Music Publishing & Songwriting

In the beginning, there was… publishing.

Not many people know it, since not many people in today’s music industry were around to see it, but the real beginnings of the music industry were not in those old vinyl discs or the antique phonograph with the RCA dog sitting next to it. The commercial music business started with music publishers, who first figured out how to move music beyond an endless succession of live shows, and turn it into an industry back at the end of the 19th century… through the sale of sheet music.

Back then; music publishing was the only game in town– both for songwriters hoping to eke out a living from their creations, and for audiences eager to be able to enjoy music outside of a concert of dance hall. Music stores would feature a piano player, who would perform the hot new songs of the day for customers passing by. If they heard something they liked, customers could come in and purchase their own copy of the song that they had just heard. Granted, that “product” had a definite do-it-yourself quality to it– it required the music consumer to take the sheet music home and learn to play the new song. Nevertheless, it represented the first time that people could purchase music as a “product”, enjoy it in the comfort of their own home, and songwriters could get paid on a mass scale.

From there, the business moved from sheet music to “piano rolls” from which the music played itself (the first actual “mechanical” exploitation of music) and then ultimately into the broadcast and recording era that has been the basis of the business we now know and maybe something less than love. Of course, sheet music continues to exist, and in fact, is undergoing a revival of sorts, thanks to the Internet and companies like Music Notes (Music Notes). But certainly, the industry has come a long way from the days when publishers were the primary game in town.

Or has it?

My friend Jerry Lembo, a legendary music figure himself and a great student of the industry (check out his blog at Jerry Lembo MySpace Blog), sent me an article today, titled Rock’s New Economy: Making Money When CD’s Don’t Sell. The story describes a terrain familiar to anyone in the music biz in 2008: falling CD sales, leading to an increased reliance on touring and licensing in order to generate income. And no one knows licensing like a publisher. After all, publishers created it.

Imagine how music publishers initially reacted to the advent of radio, and even worse, records, back in the early days of the 20th century. Probably with the same love that record labels now show Limewire and file-sharing college students. After all, publishers had just figured out a way to get rich selling music printed on paper– the last thing they needed was someone coming along and beaming it straight into people’s homes, or giving them plastic recordings they could play anytime they wanted. That’s when the publishing community hit on the bright idea that would carry them through the next nine, increasingly prosperous decades:

Licensing.

A company didn’t need to make a physical product. Just by controlling the underlying “rights” to a song, publishers and songwriters could make anyone who wanted to use that song, on the radio, television, records, or in films, advertising, nightclubs or elevators, pay for the privilege. Anyone using a song in public way for commercial purposes had to obtain a license, and the publishers controlled the licenses. This quickly became a very profitable business. The company, for which I work, Shapiro Bernstein, is one of the oldest music publishers in existence. Back in the early 1900’s, they had dozens of actual printing presses around the country in order to manufacture the sheet music to the latest Tin Pan Alley hit. Today, there are less than twenty employees in the New York office, and a scattering of employees and consultants in LA, London and elsewhere. And yet, profits continue to rise, year after year. Which leads us right up to the present day…

The music industry is growing and contracting, all at the same time. Music is selling less, and being used more than ever before. What publishers learned a hundred years ago, and what record labels are just starting to learn, is that licensing is far more efficient than manufacturing. It takes fewer people, fewer factories, less real estate and carries less risk to license music to people that wish to use it, than to create a physical copy of music for people to purchase. Bands are learning it too. It’s much easier to make money by licensing music to video games, advertisements, TV shows, and websites, than to create small pieces of plastic that has to be distributed and sold around the world. When the labels talk about a “360″– they’re more accurate than they know. The business of being a music creator has come full circle. Just as in the 1930’s, when sheet music gave way to broadcasts and recording, the game once again comes down to creating, performing and most importantly, licensing.

It used to be that old-school record business veterans almost boasted of their lack of knowledge about publishing. It was seen as a pennies business– a stodgy old conservative uncle who had somehow wandered in to the 24-hour party thrown by the high-flying, jet-setting record boys. Now most of those vintage music weasels have retired. The ones who haven’t are trying to start up music publishing companies.

