President’s Message

Note: AFM-EP Fund updates appearing in this column are not applicable to the AFM’s Canadian Pension Fund, known since August, 2010 as Musicians Pension Fund of Canada. 

At its May 2017 Board of Trustees’ meeting, AFM-EP Fund actuaries advised that better than expected investment returns and increased employer contributions—most notably, $20 million in new contributions over the next three years from the Sound Recording and Motion Picture industries negotiated by the Federation—enabled the plan to avoid “critical and declining” status for at least another fiscal year.

Although the odds are that the Fund may become critical and declining at some point in the future, even as early as the next fiscal year (beginning April 1, 2018), that status will depend on investment returns, employer contributions, and other results during this fiscal year.

Busting the Myths

With the speed of today’s Internet, inaccurate information can be disseminated quickly. Here are a few myths I’ve seen, along with the facts.

Myth #1: The Fund is not critical and declining so we’re “safe.”

Though plan status has been certified critical each year since 2010, avoiding critical and declining status this year doesn’t mean the plan is healthy. High investment returns coupled with innovative increases in Federation-negotiated employer contributions kept the Fund out of critical and declining status this fiscal year. As recently as the plan year concluding March 31, 2016, employer contributions covered only 42% of benefit payments.

Increases in the percentage of employer contributions are essential to the health of the Fund. This cannot be accomplished if members opt to work off-contract without pension contributions for signatory employers, rather than insisting that Federation and locally-negotiated agreements with pension benefits be honored.

Myth #2: The Keep Our Pension Promises Act (KOPPA) proposed by Senator Bernie Sanders is good for participants.

Fund trustees would strongly support legislative changes that would help the Plan secure participants’ pensions without relying on benefit cuts. Unfortunately, KOPPA as currently drafted and sponsored by Senators Bernie Sanders (I-VT), Al Franken (D-MN), and Tammy Baldwin (D-WI) provides the Fund with no relief whatsoever.

Why not? Because a key provision in the bill disqualifies the plan from coverage. Relief provided by KOPPA pertains only to plans with a certain percentage of their funding problem attributable to employers who withdrew from the fund without paying their withdrawal liability. One example of this was the 2011 Philadelphia Orchestra bankruptcy. However, because the plan does not meet the bill’s required threshold percentage, KOPPA, if enacted, would fail to provide any relief.

KOPPA would also eliminate the plan’s ability to avoid insolvency (running out of money) by reducing benefits. While no one wants to see benefit reductions happen, that option is important as a last resort. Benefit reductions could allow the plan to continue paying higher benefits than if it became insolvent. As written, Congressional adoption of KOPPA, though highly unlikely in the current Congressional climate, would shorten the life of the plan.

Local 802 (New York City) President and Fund Trustee Tino Gagliardi and I met with senior staffers for Senators Sanders, Franken, and Baldwin in Washington, DC, June 6 to discuss what changes to their proposed KOPPA legislation would be needed to permit the plan to benefit from it. Unfortunately, none of those staffers believed that KOPPA would ever move through required congressional committee hearings where amendments could be made, let alone be adopted.

Myth #3: The plan lost 40% in investment returns when other plans lost 25%.

The Plan lost 29% in investment returns for the 12 months (fiscal year) ending March 31, 2009, not 40% as some have alleged. This misunderstanding was tracked back to the trustees’ December 2016 letter to participants that said plan assets declined by 40% over 18 months. Some have read this to mean the plan’s investment return was negative 40% over that period—but that was not the case. 

Myth #4: The Fund office received huge staff pay increases in 2009.

This misunderstanding was tracked back to the change in IRS reporting requirements for the compensation numbers shown on IRS Form 5500 Schedule C. The rules changed in 2009 to expand the definition of compensation to include, not just salary, but all payments made on behalf of staff—including, for example, health insurance and other benefit costs, travel reimbursements, and other expenses incurred while performing their jobs.

Fund Office staff cost increases have averaged only 2.16% a year from fiscal year 2009 to 2016. This modest increase, only slightly more than CPI, includes an increase in staff health care premiums over a period when premiums rose on average more than 25%.

What’s Next?

Because the Fund remained in critical status this year, benefit reductions to already earned benefits, which might be necessary if the Fund becomes critical and declining, will not be considered this year. Next year, the Fund will go through the same process—as it has every year in the past—to determine the plan’s status. Critical and declining status could be in the Fund’s future at some point and appropriate preparations will be made. Until then, the Fund will continue to monitor its progress, review its investments, collect employer contributions, and manage expenses.

The Federation, in each of its negotiations, will push hard for increases in employer contributions to increase the plan’s overall funding percentages and improve assets available for distribution.

I am committed to keeping you updated with the most current information about the Fund’s status. In addition, please visit the Fund website, www.afm-epf.org, register and log on for easy access to FAQ’s and updated information as it becomes available.

