Do I Feel Lucky: Increasing Economic Justifications for Abandoning Frozen Mechanical Rates at the Copyright Royalty Board

We hear from an increasing number of songwriters who are learning about what is going on in the current rate fixing movements at the Copyright Royalty Board, some for the first time. In a nutshell, the Copyright Royalty Board rate fixing is a hugely expensive process that puts generations of children through university among the participating lawyers and lobbyists. By the time the money gets through the snake, so to speak, that process results in what are, frankly, scraps delivered to the kitchen tables of songwriters at the end of the day.

The rate fixing proceeding sets the statutory rate for certain times of song uses that are mandated by the federal government. There are two main categories of statutory rates under that compulsory mechanical license: physical (sometimes called “Subpart B” rates) typically paid by record companies, and interactive streaming (sometimes called “Subpart C” rates) typically paid by services like Spotify. (At least theoretically paid–often not judging by the size of the $424 million black box that is still just sitting under the collective’s five year plan.)

We all know that songwriters have been crushed by the failure of streaming mechanical rates to keep pace with streaming’s cannibalization of physical carriers. What many songwriters do not know is that one reason why their mechanical royalty income has dropped is due to an agreement among the major players to freeze the physical mechanical rates at the 2006 level of a minimum rate of $0.091 (currently worth approximately $0.06), and then to extend that freeze several more times for a total of 15 years so far. (The freeze essentially codified the controlled compositions rate but applied to all songwriters in the world.) There is a current proceeding at the Copyright Royalty Board in which the major players have reached an agreement to extend that 2006 freeze for another five years starting in 2023 and running to 2027. Shocking, I know.

In fact, the majors have now got themselves boxed into a corner on the interactive streaming rates that they are trying to increase. Why boxed? Obviously because the services are not stupid and if they see physical mechanical rates frozen when the record companies are paying, they ask why should the streaming rates increase when the services are paying? (And before you ask, this bid rigging is “legal” because everyone gets an antitrust exemption (17 USC §115(c)(1)(D). Cute.)

There is, of course, an unholy connection between statutory rates, controlled compositions clauses in record deals and mechanical royalties–see this post for the history. Let’s just say for this post that a page of history is worth a volume of logic.

The point I want to make to you in this post is that time is going by and no progress is being made in the current proceeding (styled “Phonorecords IV“) just like there’s no progress being made in the last proceeding (styled “Phonorecords III“); some people ask why these rates and appeals were not resolved in the giveaway that was part of Title I of the Music Modernization Act (aka the Harry Fox Preservation Act) which created the Mechanical Licensing Collective. If you’re going to make a major change to collectivize songwriters and vastly expand the scope of the compulsory mechanical license, shouldn’t you have gotten something for it? I’d count myself in the group that’s asking those questions so you know my bias. In a recent comment, I called the Copyright Royalty Board the “cornucopia of chaos,” which it is at least on the mismanaged mechanical royalty rates.

Inflation and Mechanicals

One thing that everyone should be able to agree on is that inflation is a major factor in determining any statutory royalty rate. This is certainly standard with the webcasting rates negotiated by SoundExchange with the same Copyright Royalty Board. It seems that if someone just asked for “indexing” the rates to inflation, the CRB just might give it. But no one is pushing on that open door except the songwriters and publishers who commented on the majors proposed settlement but who cannot afford to be part of the Phonorecords IV proceeding itself.

So leaving aside an increase in all of the actual rates that would reflect the value of songs, it does seem that we must accept the thinking of many economists that inflation is here to stay for a while and will surely extend into the 2023-27 rate period of Phonorecords IV. I’ve posted about these indicators before, but here’s some additional information. A cost of living adjustment seems like it should be a pro forma request–it only increases the rates if there is an actual increase in the cost of living as measured by an objective standard, typically the CPI-U (Consumer Price Index-Urban) measured by the government’s Bureau of Labor Statistics.

Since we are projecting at least two years into the future, let’s consider a few metrics that measure two years into the past. What is the trend line for inflation? Up and to the right, as they say.

