Looking Out For #1

May 08 2011

It’s remarkable how quick that warm and fuzzy feeling fades. Just last week the music weasels were gathered together at the ASCAP Awards, toasting EMI’s continued reign as Publisher of the Year. Well, okay… actually everyone was grumbling and sniping behind their back, and of course, chortling over their imminent sale. It’s a music awards dinner after all. You can only expect so much goodwill.

EMI Wins ASCAP's Publisher of the Year

Still, not too many foresaw that Publisher #1 would turn around a week later and publicly give the finger to ASCAP, and the songwriter and publisher community they represent. I suspect Marty Bandier at Sony ATV might get the front and center table next year, rather than Roger Faxon. Not that much of EMI will necessarily be around to see it.

Earlier this week, EMI Music Publishing made news by announcing that EMI would be taking back from ASCAP the responsibility for licensing digital rights in North America– EMI will now be able to “bundle” their rights together (mechanical, performance, and synchronization) and license them all directly, negotiating their own rates and terms, to digital services, rather than allowing ASCAP to negotiate and licensing the performing rights. In one sense, it’s a step closer to the “one-stop” licensing long-sought by digital services and many in the music community.

Roger Faxon

“The digital world demands a new way of licensing rights in musical compositions”, said EMI Music Publishing Chairman & CEO Roger Faxon. “We are reunifying the rights in many of the songs that we represent. By bringing these rights back together our aim is to reduce the burden of licensing, to create greater efficiency and importantly to reduce the barriers to the development of innovative new services.” Oh. And I thought it was just one more attempt to undercut the competition and cut out the middleman.

Of course, it might be some of that as well. While the ASCAP contract with publishers generally grants the PRO an exclusive right to represent the performance rights of the member’s catalog, even ASCAP CEO John LoFrumento acknowledges that “our members have always had the right under our Consent Decree to license their works directly”. Historically, most publishers have not chosen to do so– believing that the collective power of ASCAP (and BMI) allows them to negotiate more favorable licensing terms with radio, television, nightclubs and the rest of the music users than any one publisher could achieve on their own. Apparently, that’s no longer the case.

You heard it here first– this topic was brought up several months ago in this blog-space, in “With Friends Like These”. That missive explored the policy of DMX, the custom music service, which encourages music owners to license to them directly, rather than through the PROs. Of course, the money at stake from Muzak-type uses with companies like DMX is dwarfed by the monetary potential of digital rights. A publisher licensing DMX directly is someone breaking off a piece of crust from the pie that is PRO performance income. Taking away digital rights is like someone sticking their grubby hand in and walking off with a fistful of PRO pie.

http://www.ericbeall.com/with-friends-like-these/

ASCAP quickly sought to put a good face on the whole matter, even sending out a letter to members several days after the announcement– most likely to quell a quiet panic spreading among other publishers. Emphasizing that EMI continued to use ASCAP to license and collect on uses at traditional media, like radio and television, LoFrumento explained:

“A changing licensing environment has led certain members to experiment with licensing defined categories of music directly. This only involves the performing rights for those online music users who are not currently licensed or do not have licenses in effect with ASCAP. The online dollars represented by this licensing alternative could amount to less than 1% of ASCAP’s total current revenue.”

John LoFrumento

A generous statement from the little guy who just got sand kicked in his face by the big bully. But it purposely evades the point. As the undeniable industry leader in the publishing world, EMI’s decision to go it alone has an impact much beyond the actual dollar value of what it will be taking out of ASCAP coffers. Most importantly, it undermines the entire “strength in numbers” principle that justifies the existence of the PROs. If ASCAP can no longer speak for EMI, which has a larger share of the most popular songs than any other publisher (hence their status as Publisher of the Year), how effective can the PRO be at negotiating licensing terms with the digital community.

It also potentially weakens ASCAP in relation to BMI– strangely, no announcement was made as to whether or not EMI would also be taking digital rights away from BMI. It would seem very odd if EMI did not take the same action at BMI and SESAC. If the goal is to bundle rights, then certainly you want to bundle all of the catalog, not just a portion. I suspect that if BMI manages to hold on to what ASCAP has lost, it will have been by making a massive, unmentioned cash advance to bolster EMI’s shaky financial picture. This highlights the other big problem of the moment at ASCAP, which is BMI’s willingness to dole out mega- advances to major writers and publishers– a game in which ASCAP is hard-pressed to compete.

