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Black Box Money & Hidden Conflicts: Industry Groups Air Concerns in MLC Comments to Copyright Office

U.S. Capitol Building in Washington, DC.
Mark Wilson/Getty Images

U.S. Capitol Building in Washington, DC. 

With Monday (April 22) the final day to submit comments to the Copyright Office, tasked with choosing between two groups to form the mechanical licensing collective (MLC) created by the Music Modernization Act, the politicking and yes, a little mud slinging, has moved into high gear.

While deadline day began with 14 comments up on the Copyright Office regulations site, including the two applications from the groups competing to be chosen to build and administer the MLC and the one application for being the digital coordinator created by the MMA, by the end of that day another 617 comments would be filed, as witnessed by the 631 submissions that were finally visible up there by about 6 PM on April 23.

A day before the deadline, copies of the commentaries began to be shared with reporters, even as they were being passed through to the Copyright Office, with support being expressed for both of the applicants -- the Industry Consensus Group sponsored by the National Music Publishers' Assn. (NMPA), the Nashville Songwriters Association International (NSAI); and the Songwriters of North America (SONA); and the American Mechanical License Collective -- vying to be chosen to build the mechanical licensing collective and to administer the blanket license created by the law.

Billboard published a commentary from hit songwriter and former Billboard employee Kara DioGuardi -- which doesn't appear to be among those submitted to the Copyright Office yesterday; and a story summarizing comments from the SONA. Both commentaries come from individuals or entities are within the self-dubbed Industry Consensus Group camp sponsoring the entity entitled the MLC on its applications -- DioGaurdi as a songwriter member of its overall board of Directors, while SONA is among those cited as endorsing that effort on their application to the Copyright Office. Moreover, a third party to the Industry Consensus effort, the NSAI also provided a copy of their commentary to Billboard.

At some point all three commentaries address the main argument used by the AMLC -- viewed by some of the large players in the industry as an upstart -- as to why it is competing to be named, centering around "black box" money, or royalties for songs played where the recording couldn't be correctly identified and matched to publishers.

The AMLC maintains it will be a champion to all composers, including D-I-Y songwriters unaffiliated with any publisher or performance rights organizations, in trying to ensure that those creators will be paid their royalties. They further maintain there is a conflict of interest that publishers on the board have an incentive to make sure black box money is distributed by market share, instead of continuing to hold onto the royalties and try to match the royalties for those D-I-Y rightsholders.

Yet, commentary submissions from its competitors vehemently argue that those fears are unfounded.

In DioGuardi's commentary, she writes, "a group of songwriters (who have submitted a competing bid to become the new collective) claim that 'our Industry Consensus MLC' would not properly represent all songwriters; will distribute unmatched money due to writers to larger publishers; and has a budget that is too costly. This couldn't be more wrong."

Likewise, a copy of the commentary submitted to the Copyright Office from the NSAI, provided to Billboard, also addresses that issue. "There is one specific topic about which the competing group, the AMLC, has made repeated public claims that are lacking in detail at best and dangerously misleading at worst. That topic is the distribution of unclaimed funds."

SONA, in its commentary summarized here, states of the competing AMLC application, "Their default position is to spread fear by playing upon an old and tired trope about greedy major publishers -- ready to obfuscate and pounce on a writer's hard-earned money at every turn," the letter states. "We, however, have worked closely with the publishing community throughout the MMA process and know that is simply not the reality."

DioGuardi says that ultimately, every songwriter will have the opportunity to make sure the industry consensus MLC is working for them. The law says that regardless of which entity becomes the collective -- the MLC must operate in a fully transparent and accountable way. 

"Our industry-consensus MLC will have extensive oversight and reporting obligations to the Copyright Office. It will be required to make its budget and by-laws publicly available and copyright owners will be able to audit the collective to ensure proper payment of royalties."

Yet, Audiam founder Jeff Price, one of the board member of the AMLC applicant, in a blog posted Friday, April 19, on the Audiam site, once again offers why his group is sponsoring a competing claim to be the applicant chosen to build and manage the MLC, with an argument that centers around black box money. He claims that the MMA, has one unnecessary controversial sentence, which in his view: reveals a second hidden agenda: "For the first time in the history of the United States it is now legal to transfer, redirect and redistribute the wealth and royalties of the songwriter into the pockets of the biggest music publishing companies in the United States that did not earn it."

That's because if compositions can't be matched to streamed music when played on on-demand services, then the royalties from those plays accumulate; and if never sorted out, ultimately could be distributed by market share. But how that will happen still needs to be worked out. As the law stands now, royalties from such plays must be held for at least three years before the MLC "may" distribute such royalties by market share, although there could be an initial distribution sooner from the unclaimed royalties already built up and collecting in the escrow accounts of the various digital services.

So while unclaimed royalties may be distributed by market share, that doesn't have to be done immediately after three years, executives within the Industry Consensus Group have steadfastly maintained.

