Healing with Sunlight: A Rate Based Solution for the Frozen Mechanicals Dilemma

Well, it’s been quite a week for the frozen mechanicals issue on The Trichordist (once again cementing its leadership role in providing a platform for the voice of the people).  Many songwriter groups, publishers, lawyers and academics stepped forward with well-reasoned commentary to demand a better rate on physical and downloads and full disclosure of the secret deals between NMPA and the major label affiliates of their biggest members.  Even the mainstream press had to cover it.  So much for physical and downloads being unimportant configurations.

Readers should now better understand the century of sad history for U.S. mechanical royalties that cast a long commercial shadow around the world.  This history explains why extending the freeze on these mechanical rates in the current CRB proceeding (“Phonorecords IV”) actually undermines the credibility of the Copyright Royalty Board if not the entire rate setting process.  The CRB’s future is a detailed topic for another day that will come soon, but there are many concrete action points raised this week for argument in Phonorecords IV today–if the parties and the judges are motivated to reach out to songwriters.

Let’s synthesize some of these points and then consider what the new royalty rates on physical and downloads ought to be.

            1.  Full Disclosure of Side Deals:  Commenters were united on disclosure.  Note that all we have to go on is a proposed settlement motion about two side deals and a draft regulation, not copies of the actual deals.  The motion acknowledges both a settlement agreement and a side deal of some kind that is additional consideration for the frozen rates and mentions late fees (which can be substantial payments).  The terms of the side deal are unknown; however, the insider motion makes it clear that the side deal is additional consideration for the frozen rate. 

            It would not be the first time that a single or small group negotiated a nonrecoupable payment or other form of special payment to step up the nominal royalty rate to the insiders in consideration for a low actual royalty rate that could be applied to non-parties.  The rate—but not the side deal–would apply to all.  (See DMX.)

            In other words, if I ask you to take a frozen rate that I will apply to everyone but you, and I pay you an additional $100 plus the frozen rate, then your nominal rate is the frozen per unit rate plus the $100, not the frozen rate alone.  Others get the frozen rate only.  I benefit because I pay others less, and you benefit because I pay you more.  Secret deals compound the anomaly.

            This is another reason why the CRJs should both require public disclosure of the actual settlement agreement plus the side deal without redactions and either cabin the effects of the rate to the parties or require the payment of any additional consideration to everyone affected by the frozen rate.  Or just increase the rate and nullify the application of the side deal.

            It is within the discretion of the Copyright Royalty Judges to open the insider’s frozen mechanical private settlement to public comment.  That discretion should be exercised liberally so that the CRJs don’t just authorize comments by the insider participants in public, but also authorize public comments by the general public on the insiders work product. Benefits should flow to the public–the CRB doesn’t administer loyalty points for membership affinity programs, they set mechanical royalty rates for all songwriters in the world.

            2.  Streaming Royalty Backfire:   If you want to argue that there is an inherent value in songs as I do, I don’t think freezing any rates for 20 years gets you there.  Because there is no logical explanation for why the industry negotiators freeze the rates at 9.1¢ for another five years, the entire process for setting streaming mechanical rates starts to look transactional.  In the transactional model, increased streaming mechanicals is ultimately justified by who is paying.  When the labels are paying, they want the rate frozen, so why wouldn’t the services use the same argument on the streaming rates, gooses and ganders being what they are?  If a song has inherent value—which I firmly believe—it has that value for everyone. Given the billions that are being made from music, songwriters deserve a bigger piece of that cash and an equal say about how it is divided.

            3.  Controlled Compositions Canard:  Controlled comp clauses are a freeze; they don’t justify another freeze.  The typical controlled compositions clause in a record deal ties control over an artist’s recordings to control over the price of an artist’s songwriting (and often ties control over recordings to control over the price for the artist’s non-controlled co-writers). This business practice started when rates began to increase after the 1976 revision to the U.S. Copyright Act.  These provisions do not set rates and expressly refer to a statutory rate outside of the contract which was anticipated to increase over time—as it did up until 2006.  Controlled comp reduces the rate for artist songwriters but many publishers of non-controlled writers will not accept these terms.  So songwriters who are subject to controlled comp want their statutory rate to be as high as possible so that after discounts they make more.  

            Because controlled comp clauses are hated, negotiations usually result in mechanical escalations, no configuration reductions, later or no rate fixing dates, payment on free goods and 100% of net sales, a host of issues that drag the controlled comp rates back to the pure statutory rate.  Failing to increase the statutory rate is like freezing rate reductions into the law on top of the other controlled comp rate freezes—a double whammy.

            It must be said that controlled compositions clauses are increasingly disfavored and typically don’t apply to downloads at all.  If controlled comp is such an important downward trend, then why not join BMG’s campaign against the practice?  If you are going to compel songwriters to take a freeze, then the exchange should be relief from controlled compositions altogether, not to double down.

            4.  Physical and Downloads are Meaningful Revenue:  Let it not be said that these are not important revenue streams.  As we heard repeatedly from actual songwriters and independent publishers, the revenue streams at issue in the insider motion are meaningful to them. Even so, there are still roughly 344.8 million units of physical and downloads in 2020 accounting for approximately $1,741.5 billion of label revenue on an industry-wide basis.  And that’s just the U.S. Remember—units “made and distributed” are what matter for physical and download mechanicals, not “stream share”.  If you don’t think the publishing revenue is “meaningful” isn’t that an argument for raising the rates?

U.S. Recorded Music Sales Volumes and Revenue by Format (Physical and Downloads) 2020 UnitsRevenue
LP/EP  22.9 million$619.6 million
Download Single257.2 million$312.8 million
Download Album  33.1 million$319.5 million
CD  31.6 million$483.3 million
Vinyl Single  0.4 million$    6.3 million

Source: RIAA https://www.riaa.com/u-s-sales-database/

            5.  Inflation is Killing Songwriters:  The frozen mechanical is not adjusted for increases in the cost of living, therefore the buying power of 9.1¢ in 2006 when that rate was first established is about 75% of 9.1¢ in 2021 dollars.

            6.  Willing Buyer/Willing Seller Standard Needs Correction:  When the willing buyer and the willing seller are the same person (at the group level), the concept does not properly approximate a free market rate under Section 115. Because both buyers and sellers at one end of the market are overrepresented in the proposed settlement, the frozen rates do not properly reflect the entire market.  At a minimum, the CRJs should not apply the frozen rate to anyone other than parties to the private settlement.  The CRJs are free to set higher rates for non-parties.

