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  Industry Profile

Industry Profile: David Israelite

— By Larry LeBlanc

This Week In The Hot Seat With Larry LeBlanc: David Israelite

National Music Publishers' Assn. president/CEO David Israelite has had a busy 2008 battling for copyright legislation and regulation in the digital and physical arenas.

His year was dominated by the U.S. Copyright Royalty Board (CRB) mechanical right royalty proceedings which pit music publishers, record labels and digital music services against one another. This was the first mechanical right royalty proceedings before the CRB since the emergence of legal online music services.

In Oct., the CRB set the royalty rates paid for digital permanent downloads, physical product and ringtones. All payments prior to the decision were negotiated by the respective parties.

The NMPA had sought an increase from the current 9.1 cents to 15 cents per download. They also asked for an increase in the physical rate to 12.5 cents from the current 9.1 cents.

The Recording Industry Assn. of America had sought significant cuts from upwards of almost 50 per cent of the current rate, and tried to convince the CRB that the flat rate calculations used to pay songwriters should be changed to a percentage of the label's revenue.

This argument fell on deaf ears in the CRB, as they maintained the 9.1 cents mechanical royalty song rate for both physical and digital albums and chose to adopt the NMPA pay proposal without amendment.

Meanwhile, it set the mastertone rate at 24 cents,

The CRB also adopted the terms of an earlier settlement, between NMPA, the Nashville Songwriters Assn., the Songwriters Guild of America, the RIAA and the Digital Media Assn. rates for a mechanical royalty rate at 10.5% of revenues, less composition performance royalties, for interactive streaming and limited downloads. The rate applies to this year with an 8.5 per cent rate for the preceding 6 years.

The physical and digital album rates and the mastertone rates are retroactive to Jan. 1 of this year, while the settlement goes back 7 years.

Furthermore, music publishers will have the right to seek a 1.5 percent late fee, calculated monthly.

Israelite hails the decision as a positive development for all songwriters and music publishers.

Israelite chalked up another key victory earlier in the year, the passage of the Higher Education Opportunity Act, which includes a provision directing publicly funded colleges and universities to inform students and employees about policies and procedures related to illegal downloading and distribution of copyrighted materials.

He also oversaw passage in the Senate of the Enforcement of Intellectual Property Rights Act of 2008. The bill, dealing with violations of intellectual property, has since been signed into law by President Bush.

Founded in 1917, the NMPA represents more than 800 American music publishers. Its mandate is to protect and advance the interests of music publishers and their songwriters in matters relating to the domestic and global protection of music copyrights.

In 2005, the NMPA hired Israelite and relocated its headquarters from New York to Washington to facilitate increased interaction with Congress, the Administration, the federal judiciary and other intellectual property trade groups.

Battling to significantly strengthen the ability of American law enforcement to deal with the growing problem of theft of copyrighted property while accruing political capital in Washington is role in which Israelite is well suited.

From 2001-2004, Israelite served in the Bush Administration as the Deputy Chief of Staff and Counselor to Attorney General John Ashcroft,

In 2003, he became the Chairman of the Intellectual Property Task Force, created by Ashcroft to examine all aspects of how the Department of Justice handles intellectual property issues. The task force dealt with such intellectual property related issues as criminal law, civil law, international treaties and obligations, legislative and regulatory proposals, and public awareness.

Prior to his appointment to the Department of Justice, Israelite served as the Director of Political and Governmental Affairs for the Republican National Committee. From 1997 through 1998, He served as Administrative Assistant to Missouri Senator Kit Bond, and was the Senatorís campaign manager during his decisive Senatorial re-election win in 1998.

Israelite practiced law in the Commercial Litigation Department of Bryan Cave in Kansas City, Missouri from 1994-97. He earned his Juris Doctor from the University of Missouri-Columbia School of Law in 1994, and received a B.A. in political science and communications from William Jewell College in Liberty, Missouri in 1990.