US Inflation Rate

Equity Markets

We normally don’t spill much ink on the stock market because markets go up and down, can’t pick a top and can’t pick a bottom. But–stock markets are often a leading indicator of the direction of growth in the broader economy so let’s look at what’s been happening in a few different measures. Remember–the conventional wisdom is that a 20% correction to the downside is the definition of a bear market.

I have been beating the stagflation war tocsin for quite some time now (since May 2021), and unfortunately I think the markets are waking up to the true-1970s style stagflationary environment we may be entering. This means lower growth combined with surging prices for consumers and producers. And that is truely bad news bears. (If you don’t know about 1970s stagflation, take a few minutes and read up on it. And even if you don’t, the negotiators of the statutory mechanical rates really should know. Some of them may have lived through it the first time around.)

The tech-heavy NASDAQ index has dropped about 14% since November, returning to February 2021 levels with no end in sight.

The broader Russell 2000 is more revealing with a 19% decline over a few weeks as more inflation/stagflation confirmation data comes in:

This broader decline is confirmed by the S&P 500:

And if you were looking for confirmation of declining retail sales as a measure of growth, consider Amazon’s stock performance:

A little closer to home, consider Spotify’s recent stock performance which shows its pandemic-fueled riches coming back to reality (although not so good for any employees who got a stock option grant in the last 18 months or so):

Bond Yields

Remember, the bond market is exponentially larger than the stock market. We’ll come back to this, but consider what is happening in the bond market and think about this question: what could cause both the stock market and the bond market to decline?

US Savings Rate

The savings rate shows a couple of anomalies where the savings rate spiked to unnatural highs of 34% in a lockdown era and again to 27% after government stimulus, but–the savings rate has sharply declined to pre-pandemic 2018-ish levels Why? I would speculate that this is partly due to rising prices of goods to consumers, particularly energy, rent and food and the decline of “real” wages (nominal wages less inflation).

Commodities

Consider a couple of inputs–there are many–but note for our purposes that these commodity prices are at or near recent highs, or are retracing recent highs. The trend line is up and to the right, which suggests that these prices are likely to continue upward into at least the first year of the Phonorecords IV rate period (2023) and potentially beyond.

Energy

However you feel about fossil fuels, the reality for singer/songwriters or bands is that the way they try to supplement their declining songwriting income is by touring and for almost everyone, touring means gasoline. I don’t have to tell you what gasoline prices are doing–you know whenever you fill up the van. This chart is a measure of gasoline futures, which is the bet that the commodity traders are making on the future price of gasoline (not the price at the pump where you live). Again, the trend line is up and to the right.

And of course if you’re going to make it to the gig or the writer room you’ll need to avoid that freezing to death thing and you’ll care about heating oil prices, up 70% year over year:

To take it a step back, crude oil is closing in on $100 a barrel due in part to exogenous supply side shocks and contractions. If crude goes over $100, we are in a whole new world that we have not seen since 2014.

Conclusion

So you get the idea, right? This is all evidence supporting a cost of living adjustment for mechanical royalties. When the stock market declines, particularly declines sharply as it is currently performing, that is largely to do an expectation of slower growth in the economy as a whole. They’ve been wrong before, but the market is actually a pretty good leading indicator of the direction of growth.

Declining stock prices foreshadow declining earnings which foreshadows declining economic growth. What happens when growth decreases? Inventories may drop, and supply declines (which is already happening and you know that if you’ve been to the grocery store lately). GDP may also decline.

Remember the stagflation three point play? In this chart, Y1 GDP declines in Y2.

Lower growth or economic stagnation is the “stag” part of stagflation.

When bond prices go down, typically interest rates are trending up, which signals an inflationary outlook. If current bond prices decline because interest rates are increasing (or are anticipated to increase), that is most likely anticipating the Federal Reserve’s announced rate increases in 2022. The number of rate increases is anticipated to be somewhere between three and five (some say even six) in 2022. The Fed increases interest rates to tamp down inflation, so you can say that lower bond prices (which vary inversely to interest rates) is anticipating the “inflation” part of 1970s-style stagflation. Just to be clear, this is all readily available public information.