            7.  Proper Rates:  While the frozen rate is unacceptable, grossing up the frozen rate for inflation at this late date is an easily anticipated huge jump in royalty costs. That jump, frankly, is brought on solely because of the long-term freeze in the rate when cost of living adjustments were not built in.  The inflation adjusted rate would be approximately 12¢ (according to the Bureau of Labor Statistics Inflation Calculator https://www.bls.gov/data/inflation_calculator.htm).  

            Even though entirely justified, there will be a great wringing of hands and rending of garments from the labels if the inflation adjustment is recognized.  In fairness, just like the value of physical and downloads differ for independent publishers, the impact of an industry-wide true-up type rate change would also likely affect independent labels differently, too. So fight that urge to say cry me a river.

            Therefore, it seems that songwriters may have to get comfortable with the concept of a rate change that is less than an inflation true up, but more than 9.1¢.  That rate could of course increase in the out-years of Phonorecords IV.  Otherwise, 9.1¢ will become the new 2¢–it’s already nearly halfway there.  The only thing inherent in extending the frozen mechanicals approach is that it inherently devalues the song just at the tipping point.

            Let’s not do this again, shall we not?

What Would @TaylorSwift13 and Eddie @cue Do? One solution to the frozen mechanical problem

Who can forget how Taylor Swift stood up for songwriters, producers and artists against Apple’s bizarre decision to impose a royalty-free three month trial period on the launch of Apple Music. (Of course, songwriters, producers and artists weren’t the only ones involved, but that’s a story for another day.)

What is equally memorable is how fast Apple changed course and all the goodwill that came to Apple as a result. Faster than you can say “Arsenal”, Eddie Cue announced that Apple would scale it back. Lemonade out of lemons. Of course, the issue should have been obvious, but sometimes smart people miss the point like everyone does sometimes. (Rolling Stone has a good short post on the backstory.)

The point of the story is that when you make a mistake, it’s better to fix it quickly than let it fester. So it is with the “frozen mechanical” problem that has become all the rage in recent days. The good news is the problem can be solved with the payment of money. It won’t be easy, but as a great man once said, this is the business we’ve chosen.

The Copyright Royalty Board decides on the statutory rate that’s paid under compulsory content licenses in the United States. For mechanical royalties, the CRB makes that decision every five years which means that if there isn’t a CRB hearing going on at any given moment, wait a little while and there will be one. (Needless to say, the volume of CRB hearings varies directly with full employment for lawyers and lobbyists in Washington, DC.) The “frozen mechanical” issue dates back to 2006 (or 2009 depending on how you count it) when the CRB allowed the end of rising mechanical royalty rates on physical and permanent downloads (and a couple others). However, the sour memories of frozen mechanicals dates to 1909–also a story for another day.

Instead, the CRB has allowed a private agreement among the biggest players to become the law. This has happened at least one other time and it appears that it is about to happen again according to public documents filed with the CRB on March 2, 2021 (read it here). Contrast that private agreement to the bitter struggle against the streaming services over streaming mechanicals that is still in the appeal process. Different people paying, same songwriters getting paid.

If you haven’t heard about the tentative settlement by private agreement at the CRB, it admittedly was not well socialized.

The inescapable problem is that any fixed or “frozen” rate determined at one point in time but paid over relatively long periods of time is at the mercy of inflation in the economy that may rise in that intervening time period. The Congress and the industry recognized this harsh truth in the 1976 revision to the Copyright Act and eventually indexed mechanical rates, meaning that they floated upward with the Consumer Price Index. (CPI has its own problems, but it’s a bogey that lots of people use so it’s easier than reinventing the wheel with a bespoke factor.)

Given what has been happening in the economy, it was inevitable that inflation was about to come back strong in the U.S. and global economy. Sure enough, the Department of Labor announced yesterday:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.8 percent in April on a seasonally adjusted basis after rising 0.6 percent in March, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 4.2 percent before seasonal adjustment. This is the largest 12-month increase since a 4.9-percent increase for the period ending September 2008.

Yes, the CPI ignored the Fed and increased like the pesky little devil it is. There’s no reason to think that this is going to stop any time soon. (If you were born after 1960 or so, you may not remember that inflation and stagflation resulted in the prime interest rate peaking at 21.5% in December of 1980. That drove mortgage rates to 13.41% in 1981 (often plus points). And then there were the credit cards. That’s where inflation can lead. Personally, my money is on stagflation in the form of high inflation and high unemployment due to what Secretary Yellen called the scarring effects of the pandemic which the music business is experiencing in spades.)

April 2021 DOL Inflation

It just wouldn’t be prudent to enter into a long term contract at a fixed rate that does not take into account inflation. Yet that is exactly what the tentative settlement wants to do with the mechanical rate for physical, downloads, and a couple other categories. Yet, we must acknowledge that it is very difficult to herd the cats to get them to agree to anything. But having gotten everyone to agree to freezing mechanicals and having gotten the CRB to agree to adopt that agreement in the past, it may be the case that the parties can get the CRB to let them increase mechanicals going forward.

In other words, take a lesson from Taylor Swift and Eddie Cue and do a quick course correction before the final settlement gets announced on May 18.

So what would that look like? Precedent suggests that the CRB (and its predecessors) have accepted two principal methods of increasing the rate, which is phased in over time: fixed penny-rate increases and CPI indexing. My suggestion would be to employ both methods in a greater of formula (so popular with streaming).

If phased in over 5 years like other rates, it seems that there could be an immediate step up to compensate songwriters for a rate was frozen starting at the time that physical was still a very significant percentage of sales back in 2006. That stepped up rate could then gradually increase with a greater of a fixed penny increase or CPI. I wouldn’t presume to tell anyone what that step up should be, but if you apply the CPI index, it should probably be about 4¢, bringing the minimum rate to 13¢ from 9.1¢. Given that big–albeit entirely justified–jump, increases over the out years might be more modest.

Now that we know that there’s a strong possibility that inflation will be in our lives for the foreseeable future, the good news is there’s still time to do something about it. The CRB has shown us that they are willing to accept radical changes in the mechanical royalty rate by adopting private settlements, so there seems to be no impediment. I’m not aware of a rule that says the CRB only adopts rules that freeze songwriters in place, so it should work to the songwriters betterment and not just to their detriment.

We should ask, what would Taylor and Eddie do?

What the MLC Can Learn from Orphan Works

As you may be aware, The MLC recently received $424 million as payment of the “inception to date” unmatched mechanical royalties held at a number of streaming platforms, sometimes called the “black box.” Why do we have a black box at all? For the same reason you have “pending and unmatched” at record companies–somebody decided to exploit the recording without clearing the song.