While the decision to name an intellectual property enforcement coordinatoróa position created by the Prioritizing Resources and Organization for Intellectual Property Act signed in October by President Bush--will likely be pushed back until after President-elect Barack Obama takes office Jan. 30, this ďCopyright CzarĒ will certainly be someone with experience working in Washington, with expertise in copyright law andóin Israeliteís viewósomeone who values protecting intellectual property.

Are we going to see a Copyright Czar named before President-elect Obama is sworn in on January 20, 2009?
Iíd be surprised. I donít know when we will see one. Administrations tend to focus on cabinet and high-level White House appointments first and then these other positions filter their way through the system. So I have no idea when we are going to hear about the Copyright Czar. It is more important for me that it is the right person than the announcement coming soon.

Among the names being floated are Hal Ponder, director of government relations at the American Federation of Musicians; and Michele Ballantyne, senior VP of federal government and industry relations for the RIAA.
I wouldnít put a lot of creditability into these early speculations about who is being considered. I picked up an issue of the Washingtonian magazine from a few weeks ago, that speculated on cabinet picks by Obama. None of the people named so far were on the list. Not even close. It goes to show that this type of speculation can be pretty out there.

Is it important that it be someone who has a balanced viewpoint of copyright issues, of copyright enforcement, as well as someone who understands technology and label issues?
Obviously, there are many different viewpoints about policy, technology, and access issues. The one thing fairly consistent in trying to organize the executive branchís response to criminal activity and violation of current law is that the law is the law. There are people who wish the law was different but there arenít a lot of different viewpoints on that the law is what it is. And the government ought to be enforcing the law.

You chaired the task force on intellectual property in 2003 within the Department of Justice. Didnít that task force look at the broader question of how to strategically target piracy?
Yes, we looked at the broader question of the problem. The Bush administration followed the task force with their Stop Initiative [The Strategy Targeting Organized Piracy Initiative] that was an attempt to get the different agencies to start co-ordinating together. This next step is having a co-coordinator in the White House that will work with several different agencies.

This Copyright Czar will co-ordinate with different federal government departments?
There is a very broad mandate to pull together different resources. There are functions at the State Department, at the Department of Homeland Security (with customs and border control), at the Treasury Department, at the Patent and Trademark Office and, obviously, the Justice Department. One thing that doesnít change is that the law enforcement at Justice that remains independent. The White House and the executive branch donít have the ability to pull prosecutorial power away from the Justice Department.

Are you encouraged that VP-elect Joe Biden has been a strong supporter of copyright? He sat on the Senate Judiciary Committee through which all intellectual property-related bills pass. Last year, he sponsored the RIAA-backed Perform Act.
Biden has been a good friend to copyright and to the music industry. That tends to be true for people who are on the judiciary committees. A lot of folks are encouraged that he is in the administration, and hoping that he will have a role in picking the new coordinator.

If everything in Washington is about politics. and you are closely identified with the current Republican administration, do you foresee problems dealing with a Democrat administration as well as Democrat-run House and Senate?
No. Our issues tend to be non-partisan. (We deal with) either someone who is a supporter of copyright and music or they are not. Itís pretty equal between the two parties. I have worked hand-in-hand with both Democrats and Republicans.

Also, the Justice Department is a non-partisan body. The four years I was there, particularly my work on the Intellectual Property Task Force, I worked with Democrats as well as Republicans in Congress.

Lobbying is a quite a relevant part of your job in representing songwriters and publishers before Congress, is it not?
We are very active in lobbying. Although it has been less part of the job than I expected when I took it. It tends to be more litigation focused than lobbying because of whatís been going on in the industry. I think what is happening is that we have reached that point where for a long time we didnít have the proper laws or give the proper attention to intellectual property theft. It has gotten so bad that people now are getting it and are starting to act.

You have publicly indicated that you were happy with the recent Copyright Royalty Board decision although the rates are far less than what you proposed. Why were you happy?
We were happy for a lot of reasons. We had requested 12.5 cents for physical, and 15 cents for digital, the other side requested an abandonment of the penny rate and record labels proposed a 45 per cent cut of our current rate, using current pricing; and the digital companies proposed a 55 percent cut from our current rate. We didnít get the increase we were looking for but we kept the penny rate and they didnít get the cuts they were looking for.