Not understanding music-publishing means not understanding where the music business came from. But much more importantly, it also means not understanding where the business is going. If you want to get the picture in 12 easy steps, check out Music Publishing 101 at Berklee Music or “Making Music Make Money (An Insider’s Guide To Becoming Your Own Music Publisher)”. It’s time to go back to the future and start all over again.

Mark it down in the calendar folks…. we WON this time! Like a team emerging from a five-year losing streak, publishers and songwriters are heaving a sigh of relief, jumping for joy, and for the first time in several years actually looking ahead to the future with some small glimmer of hope. Isn’t it interesting what $100 million can do?

In case you missed the big occasion, last week a federal court judge ruled that AOL, RealNetworks and Yahoo! must pay licensing fees to ASCAP for the streaming of music on their sites.

Visit this Link to the catch up on the Full Story:

I know—the idea of a company having to pay for the use of music shouldn’t really be all that surprising. But over the past several years, creators and publishers have watched whole enterprises emerge, all based on the free use of music. The cyber-gurus told us “information wants to be free”—that the whole idea of copyright is a vestige from another era no longer beneficial to our wired way of life. The theory seems to have been that while a single unlicensed use by a film company or record label would never be tolerated, violations done on a mass scale would force licensors and even the courts to rewrite the old rulebook. Turns out that it just isn’t so or at least not yet.

For now, the digital world is going to have to ante-up and pay the bill, not only for the music they’re using now, but also the music they’ve been using as far back as July 1, 2002. Web-based companies that utilize music-streaming will need to obtain a non-exclusive blanket license, in the same way that radio stations, television stations, bars, restaurants, performing halls and others have for decades, from the performing rights societies, i.e. ASCAP, BMI and SESAC. The fee for the license will be 2.5% of the service’s “music-use-adjusted revenue”. That rather clumsy terminology is short-hand for a formula that takes into account the amount of revenue generated by the business, the advertising and promotional costs for that business, the total number of hours that music is streamed, and the total hours that the web service is used. If you’re trying to do the math at home, don’t bother.

The people that have done the math say the number owed by the Big Three under this decision could be over $100 million. Of course, now that legal precedent has been set, and the courts have established that the basic performance licensing system is appropriate and applicable to these web-based services, it shouldn’t be long before BMI and SESAC step up to get their piece as well. After that, they’ll be moving on to all of the other music-streaming sites. Needless to say, there’s a lot of money in them hills.

The problem is, there may not be as much as there needs to be. Clearly, some of these services, maybe even some of the most prominent, will never be able to cope with the costly invoice now sitting on their desk. Many of them have hardly figured out how to effectively monetize their own businesses. We’ll undoubtedly hear many heart-wrenching stories of financial ruin and laments about how the licensing organizations are choking the business, standing in the way of progress, and violating the American public’s right to unlimited, unfettered, uninterrupted entertainment.

Too bad. Happily, the courts have reaffirmed once again that there really is no free lunch. This is good, since songwriters and publishers have had to pay for their lunch all this time, and will for the foreseeable future. Kudos to ASCAP for fighting the good fight. Credit goes to the court for making the right call. Here’s to a victory that’s all the sweeter for the long road it took to get there. Some things are worth waiting for.

$100 million is one of them.

Back in my songwriting days (yes, I actually used to have a job where I created something, rather than just trying to sell something), I used to work with a collaborator who referred to her songs as her “babies”. To be honest, I never felt quite that maternal about my tunes (probably a gender thing). I viewed them more as unruly teenagers—brimming with potential, but usually plagued by one or two disastrous character flaws, and prone to costing me a lot more money than they would ever bring in.

Nevertheless, those songs were mine. I wouldn’t want to think of them as orphans. Actually, I never knew songs could be orphans. But apparently, they can. Imagine them, sitting homeless and forlorn by the side of the road, waiting for someone to come by, offer a ride, and take them away…

Could happen. I saw a fascinating blog recently:

Music-Technology-Policy

which on Friday, April 25 addressed the issue of “orphan works” – a subject currently in front of the United States House and Senate. “Orphan works” are copyrights (songs, books, recordings, you name it) for which it is not possible to identify or contact an owner. What the author of Music-Technology-Policy, Chris Castle, very adroitly points out is that there are large commercial interests, Google in particular, that have a vested interest in supporting legislation to make it possible for these “orphaned” works to be used freely, without compensation or risk of penalty.