Streaming services will, no doubt, try to blame the labels for this missing data, but that dog don’t hunt. First, the streaming service has an independent obligation to obtain a license and therefore to know who they are licensing from. Just because the labels do, too, doesn’t diminish the service’s obligation. It must also be said that for years, services did not accept delivery of publishing metadata even if a label wanted to give it to them. So that helps explain how we get to $424 million. Although the money was paid around mid-February, it’s clearly grown because The MLC is to hold the funds in an interest bearing account. Although The MLC has yet to disclose the current balance. Maybe someday.

This payment is, rough justice, a quid pro quo for the new “reach back” safe harbor that the drafters of Title I came up with that denies songwriters the right to sue for statutory damages if a platform complies with their rules including paying this money. That’s correct–songwriters gave up a valuable right to get paid with their own money.

The MLC has not released details about these funds as yet, but one would expect that the vast majority of the unmatched would be for accounting periods prior to the enactment of Title I of the Music Modernization Act (Oct. 11, 2018). One reason that expectation would be justified is that Title I requires services to try hard(er) to match song royalties with song owners. The statute states “…a digital music provider shall engage in good-faith, commercially reasonable efforts to identify and locate each copyright owner of such musical work (or share thereof)” as a condition of being granted the safe harbor.

The statute then goes on to list some examples of “good faith commercially reasonable efforts”. This search, or lack thereof, is at the heart of Eight Mile Style and Martin Affiliated’s lawsuit against Spotify and the Harry Fox Agency. (As the amended complaint states, “Nowhere does the MMA limitation of liability section suggest that it lets a DMP off the hook for copyright infringement liability for matched works where the DMP simply committed copyright infringement. The same should also be true where the DMP had the information, or the means, to match, but simply ignored all remedies and requirements and committed copyright infringement instead. Spotify does not therefore meet the requirements for the liability limitations of the MMA with respect to Eight Mile for this reason alone.”)

The MMA language is similar to “reasonably diligent search” obligations for orphan works, which are typically works of copyright where the owner cannot be identified by the user after trying to find them. This may be the only aspect of orphan works practice that is relevant to the black box under MMA. Since considerable effort has been put into coming up with what constitutes a proper search particularly in Europe it might be a good idea to review those standards.

We may be able to learn somethng about what we expect the services to have already done before transferring the matching problem to the MLC and what we can expect the MLC to do now that they have the hot potato. The MMA provides non-exclusive examples of what would comprise a good search, so it is relevant what other best practices may be out there.

Establishing reference points for what constitutes “good faith commercially reasonable efforts” under MMA is important to answer the threshold question: Is the $424 million payment really all there is? How did the services arrive at this number? While we are impressed by the size of the payment, that’s exactly the reason why we should inquire further about how it was arrived at, what periods it is for and whether any deductions were made. Otherwise it’s a bit like buying the proverbial pig in the proverbial poke.

One method lawmakers have arrived at for determining reasonableness is whether the work could be identified by consulting readily available databases identified by experts (or common sense). For example, if a songwriter has all their metadata correct with the PROs, it’s going to be a bit hard to stomach that either the service or the MLC can’t find them.

Fortunately, we have the Memorandum of Understanding from the European Digital Libraries initiative which brought together a number of working groups to develop best practices to search for different copyright categories of orphan works. The Music/Sound Working Group was represented by Véronique Desbrosses of GESAC and Shira Perlmutter, then of IFPI and now Register of Copyrights (head of the U.S. Copyright Office). The Music/Sound Working Group established these reasonable search guidelines:

DUE DILIGENCE GUIDELINES

The [Music/Sound] Working Group further discussed what constituted appropriate due diligence in dealing with the interests of the groups represented at the table—i.e., what a responsible [user] should, and does, do to find the relevant right holders. We agreed that at least the following searches should be undertaken:

1. Check credits and other information appearing on the work’s packaging (including names, titles, date and place of recording) and follow up through those leads to find additional right holders (e.g., contacting a record [company] to find the performers).

2. Check the databases/membership lists of relevant associations or institutions representing the relevant category of right holder (including collecting societies, unions, and membership or trade associations). In the area of music/sound, such resources are extensive although not always exhaustive.

3. Utilise public search engines to locate right holders by following up on whatever names and facts are available.

4. Review online copyright registration lists maintained by government agencies, such as the U.S. Copyright Office.

Perhaps when the MLC audits the inception to date payments we’ll have some idea of whether the services complied with these simple guidelines.

SoundCloud Throws Down With Fan Powered Royalties and User-Centric

SoundCloud is the first music service to adopt a version of the ethical pool principles in a user-centric royalty model and I have to applaud the effort. It’s a really good first step. “Fan Powered” royalties tries to connect the dots between what fans actually listen to and what fans actually pay for.

SC Fan Powered

Remember, the point of the ethical pool was to do something right now to remedy the hyper efficient marketshare distributions of the “big pool” or “market-centric” royalty allocation model that is pretty much the rule with digital music services (and to one degree or another with streaming mechanicals, too, although that’s a topic for another day). I acknowledged the transaction cost involved of truly changing the model which would require renegotiating all the big pool catalog licenses. The workaround in ethical pool is to allow those who want out to opt in to a user-centric model that would be separate from the big pool. This is a way to avoid the significant transaction costs of trying to change a system that is working well for some but not all artists on the service.

SoundCloud appears to have done something very similar. This accomplishes another goal of ethical pool which is to not upset the big pool model entirely as it is working for a lot of people and there’s a benefit to the entire industry that flows from that success. By adopting this middle-ground user centric model, SoundCloud is actually able to promote its user centric method as a competitive advantage to attract independent artists to sign up with the service.

When you consider that the real choice of independent artists is to stream or not to stream because the revenues are microscopic but the cannibalization is gigantic, it is competition that is going to get the market forces aligned to produce real organic change. If services understand that offering at least some version of user centric is actually a competitive advantage, we may find that there’s greater uptake than anyone imagined.

It must also be said that fans will feel a lot better about SoundCloud’s model than the market-centric approach. It comes as abrupt news to fans that their royalty is being paid for music they don’t listen to–it’s only a matter of time until someone brings a false advertising claim against the services for failing to educate consumers about that one. And this is really the underlying issue with whatever flavor of user-centric you like: It’s better for the fans. As the erudite Martin Goldschmidt said in MusicAlly:

The bottom line, for me, is that user-centric is obviously a big win for the consumer. Long term, this will be a big win for artists, labels, distributors and DSPs. And we will all make more money.

Or as one fan said to me, I’m tired of my money funding crap. This is an isolated anecdote, but imagine what will happen if a million fans (or even 1,000) had this same reaction. All while the services are literally printing money.