Following is the text of my opening remarks to the 4th International Orchestra Conference in Montreal, Canada, May 12.

On behalf of the entire membership of the American Federation of Musicians of the United States and Canada, I am pleased to welcome you to Montreal for the 4th International Orchestra Conference, presented by the International Federation of Musicians (FIM) and the Quebec Musicians Guild, AFM Local 406. We are gathered here in this wonderful city, in this beautiful country, to share information, experiences, and ideas that will benefit and enlighten musicians performing in symphonic institutions around the world.

As we talk about some of the challenges we face, I want us to do so in the context of the greater challenge that affects relationships between all of us—the same challenge we’ve always faced.

Those of us in this room who are musicians understand our passion as musicians to perform perfectly, not just because that is our livelihood, but because that’s what gives meaning to our lives. It’s who and what we are. It’s also about the pride we feel when we can control our own destiny through the making of music, and when we believe we are reaching our potential as musicians. It’s about being fairly compensated for the artistic excellence and the joy we bring to the world.

From the time we began to organize sound, we eventually understood that strength and harmony came from unity, from aligning ourselves together perfectly as musicians because we are stronger together.

Our issues always rest on that greater challenge—how can we achieve fair compensation and fair treatment commensurate with the power of our music?

What we’ve struggled with since the beginning—we make all the music, while everybody else makes all the money—is our eternal contest. How can we achieve fairness for what we do? We can get there if we apply the same principle that we live by when we perform as musicians, and if we have the will to do it. The answer is unity.

There Is Strength in Unity

AFM was born in 1896, just as innovative technology began to alter how the public consumed music, from the live stage, concert halls, and theater pits to analog audio and visual broadcasting in the 1920s and 1930s; high fidelity in the 1950s to digital distribution in the 1980s and 1990s; and now, satellite and web radio with Sirius XM and Pandora, and on-demand audiovisual streaming with Spotify, Apple, YouTube, Hulu, Amazon, Netflix, and others.

For musicians in the US and Canada the opportunity to drive a fair bargain with well-capitalized media companies depends largely on collective agreements bargained by the AFM.

A fair bargain for media was far easier in the day when the means of production and distribution of music was less efficient, more expensive, and less integrated.

The technological landscape is far different today. In the 21st century, we live in a time of convergence, where the marriage of digitization, production, and transmission technology has blurred the lines between broadcasting, streaming, and social new media. We are experiencing an unparalleled surge of innovation, resulting in a global techno-economic paradigm shift.

Today, control over the means of production and distribution, formerly separate in the analog world, but now digitally unified, has produced winners and losers. All you have to do is follow the money.

Let’s look at Google, YouTube, and Facebook. Last month, CNBC reported that Google and Facebook together will earn $106 billion from advertising this year. Analysts expect Google-owned YouTube to top $10 billion in ad revenue in 2017. How many of you in this room today work with orchestras that have clips on YouTube?

A couple of days ago, I went to YouTube and searched for the Chicago Symphony Orchestra (CSO), clicked on CSO’s May 8, 2015 performance of Beethoven’s 9th. (Very popular clip—more than
6 million hits.) Before I was able to access the Beethoven clip, the first thing I got was an ad about nasal congestion relief. Funny, because I had recently searched online for information about allergy medicine. Google, YouTube’s parent company, remembered that and enabled YouTube to target my interest in CSO to spot-play a specific advertiser—Rhinocort Allergy Spray.

I then searched for the New York Philharmonic, clicked on a clip of the orchestra performing Stravinsky’s Pulcinella. But first, I was forced to view an ad for a spelling and punctuation error application. Funny, because I frequently use free online spelling, dictionary, and thesaurus applications, when I’m writing my columns for the International Musician. Google knew that and targeted my search with related advertising.

Then, to round out the exercise, searching for a foreign orchestra clip on YouTube, I clicked on the Iceland Symphony Orchestra’s Mozart Clarinet Concerto in A Major. There again was the same allergy medicine advertisement that I’d seen a minute earlier in front of the Chicago Symphony Orchestra video. I refreshed the page and got an ad for a website promoting six-pack abs.

Years ago, there was very little money in clip and excerpt use online. Today, it’s been monetized into the billions. In its advertiser supported streaming model, YouTube is using content posted by the Chicago, New York, and Iceland orchestras to sell allergy medicine, and lots more. Do those orchestral institutions get a cut of YouTube’s
$10 billion in ad money, and if so, will the musicians who performed so perfectly in those clips ever receive their fair share?