You were obviously worried about a roll back.
We were absolutely worried about that. The parts of the decision we were most pleased with was ringtones at 24 cents, and the late fee. (Ringtones) was a huge victory. I donít know if enough people have focused on the importance of the late fees (1.5 per cent per month). It is an enormous victory for our industry. It has been an ongoing problem getting songwriters paid on time. Now we have this power of 18 percent (annual) compounded interest on late payment.

There was also the settlement on interactive streaming. That may have also have been the biggest victory you had in the case, though it wasnít the judgeís decision.
At the beginning of the trial the record labels had argued that our value for interactive streaming is .56 percent of revenue and the gaming companies were arguing we had no right. We ended up settling for 10.5 percent of revenue with a good definition of revenue. That 10.5 per cent of revenue is among the best rate in the world.

So (in baseball terms) Iíd call (the overall Board decision) getting a triple. It wasnít a home run. Getting a bump in digital (royalties) would have been a home run . But we are happy with keeping the penny rate, not taking (royalty) cuts, with the ringtone rate, and getting the late fee.

The late fee will force labels to either pay publishers and songwriters quickly or make it unattractive for them to handle the overall licensing of songs.
Absolutely. Record labels (in the U.S.) have the legal right to pass through our license and collect royalties. But what we have done with the late fee is made it more unattractive to them. If they choose to act as the pass through agent, they now take responsibility for the late fee. On downloads, (U.S.) record companies currently do pass through our rights but with subscription services they have not so far. There is now a big disincentive for them to do it in the future.

The rate proceedings are not over yet. There is a chance for a rehearing.
I wonít be surprised if the record labels decide to appeal the decision. On Nov. 24, the final determination was sent out by the Copyright Royalty Board. That gives the Register of Copyrights (Marybeth Peters at the Copyright Office) 60 days to publish [in the Federal Register]. Once it is published, parties have 30 days to appeal.

An important piece of legislation for you was the Higher Education Opportunity Act that gave colleges tools to better monitor and maintain their systems.
One of our biggest problems has been rampant piracy on college and university campuses, often over networks controlled by the colleges and universities. What goes on at these schools is that it is really a crucial point in many peoplesí lives, in terms of the attitude students will form about a respect of intellectual property for the rest of their lives. (The Act) is only the beginning of the fight.

The legislation is about the awareness of piracy and educating the student community?
I would like to see our government much more active and involved in this type of (education) effort. Everyone has a role to play in it. Itís education for everybody. It also is education for the music industry which made some big mistakes in this fight early on. There is still catch-up to be done by the industry to give people a choice that makes it easier to turn them away from the type of activity that would lead to theft.

One of the things that became very apparent was the necessity of a legal digital market place if you want people not to turn to the illegal digital marketplace. That obviously was a problem in the very beginning (of music downloading) when the only option if you wanted to acquire music in a digital format was to do it illegally.

But a lot of music kids want today is just not available legally online or in stores. The songs may be in genres like metal, alternative or Americana or be from foreign sources. People canít buy the tracks legally online or at stores.
Thatís a legitimate problem but I donít think it justifies stealing. At the same time, the best way to combat stealing is to make it easy and affordable to acquire music in a legal way. So itís a good point but it doesnítí justify the behavior. And it is a fair point weíd do better in our fight against piracy if we had more (music) available.

There really arenít that many licensed outlets online to get music.
There arenít that many but there certainly are enough that the consumer can acquire music in a legal fashion now. And the market is going to drive (demand) now. The more demand for these types of product, you will have more competitors in the marketplace.

Music is everywhere. it is hard for people to connect to the idea that someone should be paying for it, somewhere in the system.
The challenge of our generation is to create an economic environment where the people who create can make a living. How do we monetize all of this wonderful new technology, this incredible access to music in a way that creates a business environment? It is the biggest challenge facing the music industry while more music is being accessed than any time in history, and there are more applications for music than any time in history.