As you can see from this comparison of Spotify share price to the FAANG stocks (Facebook, Amazon, Apple, Netflix and Google), Spotify has far, far outpaced the FAANG stocks in its relative growth rate. You can also see that the COVID pandemic that has decimated the artist community has been rocket fuel for Spotify’s riches and has made Daniel Ek a multi-multi billionaire all why paying out fractions of a penny to artists.

Spot 3-3-21

You can find the SoundCloud user centric royalty terms here. And bear in mind–we’re all better off if artists don’t feel they have to opt out of the entire streaming business in order to make a living.

Good News for Music Tech Startups: DLC Changes Fee Structure for Using Blanket Compulsory License

Title I of the Music Modernization Act established a blanket mechanical royalty license, the mechanical licensing collective to create the musical works database and collect royalties, the Digital Licensee Coordinator (which represents the music users under the blanket license) and a system where the services pay for the millions evidently required to operate the MLC and create the musical works database (which may happen eventually but which currently is the Harry Fox Agency accessed via API).

Title I also established another first (to my knowledge):  The United States became the first country in the world to charge music users a fee for availing themselves of a compulsory license.  The way that works is that all users of the blanket license have to bear a share of the costs of operating the MLC and eventually establishing the musical works database (and whatever else is in the MLC’s budget like legal fees, executive pension contributions, bonuses, etc.).  This is called the “administrative assessment” and is established by the Copyright Royalty Judges through a hearing that only the DLC and the MLC were (and probably are) allowed to attend, yet sets the rates for music users not present.

The initial administrative assessment is divided into two parts: The startup costs for developing the HFA API and the operating costs of the MLC.  The startup costs for the API, vendor payments, etc., were assessed to be $33,500,000; that’s a pricey API.  The first year MLC operating costs were assessed to be $28,500,000.  Because it’s always groundhog day when it comes to music publishing proceedings before the Copyright Royalty Judges, the method of allocating these costs are a mind-numbing calculation that will require lawyers to interpret.  With all respect, the poor CRJs must wonder how anything ever actually happens in the music business based on the distorted view that parades before them.  You do have to ask yourself is this really the best we can do?  Imagine that the industry elected to solve its startup problems by single combat with one songwriter and one entrepreneur staying in a room until they made a deal.  Do you think that the best they could come up with is the system of compulsory licensing as it exists in the US?  Maybe.  Or maybe they’d come up with something simpler and less costly to administer in the absence of experts , lobbyists and lawyers.

My feeling is that the entire administrative assessment process is fraught with conflicts of interest, a view I made known in an op-ed and to the Senate Judiciary Committee staff at their request when the MMA was being drafted.  The staff actually agreed, but said their hands were tied because of “the parties”–which of course means “the lobbyists” because the MMA looked like what they call a “Two Lexus” lobbying contract.  Not for songwriters, of course.

Yet, the DLC appears to have reconsidered some of this tom foolery and should be praised for doing so.  The good news is that the market’s gravitational pull has caused the allocation of the assessment on startups to come back to earth in a much more realistic methodology.  Markets are funny that way, even markets for compulsory licenses.  While still out of step with the rest of the world, at least the US precedent appears much less likely to have the counterproductive effects that were obvious before MMA was signed into law due to the statute’s anticompetitive lock in.  And the DLC should be commended for having the courage and the energy to make the fairness-making changes.  That’s a wow moment.

Hats off to the DLC for getting out ahead of the issue.  I recommend reading the DLC filing supporting the revisions (technically a joint filing with MLC but it reads like it came from DLC with MLC signing off).  It’s clearly written and I think the narrative will be understandable and informative to a layperson (once you get past the bizarre structure of the entire thing).  The DLC tells us the reasons for revisiting the allocation:

Since the Judges adopted the initial administrative assessment regulations, the Parties [i.e., the DLC and MLC since no one else was allowed to participate even if they had a stake in the outcome] have gained a better understanding of the overall usage of sound recordings within the digital audio service industry, as well as the relative usage of various categories of services. This information has led the Parties to conclude that the allocation methodology could have significant impacts on smaller Licensees, and that the allocation methodology should be modified to better accommodate these Licensees, and that such is reasonable and appropriate. This is particularly the case as these Licensees transition to the new mechanical licensing system set forth in the Music Modernization Act (“MMA”) and navigate new reporting requirements, and further as the country continues to generally struggle through the economic and health effects of the ongoing COVID-19 pandemic. While the cost, reporting requirements, and impacts of the pandemic are experienced by all Licensees, the Parties believe that it is reasonable and appropriate to modify the administrative assessment to better address the situations of smaller Licensees.

The “old” allocation resulted in this payment structure for services buying into the blanket license (setting aside download stores for the moment):

Old Assessment Alloction

It was that $60,000 plus an indeterminate share of operating costs that was the killer.  The new allocation is more precise applicable to other than download stores:

New Assessment Alloction

This makes a lot more sense and one can believe that some startups actually were asked what they think. Remember, David Lowery sent an open letter to the CRJs in 2019 raising this exact point reacting to the bizarre initial administrative assessment hearings:

The Judges should take into account that no startup has been present or able to negotiate the many burdens placed on them by this settlement. In particular, they have not been able to be heard by the Judges on the scope of these financial burdens that their competitors—some of the richest multinational corporations in history—have unilaterally decided to place on them with no push back.

This isn’t to say that any would be brave enough to come forward and challenge their betters if given a chance. But they should at least be given a chance.

There are some twists and turns to the new rule which was adopted by the CRJs as a final rule on January 8, 2021, and any startup should obviously get smart about the rules. But–these latest amendments have established two really great things: First, the DLC is paying attention. That is very good for the reasons David raises. The other is that the DLC is apparently actually talking to someone other than Google and Spotify and coming up with reasonable compromises. This is very, very good. Let’s hope it continues.

We’ll be watching.

Making Sense of the New Blanket Mechanical License and the Mechanical Licensing Collective

This is a recording of a webinar about the Mechanical Licensing Collective that I did with Abby North and Gwen Seale, sponsored by Texas Accountants and Lawyers for the Arts, Austin Texas Musicians and Austin Music Foundation.  

The webinar is from the point of view of self-published songwriters who are trying to make sense of the Mechanical Licensing Collective (currently, “The MLC, Inc.”) and what is going to happen to their mechanical licensing revenue now that the blanket license is available to digital music providers (or “DMPs”).  

Here’s a couple basic concepts:  

A “mechanical” royalty must be licensed by a DMP for the “mechanical” reproduction of the song, and a separate royalty paid for uses under that “mechanical license.”  The mechanical license also covers distribution of the copies permitted.  See the Copyright Office Circulars on the digital side and the physical side (somewhat different rules apply to each configuration).

