“Whenever you find yourself on the side of the majority, it is time to reform (or pause and reflect).”
Spotify and Amazon both received letters by the National Music Publishers Association (NMPA) on Tuesday August 27, seeking more information on how the two companies apply the Copyright Royalty Board’s three-tier rate formula for mechanical licensing. The letters request answers to its questions by September 9. Neither Spotify or Amazon have responded immediately for comment.
By the end of the year, the Department of Justice (DOJ) will officially decide whether the consent decrees governing PROs ASCAP and BMI should be changed, left alone, or “sunsetted” (terminated at a future date). ASCAP and BMI both have voiced out that they would like to see the decrees terminated, because it would allow them to negotiate more aggressively on behalf of publishers and songwriters. If this does not end up happening, the two PROs are pushing to retain specific elements, such as keeping the rate court process for free proposals when negotiations fail.
A recent report in Bloomberg published on Tuesday stated that Tencent Music Entertainment Group is now under investigation by China’s State Administration of Market Regulation, the nation’s antitrust authority. This may potentially bring “an end to exclusive licensing deals it forged with the world’s biggest record labels.” The report dives deeper by stating that Universal, Sony, and Warner sold “exclusive rights to a major chunk of their music catalogues” to the music platform, which then “sub-licenses that content to smaller rivals,” which they argue is anti-competitive behavior.
For those who are in the United States, we wish you a safe and relaxing Labor Day weekend on behalf of the Exploration family!
Now, the details...
Compiled by Heidi Seo
Exploration Weekly - August 30, 2019
NMPA Challenges Spotify and Amazon Over Miscalculated, Underpaid Publisher Royalties
The National Music Publishers Association (NMPA) is questioning whether Spotify and Amazon are underpaying publishers by the way they are determining mechanical royalties. On Tuesday August 27, the NMPA sent letters to both companies seeking more information on how they are applying various components of the Copyright Royalty Board’s three-tier rate formula. NMPA president and CEO David Israelite said in a statement, “Spotify has made a faulty reading of its family plan discount and without explanation sent music publishers and songwriters the bill. The service did this while simultaneously launching an unprecedented appeal of the CRB ruling which granted writers their first real raise in decades...Meanwhile, Amazon has concocted a scheme where its Prime Music service is priced so low, songwriters will reap almost no royalties from its platform. This violates the law that protects songwriters work from being bundled with other offerings and essentially used for free. These services, which continue to be valued in the billions, must make their calculations and rationale transparent and show how they can justify continuing to undervalue the work that makes their services possible.” In both letters, the NMPA request answers to its questions by September 9. Neither Spotify or Amazon were immediately available for comment.
DOJ Consent Decree Review Moving Fast Through Hundreds of Comments from Across the Industry
Over the next few months, the Department of Justice (DOJ) will decide whether the consent decrees governing PROs ASCAP and BMI should be changed, left alone, or perhaps even “sunsetted” (terminated at a future date). ASCAP and BMI would ideally like to see the decrees terminated, since that would let them negotiate more aggressively on behalf of publishers and songwriters and let them compete on an even playing field against their rivals, SESAC and Global Music RIghts (GMR), as well as foreign PROs. Under the circumstance that the decrees are simply changed, the two PROs are pushing to retain four ingredients that music users say are essential: allowing them to license catalogs immediately with a mechanism for concurrent payment of fees, rather than withholding fees until a royalty rate is set, retaining the rate court process for fee proposals when negotiations fail, continuing the practice of non-exclusive rights for PROs to allow for direct deals with publishers, and having PROs continue to offer adjustable blanket license alternatives. The simplest outcome would arrive through negotiation, which could form the basis for a future law.
China’s Antitrust Authority to Investigate Tencent Music, According to Report
According to a report in Bloomberg published on Tuesday August 27, Tencent Music Entertainment Group is currently under investigation by China’s antitrust authority, potentially bringing “an end to exclusive licensing deals it forged with the world’s biggest record labels.” TME is majority owned by Chinese media/entertainment giant Tencent Holdings, and trades on the New York Stock Exchange. The investigation was specifically launched by China’s State Administration of Market Regulation in January of this year, with the firm’s deals with Warner Music, Universal Music Group, and Sony Music Entertainment under review. The report states that Universal, Sony, and Warner sold “exclusive rights to a major chunk of their music catalogues” to the music platform, which then “sub-licenses that content to smaller rivals” which they argue is anti-competitive behavior. One of Bloomberg’s sources stated that it can “be twice as expensive” for competitors like ByteDance or Alibaba to license music for the rest of the world from Tencent compared to licensing it direct from the labels. As of June 2019, the music company counts 652 million Mobile Monthly Active Users (MAUs) and 31 million paying users. Tencent Music is also home to three of China’s leading music streaming services, QQ Music, Kugou Music, and Kuwo Music. TME officially started trading on the New York Stock Exchange on December 12, 2018. The parent company, Tencent Holdings, is currently in discussion to buy 10%-20% of Universal Music Group.