It’s becoming more obvious that we are watching a slow moving train wreck (cynics like me might say we’re beginning to get hit with the balloon payment for 2008 after 15 years of quantitative easing, but that’s a story for another day). The slower the train wreck, the more likely the wreck will occur during the Phonorecords IV rate period. Since the Federal Reserve is still busily printing money, these metrics are all leading indicators of how much blood will be left on the floor starting around March 2022 or so. And we haven’t even talked about what the announced Federal Reserve rate hikes will do to the housing market even if each one is a relatively small increase.

You don’t need an expert economist to produce any original research on this for the CRB–the question for songwriters is why don’t we already have a government rate indexed to inflation? The indexed rate is only paid if you actually get an increase in the CPI, which even then only preserves the value of whatever nominal rate you do have–it’s not a “real” rate increase. So why not at least try to get a cost of living adjustment? There’s no reason not to at least try to get indexing on every statutory rate which was the standard approach on mechanicals for many years after 1978 until the 2006 freeze. Unless your bonus is tied to a big percentage increase in the headline rate rather than the less obvious indexing that would actually protect the value of songs.

Which all seems to be to be so obvious that if you don’t have it you’d have to ask yourself, do I feel lucky? The odds are all on the house.

@KenDKM of @DropkickMurphys: Ken Casey: Old School Radio Needs a New Model [the American Music Fairness Act]

Ken Casey
Among the supporters of the American Music Fairness Act (AMFA) is bassist Ken Casey, member of Local 9-535 (Boston, MA) and longtime frontman of the Celtic punk band the Dropkick Murphys.  Photo: Ken Susi

On June 24 of last year, a group of legislators and musicians gathered on Capitol Hill to introduce the American Music Fairness Act (AMFA). The AFM and the MusicFIRST Coalition worked closely with members of Congress to help craft the AMFA. If adopted, the bipartisan bill will establish a performance right for sound recordings, ensuring that all of the performers, musicians, and others involved in the creation of a recording will receive fair compensation for its broadcast on AM/FM radio. Among the supporters was bassist Ken Casey, member of Local 9-535 (Boston, MA) and longtime frontman of the Celtic punk band the Dropkick Murphys. It was hardly the first time Casey has lent his voice to a cause.

Together for more than 25 years, the Dropkick Murphys originated in 1996 when Casey, then a bartender at Symphony Hall in Boston, accepted a bet from a co-worker. He’d never played an instrument before, but he vowed he could win the bet by starting a band, and soon they were rehearsing in the basement of a nearby barbershop.

Despite the hundreds of billions of dollars large media corporations like iHeartRadio make from advertisers, they never share a penny of that with the musicians who create the music. Musicians deserve compensation for work—just like everyone else. Sign the American Music Fairness Act petition, visit https://bit.ly/AMFA-fairpay

Read the post on the International Musician

All Economic Indicators Are Flashing Red at the Copyright Royalty Board on Frozen Mechanicals

All of the economic indicators are telling us that inflation is going to be around for a while–so songwriters should expect some cost of living adjustment based on the Consumer Price Index when the Copyright Royalty Board sets mechanical royalty rates, especially for the frozen mechanical rate on physical phonorecords. Why do I say that?

The U.S. Consumer Price Index closed 2021 at 7%. That is the highest inflation level since 1982–and remember in 1982 the U.S. had already had a solid two to three years of Federal Reserve Chairman Paul Volker’s anti-inflationary surge after the malaise of the 1970s.

The Producer Price Index for 2021 was measured at 9.7% by the Bureau of Labor Statistics, the largest calendar year increase since 2010. The PPI is a leading indicator of inflation as measured by the CPI because it measures a large basket of raw inputs and future price increases that will affect the CPI in weeks or months.

The University of Michigan survey of consumer sentiment fell to 68.8%, its second lowest level in a decade (the lowest being in November 2021). The survey also measured “confidence in government economic policies is at its lowest level since 2014.” The consumer sentiment survey indicates that consumers expect bad times ahead, or at least expensive times. This can have a pronounced effect on consumer inflation expectations.

Consumer inflation expectations remained unchanged after rising strongly over the last year, particularly the one-year outlook. Inflation expectations can be a self-fulfilling driver of inflation for a number of reasons such as FOMO pricing on homes and cars as well as wages–if you expect inflation to rise x% in the next 12 months, today you will seek wage increases of at least x% (if not more).

