NMPA's David Israelite forecasts a lower than expected impact of Covid on the music publishing business

 

By Emmanuel Legrand

The Covid pandemic will affect the US music publishing sector, but "the impact will be less than we thought it would be," according to David Israelite, President and CEO of the National Music Publishers' Association of America, speaking at a virtual Q&A session organised by the Association of Independent Music Publishers (AIMP). 

  Israelite said the NMPA is still collecting information and that "we don't have all the answers." He said that 2020 offered a "mixed bag" of situations with certain streams of revenues growing while others have been declining. 

  On the negative, he mentioned broadcast radio, which accounts for 40% of publishers' revenues and has been impacted by a drop in advertising. However, he surmised that broadcasters may have been able to make up losses suffered in the second quarter in the latter part of the year.

Direct impact on publishers' revenues

  General licensing has been "taking a major hit" as bars restaurants and hotels have been struggling to stay in business, so this area should be "impacted significantly" although it only represents 4% of the publishers' revenues.

  Cable and TV "has been impacted in some ways," said Israelite, who also noted that the end of the year may have ended stronger in this area. Sync, which accounts for 12% of revenues, has also suffered.

  "Half of [publishers'] revenue has been impacted directly," said Israelite, who added that "on plus side, some revenues have been growing even faster they would have had" without Covid, most specifically streaming. "We are seeing growth in that and that's not surprising," said Israelite. New areas of revenues such as home fitness with brands like Peloton "are exploding" and livestreaming has been booming although he admitted that is was difficult to measure the impact of this new stream of revenues, especially as significant players have not been licensed yet.

A cynical attack

  He also cautioned that a lot of the impact from 2020 will roll over in 2021. "The bottom line is that we do not have an answer but what we are going to find out is that the impact is less than we though it would be," he explained. Israelite said that the NMPA will release the figure as soon as it will be available, rather than waiting for the organisation's traditional AGM at the beginning of June.

  Israelite went on to discuss some of the hot issues of the moment, starting with the way the music streaming revenue pie is split between stakeholders. He spend a few minutes set the record clear on what he called a "cynical attack" from DIMA CEO Garrett Levin who, in an op-ed in MBW, said the reason songwriters got paid so little had to do with the way other stakeholders in the music sector took their cut. 

  He said the attack was even more cynical considering that publishers and songwriters are forced to wait for the conclusion of the CRB III rate determination, that has been appealed by services such as Spotify and Amazon, to get a significant rise in payment.

Hands tied by compulsory license

    Israelite looked at other examples of tech companies that deliver a service like Grubhubor AirBnB, but only take, respectively 13% and 14-20% of of the revenues. "We question why does Spotify keep 37.5% of revenues [which is] over three times the amount that goes to songwriters," said Israelite. 

  "Our hands are tied with a compulsory license and consent decrees, so a lot of what we focus on is how to make the system fair," he added. 

  Staying with the Copyright Royalty Board's determination, Israelite said the CRB III process, which ended up providing a 44% rate increase, in now on appeal and the CRB has to address some of the issues raised by the appeals' court. "This will take us through the summer and into fall," he said in terms of time-line. 

Confidence in CRB 4 proceedings

  He said that once the determination is final, it will be retroactive to 2018, noting that at the moment, several DSPs pay the the 2018 rate, and the higher rate, if confirmed, will be retroactive, which means that DSP will have to pay the difference between the two rates. "We are confident that we are going to do well in the remand and protect the growth," he said.

  In addition, publishers and music users will start soon entering the trials for the CRB's Phono IV determination. The difference, this time, said Israelite, is that publishers and PROs will benefit from the new standards outlined in the Music Modernisation Act of 2019, which introduces the notion of willing buyer, willing seller in the determination process as well as rotating judges. The Phono IV initial determination is due on December 15, 2022, following a two-year process.

  "We have a bad rate standard and we achieved a 44% increase and now we have a good standard and we are going to fight during the next voluntary negotiation period," he said. "Ultimately next year, in the summer, we will go to trial and will litigate again against DSPs."

Disappointment at the DoJ

  Looking at the bright side, Israelite said the jump from 10.5% to a 15.1% revenue rate would mean "hundreds of hundreds of millions of dollars" in addition for the songwriting community. "So as frustrating as it is, the process is extremely important for the value of song copyright, so we will do everything in our power to get the best rates," he said.

  On the consent decrees, Israelite said it was "extremely disappointing" that in December 2020, the Department of Justice (DoJ), through its Assistant Attorney General for Antitrust Makan Delrahim, closed review process of the consent decrees ruling ASCAP and BMI, and "decided to do nothing after four years of taking testimonies and millions of dollars paid to lawyers."