Up until January 1, 2021, mechanical licenses were issued on a song-by-song basis in the United States under a compulsory license.  There was no blanket compulsory license.  The Music Modernization Act established both the blanket compulsory license for permanent downloads, limited downloads, and interactive streaming (available after January 1, 2021) and a mechanical licensing collective which can be run by different non-profit corporations at different times.  The head of the Copyright Office “designates” or “approves” the non-profit corporation to be the mechanical licensing collective and reviews the performance of the designated company every five years.  The Copyright Office approved a non-profit corporation that styles itself “The MLC, Inc.” or “The MLC” so it gets confusing as to whether you are talking about “the mlc” or the organization described in the Music Modernization Act or The MLC, Inc., the corporation approved by the Copyright Office with the backing of the National Music Publishers Association among others.

So it is the usual government alphabet soup, but be clear about one thing–unless you know with certainty that your song catalog is being paid under voluntary licenses outside of the blanket license, you will stop being paid however you have been paid and you will start being paid by The MLC if you can be matched to revenue.  

That means that your songs must be registered with The MLC correctly, including your banking information.  Do not count on that happening by itself.

Here are a few links as a companion to the webinar:

Please take the MLC Awareness Questionnaire, 10 questions, responses and responders are anonymous.

The MLC, Inc.

When Do I Get Paid By the MLC?

Most recent Copyright Office rules for payments by DMPs to the MLC of your money

Rules for when MLC must pay copyright owners (including copyright owners who are self-published songwriters)

The Economics of Recoupment Forgiveness

Can Forgiveness Be Compulsory?

There is a drumbeat starting in some quarters, particularly in the UK, for the government to inject itself into private contracts and cause a forgiveness of unrecouped balances in artist agreements after a date certain–as if by magic.  Adopting such a law would focus Government action to essentially cause a compulsory “sale” by the government of the amount of every artist’s unrecouped balance due to the passing of time for what is arguably a private benefit.

Writing off the unrecouped balance for the artist’s private benefit would essentially cause the transfer to the artist of the value of the unrecouped balance to be measured at zero–which raises a question as to the other side of the double-entry if the government also allows a financial accounting write off for the record company investor  but values that risk capital at zero.  Government action of this type raises Constitutional questions in the U.S., and I suspect will also raise those same types of questions in any jurisdiction where the common law obtains.  We’ll come back to this.  It also raises questions as to why anyone would risk the investment in new artists’ recordings if the time frame for recovery of that risk capital is foreshortened. We’ll come back to this, too.

What’s Wrong with Being Unrecouped?

Remember—being unrecouped is not a “debt” or a “loan”.  It’s just a prepayment of royalties by contract that is conditioned on certain events happening before it is ever “repaid.”   There is no guarantee that the prepaid royalties will ever be earned.

One of the all-time great artist managers told me once that if his artist was recouped under the artist’s record deal, the manager was not doing his job.  The whole point was to be as unrecouped as humanly possible at all times.  Why?  Because it was free money money bet that may never be called.  Plus he would do his best to make the label or publisher bet too high and he was never going to let them bet too low.

Another great artist manager who was representing a new artist who went on to do well before breaking up said that once he realized he was never going to be recouped with the record company it was a wonderfully liberating experience.  He’d talk them into loads of recoupable off-contract payments like tour support, promotion and marketing that made his band successful and that he didn’t share with the label.  Tour support is only 50% recoupable?  How much will you spend if it’s 100% recoupable?

Get the idea?  We’re starting to hear some rumblings about a statutory cutoff for recoupment of a term of years.  First of all, I would bet such a rule in the U.S. if applied retroactively would be unconstitutional taking in violation of due process under the 5th Amendment.  Regardless, whichever country adopts such a rule will in short order find themselves with either no record companies or with vastly different deal points in artist recording agreements subject to their national law.  (See the “$50,000 a year” controversy from 1994 over California Civ. Code §3423 when California-based labels were contemplating leaving the State.  We’re way beyond runaway production now.)

Record Company as Banker

Let’s imagine two scenarios:  One is an unsigned artist trying to finance a recording, the other is a catalog artist with an inactive royalty account.  They each illustrate different issues regarding recoupment.

Imagine you went to a bank to finance your recordings.  You told the banker I do some livestreams, here’s my Venmo account statements and I have all this Spotify data on my 200,000 streams that made me $500 but cost me $10,000 in marketing.  Most importantly of all, your assistant thinks I am really cool, if you catch my drift.

I want to make a better record and I think I could get some gigs if clubs ever reopen.  My songs are really cool.  I need you to lend me $50,000 to make my record and another $50,000 to market it.  (Probably way more.)  I don’t want a maturity date on the loan, I don’t want events of default (meaning it is “non recourse”), you can’t charge me interest, I don’t want to make payments, but you can recoup the principal from the earnings I make for licensing or selling copies of the recordings you pay for.  I’ll market those recordings unless my band breaks up which you have no control over.  As I recoup the principal, I’ll pay you in current dollars for the historical unrecouped balance.  I keep all the publishing, merch and live.  And oh, if you want you can own the recordings, but understand that I will be doing everything I can to try to get you (or guilt you or force you) to give me the recordings back regardless of whether you have recouped your “loan” which isn’t a loan at all.

Deal?

Catalog Fairness

Then consider a catalog artist.  The catalog artist was signed 25 years ago to a term recording artist agreement with $500,000 per LP on a three firm agreement that didn’t pan out.  After tour support, promotion, additional advances to cover income tax payments, the artist got dropped from their label and broke up with a $1,000,000 unrecouped balance.   In the intervening years, the artists went on to individual careers as songwriters and film composers, but none of those subsequent earnings were recoupable as they got dropped and were under separate contracts.  Another thing that happened in the intervening years was the label went from selling CDs at a $10 wholesale price through their wholly owned branch distribution system to selling streams at $0.003 each through a third party platform with probably triple the marketing costs.

The old recordings eventually dwindled below 1,500 CD units a year for a few years, and in 2005 the label cut them out, but continued to service their digital accounts with the recordings as deep and ever deeper catalog.  After a few sync placements, earnings reached zero for a couple years and the royalty account was archived, i.e., taken off line.  Streaming happened and now the recordings are making about $100 a year until one track got onto a Spotify “Gen Z Afternoon Safe Space Tummy Rub” playlist and scored 1,000,000 streams or about $600 give or take.  When the royalty account was archived, it had an unrecouped balance of $800,000 in 1995 dollars.  So the $600 gets accrued in case the catalog ever earns enough to justify the cost of reactivating the account—which means the artist doesn’t get paid for the recordings because they are unrecouped but they also don’t get a statement because they’ve had an earnings drought.  Like most per-stream payments, it would cost more to account for the $600 on a statement than the royalties payable.

