When I made the soft call for impending stagflation last October I had no idea that that it would hit the US economy with such force and speed. The trends were, frankly, obvious and the signs unmistakable. But it’s the speed with which stagflation struck that I didn’t expect. We have seen each step of stagflation’s three point play undeniably demonstrated in real life and the result is inflation as far as the eye can see.
The return of 1970s style stagflation and the now-confirmed recession along with Federal Reserve “quantitative tightening” could mean policymakers recognize the need to end the easy money policy that has been in place since “quantitative easing” began around 2008. Arguably, the global economy has been in a post-Big Short bubble ever since, with the inevitable growth in the money supply that provided “too much money” that was chasing “too few goods.”
A recession and stagflation call is mitigated by the unemployment rate (which was about triple current rates during the 1970s), which itself is mitigated by the labor participation rate. A ten year view shows that the labor participation rate is still below pre-pandemnic levels even though the unemployment rate has been steady in the recent past. Yet even Y Combinator (that famously wanted to “Kill Hollywood” starting with the unions) warns of investment drying up for startups, but we’re not quite at the point of limited partners refusing to show up for capital calls at major VCs.
Inflation has, of course, been inevitable as has been the commensurate rot of inflation on the buying power of consumers. There is little doubt that inflation has been a long-term trend in the U.S. for quite some time and is likely to be with us for a good long while longer. For songwriters, if you’ve been following the rate increase confirmed in Phonorecords III, imagine what the rates would have been had the rates been indexed in this inflationary environment. We can understand how they missed indexing on Phonorecords III, but they cannot miss it on Phonorecords IV–or give it away as a bargaining chip.
Realize that one accepted method of extinguishing inflation is the “Taylor Rule” implemented by Federal Reserve Chairman Paul Volker in the 1970s for which Presidents Carter and Reagan took tremendous political heat–raise interest rates OVER the inflation rate. (Which is why there was a 21% prime rate–think on that.).
It was a different country then–America was a creditor nation. No longer true. Of course that’s not likely to happen today because of all the government borrowing during the easy money era. If the government had to pay a rate over the current 8.7% inflation rate, the government would collapse. It is likely that high inflation will be with us for a long time to come.
Being aware of the inflationary economic environment is a critical issue for songwriters in the US who are in the middle of a government rate setting proceeding before the Copyright Royalty Judges at the Copyright Royalty Board in Washington, DC. Songwriters at least have the opportunity to include a cost of living adjustment in the government’s rate and have asked for it in the streaming proceeding. Remember, there are two rate proceedings underway: One for physical mechanicals and downloads and the other for streaming. Songwriters, publishers and labels are in the physical and downloads proceeding. Songwriters, publishers and Big Tech are in the streaming proceeding soon to go to trial.
Credit where credit is due, Universal, Sony and Warner labels have included an annual CPI adjustment (or “indexing”) for songwriters in their voluntary agreement to raise the previously frozen mechanical rate for physical and downloads. The Copyright Royalty Judges also included indexing in the rate for webcasting of sound recordings that they recently decided (Web V). Many of the same Big Tech services were parties to Web V but are now arguing against CPI for songwriters in Phonorecords IV. Different hearings, true, but a lot of overlap in the parties and their smug little straight faces.
In our stagflationary economy, an agreed-upon inflation adjustment is a fairness making term that doesn’t make songwriters eat all of the inflationary rot from cost increases for “food at home” and force them to predict those price changes five years in advance. Indexing helps to fix that guess work in what is already a process of educated guessing in the non-existent willing buyer/willing seller folie à deux.
An inflation index is a particularly crucial tool when songwriters are prevented from stepping away from a deal because the government forced a deal upon them, like any statutory rate or in countries where there is a tariff or other compelled agreement.
Failing to use indexing makes the fairly controversial assumption that economically rational songwriters would charge a fixed price regardless of the fluctuations of the cost of energy, food and rent. By using the government to impose a non-indexed rate, there is a government-mandated implied discount that accrues to the benefit of the services, aka the largest companies in commercial history who just can’t bring themselves to treat songwriters fairly.
But want to bet these failures will have no impact on the services’ ESG scores on Wall Street?
Take Google for example, flatly rejecting indexing on the streaming side of the CRB proceedings:
“None of Google’s agreements with music publishers contain CPI adjustments for the [Per Subscriber Minimums] contained in those agreements. The Copyright Owners’ proposed CPI adjustment to PSMs is simply unsupported by marketplace evidence.” https://app.crb.gov/document/download/26528
Google is, as usual, full of it and is gaslighting the CRB with inapt arguments. Google is in a rate proceeding where the government—not Google—sets the terms. I know that line gets a little blurry for Googlers given how much strangulation Google sustains over government through its vast network of lobbyists, revolving door men and women, consultants and on and on and on.
I also know that Google would love nothing more than to dictate the terms to the government because Google has not-unjustified delusions of grandeur in this regard due to their mind-blowing level of brazen influence peddling. It’s not just Google, it’s all of the Big Tech oligarchs, the latter day Xerxes who seek to overwhelm creators through lawfare—songwriters are just low hanging fruit because of the ancient compulsory license—Section 115 of the Copyright Act—that is ready made for Big Tech’s copyright abuse.
But Google is not the government. It is the Congress and not Google that created Section 115 to interfere with private contracts and more importantly interfere with the right to privately contract. That’s a big deal in the US.
So, the issue isn’t what Google may have done in contracts with a totality of vastly different terms in a completely unrelated setting. It’s whether the government is paying just compensation for taking away rights under the Constitution of the United States. More specifically the 5th Amendment “takings” clause.
And the government’s compensation to songwriters is not just. It never has been.
Remember that at the heart of this process, the Judges are required to set a price for songs that the Judges believe reflects what a willing buyer would pay a willing seller in a transaction that has been devoid of willing buyers and sellers for over 100 years.
Google and other Big Tech DSPs in the CRB present the Judges with benchmarks based on prices that are not only distorted by years of abuse to begin with but are permanently disfigured. Remember, the government set the mechanical rate at 2¢ from 1909 to 1978 and had raised it very slowly ever since while at the same time pretending that the distortion of the 2¢ rate did not exist.
This deep 2¢ hole that songwriters are digging out of may not be the only reason songwriters are so poorly compensated, but this “tuppence” era definitely is a contributing factor. So whatever value-based rate increase that songwriters can claw out of the Big Tech services must be supported by a cost of living adjustment measured by the CPI just to tread water.
Price is truth if prices are truthful. And undistorted.
Otherwise, it’s just frozen mechanicals by another name, and Big Tech is simply free riding on the government’s license due to their outsized lobbying influence and government capture. (Need we name names?)
The songwriter is simply subsidizing the biggest corporations in commercial history.