With the erosion of physical sales, mechanical rates for publishers and songwriters are down but performance royalties are up. Thereís seems to be greater revenue streams from synchronization royalties, including from video games, TV shows, filmÖso many different uses.
Absolutely. A publisher who used to have mechanicals be their biggest source of income is now seeing performance (royalties) either rival or overtake mechanicals. Synchronization is becoming a much bigger part of the pie. So is the exploitation of lyrics and tablatures. People accessing lyrics and tablatures is something that was forgotten for a long time. Suddenly, people are now focusing on it. That is a growing field for us.

It is often overlooked that under U.S. copyright law controlled composition cannot be applied in the digital world in contracts after 1995. How does that affect publishing revenue streams?
As the market is becoming more digital, we are effectively getting the rate bumped up because there is no controlled composition on digital products. We get the full 9.1 cents whereas on physical product there may be a three-quarter rate or a 10 song cap on an album, whatever else that is in the controlled composition.

You got passage of the Enforcement of Intellectual Property Act of 2008 pretty quickly.
That bill is a personal favourite of mine because much of what is in it was from my task force. It took four years for it to be enacted into law. I was working on it for a long time. There were some serious objections from senators, the White House and others early on. But we addressed a lot of the concerns. Once we did, it became a fairly non-controversial bill.

The bill is very specific on the violations of intellectual property issues, where others havenít been.
Absolutely. But we didnít get everything we wanted. We had hoped to get a civil enforcement power at the Justice Department. That was dropped from the final bill. However, much of what was in the bill was very important, and we are very happy with it.

What do you have on your plate in 2009?
We have a class action lawsuit against Google and YouTube right now. YouTube has not paid one penny to any songwriter or publisher, even though it is making millions of dollars in advertising and music is clearly driving traffic at YouTube. The record companies have done deals with YouTube but (YouTube and Google) have not done those same deals with publishers and songwriters. This is an enormous priority for (the publishing) community going into next year.

Google paid $1.65 billion to acquire YouTube. What were they buying? They were buying a place people go to watch other peoplesí property. It is unconscious able that the people who created the content arenít sharing in the revenue from the source.

At what stage is the class action lawsuit?
We are in the discovery phase. Weíre being deposed in a few weeks in the case. It will heat up now that we are in discovery.

Any other legislation likely to be put forward in 2009.
There is an orphan works bill that didnít make it this year. it might be brought up again in 2009. It is something that is of great interest in our community. There is also a net neutrality debate going on involving what restrictions can be put on Internet traffic that is pretty controversial. These are a few things that that we will be watching.

Thereís also this performance right [Performance Rights Act] for record labels and artists that got to a hearing, and a markup at a subcommittee level last year but got stopped. We are generally supportive but donít want our income stream from broadcast radio to be negatively affected by any new right. So the (RIAA has) to introduce a new bill, and then try to bring it out to the full committee level.

A performance right is long term goal of U.S. record labels. The United States is one of the few countries without such a right.
I donít think its going to happen any time in the immediate future but we will be supportive of it as long we can be protected. We are the only country in the world that doesnít have it which is a problem (in getting paid for performance rights by other countries).

[Note: American copyright law protects two distinct sets of rights in music: rights associated with the musical composition (the song), and the musical recording (the master). The U.S. Copyright Act gives the copyright owners of songs the exclusive right to perform the copyright work publicly - but this does not extend to owners of the masters. This means that radio broadcasters must pay songwriters and publishers for the songs they play, not artists and labels.]

Larry LeBlanc is widely recognized as one of the leading music industry journalists in the world. Before joining CelebrityAccess in 2008, Larry was the Canadian bureau chief of Billboard from 1991-2007 and Canadian editor of Record World from 1970-89. He was also a co-founder of the late Canadian music trade, The Record. He has been quoted on music industry issues in hundreds of publications including Time, Forbes, the London Times and the New York Times.

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