The problem is largely one of definitions. Certainly, anyone with experience in publishing would be willing to acknowledge that some works do fall into “orphan” status. Disputes between writers, convoluted copyright histories, failure of heirs to continue to administer copyrights, works essentially abandoned by their own authors (remember that scene in “Raising Arizona” where they leave the baby on the car)—these are all situations that can eventually make it impossible to identify the proper owner of a copyright. But companies like Google are setting the bar pretty low.

According to the blog, Google’s Lester Lessig has referred to “out of print books” as orphans. Google’s General Counsel has said publicly: “These works include those for which the author or assignee of the work – the work’s “parent”—can no longer be determined, usually because the contact Information on the copyright registration is out of date”. They also expand that definition of orphan to include “works that have been, for all intents and purposes, ‘disowned’ either because any potential monetary value of the works has expired or because their authors simply are not interested in enforcing copyrights on their works”.

Wow. Those are pretty broad definitions. To claim that just because something is “out of print” makes it an orphan would put a huge portion of American music’s master recordings into the home for wayward record albums. Only a very small portion of recorded music can ever be profitably kept “in print” at any given time. But it may still be actively used in movies, television, advertising, etc. Similarly, labeling something an orphan because of an incorrect contact on the copyright registration is like deeming anyone with an incorrect address on a driver’s license a fugitive. Copyright registrations are notoriously out of date, which is why large film studios use search services that specialize in tracking down authors and publishers.

Finally, to decide that works generating little income or for which the authors are no longer actively engaged in protecting the copyrights are “orphans” overlooks some fundamental realities of publishing. At Shapiro Bernstein, where I work, we have a song in our catalogue that for over two decades generated income in the low three figures (and that’s counting dollars and cents). But upon rediscovering it in the vaults, more than 50 years after its initial creation, the song suddenly found a new life—showing up in a Tarantino film, and then catching to become a stadium anthem, then finding its way into several national advertising campaigns. The song now generates more than enough income to keep its writers living well, and to renew their interest in their long lost “baby”. Songs come back. And when they do, the copyright owners get interested very quickly.

The point of all this is not to encourage you to write your Congressman about the “orphan works” legislation—though I wouldn’t discourage it either. The real point is to remind you once again of how important it is to maintain and update all of the information necessary for administering your copyrights.

Check your ASCAP registrations regularly. Make sure your publisher and your PRO have your correct address. Maintain accurate copyright registrations. Remain ever vigilante for unauthorized uses.

I’ve made all of these points before, both here, and in my book “Making Music Make Money”. It is a primary concern of my Berkleemusic class, Music Publishing 101. Whenever I talk about this subject, I usually emphasize that the songwriter is also a publisher of his or her own work, at least until he or she decides to assign that responsibility to someone else. As publishers, it’s our job to administer and protect the copyright.

But here’s a new way to look at it. You’re not only your song’s publisher. You’re the parent. You created it—now you have to take care of it. If you don’t, there are plenty of large “content” –hungry companies and creative “pop culture alchemists” who will be more than happy to take your song and call it their own. In this Information and Entertainment Age, nothing of value will stay an orphan for long.

Those who have been following this blog regularly will recognize this as a dispatch from the war-zone. At the moment, the music industry is embroiled in a battle that could be a matter of survival for publishers and songwriters, and arguably, for record companies and other content providers as well.

The fight is centered on the Copyright Tribunal, the board that will determine the statutory mechanical royalty rate to be paid for records sold (people do still sell records, right?) as well as downloads and digital streams. On side of the battle lines, we find music publishers and songwriters who want the rate raised–on the opposing side, we find record labels and digital music distributors, who claim that the current rate should be reduced. The lines are drawn, and the battle is raging in full—last week, music publishers began, not terribly successfully, to make their case. Now, the labels will have their day in court. It would not be an overstatement to say that in many cases, both sides are fighting for their lives.

