David Israelite, CEO of the US National Music Publishers Association, said yesterday that changes need to be made to the compulsory licence that is utilised by streaming services in the US because the current system isn’t working. Mainly because of Spotify.
“Spotify is not a business partner”, he declared. “They are attacking the songwriters that make their business possible”, and in doing so proving that the way US copyright law sets out a statutory process for the payment of writers and music publishers simply “isn't working”.
He made those comments during a panel discussion in London, organised by UK collecting society PRS, which was focused on the 2018 Music Modernization Act. That’s the legislation that revised US copyright law to fundamentally change the way the mechanical rights compulsory licence works. It also resulted in the creation of the MLC collecting society.
The MMA was the outcome of a deal between the music publishers and the streaming services, he said. It removed some of the services’ legal liabilities and made it much easier for them to pay song royalties. In return, songwriters and publishers were assured that the royalties they were due would be paid more accurately and efficiently.
The publishers feel they compromised in doing that deal, to the advantage of the services, and yet, since the passing of the MMA, Spotify has sought to attack writers and publishers twice. First by fighting a long drawn out legal battle when the Copyright Royalty Board increased the royalty rates due under the compulsory licence, and now with its audiobook bundling tactics.
“The truth is”, Israelite said, “we would like to get rid of the compulsory licence. We'd like to be where record labels are, where publishers negotiate their deals with digital service providers. They agree on terms. If they don't like the terms, they can say no. And if a service wants to do something novel, the service and rightsholder can get together and discuss whether it's good for both parties and, if they both agree, then they can agree a deal in the marketplace”.
The US is unusual in having a compulsory licence that applies to streaming. In most other countries music publishers and songwriter collecting societies - just like record labels and music distributors in the US - directly negotiate bespoke deals with the services.
Nevertheless, Israelite continued, “When we passed the MMA, I think it was a recognition that the compulsory licence was going to stay. So could we make it work?”
The changes introduced by the MMA definitely resulted in a better system for paying writers and publishers. Much of yesterday’s panel talked up why the current system is better, reviewing the issues with the model before the MMA and explaining why the creation of the MLC has fixed many of the problems (even if some issues do remain).
Nevertheless, Israelite continued, since the passing of the MMA, “there have been two developments which have basically proven that the compulsory licence is not working”.
Although the MMA provided a new process for how the compulsory licence works, the rates and terms in the licence are still set every five years by the Copyright Royalty Board. In 2018, the CRB decided to increase the top level rate for songs, from 10.5% to, ultimately, 15.1%.
Various streaming services, “led by Spotify”, Israelite explained, “appealed that decision and they dragged that out for six years. So that in the middle of last year, we did not know what the rates were in January of 2018. It meant that songwriters and music publishers could not run their businesses with any certainty over their largest income source, streaming”.
Ultimately, at the end of the legal battle, the rate increase remained, but - Israelite argued - it forced writers and publishers into years of unnecessary legal wrangling. However, the next time the CRB reviewed the licence, the publishers and services reached an agreement on what the terms should be for 2022 to 2027, meaning no legal battle was required.
The second development is the much more recent dispute over Spotify’s decision to reclassify its main subscription product as a bundle, so that it can qualify for a bundling provision in the compulsory licence, which allows it to reduce its payments to songwriters and publishers.
“In November of last year”, Israelite stated, “50 million Spotify subscribers just had audiobooks show up in their subscription. They didn't really advertise it, they didn't charge you for it. They gave it to you for free. They didn't increase the price of your subscription. They didn't tell you that what you now have is something different. They just gave it to you”.
Then, in March, Spotify “launched an audiobooks only product for $9.99, but only in one country in the world, the United States”. With audiobooks now also available as a standalone product, that allowed Spotify to claim its main subscription product was a music and audiobooks bundle.
At the end of March, Spotify told the MLC that - because its main subscription product was now a bundle - it would be paying the lower bundle rate from this point onwards. Shortly before that happened, Israelite said, “I got a courtesy heads up that they were going to be classifying their individual, family and duo subscribers, 50 million of them, as bundle subscribers. Which means they then paid under a different prong of our rate structure and it meant a 20% cut”.
Both the NMPA and MLC argue that Spotify does not, in fact, qualify for the bundling discount. The MLC has already sued the streaming service, meaning that argument will be tested in court.
Meanwhile, the NMPA has also accused Spotify of not properly licensing uses of songs on its platform that are not covered by the compulsory licence, including lyrics, videos and podcasts. The publishers would normally work out a solution to those alleged licensing gaps in private with a business partner, Israelite was keen to stress, but “Spotify is not a business partner”.
The new war between the publishers and Spotify also means, when the CRB next reviews the terms of the compulsory licence, there will be drama again. “We will be litigating against Spotify”, Israelite said yesterday. “For the other digital companies, I hope we can come together and make an agreement again. But for Spotify, that's not on the table”.
Meanwhile, the NMPA is now formally lobbying for another change to US copyright law and another reform of the compulsory licence. Its request was set out in a letter sent earlier this week to the Judiciary Committees of both the US Senate and House Of Representatives.
Basically, it wants the law to change so that music publishers can choose to opt out of the compulsory licence, forcing streaming services to the negotiating table. That would mean, if Spotify wanted to turn its premium subscription product into a music and audiobooks bundle, it would need to negotiate a new licensing deal with each publisher, in the same way any changes need to be agreed with record labels and music distributors on a company by company basis.
A system would be put in place to govern how the opt-outs would work, so that publishers would have to provide six months notice and would still have to make sure their works were logged in the MLC database. The MLC would continue to provide a statutory ‘mop up’ licence, so where songs were not explicitly subject to a publisher opt-out, a streaming service could still rely on the compulsory licence, and would report usage and pay royalties to the MLC as they do now.
This, the NMPA’s letter said, would “give rightsholders the option to stay within the current compulsory system or to operate within a free market. It would also restore basic principles of fairness to the market by requiring streaming platforms to deal with music-makers as partners”.
The trade body representing the streaming services in the US, DiMA, has already spoken out against the proposal. Its CEO, Graham Davies, said in a statement, “It is disappointing that the NMPA would propose dismantling the MMA in this way. The statutory blanket licence is essential to the MMA’s very structure. Without it - and crucially, the blanket coverage that it provides - the MMA falls apart and the industry will revert to the inefficient and fragmented licensing regime that existed before the MMA became law”.
“The MMA was necessary when it was signed into law”, he added, “and today, underpins the mechanical licensing system. DiMA remains committed to the MMA - a landmark piece of legislation that was supported by every corner of the music industry and passed both chambers of Congress unanimously just over five years ago”.
Nevertheless, Israelite seemed confident that he could demonstrate to lawmakers in Congress that Spotify’s conduct proves that the compulsory licence still isn’t working and that another round of changes are required. He also hinted that key backers of the Music Modernization Act back in 2018 are already sympathetic to his organisation’s position.
So, while we watch the MLC’s lawsuit work its way through the courts, we will also see whether the NMPA’s lobbying mission has any success in Washington.