All of this tells us that the entire idea of extending the freeze on statutory mechanical royalties gets more absurd by the day. It’s entirely reasonable to “index” statutory mechanical royalties during the current rate setting period of 2023-2027 as we’ll all be very lucky to get through that period without suffering crippling inflation that will further erode the 2006 rates the CRB has used for the past 15 years.

November Creative Survival Index

Our second month of the Creative Survival Index shows a few trends that may be interesting. First, core inflation indicators are up as has been widely reported. Keep in mind that at the beginnings of an inflationary surge firms may choose to absorb price increases of their inputs or vendors before passing those price increases on to consumers in the form of more expensive finished goods. That’s why we look at basic inputs like cotton, energy and the cost of money as well as essential goods like food and rent.

Because we’re focused on measuring sustainability in the creative economy, particularly music, we look at hotel rates and gasoline which directly affect touring, as well as the unemployment rate in arts and entertainment (which is coded NAICS 71).

We follow money supply growth to measure demand pull “too much money chasing too few goods” type inflation.

The index is a simple arithmetic sum of all these various indicators which is not a true econometric model, so take that into consideration. We’ve put this index together because there hasn’t ever been one so this is just a start for discussion.

What appears to be happening is that as the index increases, life gets intuitively harder. We’ll see how these trends develop.

Real Mechanical Rates Have Declined with Inflation Increases Due to #FrozenMechanicals

If you follow economics, you probably have heard the expressions “real wages” or “nominal wages” or “real” versus “nominal” wages. This isn’t a Cartesian metaphysical discussion–it’s about the effect of inflation on what they tell you you’re getting paid. Nowhere is this truer than with the statutory mechanical royalty rate. The rate will inevitably decline over time due to the rot and decay of inflation. Inflation is like having a cavity in your tooth that you don’t fix. It doesn’t go away. It may not hurt yet but it’s going to.

The effects of inflation are hardly a secret. Because of the effect of inflation on interest rates set by the Federal Reserve (who is charged with keeping inflation under control), vast numbers of people around the world keep watch on U.S. inflation rates as well as inflation rates in other countries.

US Inflation Rate Over Past 5 Years

For example, an hourly worker might be paid $12 an hour by her employer. That’s her “nominal wage” or “money wage.” But the issue is not what the worker is told they are getting paid, it’s what the worker can buy with her wages. What her nominal wage buys her is her “real wage” or her nominal wage adjusted by inflation during the same time period. Real wages are always less than nominal wages. This is why workers commonly get annual cost of living adjustments to nominal wages that increase their nominal wages based on inflation in addition to nominal performance-based increases. The same is true of entitlement payments like Social Security which just announced its biggest inflation adjustment in many years.

This is particularly important when understanding nominal and real statutory mechanical rates set by the government’s Copyright Royalty Board every five years. With a nominal wage (as opposed to a government rate freeze like a price control), there are a number of different countermeasures you can take in response to a wage freeze and take quickly. You can always try to negotiate a higher hourly or annual wage if you are falling short of inflation. You can also try to quit and find another job that pays more money. Perhaps even get an annual raise built into your salary.

However, with the statutory mechanical royalty, there is no escape. Songwriters are at the mercy of both the government (in the form of the Copyright Royalty Board) and the people who are supposed to be negotiating for them who seem to have decided that millions of songwriters don’t need a cost of living adjustment. Without “indexing” the statutory mechanical to inflation (meaning a CRB ruling requiring automatic cost of living increases based on increases of inflation), songwriters’ buying power actually decreases over time. That’s the difference between the nominal mechanical royalty and the real rate, i.e., the inflation adjusted rate.

Nowhere is this more apparent than with the “frozen mechanical” that you’ve probably heard a lot about if you’re a regular reader. It’s called “frozen” because the rate for physical and vinyl was set by the CRB in 2006 and has not been raised since–apparently at the request or acquiescence of those negotiating in the songwriters’ interest. Think about that–remember what happened in 2008 (just a couple years after the rate was frozen)? The Great Recession aka The Big Short.