For those joining us with the war already underway, here’s a quick bit of background. A mechanical royalty is the amount that a label or digital distributor must pay to the music publisher (who collects on behalf of the songwriter) for the use of a song on a physical record that is sold commercially, or through some means of digital distribution. Here’s a quick trip down the income stream, to try to clarify the process:

You, Joe Songwriter, and your publisher, Pennies Music, have a song on the new album by Next Big Thing, on the Cut-Rate Records label. Every time Cut-Rate sells that Next Big Thing album, the label must take part of that income, and pay a mechanical royalty to Pennies Music, who will then, in turn, pay a portion of that royalty to you, Joe Songwriter. At present, that mechanical royalty is: 9.1 cents. In other words, for every $20 CD sold, the publishers of each song on the record receive 9.1 cents. If there are ten songs on the album, then the label will pay out roughly one dollar in mechanical royalties, for every album sold.

This “statutory” rate of 9.1 cents is determined by the Copyright Tribunal, and reset every few years—which is precisely what’s happening at the moment. But what’s being lost in this debate is the difference between theory and reality. Unfortunately, what I just described above is “theory”. It’s the way that things are supposed to work. Publishers will grant mechanical licenses, record labels will sell records, and pay the writers and publishers 9.1 cents a song. But as Steven Tyler might say: Dream on.

The truth is that record labels have devised a myriad of ways to avoid paying full statutory rate—that whopping $1 per album. Instead, the labels have created the controlled composition clause, which simply means that the label pays only 3/4 of the full royalty rate, or roughly 6.8 cents a song. Why? Because they said so. This is one of the great bargaining maneuvers in history—try it sometime at your local supermarket. Just tell your grocer that you’d prefer to pay only 3/4 of your bill. Let me know if that works for you.

On top of requesting a 3/4 rate, many labels also employ the “cap”, which they have cleverly inserted into artists’ recording agreements. The cap stipulates that the total amount of mechanical royalties shall not exceed ten times the 3/4 rate, for all of the songs on the album. This means that if the album contains 12 songs, the label pays only 5.12 cents, or 10 x .068 divided by 12. And it gets worse.

Not everyone on the album is necessarily subject to the controlled composition clause. The artist (assuming they write at least part of their own material) is almost always considered “controlled”, and usually any producer or other person associated with the artist will be considered “controlled” as well. However, covers of songs not written by the artist or the producer, samples, or interpolations of outside songs are not generally “controlled”. That is to say, if you sample a Gamble & Huff composition in your song, you can be sure that Gamble & Huff will be demanding full rate. The result of this can be brutal:

When one or more writer receives full statutory rate rather than the controlled rate, the difference (2.5 cents) is made up out of the share of the controlled writers. This means that if you have a song on an album that contains 13 songs, one or two of which are covers of well-known earlier hits or which contain sizeable samples, you could find yourself earning not 9 cents per record sold, but as little as 4 cents or less—if you are unlucky enough to be subject to the controlled composition clause.

When that happens, this whole war over statutory mechanical rates seems pretty irrelevant indeed. In fact, I’m prepared to offer a simple settlement that could stop this whole war over statutory rates with nary a casualty. Try this:

The publishers agree to leave the full statutory rate where it is right now, at 9. 1 cents. But for their part, the labels agree to actually pay the real statutory rate. No clauses, exceptions, negotiations, or extortion. Just pay the amount on the price tag. Period. Maybe the courts could even close a couple labels down for putting music out on the market without a mechanical license—a practice that has now reached the point where multi-platinum albums remain unlicensed four and five years after their release.

I suspect that any real-world publisher would take this solution in an instant. Fast, easy, no fuss licensing? A chance to actually collect what is owed? That would be a peace treaty any publisher could accept.

Please visit the below site for information about National Music Publisher’s Association: NMPA

How’s this for kicking someone when they’re down? No– this isn’t a blog about NY’s recklessly randy governor Eliot Spitzer, although one can be sure that there was some celebrating last week among the radio promotion chiefs of the various major labels, who were put under investigation by Spitzer several years ago for having paid money to persuade radio stations to add their records (NO! Say it ain’t so!)

But this blog is about screw-ups– the kind that end careers, torpedo once solid companies, and drags an industry into the abyss. Ring any bells? That’s right, kids. This is about the biggest record company screw-ups of all time.