Bear in mind that adjusted for inflation—and we’ll come back to that—the $800,000 in 1995 dollars would be worth $1,366,866.14 today.  But because the record company does not charge either overhead, interest, or any inflation charge, the historical $800,000 from 1995 is paid off in ever-inflated current dollars.

As the artist managers said, the artists long ago got the benefit of getting essentially a no-risk lifetime royalty pre-payment (it’s not really correct to call it a “loan” when there’s no recourse, maturity date, payments, interest rate or repayment schedule) and long ago spent the money on a variety of business and personal expenses.  Which potentially enhanced their careers so they could get that film work later down the line.  Or more simply, a bird in the hand.

Do You Really Want Monkey Points?

If you want to see what would happen if this apple cart were rocked, take a good look at a good corollary, the “net profits” definition in the film business, or what Eddy Murphy famously called “monkey points.”  Without getting into the gory details, studios will typically play a game with gross receipts that involves exclusions, deductions, subdistributor receipts, advances, ancillary rights, income from physical properties (from memorabilia like Dorothy’s slippers), distribution fees, distribution and marketing expenses, deferments, gross participation, negative costs, interest on the negative cost, overbudget deductions, overhead on negative cost and marketing costs (and interest on overhead)…shall I go on?  And then there’s the accounting.

The movie industry also has a concept called “turnaround”.  Turnaround happens when Studio A decides (usually for commercial reasons) it is not going forward with a script that it has developed and offers it to other studios for a price that allows it to recover some or all of its development costs usually with an override royalty.  Sometimes it works out well–after a very long time, the project may become “ET.”  Would artists prefer getting dropped or having their contracts put into turnaround?

The point is that while it may sound good to make unrecouped balances vanish after a date certain, people who say that seem to think that all the other deal terms will stay constant or even improve for the artists after that substantial risk shifting.  I seriously doubt that, just like I doubt that venture capitalists who fund the startups that bag on record companies would give up their 2 or 3x liquidation preference, full ratchet anti-dilution protection, registration rights or co-sale agreements.

Should 5% Appear Too Small

But did the unrecouped balance actually vanish?  Not really.  The value was transferred to the artist in the form of forgiveness of an obligation for the artist’s private benefit, however contingent.  That value may be measured in an amount greater than the historic unrecouped balance.  Is this value transfer a separate taxable event?  Must the artist declare the forgiveness as income?  Can the record company write off the value transferred as a loss?  If not, why not?  I can’t think of a good reason.  If anything, valuing the “taking” in current dollars would only correct the valuation issue and could amplify the tax liability of the transfer.

As you can see, wiping out unrecouped balances sounds easy until you think about it.  It is actually a rather complex transaction which immediately raises another question as to when it stops.  Why just signed artists?  Why not all artists?  Songwriters?  Profit participants in motion pictures or television?  Authors?  All of this will be taken into account.

King John and the Barons: Don’t Tread On Me

Setting aside the tax implication, were such government action to take the form of a law to be enacted in the United States, it would prohibit a fundamental right previously enjoyed under the 5th Amendment to the U.S. Constitution (one of the Amendments known as the “Bill of Rights”).  The “takings” clause of the 5th Amendment states “…nor shall private property be taken for public use, without just compensation.”  In fact, such government action would implicate the fundamental rights expressed in the 5th Amendment and applied against the states in the 14th Amendment to the Constitution.  The 5th Amendment derives from Section 39 of Magna Carta, the seminal constitutional documents in the United Kingdom (dating from 1215 for those reading along at home) and was central to the thinking of Coke, Blackstone and Locke who were central to the thinking of the Founders.

In the U.S., such a law would likely be given a once over and strictly scrutinized by the courts (including The Court) to determine if taking unrecouped balances from a select group of artists, i.e., those signed to record companies, is the only way to get at a compelling government interest in promoting culture even though the taking would be pretty obviously for the private benefit of the artists concerned and only benefiting the public in a very attenuated manner. In other words, will treating a select group of pretty elite artists (at a minimum those signed vs. those unsigned) satisfy the strict scrutiny standard applied to a government taking of private property with no compensation.  (This distinction also smacks of a due process violation which is a whole other rabbit hole.)  I suspect the government loses the strict scrutiny microbial scrub and will be required to compensate the record company for the taking at the fair market value of the unrecouped balances.

Because I think this is pretty clearly a total regulatory taking that is a per se violation of the 5th Amendment, I suspect that a court (or the Supreme Court) would be inclined to hold the law invalid on Constitutional grounds and simply stop any enforcement.

Failing that strict scrutiny standard, a court could ask if the zeroing of unrecouped balances with no compensation is rationally related to a legitimate government interest.  I still think that the taking would fail in this case as there a many other ways for the government to promote culture and even to encourage labels to voluntarily wipe out the unrecouped balances at some point such as through a quid pro quo of favorable tax treatment, changing the accounting rules or offsets of one kind or another on the sale of a catalog.

Running for the Exits

If anything, I think that government acting to cut off the ability to recoup at a date certain with no compensation (which sure sounds like an unconstitutional taking in the US) would necessarily make labels start thinking about compensating for that taking by moving out of those territories where it is given effect (or at least not signing artists from those countries).  Such moves might make artists start thinking about moving to where they could get signed.

Or worse yet, it would make labels re-think their financial terms and re-recording restrictions.  Overhead charges and interest on recording costs would be two changes I would expect to see almost immediately.  And that would be a poor trade off.

Iterative Government Choices

The choice that artists make is whether to sign up to an investor like a record company who wants a long-term recoupment relationship against pre-paid royalties.  If you don’t like a place, don’t go there and if you don’t like the deal, don’t sign.

Any government that contemplates taking unrecouped balances must necessarily also contemplate offering artists grants to make up the shortfall due to signing contractions.  This could include for example the host of grant funding sources available in Canada such as FACTOR and the many provincial music grants.  And those grants should not come from the black box thank you very much.

On the other hand, I do see a lot of fairness in requiring on-demand services to pay featured and nonfeatured artists a kind of equitable remuneration like webcasters and satellite radio do, which is paid through on a nonrecoupment basis directly to the artists in the US.  While they may criticize the system that produced the recordings that have made them rich beyond the wildest dreams of artists, songwriters or music executives (except the ones the services hire away), that doesn’t mean that they shouldn’t pay over to creators some of the valuation transfer that made Daniel Ek a multibillionaire while artists get less than ½¢ per stream.