It may not be obvious to you but most of the laws in the US are not passed in Congress and they are not signed by the President. The overwhelming majority of these laws are created by administrative agencies, often located in the Executive Branch, but not always. When it comes to songwriters there is a federal agency that has almost total control over certain aspects of your life.

That agency is the Copyright Royalty Board which has three “judges” that are appointed by the Librarian of Congress (therefore are in the Legislative Branch of government along with Congress). While these members of the Copyright Royalty Board are styled “judges” they are not “all purpose” judges appointed by the President and confirmed by the Senate (under Article III of the Constitution for those reading along at home). (This CRB appointment issue is a matter of some debate but we will talk about the appointment issue some other time (attention Justice Kavanaugh).)

Whether you know it or not or like it or not you have delegated your personal agency to the CRB and you have also delegated your agency to the people who can afford to appear before the CRB. This is the classic case of the merger of the little intellectual elite in a far-distant capitol who think they can plan your life better than you can. If you have no idea about the CRB, there’s an easy answer–you’re very unlikely to ever wander into a CRB hearing because the hearings take place in the Library of Congress which is not someplace that songwriters typically are found. Even so, you have delegated your authority whether you know it or not and whether you like it or not to certain representatives of the music publishing community who act on your behalf and probably without your direct authorization. There’s plenty of blame to go around. To paraphrase Lord Byron, if you want a friend in Washington get a dog. Preferably a big one with teeth.

Here’s an example. According to government data, 9.1¢ in 2006 is worth approximately 13¢ today, or approximately a 33% inflation rate. That means that the frozen 9.1¢ rate in 2006 has the buying power of approximately 6¢ in 2021. In other words, the real mechanical rate has actually declined although the nominal rate has stayed the same. Why? Because like King Canute commanding the ocean, the nominal rate was not increased to at least stay even with inflation and inflation rotted it from the inside out.

So you can see that when you’re considering the mechanical rate that is set every five years by Copyright Royalty Board, the rate that matters is the real rate. However, the CRB only set a nominal rate for songwriters in 2006 even though they could have increased that nominal rate based on increases in the consumer price index. They could also have increased the rate in Phonorecords II or Phonorecords III but did not.

And now 15 years later, the frozen mechanicals crisis has been engaged by a revolt of the songwriters in Phonorecords IV, currently before the CRB. The struggle is all about real vs. nominal mechanical rates.

Does the Metaverse Have Rights? Permissionless Innovation Bias and Artificial Intelligence

As Susan Crawford told us in 2010:

I was brought up and trained in the Internet Age by people who really believed that nation states were on the verge of crumbling…and we could geek around it.  We could avoid it.  These people [and their nation states] were irrelevant.

Ms. Crawford had a key tech role in the Obama Administration and is now a law professor. She crystalized the wistful disappointment of technocrats when the Internet is confronted with generational expectations of non-technocrats (i.e., you and me). The disappointment that ownership means something, privacy means something and that permission defines a self-identity boundary that is not something to “geek around” in a quest for “permissionless innovation.”

Seeking permission recognizes humanity. Failing to do so takes these rights away from the humans and gives them to the people who own the machines–at least until the arrival of general artificial intelligence which may find us working for the machines.

These core concepts of civil society are not “irrelevant”. They define humanity. What assurance do we have that empowered AI machines won’t capture these rights?

All these concepts are at issue in the “metaverse” plan announced by Mark Zuckerberg, who has a supermajority of Facebook voting shares and has decided to devote an initial investment of $10 billion (that we know of) to expanding the metaverse. Given the addictive properties of social media and the scoring potential of social credit it is increasingly important that we acknowledge that the AI behind the metaverse (and soon almost everything else) is itself a hyper efficient implementation of the biases of those who program that AI.

AI bias and the ethics of AI are all the rage. Harvard Business Review tells us that “AI can help identify and reduce the impact of human biases, but it can also make the problem worse by baking in and deploying biases at scale in sensitive application areas.” Cathy O’Neill’s 2016 book Weapons of Math Destruction is a deep dive into how databases discriminate and exhibit the biases of those who create them.