But if there is ever a decision to distribute the black box money that remains unmatched, then yes it would be distributed by market share to all publishers, including potential publishers that didn't earn it. Nevertheless, those publishers are obligated to share at least 50 percent of that distribution with their songwriters, the AMLC counters.

Moreover, the AMLC executives privately have told Billboard that they aren't worried that songwriters with small publishers aren't going to get their share. Their main concern is that d-i-y songwriters who don't have a publisher or don't belong to a performance right organization and thus will be losing out on their money through such distributions because they are uneducated in how to make sure they are paid. That's why Price complains about the black box money in his blog, when he notes that the MMA law states that once money has been distributed by market share that method "shall supersede and preempt any State law (including common law) concerning escheatment or abandoned property, or any analogous provision, that might otherwise apply."

With that sentence, he says that "…all of the prior laws in place to protect the songwriter from having their money wrongfully taken, are now gone,"  and even if the rightful owner is somehow found after the distribution, that sentence prevents them from the ability to try and reclaim their royalties. 

Without that one sentence, there would no negative impact or repercussion to any other part of the law, let alone D-I-Y songwriters,  he noted. "The music services would still be licensed. The royalties would still be generated. The mechanical licensing collective would still have the money."

Meanwhile, the Songwriters Guild of America, whose president Rick Carnes will be one of the AMLC board members, question whether that sentence noted in Price's blog is even constitutional and whether it will stand-up to a court challenge.

But getting back to the black box money that is a subject of the blog post on the Audiam site, Price repeated he is concerned because half of the ten publishing seats are in the hands of the largest U.S. music publishers, who could vote to distribute the black box money, even though they likely will have direct deals and will be paid directly from the digital services.

On the other hand, the members of the Industry Consensus Group point out there are some safeguards in place to protect all songwriters including D-I-Y songwriters. For one, before it comes to distribution, it should be noted that the Unclaimed Royalties Oversight Committee and the Dispute Resolution Committee are comprised entirely of independent music publishers and songwriters, and that both those committees will be involved in sorting out who should get what.

Also, every five years the Copyright Office must conduct a review to make sure the collective is doing the right thing for all rightsholders, including D-I-Y songwriters, before it re-certifies the group running the MLC.

Yet, the issue rages on between the two competitors.

In its commentary, Music Answers said that the MMA "could turn out to be of great benefit to all music creators. Or, it could perpetuate one of the music industry's darkest practices: the "black box," which for decades has enriched large and powerful music companies at the expense of all others."

It suggested that the Copyright Office make sure that whatever publishers sit on the board of the MLC at least be those publishers whose funds will "actually flow through it," in an apparent reference to the direct licenses that the majors often have with digital services that allow them to be paid directly by those services.

It urged the Copyright office to "consider any potential conflicts of interest and self dealing of the board of directors of any proposed MLC." It also urged the Copyright Office to pick an MLC that has experience with unsigned independent music creators.

"As you know, the goal of the MMA was not to perpetuate the status quo. Rather, it was to help shepherd the music industry into a new era in which all songwriters and their business partners can finally enjoy the benefits of the streaming of their musical works," the Music Answers comments stated.

The Songwriters Guild of America (SGA) commentary, referenced earlier on the constitutionality of whether a black box disbursement should be considered inviolate to legal challenge, also mentioned the alleged conflicts of interest it said its competitor has. The SGA argues that the MLC is likely to be placed under enormous pressure from the major music publishers sitting on its board to limit the search for the rightful owners of songs. 

In its commentary, it also addressed a portion of the Industry Consensus Group's submission, which challenges President Trump signatory statement on the law that the MLC board would be inferior officers under the Appointment Clause in the U.S. Constitution and would thus need the Register of Copyrights, overseen by the Librarian of Congress, to approve every board member to the MLC, even though the law doesn't state that. SGA said it regards that challenge "as a significant red flag."

Instead, the SGA endorsed the Register of Copyrights approving every board member. "It thus falls to the Register of Copyrights to serve as investigator, analyst and arbiter concerning this crucial, threshold issue of appropriate board and committee member selection as part of its evaluation of the competing candidates for designation as Mechanical Collective," the SGA comments stated.

Yet the commentary from the NSAI said it is on guard to make sure songwriters get their due, pointing out that its organization was involved in helping to write the MMA, which it noted included the provision that songwriters are not paid less than 50% of unmatched funds. The NSAI said they were instrumental in getting that part included in the law.

Considering that, the NSAI comments say that the accusations that it would be complicit in "the distributing of funds in ways contrary to those proscribed by the MMA is offensive to us."

Further, the NSAI commentary stated that "after much thought we now believe it necessary to directly address the public smears, half-truths and outright untruths on the topic of unclaimed funds. We hope that this explanation of NSAI's work will help correct the misleading public allegations made by the AMLC."

Moreover, the NSAI leveled a conflict of interest charge at AMLC, which it says were not disclosed in its application. It said that several of the proposed AMLC board directors and committee members are involved in business partnerships with SOCAN, whose subsidiary Dataclef is one of two vendors identified in its application. "These conflicts were not disclosed by the AMLC," it stated.


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