So the takeaways here are:

  1. Wiping out unrecouped balances with no compensation is likely illegal.
  1. Creating a meaningful and attractive tax incentive for record companies to wipe out an unrecouped balance conditioned on that benefit being passed through to artists is worth exploring.  (Why wait 15 years to give that effect?)  This may be particularly attractive in a time of rising taxable income at labels.
  1. Requiring the services to pay a royalty in the nature of equitable remuneration on a nonrecoupment basis is a way to grow the pie and get some relief to both featured and nonfeatured artists.  This new stream is also worth exploring.

Guest Post: The Music Modernization Act is Stifling Innovation in the Music Industry

[The chickens are coming home to roost.  As I warned before the Music Modernization Act was passed, Title I has big problems.  Remember that Title I established the Mechanical Licensing Collective (publishers and songwriters) and the Digital Licensee Coordinator (digital music platforms). It was sold to songwriters on the basis that “the services pay for everything”.  We will see how true that ends up being (as the copyright owners have to pay their costs to populate or correct the HFA database which is a massive undertaking).  Nobody talked to any DMP startups when the legislation was drafted or when the “administrative assessment” was litigated before the Copyright Royalty Judges.  But now startups are getting the bill and they’re not too happy, particularly 115 services that never had to pay for a license other than royalties.  I addressed some of this in a 2018 post on MusicTech Solutions that was reposted on Newsmax Finance.]

From: Max Fergus
Date: Tue, Nov 10, 2020 at 11:06 AM
Subject:
To: LUM Team

A Letter to the Music Industry,  

Beware, the future of music is in jeopardy.

The Music Licensing Collective (“MLC”) recently announced that it will begin to regulate the largest major music streaming platforms in 2021. However, this agency, formed behind closed doors between the major labels and streaming services themselves, will only hurt those of us who are actively fighting the unjust practices of the platforms that are being regulated in the first place.

The Music Modernization Act is a “competition killer” set out to destroy the platforms that are trying to create a new tomorrow for independent musicians and stifling current and future innovation within the industry.

We are not alone and it’s time to fight. 
Please find our LinkedIn Article here as well as a link to our post
Please share and repost if possible in our fight against the MMA.

___________________________________________
Article Preview
We were told when we started our company that the institutions within the music industry were always going to be against us. In fact, many people told us these institutions would do everything in their power to curb innovation to make sure the money stayed where it always has – in the pockets of the major labels and the major music streaming services.

Finally, after 10 years of archaic practices in the music streaming industry, which widened the financial gap between the one percent of the music industry stakeholders and the rest of the starving artists, the Music Modernization Act (“MMA”) was created. At its most basic level, the goal was to take the onus off of major streaming platforms to track and remit royalties generated from these major platforms into the pockets of the right artists/labels in a more timely fashion through a new government-subsidized organization known as the Mechanical Licensing Collective (“MLC”).

Sounds great, right? Wrong. This will set back the music industry for years to come.

Imagine starting a process to MODERNIZE MUSIC and how music is monetized for all artists, yet the only stakeholders the MLC brought in to discuss how the MMA and the MLC would operate are the major streaming platforms and major labels themselves. So, what did they do? They structured the MLC in a way that will save these major corporations millions of dollars while completely neglecting the reason why the law was written in the first place – to oversee the music streaming platforms that have consistently, purposefully and negligently not paid the creators – whose content drives their service – their fair share in a transparent and efficient way.

The MMA was designed to regulate and modernize the practices of “royalty-bearing” music streaming services like Spotify, YouTube, and Apple. Next year, the MLC will open its doors and, as part of its first year of operations, it requires the companies included within the MLC to help pay for “start-up fees.” Companies outside of the largest music streaming companies, such as smaller DSPs and smaller royalty-bearing music streaming platforms, must also share unproportionally in these expenses. Essentially, the MLC and the largest streaming platforms want smaller services to pay more than their fair share for the MLC to oversee and audit the largest players in the music streaming industry…even those services who operate to fix the same problems as the new entity itself.

It gets worse.

LÜM was created to serve a similar foundational mission to these entities – to help guide an industry that needs to better support its creators through innovation. Because of that, we made a choice to not be a part of the traditional recorded music industry. We pay NO royalties and instead have proven that there is a better future. Instead of royalties, LÜM created the first virtual gifting system in a music discovery platform that allows fans to help directly support their favorite independent artists. The result?

Artists on LÜM earn an average of ~6x more per stream than every single other music streaming platform in the U.S.

Just like so many other companies that are trying to advance the music industry, LÜM is now facing an uphill battle against an organization (MLC) that was developed in conjunction with the same stakeholders who put the music industry in this position in the first place. The fees LÜM and other innovative companies are facing, to help fund the MLC, are substantial. Every new innovative company will face them and will provide a financial hurdle that will leave the majority of current and future innovative music startups dead in the water. No new entrants and no new competition mean the industry will stay exactly where it has for the last 15 years – putting money in the pockets of the rich and neglecting those that are trying to change the industry for the better.

We cannot let this happen. Innovation must continue or we face a scary reality for the music industry and the majority of artists and innovators that have been neglected by it.

— 
Max Fergus | Chief Executive Officer

Check out my favorite song on LÜM Here!

The World is not Flat: @CISACNews and BIEM Focus on Vendor Lock-in at the MLC

One of the many U.S.-centric shortcomings of Title I of the Music Modernization Act (that created the Mechanical Licensing Collective, the safe harbor giveaway and the blanket license) is that it pretty much ignores the entire complex system of content management organizations outside the U.S. As they describe themselves, “CISAC and BIEM are international organisations representing Collective Management Organisations (“CMOs”) worldwide that are entrusted with the management of creators’ rights and, as such, have a direct interest in the Regulations governing the functioning of the Database and the transparency of MLC’s operations. CISAC and BIEM would like to thank the Office for highlighting the existence and particularity of entities such as CMOs that are not referred to in the MMA.”

I have to say at the outset that as someone who lived outside the U.S. for a big chunk of time, it’s rather embarrassing but sadly unsurprising that so little attention has been paid to the global system of CMOs and the cold fact that we are now weeks away from the January 1, 2021 deadline.

You would not be aware of this unless you read the many comments to the Copyright Office on the MLC oversight rule makings. Aside from the fact that these organizations have decades of experience with blanket mechanical licensing (which the MLC might benefit from), CISAC and BIEM should have been included in the MLC itself, particularly since the MLC promoters appear to have been handing out non-voting directorships to themselves. It is embarrassing, kind of like those Americans who think the best way to speak French is to speak English louder.