We can all agree that insurance redlining, gender stereotyping and comparable social biases need to be dealt with. But concerns about bias don’t end there. An even deeper dive needs to be done into the more abstract biases required to geek around the nation state and fundamental human rights corrupted by the “permissionless innovation” bias that is built into major platforms like Facebook and from which its employees and kingpin enjoy unparalleled riches.

That bias will be incorporated into the Zuckerberg version of the metaverse and the AI that will power it.

Here’s an example. We know that Facebook’s architecture never contemplated a music or movie licensing process. Zuckerberg built it that way on purpose–the architecture reflected his bias against respecting copyright, user data and really any private property rights not his own. Not only does Zuckerberg take copyright and data for his own purposes, he has convinced billions of people to create free content for him and then to pay him to advertise that content to Facebook users and elsewhere. He takes great care to be sure that there is extraordinarily complex programming to maximize his profit from selling other people’s property, but he refuses to do the same when it comes to paying the people who create the content, and by extension the data he then repackages and sells.

He does this for a reason–he was allowed to get away with it. The music and movie industries failed to stop him and let him get away with it year after year until he finally agreed to make a token payment to a handful of large companies. That cash arrives with no really accurate reporting because reporting would require reversing the bias against licensing and reporting that was built into the Facebook systems to begin with.

A bias that is almost certainly going to be extended into the Facebook metaverse.

The metaverse is likely going to be a place where everything is for sale and product placements abound. The level of data collection on individuals will likely increase exponentially. Consider this Techcrunch description of “Project Cambria” the Metaverse replacement for the standard VR headset:

Cambria will include capabilities that currently aren’t possible on other VR headsets. New sensors in the device will allow your virtual avatar to maintain eye contact and reflect your facial expressions. The company says that’s something that will allow people you’re interacting with virtually to get a better sense of how you’re feeling. Another focus of the headset will be mixed-reality experiences. With the help of new sensors and reconstruction algorithms, Facebook claims Cambria will have the capability to represent objects in the physical world with a sense of depth and perspective.

If past is prologue, the Metaverse will exhibit an even greater disregard for human rights and the laws that protect us than Facebook. That anti-human bias will be baked into the architecture and the AI that supports it. The machines don’t look kindly on those pesky humans and all their petty little rights that stand in the way of the AI getting what it wants.

If you don’t think that’s true, try reading the terms of service for these platforms. Or considering why the technocrats are so interested in safe harbors where their machines can run free of liability for collateral damage. The terms of service should make clear that AI has greater rights than you. We are way beyond pronouns now.

If the only concern of AI ethics is protection against stereotypes or insurance redlining (a version of the social credit score), we will be missing huge fundamental parts of the bias problem. Should we be content if AI is allowing its owner (for so long as it has an owner) to otherwise rob you blind by taking your property or selling your data while using the right pronoun as it geeks around the nation state?

Please take our Songwriter MLC Awareness Survey

Please take a few minutes (4 or so) to help us understand how the Mechanical Licensing Collective and the Copyright Office is doing getting the word out about signing up with the MLC and getting paid royalties (including your share of the $424 million black box/unmatched payment that has been sitting at MLC for months).

Your response are anonymous and we’ll post the results when we get a threshold number of responses. We’d really appreciate your help!

To take the survey on Survey Monkey, click here.

Evidence Mounts for Inflation Indexing for Songwriters

No one needs to be told that inflation is on the rise. We all see the evidence everywhere we go: gasoline prices, groceries, rent, health care, you name it. Inflation may not have increased prices to the point that large numbers of consumers are substituting away from particular goods because they can’t afford to buy, but it’s getting there.

This is important for songwriters who are paid on a statutory rate set by the government’s Copyright Royalty Board that tries to approximate what a willing songwriter would charge a willing music user in five year tranches. It is this five year bet that causes heartburn–one solution that the CRB recently applied to webcasting is to index their government royalty to inflation so that the royalty actually retains its value and increases as inflation increases, called “indexing”.

For whatever reason, the rates for physical configurations and downloads has not contain inflation indexing since it was put in place in 2006 and still does not in the current proposed settlement. Songwriters across the board are resisting this and demanding indexing as part of the “frozen mechanicals” debate as part of the current Copyright Royalty Board rate setting proceeding (styled as “Phonorecords IV“).

