Power Player Interview with David Israelite

This interview with Washington, DC-based NMPA Pres./CEO David Israelite didn’t get off to a great start, as the Kansas City native admitted to being a diehard Royals fan, while Editor Roy Trakin’s lifelong allegiance is for the Mets. “That may affect the rest of the interview,” he laughed. Israelite has occupied his current post since February, 2005, joining the organization from various senior positions in the U.S. government, including the Department of Justice, where he was appointed Chairman of the Department’s Task Force on Intellectual Property and in the U.S. Senate as Chief of Staff for Missouri Senator Kit Bond. A tireless fighter for music publishers and songwriters, his current agenda includes battling consent decrees and the inadequate rate standards in compulsory licensing that threaten his community in its transition to a digital streaming economy.

How do we redefine the idea of copyright – invented in an era of mechanical reproduction — for a digital streaming age of infinite replication?

The key is getting fair value. When I started in this job 10 years ago, everybody was afraid of theft and piracy. Now our focus has almost entirely shifted to “How do we monetize legal sites that are creating a tremendous amount of value that isn’t being shared appropriately with songwriters and music publishers?” The music publishing community has to start thinking differently about the value of their songs to these services. For a long time, we accepted certain value propositions that don’t apply in today’s digital world. So that when broadcast radio paid music publishers and songwriters 4% of their revenue, it didn’t seem that out of line that Pandora should pay us 4% of theirs. We should instead be considering amount of activity, displacement of other models or how much value is being created by the service itself. Radio used to argue that somehow we should take less from them because the promotional value of airplay led to sales. There are some in this community who believe Pandora should pay less than an interactive streaming service like Spotify, but I don’t agree. They’re both digital models that rely on advertising; both do nothing more than deliver music. Why should the percent of revenue that goes toward content be any different?

Right now, we’re trapped by the consent decrees that have governed ASCAP and BMI since 1941. Everyone has enjoyed the benefits of collective licensing. A great deal of money has been flowing through those performing rights organizations. No one was challenging how those rates were being set. Now, if you look at the digital space, it’s crystal-clear that the consent decree process has led to a devastation of the value of songs to these models. And we’re not in a position to do anything about it. Under the consent decree, you can’t say no, you have no leverage in a negotiation and you’re trapped to the whim of a single federal judge in the Southern District of New York who somehow believes they’re protecting the public against a monopoly instead of setting a fair value for our music. It’s ironic. A bunch of small, independent songwriters are being told they’re a monopoly and that Google, Apple and Spotify need protection against them. So those giant tech companies are in a free market, while songwriters are regulated under a World War II-era interpretation of anti-trust law. It’s insane.

Who’s the most egregious violator?

Pandora is now paying the record labels about 50% of their revenue, the music publishers and writers 4% and they’re keeping about 46%. Somehow under this system, an Internet company that doesn’t do anything else but deliver songs to their customers is worth 10-12 times more than the song itself, just as the record labels are. Everywhere else in the world, radio splits the revenues with record labels, artists, writers and music publishers evenly. Pandora refuses to partner with the music industry; they view it as a war in which they are out to pay as little as possible. There has been some indication they are willing to change, but not fast enough. Apple, on the other hand, has always approached our relationship as a business partner, negotiating rates rather than relying on compulsory licenses or consent decrees.

What is the NMPA’s position on the “Fair Pay for Fair Play” Act?

We are 100% supportive. We support a Performance Rights Act for artists and labels. We support artists getting paid from digital services on pre-1972 music. We support satellite radio paying artists and labels under a “willing seller/willing buyer” rate standard. The reason why our legislation is separate from the labels right now is because we felt it was very important that the issues affecting songwriters be emphasized. What happens is people who don’t understand the industry blend everything together, and the songwriter gets overshadowed. The Performance Rights fight between labels and broadcasters is, by far, the one attracting the most attention from the media, members of Congress, and even the casual consumer. Most people don’t understand the difference between two distinct copyrights, regulated differently, and that a songwriter’s issues are completely separate from an artist and the labels. It’s not that we don’t support the labels, we just think our issues deserve their own attention.

Are the traditional bedfellows of the record labels and music publishers — in an age, ironically, when the two businesses are more alike than ever — being driven apart by these issues?

I don’t look at them in competition with each other. I came up with a philosophy eight years ago, which I called One Music, and I pitched it to everyone — from the labels and music publishers to the Recording Academy, Country Music Association, musician unions and PROs. You’ve got two different copyrights. There are going to be times of tension, when there’s an economic split between them. At times like that, we should just accept the fact we have different interests, but in the end, both copyrights deserve more. In the absence of that direct economic tension, we should support each other. Ten years ago, most of the music publishing community was against the idea of the labels getting a performance right. The concern was, if radio had to pay the labels, there would be less money for the publishers and songwriters. And the labels were doing the same in taking anti-songwriter positions. There were arguments that interactive streaming services shouldn’t have to pay songwriters both mechanical reproduction and performance. Because it meant less money for the record companies. But when we’re negotiating with a Pandora, say, we should both be on the same side, fighting for the most amount of money for each. There’s no reason why we should tear each other down in the process.

Isn’t it just a matter of getting together and deciding how to divvy up the pot?

You can’t decide pricing for competitors; that’s collusion. The performance right for songwriters and publishers is not regulated by law; it is a free market right. It is only because two private companies, ASCAP and BMI, are under consent decrees that we even have these discussions. I want to be in a world where songs are valued by the free market, like in synchronizations. When you marry music to visuals, that’s a completely free market. There’s no consent decrees or compulsory licensing. In that world, the songwriter gets a much bigger slice of the pie. You have a right to say no if you don’t like the offer.

How do you feel about freemium vs. premium in streaming services?

If we are in a free market, those decisions should be made with our business partners at the services. Right now, we don’t get to make that choice. If Pandora or Spotify want to give away music for free, the songwriter is powerless to say no. In a free market, the songwriter could decide whether this was good for them or not. That’s why it was such a big deal when Taylor Swift pulled her music off Spotify for this issue. But she did that as an artist; she had no rights as a songwriter. Let us make those decisions for ourselves. I believe strongly that paid models are better; the evidence is overwhelming. The 5% of Pandora’s user base that pays creates 20% of their revenue. With Spotify, the 27% who pay contribute 91% of their revenue. Apple approached their pay service by negotiating with the publishers directly. They didn’t avail themselves of compulsory or consent decree licenses. For a company like Spotify, record labels get about 60% of the revenue, while songwriters are getting about 10% and, unlike the labels, no equity stake.

Has the philosophy of “free” on the Internet created a chill in creativity, particularly in songwriting?

Of course. Not everybody has a right to make a living as a songwriter. But when you are a successful songwriter with hit songs, the amount of compensation that comes with that creation is disgraceful, and that has to be frustrating. There may be a role for free models, but the decision for that should come from the creators themselves, not those profiting from it.

What continues to motivate you in this fight?

I feel passionately about it because I love music. It’s taking a while, but I feel we are making progress. There is a lot of value in music; we just want to be paid fairly. Let the free market decide, as in every other intellectual property sold on the Internet. It’s only the songwriter who’s not allowed to do that.