The managers and agents certainly recognize the value musicians add to media. When our talent improves the financial well-being of the media industry, our livelihood should improve as well. If we surrender complete control over media production and distribution, we lose our leverage and our stake in the content and we cede higher economic ground to management, middlemen, agents, and others in the food chain. We lose control of our destiny and our ability to reach our potential as musicians. But we can fight this and win. We can make a difference if we work together, because we are stronger together and because in unity, there is strength. Through the power of our music, as Eric Clapton said, we can change the world.

In a compromise, each party usually walks away with something they want and something they value. But when you are hampered by unfavorable Federal regulation, while fighting huge media conglomerates, compromise can lead to catastrophe. And you might not even know it until it’s over.

Case in point: late last year, a “compromise” settlement between weary recording artist litigants and satellite radio giant SiriusXM (with a market capitalization of more than $24 billion) set the stage for an economic catastrophe, which could impact the streaming income of America’s creators—our featured recording artists and the session musicians and vocalists who back them—for many years to come.

The backstory: using the “pre-1972” loophole in current copyright law, SiriusXM refused to pay legacy artists for the commercial use of their work. In response, two original members of the ’60s-’70s group The Turtles (known professionally as Flo and Eddie), initiated class action lawsuits in California, Florida, and New York.

While newer artists receive the benefit of clear protection (and royalties) under federal law, legacy artists are denied this protection for sound recordings made prior to February 15, 1972. Those recordings are protected by state law; so legacy artists must endure the hassle, expense, and uncertainty of state by state litigation to seek compensation for the use of their work. Artists and rights owners bear all of the costs and all of the risks in these lawsuits in countless state courts. And that’s what Flo and Eddie did.

Eventually, on the eve of the trial, SiriusXM agreed to settle the litigation. This may sound like a win, but it wasn’t. Granted, the legacy artists who were included in the case against SiriusXM will receive some compensation, but the trade-off was to agree to a prospective, going forward rate that radically undercuts the market and threatens the future value of music streaming for all artists, backup musicians, and vocalists.

In addition to a flat sum settlement for past uses, SiriusXM agreed to pay a pro rata share of 5.5% of its revenue to the artists prospectively. This is half of the 11% of revenue royalty rate that they are currently obligated to pay for federally protected sound recordings. What’s worse is that the 5.5% may drop even further in the wake of a recent decision by the New York Court of Appeals, and the outcome of other pending court proceedings.

In addition to the half-price royalty rate, SiriusXM was able to capitalize on artists’ lack of federal protection to extract a series of concessions, including an agreement to explicitly characterize the settlement as “market rate” and a clause forcing artists to agree to this “fire sale” royalty structure for 10 years into the future.

To make matters even worse, the settlement doesn’t do anything to actually solve the underlying problem of our broken copyright regime. It merely papers over the ongoing second-class treatment of legacy recording artists, musicians, and singers. It shortchanges them by paying only half, at most, of what should be required, and it risks the permanent devaluation of all digitally distributed music going forward. The fix is clear. We need to afford pre-1972 recordings the same federal protection that all other recordings enjoy.

In last year’s Congress, Representatives Jerry Nadler (D-NY) and Marsha Blackburn (R-TN) attempted to fix this inequity. They introduced the Fair Play Fair Pay Act. This bipartisan legislation proposed real copyright reform and went a long way towards addressing these and other injustices in the realm of recorded music. If enacted, the Fair Play Fair Pay Act would have secured performance rights for all recording artists across every platform.

The efforts of Nadler and Blackburn must be continued. The shabby treatment toward recording artists and musicians must stop. The devaluation of America’s cultural heritage must end. All platforms should play by the same rules. Government subsidies afforded by our copyright policies to satellite and broadcast radio should be eliminated. Artists and musicians of all eras should be treated fairly when their music generates value. It’s time to treat legacy artists like the legends they are. Let’s pay all creators what they deserve—instead of forcing them to sell their futures for 50 cents on the dollar.

I am pleased to report that agreement has been reached with the recording industry for a successor Sound Recording Labor Agreement (SRLA). When ratified, the agreement will extend three years, from February 1, 2017 to January 31, 2020.

Besides significant gains in upfront payments—including yearly 3% wage increases, and improvements in pension contributions, health & welfare payments, and cartage payments—the agreement provides for significant additional payments to the Sound Recording Special Payments Fund (SPF), the Music Performance Trust Fund (MPTF), and AFM & Employers’ Pension Fund (AFM-EPF) driven by the companies’ digital streaming revenue.

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The perennial objective of unions has been to “take wages out of competition,” as labor-economists, who analyze the supply and demand of labor and patterns in wage, income, and productivity are prone to say. By seeking to standardize minimum wages and benefits across an industry, unions can stabilize wages, prevent competition among workers and employers, and avoid a race to the bottom. More importantly for the AFM, minimum wages across given industries, such as sound recording, film, live TV, and theatrical tours, provide a floor for future improvements in successor agreements.