s disappointing press statement last week suggesting otherwise, the Register of Copyrights did not rule that Merlin’s deal is a ‘valid benchmark’.
“In fact, on the contrary, in that same ruling, which references other direct deals in addition to ours, the Register noted she was ‘sympathetic to SoundExchange’s argument that the direct agreements have been shaped by the availability of the Pureplay Agreement’.”
Now the CRB, made up of three judges appointed by the US Library of Congress, appears to have gone one step further, seeking the legal wriggle room to potentially allow Pandora, iHeartRadio and others to break free from single-rate collective licensing.
According to Billboard sources, other factors in this development include major label lobbying and ‘one SoundExchange economist who apparently analysed the difference between some iTunes radio direct deals with the majors and indie labels”.
(Apple typically negotiates its music licenses direct with labels, rather than through collective bargaining bodies.)
Tensions are running high: the CRB is due to deliver its decision over new statutory webcasting rates for 2016-2020 in mid-December.
Added MBW’s independent label source: “If you were a detective looking for the final piece of evidence that the super-majors are no longer acting as responsible market leaders but simply lining their own pockets, you’d need look no further than this.
“YOU NEED LOOK NO FURTHER FOR EVIDENCE THAT THE SUPER-MAJORS ARE NOT ACTING AS RESPONSIBLE MARKET LEADERS, BUT SIMPLY LINING THEIR OWN POCKETS.”
“They will doubtless say that they have to get the best rate for their artists. But in the context of their reputed digital accounting practices – a recent submission from one of them to the effect that it is not required ‘to structure its affairs in whatever way yields the greatest royalties for (their artists)’ – and the fact that A2IM’s submission is supported by all the artists’ representatives on the Sound Exchange board, that is hardly convincing.”
Said Caldas: “It is our firm view, that in order for a functional statutory regime to operate, there can be no division of rates dependent upon any class system of rights.”
“Merlin was in large part created to address serious concerns within the independent sector that the largest labels would abuse their dominance to create a two class system of rights, a system where independent labels and their artists were expected to suffer financially to compensate for the excessive demands imposed on digital services by the big two.
“Eight years on, and despite the fact that it is well established that independent content is must-have content, crucial to consumers, and fundamental to the success of digital platforms, we see our suspicions realised, and there is no more doubt about the majors intentions, which now sit in the open, exposed for all to see.”
A2IM, the US independent label trade body whose members include Beggars Group, Big Machine, Secretly Canadian, Concord Bicycle Music and BMG, has submitted a filing to the US Copyright Office strongly arguing for a single statutory rate.
The organisation said in a statement to MBW: “A2IM remains committed to achieving a level playing field in the digital music marketplace for all of our member labels, regardless of their size.
“When it comes to radio play (or digital radio play in the United States) a single rate is the foundation of collective licensing worldwide; a track equals a track, regardless of genre, the identity of the performer or the size of the label releasing the track.
“COLLECTIVE LICENSING MINIMISES THE OPPORTUNITIES FOR GAMESMANSHIP BY SOME PARTICIPANTS.”
“This simple principle underpins all of the advantages we receive from collective licensing. It minimizes the opportunities for gamesmanship by some participants.
“The biggest or most-well-connected companies have no advantage over everyone else, and there is less opportunity for them to abuse their scale advantage.”
And Alison Wenham, CEO of the Worldwide Independent Network (WIN), commented: “The worldwide independent industry calls for the maintenance of [single-rate] collective licensing in the US as it ensures that there can be no discrimination towards artists and companies in an already highly competitive market place.
“To create imbalances in what companies and the artists signed to them receive from digital transactions will simply cause harm, and not serve expansion of choice for the consumer and for the creative community.
“The independents’ catalogues are – it could be said the essential ingredient to success in the digital market place but the majors continue to try and split the industry apart to leverage more for themselves at the expense of everyone else.
“IF THIS IS ALLOWED TO TAKE ROOT IN THE US, IT WILL HAVE DISASTROUS CONSEQUENCES FOR THE WHOLE INDUSTRY.”
ALISON WENHAM, WIN
“If this is allowed to take root in the US it will have disastrous consequences for the whole industry.
“Worldwide, the independents have always upheld the benefits of collective licensing to provide certainty and efficiency to licensors, licensees and the consumer – not to achieve a rate it may be assumed independents couldn’t otherwise get for themselves. This is completely missing the point.
“The benefits of collective licensing in an emerging market is to support innovation and competition – multiple statutory rates would kill that stone dead.’