Unfortunately for all of us, a statistic released today suggests that inflation continues apace. The Personal Consumption Expenditures Price Index prepared by the U.S. Bureau of Economic Analysis continued its upward trend indicating that consumers are spending more which suggests inflation is the reason not an increase in wealth. As Trading Economics summarizes:

Personal spending in the US increased 0.6% mom in September, following an upwardly revised 1% rise in August and above market forecasts of 0.5%. Spending on health care, food services and accommodations, foods and beverages, pharmaceutical products and gasoline offset lower sales of motor vehicles. Personal income on the other hand fell 1%, the first decline in 4 months and much more than expectations of a 0.2% drop.

Even if you don’t go as far as Twitter CEO Jack Dorsey’s assessment that “hyperinflation” is coming soon, it’s pretty easy to see that if the Copyright Royalty Judges fail to add indexing to the mechanical rate (frozen or not) as they had so many times in the past, songwriters will find their government royalty eaten away by inflation. (“Hyperinflation” is a rise in prices of 50% a month.)

It’s also becoming clear that inflationary pressures will continue well into 2022 and 2023–the rate set in Phonorecords IV is theoretically to begin in 2022.

Indexing is crucial.

Decline in GDP Projection Increases the Importance of Inflation Adjustments in Government Song Pricing #IRespectMusic

God gave Noah the rainbow sign, no more water, the fire next time.

James Baldwin, The Fire Next Time

Remember the stagflation three point play? Supply contracts, prices go up due to those supply side shocks and real gross domestic product contracts. Stagflation also results in higher unemployment. Stagflation can take a long time to shake out of an economy once it sets in.

Stagflation’s three point play

We can learn from the economic history of stagflation, particularly in Japan and the U.S. Japan had a stagflationary period started by the economic shock of the collapse of Japan’s real estate market (not unlike what is happening in China with Evergrand and Sinic) and the follow on effect of a 60% decline in Japan’s stock market. The U.S. had a stagflationary period in the 1970s brought on by a dependence on foreign oil and predatory pricing largely by OPEC. That led to skyrocketing oil prices and gas lines. Both countries experienced a “Lost Decade” due to stagflation.

The Federal Reserve Bank of Atlanta announced this week that it projects real GDP grown in the third quarter of 2021 to fall to 0.5% with some caveats:

https://www.atlantafed.org/-/media/Documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf

The Federal Reserve Bank of St. Louis gives a longer term chart of GDPNow:

https://fred.stlouisfed.org/series/GDPNOW/

The point of these graphs is to emphasize that the US economy appears to be heading to a contraction and inflation brought on by a combination of supply side shocks (cost-push inflation) and demand caused in part by government actions (demand-pull inflation) combined with sharp increases in gasoline prices among other commodities. Gasoline prices ratchet through many products in the economy and have been sharply higher over the last 12 months as the U.S. became more dependent on OPEC production.

https://tradingeconomics.com/commodity/gasoline

All the indications are that the U.S. may be headed into a prolonged period of stagflation which is inflation combined with a stagnating economy. It seems less and less likely that inflation is “transitory” and more likely that it will last well into 2023 and possibly 2024.

How does this affect songwriters? Remember that the mechanical rates set in the current Copyright Royalty Board rate proceeding will fix prices until 2027, so it appears that there will be considerable overlap between the inflation cycle and the royalty rates–all the more reason to seek the same inflation indexing for songs as the CRB recently granted for sound recordings.

The Creative Survival Index

I had such a positive response to the post Why Songwriters Should Care About Inflation Protection for Mechanical Licenses that I developed a number that we will use for reference. I call this the Creative Survival Index and I will update the index monthly as new data comes in for all the categories. I’ll also track the monthly change (“MOM Change %”).

Realize that this is just a reference point that adds together all the different inputs I cover in the post. It’s just a way to have a single number to refer to for easy reference. The number itself does not tell you anything about the underlying data and I’m happy to have any input on how to make it better.

Remember I discussed the potential for stagflation hitting the US economy–the International Monetary Fund announced today that it reduced the global Gross National Product projections to 5.9% from 6% one sign of stagflation.