CISAC and BIEM raise excellent issues in their comments, which often are accompanied by gentle hint language indicating the points have been raised before and ignored, or at least not responded to. According to a recently posted “ex parte” letter, CISAC and BIEM have focused in on a critical issue–where is the MLC’s statutorily required database and what benefits accrue to its vendor–principally HFA which was recently reunited in the MLC with its former owners.

You can read the CISAC and BIEM ex parte letter here. (Ex parte letters essentially document private discussions by the Copyright Office on matters they are currently regulating. Ex parte letters help to build a full record on matters placed before the Copyright Office by interested parties that may or may not be addressed in regulations.)

Here’s a key excerpt that I think deserves more attention (and is not going to be covered by the trade press until the system collapses in all likelihood).

CISAC/BIEM also raised further concerns regarding potential competitive advantages that The MLC or its vendors’ access to information may have and risks that such information could potentially be used for purposes outside of Section 115 mechanicals. The USCO assured the CMOs that they were perfectly aware of this issue, which had also been raised by other parties, and considered that these concerns were being addressed in the Confidentiality Rulemaking, and that the Statute requires Regulations to prevent the disclosure or improper use of information or MLC records. The proposed Rule establishes that MLC vendors cannot use the data obtained for processing for other purposes. The USCO further confirmed that it was very much aware of the need to ensure the necessary balance and that it was still contemplating how best to resolve this, including whether there should be more regulation.

I have to say that this is not the impression I got from the first panel of “MLC week” rather that the panel seemed to think that at least any member of the public could use the data provided to the MLC for any purpose. Since the MLC’s vendors would also be members of the public ostensibly, it does seem that disconnect needs to be cleared up.

The ex parte letter continues:

The CMOs CISAC/BIEM considered that some of these concerns were based on the January 1 deadline and whether The MLC would be operating with HFA’s database or with its’ own DQI processed separate database.

This depends on the antecedent of “its” in the last clause. If you take The MLC as the antecedent, the meaning would be “or with The MLC’s own DQI processed separate database.” If you take HFA as the antecedent, the meaning would be “whether The MLC would be operating with HFA’s database or with HFA’s own DQI processed separate database.”

While I think that CISAC and BIEM meant the former, the reality appears to be the latter however nonsensical it may seem. This is because there do not appear to be two separate databases, just the HFA database that The MLC accesses through an API. The DQI operation is designed to improve the data quality of the HFA database which benefits both The MLC and HFA.

There seems to be more than a little confusion about this:


USCO noted that there are still open questions regarding this issue, as it seemed that the HFA database would be used as a starting point, but through programmes like DQI data was being updated, so it did not seem as if both databases were identical.

I would argue with this (and have). This idea that DQI was updating a database other than the HFA database sounds like there is a stand-alone musical works database as required by the statute. If so, where is it? Why does the DQI produce search results like this:

HFA DQI

The USCO reiterated that the proposed Confidentiality Rulemaking specifies the limitations imposed on proposed vendors and that The MLC had in writing acknowledged that neither The MLC nor its vendor owned the data. The USCO acknowledged that there was a lot of concern expressed about this issue and ensured the CMOs it was going to address this issue.

Ownership alone is not the only issue and misdirects attention. On the one hand, The MLC says it does not own the database (another example of drafting oversights in Title I of the MMA–ownership is one of those issues you would think would be clearly spelled out but was only referenced indirectly).

I come away from reading the ex parte letter more concerned than ever that the core issue that The MLC was tasked with by the Congress is simply not being addressed–where is the Congress’s musical works database? Remember the words of the legislative history:

“Music metadata has more often been seen as a competitive advantage for the party that controls the database, rather than as a resource for building an industry on.”

The Good News is the Bad News is Wrong: Universal Invests in the Future with UMUSIC Hotels Venture

According to some good news in Fast Company, Universal Music Group has announced that “the first three locations for the music-focused hotel partnership with Dakia U-Ventures are Atlanta, Orlando, and Biloxi, Mississippi.”

These locations will be pretty massive music-themed hotels under the UMUSIC hotel brand and at least one casino built around live music venues and integrated into the local music culture in Atlanta, Orlando, and Biloxi, Mississippi.

At first blush, the venture may look like the Hard Rock chain, but as someone who remembers the Hard Rock when it was a kind of cheesy bar in Mayfair where the lads went to make new friends, the project is well above that rather low bar so to speak.  Frankly, the Hard Rock franchise was never a place that seemed more welcoming to music than it was to tourists (or perhaps the AVN Awards).   (“Look, mommy, there’s a musician! Can we feed him?”)  The Universal venture looks far more sophisticated with a far more thoughtful integration of music into the brand and the local music economy.  And, of course, with a much, much bigger on-site investment.

You may be asking why would anyone invest in hotels during a pandemic and that is exactly the question.  It takes a certain fearlessness and optimism to undertake this venture.  Another good thing about the project is that it will be in a different end of the market than typical local venues.  If anything, once we get to the other side of the lock down the UMUSIC hotels will complement and even drive business to the local venues if typical festival economics is a guide.

Given the scale of the plans, it will take years to complete the project and open for business.  Right away, this tells you that these are patient investors who are making a very big bet on the future of live events and especially the future of live music.  

Of course, what I like most about the project is that the venues are not being built in New York, Nashville or Los Angeles and are locating in areas that have rich music cultures away from the “centers”.  I don’t know that this was part of the planning, but after the lockdown it will take a while for fans to be willing to travel long distances to experience live music, so why not bring it to the fans.  (You could make the argument that all three of the proposed locations are within driving distance of a major megaregion.)  

The Universal project should also be a big message to Congress that the Save Our Stages movement is not a bunch of hippies they can ignore.  It should also be a message to people like the Mayor of Austin that you cannot just shut down an event like SXSW that contributes over $300 million in economic impact to your city with no plan to make up the vast amount of harm they inflict from a single government action–other than turning independent venue spaces into Uber Eats.  Eight months later, they still have no plan, and frankly I don’t see any other “music city” stepping up either.  Which is no excuse for any of them, but makes the UMUSIC hotel project even more important.

Live music is as deserving of strategic industrial planning as is competing for an Amazon facility or a Tesla plant, and we should thank Universal for their leadership in putting together the optimistic partnership that highlights that reality–even for the dim lights in the Live Music Capitol of the World.  

A long term commitment to live events and the infrastructure that supports a live music culture is desperately needed now.  It’s fitting that a music company puts together the private investment to show the rest of the public and private sectors the good news that we are coming back and that the bad news is wrong.  And guess what?  It’s not digital.