Music Publishing & Songwriting

We’re going to war!

No—not in Iraq, or Iran, or Pakistan or any of the other likely international hotspots. We’re going to war right here in the good ol’ USA—with songwriters and publishers right out there on the front lines.

In case you missed it, the opening shots across the bow were fired this week, when the Digital Media Association (DiMA) filed a brief in a royalty-rate setting proceeding arguing that an interactive stream should not require a license to reproduce a composition (that is, a digital phonorecord delivery, or DPD, license under Section 115 of the Copyright Act.) In layman’s terms, that means that the Digital Medial Association, the representatives for companies like MusicNet, which supplies music to Microsoft, Yahoo, MTV and many others, is trying to get out of having to pay a royalty to songwriters and publishers for reproducing their music in the digital, online sphere—something they had essentially agreed to do as far back as 2001. In short, DiMA is looking for the Federal courts to give them an escape hatch from a commitment they made to the music community more than five years ago.

Not surprisingly, music publishers, who have been kept waiting for those promised DPD royalties since 2001, returned fire immediately. David Israelite, CEO of the National Music Publishers Association, called DiMA’s move “ a slap in the face to every songwriter in America”. More significantly, Sony/ATV’s pugnacious Marty Bandier sallied with a bold offensive move—he withdrew the conditional licenses for the entire Sony/ATV catalogue. These tentative licenses had been allowing companies like MusicNet access to the catalogue, with the understanding that royalties retroactive to 2001 would be paid once the royalty rates had been set and agreed upon. Effectively, this now puts the DiMA members in the position of using music without a license (a violation of copyright law) for every song in which Sony/ATV has an interest. Given that the Sony/ATV catalogue includes everything from the Beatles to Beyonce, that presents quite a problem for DiMA. And Sony’s merely the first publisher to weigh in.

On the surface, the debate appears to be about the types of licenses that should be applied to a digital streaming of music. Music publishers and songwriters have long held that there are two licenses, and subsequently two royalty streams, involved in these types of uses: a DPD license, and a performance license. The perfomance license is one that everyone can seemingly agree on—a digital streaming of music is held to be similar to a radio broadcast, in the sense that it represents a public performance of a song. Therefore the music must be licensed by ASCAP, BMI and SESAC, and any use of a song in the digital realm should generate a performance royalty to the songwriters that will be collected by those performing rights organizations.

The sticking point is in the DPD license. Based on Section 115 of the Copyright Act, music publishers have maintained that the digital streaming of music also constitutes a “reproduction” of the song, in the same way that an LP or cassette tape did back in the days of physical product. That means that companies like MusicNet would also have to have a DPD license for each song, and pay what is the equivalent of a “mechanical” royalty for each song used. These royalties would be collected by Harry Fox Agency, and then distributed to the publishers and songwriters. What’s really galling to music publishers, and what was cited by Sony/ATV in their move last week, is that DiMA had acknowledged the right to the DPD license back in 2001. In fact, they obtained the conditional licensing agreements under which they’ve been operating by pledging to pay the DPD royalties retroactive to 2001. Now DiMA is claiming that digital uses are “like radio, and should require a performance license only”.

So what’s really going on? Certainly, DiMA’s members are realizing just how expensive those retroactive DPD royalties are going to be. The truth is that most digital music services are only beginning to generate significant profits. While growth in the digital market has been vast, the level of competition, as well as the ever-present disputes about rights, illegal downloading, etc. have kept a lot of players in this game on the edge of financial survival. Clearly, these guys are not looking forward to paying a very big royalty bill that’s been pending for the past seven years. At the same time, DiMA is seeing an opportunity to drive a crucial wedge among the big dogs of the music industry—they are hoping to pit the record companies against the music publishers and songwriters. With sales of physical product plummeting, the record companies’ sole hope for survival is massive growth in the digital world. The last thing they want to see is the whole operation derailed by a dispute between publishers, songwriters and companies like MusicNet. This war is likely to make things very tense in the big music business office towers, with Sony/ATV, Universal Music, and EMI Music Publishing on one side of the battle lines, and SonyBMG Records, Universal Records, and EMI Records on the other side.

But most importantly, what’s really at stake is a larger issue for the creative community. The forces at play in this dispute are the same ones fueling the current writer’s strike in Hollywood. The massive growth of the Internet and digital technology has unleashed a revolution that is only now beginning to sort itself out, and whatever copyright issues are at stake will have massive ramifications for the entire creative community over the next several decades. As large as these issues look now, they will be a lot larger ten or twenty years down the road. Mistakes or ill-considered concessions made now will lead to billions of lost income down the road. When many publishers failed to see the future potential of DVDs, and agreed to roll DVD rights into their general film/sync agreements, they made what most now acknowledge as a colossal error. The issues at stake in digital licensing make the DVD debacle look trifling.

This is only the beginning. There are going to be an almost endless succession of bloody battles over the next five years for creators in every different realm of the entertainment industry. It’s not going to be pretty. But this is one where the creative community (songwriters and artists) and those responsible for protecting them (music publishers) need to get it right. The digital medium relies on creative content. The digital providers are going to have to recognize that, and pay for the content they use. Let the bullets fly! We’ll fight them on the land and on the sea, and on the internet. DiMA: It’s time to face the music.