  He added, "In their statement, [the DoJ] said really nice things about how we should be better paid, that there should be no compulsory license, but all this rhetoric is hollow because ultimately they did not act. They said they ran out of time, because of Covid and that they were spending a lot of energy on Google, but this feels hollow to me. Their views were aligned with us and they did not deliver."

Uncertainty on consent decrees

  He went on to disclose that the DoJ "never seriously engaged" with ASCAP and BMI, and even two weeks before they closed the review, they offered changes to the decrees "that were unbalance and worse than status quo," according to Israelite. The last minute proposals were turned down by ASCAP and BMI. "We were very disappointed in that," he said. 

  "So what to do now?" he asked. "We are not sure what happens next. It will depend on who runs the antitrust division and if the Biden administration has an appetite to make changes."

  The new Attorney General Merrick Garland was rumoured to be considering Susan Davies, a former lawyer for Facebook, to run the antitrust division. Israelite said "we know her well," but said action from the consent decrees will depend if "they have an appetite for that and if we publishers have an appetite for this. This is a process that started with the Obama administration and they invited us under the Trump administration to discuss it and we are now with our third administration. The issue has not gone away."

Investors protecting copyright assets

  Israelite touched upon the new wave of publishing catalogue's sales with "multiples going through the roof," and invited to "take a step back and look at the dynamics." For Israelite, a lot of people tried to close sales before calendar year for fear that capital gains would go up with the Biden administration, but also "historically high prices" have been motivating people to sell, coupled with low interest rates pushing investors to look for areas with significant return on investment making "publishing an attractive investment."

  For Israelite, one of the benefits of having so many different new types of investors entering the music assets business is that there is now a whole new class of investors who "can have interest in protecting their assets, so we will partnering with them to see if they can help protect assets." He added that one of the benefits of having these type of investors in the IP field is that "financial institution should have a vested interest in protecting capital gain," and therefore could also push start-up they are also investing in to look for licenses before launching. 

  "Some of these players may not have had such interest in the past," he explained, "and many of these financial firms also invest in tech firms. We increasingly find tech start-ups using music and not licensing content, so if tech companies have investors that have music copyright, that can accelerate [the process of getting] these platforms getting licensing."

The benefits of the MLC

  Switching to the MLC, which started operating on January 1, 2021, and has started licensing DSPs under a blanket license and will administer digital mechanical rights, Israelite  said there are still some tests ahead. "I don't think we can call it successful until they receive their first report from DSP, receive the money and distribute the money," said Israelite. "They are in a very good place but they have not performed yet until we get to that exercise." 

  He said that nevertheless he was "very proud" of the way the MLC team got ready on time, despite Covid, and expressed his "confidence in the team." Looking at the big picture, Israelite invited his audience to "not forget the advantages of MLC," in particular the fact that the whole administration process is paid for by DSPs. 

  "At some point it will become the new normal and people will forget that we use to pay for our own licenses," he said. "We used to have no audit right and we now have the right to audit and they will pay us to audit them." He also highlighted the creation of the first music database in the world in which there are "no proprietary interest."

A busy legislature

  Looking at the challenges ahead, Israelite turned to the new Congress the new key players in the legislature. As the two chambers are now controlled by the Democrats, a few positions have changed. At the Senate's Judiciary Committee, Senator Rick Durbin has taken the role of Chairman, with Sen. Chuck Grassley as Ranking Member, and at the Intellectual Property Subcommittee, Sen. Chris Coons is now Chair, while former Chair Thom Tillis as Ranking Member.

  At the House, Jerry Nadler has remained Chair of the Judiciary Committee, while Jim Jordan has replaced Doug Collins as Ranking Member. At the Intellectual Property Subcommittee, Hank Johnson is now Chair and Darrell Issa is Ranking Member.

  Israelite said that in Coons and Tillis, the creative sector will have "friendly ears" and at the House, and Nadler has traditionally been a supporter of creators' rights. High on the agenda is the reform of 1998's DMCA, with a lot of ground work done in 2020 by Tillis.

Talks about DMCA reform

  "There's lots of talk about reforming the DMCA," said Israelite. "Tillis has a draft bill ready to circulate; he is no longer chair but we know Coons has an interest [in the legislation]. I am not sure if changes are likely to happen in near future and they're small compared to other issues like section 230." 

  Overall, Israelite said there was "long term potential for improvement" with Congress, and activity linked to the implementation of the CASE Act and the new bill that made streaming unlicensed content a felony, as well as the continuous oversight of the MMA.