NMPA President David Israelite Discusses Music Streaming Issues and the Songwriter Equity Act

Six months ago, we published an interview with David Israelite, President & CEO of the National Music Publishers Association (NMPA). He provided excellent insights into key issues affecting songwriters & publishers, particularly how music streaming companies such as Spotify and Pandora are not paying songwriters & publishers a fair rate. Israelite is one of the top music execs leading the way in the battle for music publishers & songwriters to be paid fairly from all revenue sources.

Practically every working songwriter wants to know the latest developments in this issue, so we’re pleased to present this new interview with Israelite. He discusses the latest court rulings involving Pandora, and explains what additional developments could be happening in the coming months, which would have a major impact on how songwriters & publishers get paid.

Israelite has been the head of the NMPA since 2005. He is an attorney who served as Deputy Chief of Staff and Counselor to the Attorney General of the United States. In March of 2004, the Attorney General appointed Israelite Chairman of the Department’s Task Force on Intellectual Property.

Founded in 1917, the National Music Publishers’ Association (NMPA) is the trade association representing all music publishers and their songwriting partners. The NMPA’s mandate is to protect and advance the interests of music publishers and songwriters in matters relating to the domestic and global protection of music copyrights. The goal of the NMPA is to protect its members’ property rights on the legislative, litigation and regulatory fronts. Most of the major and independent music publishing companies are members of the NMPA, including top execs from Sony/ATV Music, Universal Music Publishing Group, Warner/Chappell Music, Kobalt Music Group, BMG Rights Management, peermusic, SONGS Music and Disney Music Group.

Here is our new Q&A interview with David Israelite:

DK: There have been recent court rulings in two separate cases—Pandora vs. ASCAP and Pandora vs. BMI. What did you think of these verdicts?

Israelite: In the decision regarding ASCAP, Judge Denise Cote ruled that Pandora would continue to pay ASCAP 1.85% of its revenue. In the recent decision of BMI vs. Pandora, Judge Louis Stanton ruled that Pandora shall now pay 2.5% of its revenue.

These battles in court are individual battles, but it’s not what the war’s about. In both cases, the result was not what a free market would produce. Both trials had rulings which were based within the framework of the old consent decrees. Changing the consent decrees which govern ASCAP and BMI, is the most important thing which needs to happen. It’s the changing of the decrees which should provide an opportunity to greatly increase the rates that songwriters & publishers are paid.

DK: Can you explain how these consent decrees which were set in 1941, affect current royalties?

Israelite: Under these decrees, ASCAP and BMI must grant a license to anyone who requests it, even before a licensing fee is agreed upon. As a result, streaming companies such as Spotify and Pandora have been able to license and stream songs without paying a royalty rate which ASCAP and BMI (on behalf of music publishers & songwriters) considers fair. Currently, the rates which Spotify and Pandora have been willing to pay are much lower than what is fair to music publishers & songwriters.

In my opinion, I don’t think we need consent decrees at all. They’re outdated.

DK: When do you think the Department of Justice will announce a ruling on the consent decrees?

Israelite: We’re hoping they will make their ruling before this fall. We feel strongly that songwriters and publishers deserve to be paid fair market rates. We’re hopeful that the consent decrees will be amended to allow a free market.

DK: Is it possible that the Department of Justice will make a ruling which is only partially favorable to songwriters & publishers?

Israelite: Yes, their decision could be a mixed bag. We’ve asked for several things—an important part would be for the DOJ to allow publishers to have a limited withdrawal from their affiliation with ASCAP and BMI, so they could directly negotiate digital rates with Spotify and Pandora. Publishers want to work with ASCAP and BMI on many income streams, but if the upcoming ruling still keeps ASCAP and BMI from negotiating a fair market rate with the streaming companies, then publishers should be able to have a limited withdrawal so they can negotiate a fair market rate with these companies. Currently, you can’t be signed with the PROs for certain things and not for other things.

DK: In addition to the upcoming DOJ decision, I’ve been hearing a lot about the Songwriter Equity Act which has been introduced in Congress. Can you tell me about this?

Israelite: The Songwriter Equity Act (SEA) is legislation which has been introduced in both the House of Representatives and the Senate. It is supported by all the music organizations: ASCAP, BMI, SESAC, NSAI, NMPA and the Grammys (The Recording Academy). The bill would rectify two key rights:

1. Allow a “rate court” to consider other royalty rates as evidence when establishing digital performance rates. Amend Section 114(i) of the Copyright Act and allow a rate court to consider all relevant information when determining songwriter compensation, an ability currently prohibited by law.

2. Adopt a fair rate standard for reproduction (mechanical) licenses. Replace the current substandard rate currently used by the Copyright Tribunal Board to determine mechanical royalties with a rate that reflects free market conditions.

The Songwriter Equity Act is an important step towards modernizing the music licensing system and leveling the playing field to ensure that songwriters, composers and publishers are appropriately compensated.

What we want is to change the rate standard to willing seller – willing buyer. The rates  should be set in a free market, which is not the case under the current law.

DK: Is it important for songwriters to contact their Congressional representatives to show their support for the Songwriter Equity Act?

Israelite: Absolutely…it’s important to lobby Congress. Congressional representatives need to hear from their constituents, and it’s important that songwriters from every state and district contact their representatives. Songwriters tend to be clustered in the music cities such as Nashville, New York and Los Angeles, so the representatives in those districts are hearing from their constituents. But we need a broad base of supporters, so that all representatives throughout the country will vote for the Songwriter Equity Act. So it’s important for all songwriters to get involved.

DK: Currently, what rates do Pandora and Spotify pay songwriters & publishers to license a song, and what rates do they pay record labels to license the recording?

Israelite: With Pandora, 44% of its revenues are paid to labels for the recording license, whereas only 4% of its revenues are paid to license the song rights. Currently, Pandora keeps 52% of the revenues. By holding onto this percentage, Pandora is saying that their song delivery is worth 13 times more than the song itself. I find this to be offensive. I think Pandora can pay more than 48%.

Spotify is a different business model—it’s interactive streaming. With Spotify, labels get about 60% and writers get 10% of its revenue. It does become more complicated, because labels have equity in Spotify—they own a percentage of the company. Amazingly, Spotify was recently valued at $8.4 billion, which is more than what the entire music industry is valued.

DK: It’s clear that songwriters & publishers are being paid a much lower rate by Pandora and Spotify, than the record labels. What do you think is a fair ratio for song license rates vs. recording license rates?

Israelite: If you allow songwriters & publishers to negotiate in a free market, the market will give us the answer and I will accept the answer. When it comes to sync licenses (for film, TV, commercials, video games), the standard has been a 50/50 split. So based on this standard, in a free market, songwriters & publishers should be paid a much larger percentage by the streaming companies.