Needless to say, it all comes down to money. Despite Faxon’s media-ready press statement, this action has very little to do with easing the licensing process or encouraging new services. In fact, the licensing process would seem to have just gotten a whole lot more confusing, given that almost no current contemporary hits are entirely controlled by EMI April Music. Instead, most could easily have seven or eight different writers and publishers, all represented by some combination of ASCAP, BMI or SESAC– except for EMI April Music, which will be off on its own. That should be very simple. This EMI move is really about:

1. Eliminating the middle man.
On the most straightforward level, this move is not much different from the whole DMX idea– one less organization taking a cut of the money. While ASCAP’s fees are relatively low, they add up, especially when your company is bankrupt and up for sale. While ASCAP and most of its supporters would not paint the organization as a “middleman”, but rather an advocate and a representative in the collective bargaining process, the portrait of the unnecessary, fee-grabbing, intermediary is one that the technology community has been painting for the PROs over the past ten years. According to many in the digital community, there would be more uses of music, they could pay higher rates, and we’d all be making more money without these outdated organizations. Hmm. And the auto workers would do better without the UAW. We’ll see soon enough, I expect.

2. Screwing your buddy.
Unity in the face of opposition has never been standard operating procedure in the music biz. From the vantage point of the giant companies that dominate the landscape of music publishing, the downside of the PROs is that they even the playing field. Small publishers benefit from the clout of huge catalogs like EMI, while those same huge catalogs pay most of the cost of maintaining the organization. Being free of ASCAP allows EMI to negotiate rates on its own. In fact, it may have been the dismal state of the current negotiations at the CRB (Copyright Royalty Board) that prompted this move by Faxon. EMI could feel it can negotiate more effectively alone. At the very least, it can use the new independence to undercut the competition when it’s advantageous to do so, and to over-charge where it sees an opportunity. And what about the small independent companies? Well, they can always sell their companies to EMI.

3. Being the first rat off the sinking ship.
The real reason that the EMI move has resonated so heavily in the pub world is that it’s the first undeniable evidence of the elephant who has been lurking in the room for several years. Virtually all of the licensing and collection organizations around the world are houses of cards that will have to withstand some very big approaching storms. Dwindling mechanical royalties and exploding paperwork demands have left HFA in a very precarious position. Performance income has remained stronger, but now that looks poised to take a significant dip as well. Couple that with the pressure to make imprudently aggressive advances to top new writers and you’ve got the recipe for disaster at the PROs. All it will take is for one or two more major companies to follow EMI’s lead before that sinking feeling begins. The big guys will swim for shore and the little companies will be left behind with less influence, lower income and rapidly escalating fees.

According to ASCAP, this step by EMI is no big deal. And indeed, it may not last very long, given that the management team of EMI can measure their future with a stopwatch. It’s perfectly likely that ASCAP will be holding its awards show next year without Roger Faxon, who may be floating around outside the Renaissance from a golden parachute. But the first shot of the battle has been fired, everyone’s seen it, and everyone will react to it. There’s no taking it back.

Despite all the accolades and warm words at last week’s Awards, the truth is that the creative community that ASCAP has represented for 100 years barely exists anymore. It’s just a ballroom full of independent contractors of A&R services, speculators, investors, and hedge fund managers all in it for a quick buck before the final buzzer sounds.

Can’t wait until the BMI Awards in May.

    Great post, very helpful, thank you.

    By the way, do you know of any charts that breakout the revenue streams for a typical hit song (what goes to the performer, the writer, the publisher, etc.) and how this differs between digital vs. non? Such a chart would be awesome as the whole systems is so complex.

    Jeff

    Jeff:

    Great to hear from you–it’s been awhile. Hope all is good. Yours is an excellent question. Unfortunately, I don’t actually know of any chart that does that. The digital side has become so complex– particularly where payment is based on a percentage of overall income (based on advertising and subscriptions). In addition, there’s now the whole distinction as to whether a digital sale on iTunes is a license (which means the income should be split 50/50 between artist and label, at least according to most pre-digital recording contracts) or a “sale” (which means the artist should be paid at whatever royalty rate is designated in the contract, which is almost certainly much lower than 50%).

    Perhaps I’ll try to take on a chart like this at some point this summer and put it on the blog. Thanks for the suggestion!

    Eric

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