Don’t blame me– it’s not my topic. It actually comes from a recent article in Blender recounting the 20 biggest blunders in record company history (see the link below), which is a little like trying to reduce the history of Chicago Cubs baseball down to the five most disappointing moments. There are really too many to count.

The article manages to nail a few inarguable mistakes (Decca Records passing on the Beatles; Sony deciding to drop from the roster both Alicia Keys and 50 Cent), a couple of minor miscalculations (sure, Berry Gordy sold Motown for $60 million when he should have gotten $600 million, but what’s an extra zero or two to a gazillionaire) and a few debatable decisions (the lawsuit against Napster, and the RIAA’s campaign against digital piracy). It also leaves a few doozies out. But then, how could it not?

My personal favorite (because I happened to be working at Jive Records at the time) was BMG’s failure to include a standard inducement clause in their contract with NSYNC, which allowed the group to leave the label after their first album, and re-sign with BMG-distributed Jive Records. The subsequent multi-platinum success of that group, and Justin Timberlake’s solo project, created an exorbitant price for Jive/Zomba several years later, when BMG was forced to purchase the company for over $3 billion dollars. That expenditure left BMG in a deep financial hole that eventually led to the merging of BMG Records with Sony Music, and the recent sale of Zomba Music to Universal.

It’s hard to say why the record labels make so many dumb mistakes. Most of the people working at labels are smart, music-loving, ambitious people who believe sincerely in what they’re trying to do. The rest are cynical corporate sharks that devour anything or anyone in their path. But even those people are not stupid. Somehow the pressure of chasing trends, trying to predict the unpredictable, and package that which is too ephemeral to be packaged, seems to lead to a collective abandoning of good common sense that is annoying when you’re on the inside, and embarrassing when you’re observing from the outside. Maybe it’s all those late nights, it’s hard to say for sure.

But unfortunately, the madness shows no signs of abating. I had lunch this week with a friend who created an online social networking site– not surprisingly, our discussion eventually turned to YouTube and the recent controversy between a coalition of top artist managers and the major labels. After delaying way too long, the labels finally came to an agreement with YouTube almost a year ago on a revenue-sharing plan that was supposed to compensate artists (and the label) for the use of their content. Now, top managers like John Branca and Irving Azoff are threatening to sue the labels, as their superstar clients have yet to receive any money, or even accountings, from that deal.

Of course, record labels not paying artists doesn’t qualify as a record company mistake– that’s more like business as usual. What struck me at my lunch meeting was my friend’s comment that the managers and artists were waiting for the proverbial Godot. From his insider vantage point, he was quite confident: there is neither YouTube money, nor will there be– at least not any of real significance.

It appears that in their desire to reach an agreement with a company that had become a powerful marketing partner, the labels managed to negotiate a revenue-sharing plan that amounts to next to nothing. This seems somewhat incredible, given that YouTube and similar sites were entirely constructed upon illegal content. One would think that the labels had a pretty strong bargaining position, given that YouTube was inarguably in blatant violation of the copyright laws. And yet, somehow the major labels managed once again to snatch defeat from the jaws of victory, and give away the artist’s work for pennies. If you can’t win a bargaining session with someone who is on the verge of being shutdown for copyright violations, there may be no hope left. Already, the labels are starting to blame the lack of artist royalty payments on “legal costs” that have outweighed the actual income.

And that’s the moral of this story. Unfortunately, there is only one winner in this endless succession of record industry screw-ups. The artists? They’re always the losers. The record companies usually eventually feel the pain as well– just ask all the people waiting for their pink slips over at EMI. The only people that come out as winners in these situations are the lawyers. If a label signs a million-dollar buzz- band that flops, you can be sure that the lawyer got his or her percentage, and has long since moved on to the next big thing. Labels agree to a bad revenue-sharing plan? That’s okay. It still took months and plenty of legal eagles to get there. The cost of record company screw-ups is very high, because it usually comes with an hourly price tag.

Of course, one day soon, we won’t have the labels to kick around anymore. But have no fear. You can be sure that we’ll always have the lawyers.

For the full article from Blender on the Top 20 Record Company Screw-Ups visit:

Blender Article March 2008