Peloton IPO Filing Reveals Music Costs
Peloton published its official S-1 filing to go public this week, revealing information about the business, including its dealings thus far with music rightsholders. The exercise company is still facing a lawsuit from a number of music publishers over music that they claim was not properly licensed by the fitness startup. According to the filing, Peloton is planning to raise $500 million from going public, based on a business that has signed up more than 1.4 million members. Revenues reached $915 million in its 2019 financial year, up 110.3% year-on-year. Net loss totaled $195.6 million that year, compared to $47.9 million in its fiscal 2018. Of those revenues, $719.2 million (78.6%) came from selling the bikes and treadmills, and $181.1 million (19.8%) from subscriptions. Regarding the lawsuit, Peloton estimates the costs of any judgement or settlement may range from $4 to $11 million, compared to the up-to-$150 million being sought by the publishers in damages. “Content costs for past use,” or money set aside to pay rights holders for past use of their music while negotiating new licensing deals, totaled $15.5 million in its fiscal 2017, $14.5 million in its fiscal 2018 and $16.4 million in its fiscal 2019. Its “normal and recurring royalty expense” for those years was $0.4 million, $1 million, and $2.8 million, respectively.
Drake’s “In My Feelings” and “Nice For What” Tracks Under Dispute in New Copyright Infringement Lawsuit
Rapper Drake was sued for copyright infringement this week by Samuel Nicholas III (aka Sam Skully) who wrote the 2000 song “Roll Call” over two of Drake’s tracks on his 2018 album “Scorpion.” According to Nicholas, Drake sampled his beats on “In My Feelings” and “Nice For What.” Both were co-produced by Adam Pigott (aka Blaqnmild). Law360 reported that the lawsuit claims, “The sound recording called “that beat” by producer defendant Adam J Pigott p/k/a Blaqnmild is in fact the sound recording “Roll Call (Instrumental)” in which plaintiff Samuel Nicholas III p/k/a Sam Skully has a copyright. The sound recording called “that beat” is a direct copy of the copyrighted “Roll Call (Instrumental)”, not a new performance or new interpretation.” Nicholas was allegedly never approached by Drake or any of his people about the allegedly uncleared sample. To that end he wants damages and a cut of the profits generated by “In My Feeling” and “Nice For What,” as well as an injunction invalidating the current copyright registrations for those two works. Drake et al are yet to comment on the lawsuit, which was filed with the Louisiana federal court on Wednesday.
Industry Revenues Fell Slightly in Japan for H1 2019
Japan’s H1 2019 recorded music revenues fell very slightly (-0.25%), according to new data published by the Recording Industry Association of Japan (RIAJ). Total industry revenues, including physical and digital formats, across audio and video, hit 149.093 billion Yen ($1.35 billion) in the six months to end of June, down from 149.468 billion Yen ($1.37 billion) in the prior year period. The decline was mainly caused by a 10.8% year-on-year drop in sales of physical music video products. In other news, subscription audio streaming formats grew by 23.8% year-on-year, up to 18.54 billion Yen ($168 million), while all streaming formats (including revenues from subscription plus ad-supported video and audio services) climbed 27.5% to 21.37 billion Yen ($194 million). Audio subscription revenues made up 12.4% of Japan’s total recorded music revenues in H1 2019; physical audio formats contributed 53.3%. The IFPI data reports Japan was the world’s second biggest recorded music market in 2018, behind the US but ahead of the UK, generating $2.87 billion in trade revenues. The statistics from the RIAJ show that non-domestic (international) music made up 10.4% of total physical audio sales in the first half of this year.
Indian Music Industry President and CEO Discusses India’s Potential to Break Into Top Ten of the World’s Biggest Music Markets by 2022
At this year’s edition of the annual All About Music conference on Tuesday, Blaise Fernandes, president and CEO of India’s official recorded music industry body the Indian Music Industry (IMI), stated, “I think we’re on course,” when asked on a status update on the country’s plan to break into the top ten of the world’s biggest music markets by 2022. He continued, “For us to get to the top ten, we’ve got to double our revenues, we’re at $150 million, we’ve got to get to $300 million.” In order for India to reach this goal, Fernandes stated some of the drivers that could help would be an “underexploited” public performance market, the estimated 830 million smartphone users the country is expected to have by 2020, and a “$2.5 billion digital advertising market” owing to which “you’re going to see a lot sync opportunities.” In addition, the nation will be home to 120 million people in the age group of 25-29 by 2020, “a huge earning population,” and a study jointly conducted by the IFPI and IMI as per which they found that Indians spend “21.5 hours per week on music consumption across all platforms.”
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