It’s a perfect defining moment, encapsulating the state of music publishing in 2011:
In the middle of negotiating a multi-million dollar sale to BMG Rights (who else?), Bug Music overlooks one small thing on the to-do list and fails to pick up a contract option for superstar Bruno Mars. This petty oversight causes them to lose the services of the biggest contemporary pop star the company has ever had. Nice one.
It would be funny if it weren’t so familiar—not in its specifics (as most companies don’t necessarily make this particular mistake) but in its substance. While the deal-makers at the top occupy themselves with acquisitions, mergers, funding schemes and due diligence (or does anyone do that anymore?), the demoralized and depleted staff, those employees who actually do the work of music publishing, are either too disinterested, distracted or disgusted to manage even the basics—registering songs, collecting money, paying the money, or yes, picking up contract options on the people who actually generate income. From the outside, one looks on and thinks “How could this possibly happen?” Those of us on the inside wonder how it could not.
Underneath the usual legalese of the court filing, the actual issues at stake here are simple, rooted in the fundamentals of music publishing that have been discussed often in this blog. It’s a matter of minimum delivery commitments (this stipulates the number of songs that the writer must submit during the contract period), minimum release commitments (this identifies the number of “commercially released” songs that must be part of the minimum delivery), and the contract period and subsequent options, which constitute the “term” of the deal. Judging from the filing, which you can check out below, there is not a great deal of complexity here. But as with most matters contractual, there are a few different angles that have to be considered.
As with most writers signed to exclusive co-publishing agreements, Mars was bound for an initial contract period, and Bug had options to continue the deal for several additional periods. In each contract period, there was a specific minimum delivery commitment that set the number of songs that Mars would need to submit before Bug was required to initiate the next option (and pay the advance associated with that option).
Nothing is more important for songwriters to understand: most co-publishing contracts do not build their term around calendar years, but rather the completion of contract periods. Conversely, most publishing administration deals are based on calendar years (usually 3-5 years, then automatically renewing until termination). It’s vital that songwriters understand what constitutes a contract period under their particular deal. It’s good for publishing companies to have a grasp of it as well.
One of the elements that frequently adds confusion to the minimum delivery commitment is the clause that usually follows it in the contract, which is the minimum release commitment. This provision outlines the number of songs within the minimum delivery that must be “commercially released” during the contract period. For example, if Bruno Mars had a 12 song minimum commitment (the actual numbers on this have not been revealed) , the minimum release commitment might stipulate that at least 4 of those songs had to be released for commercial sale to the public. Together, the minimum delivery and release commitment is usually identified as the MDRC. That’s the easy part.
In reality, the minimum release commitment inevitably raises all sorts of questions:
- Is a song put out on the writer’s own label, or simply made available on iTunes “a release”?
- Should a song released only in one small territory (Canada for instance) count as a full “release”?
- Is something commercially released when it appears in the stores or online, or when the record company completes the mechanical licensing of the song? Split disputes between songwriters can often delay licensing for months or even years after the record is in the stores.
- Is a song that’s licensed for synchronization (in a movie or game) “commercially released”, or does it need to generate a mechanical license?
- Should the same song, recorded and released by two different artists, count only once toward the minimum release?
That’s all before we even start talking about song splits. The other key factor to understand about an MDRC is that only the percentage of the song that a songwriter controls counts toward his or her commitment. So if Bruno Mars co-writes every song, and receives 50% of the ownership on each one (in fact, he probably often received less than that), he would need to write 24 songs, and 8 of those would need to be commercially released, in order to satisfy the 12 song, 4 release MDRC. If you are part of a three-person writing team that always splits songs evenly, you would need to write 30 songs to hit a 10 song MDRC, complete your contract period and trigger your next advance.
I don’t know, but I strongly suspect that some or all of these issues will come into play in the upcoming court case between Bruno Mars and Bug. In reports I’ve seen, Bug asserts that Mars did not complete the MDRC when he claimed to, and therefore the publisher was not legally required to pick up the option at that time. On the other side, Mars alleges that Bug confirmed that the MDRC had been met, and only changed their position once he notified them that the contract was terminated. Keep in mind that any changes in the copyright ownership on a song, even after a commercial release (because of a sample issue or a dispute between writers, for instance), could change the amount that a song would count toward the MDRC. There are a lot of gray areas, and in this particular case, Bug is probably glad of it.
What does seem clear is that Bruno Mars notified Bug in October of 2010 that he had fulfilled his minimum release requirement; in February 2011, he notified them that he had completed the full delivery requirement. According to the filing, Bug acknowledged at each point that the commitments had been met. Of course, this will likely be a highly contentious issue as the case moves ahead. But after receiving notification that Mars had completed the MDRC in February, Bug had 30 days in which to exercise the next option, which simply meant sending him a letter and inevitably cutting a fairly hefty check.
When Mars did not receive any notice that Bug was exercising the option, he was required to send the company an Option Warning letter, which alerted them to the fact that the contract was on the verge of being terminated, and gave the company 10 days in which to act. Again, this is a fairly standard “notice to cure” clause, that allows a company to cure a breach (like the failure to issue a royalty statement ) or pick up an option within a prescribed window of time.
One surprising thing here is that Bug’s window was quite small—most such clauses allow for 30 days. The other surprise is that even with the warning, Bug failed yet again to exercise the option for their Grammy-winning, chart-topping songwriter. Companies frequently miss option periods, but most are jolted into action by the warning notice. On May 24 and again on May 31, Mars notified the company that the contract had been terminated. Only on June 6 did Bug get around to sending a letter exercising the option, paying the advance, and claiming that the MDRC had not been met in February, but rather several months later.
For most casual, non-industry observers, the operative acronym here will not be MDRC, but rather WTF. Why would a company allow the relationship with their superstar songwriter and artist to deteriorate to the point of niggling over song percentages , release dates and delivery requirements? It would seem that Mars was doing a pretty good job—handing in satisfactory songs, staying reasonably active, making some hits, winning a Grammy, and doing what most publishers would like their writers to do. Wouldn’t it have made sense to pick up the option in advance, or at least when the minimum release requirement was fulfilled? In fact, most publishers concern themselves much more with the minimum release commitment than the larger delivery requirement. And why would a company not at least respond to the option warning within the 10-day period, rather than risk losing an extremely valuable asset? If this were a criminal trial, Bug might do better to plead insanity.
In fact, insanity is exactly what it is. Even after losing Mars and making a public show of flunking Music Pub 101, Bug was purchased by BMG Rights for more than $300 million (according to reports). That’s a pretty high price, especially for a catalogue largely built on administration deals, most of which can be terminated on very short notice. The music publishing business has been reduced to an endless series of catalog swaps, but the people making the deals have no understanding that the assets in the company are the staff and the songwriters themselves. Sooner or later, that staff needs some leadership and vision at the top. And those songwriters require a certain level of attention and service.
This insanity is not limited to any one company. You can find it at Warner Chappell, where months after a purchase, employees are still wondering what the go-forward plan actually is. Having lost Chairman and CEO David Renzer back in April, Universal is still waiting to find out who the new boss will be, and what that will mean for the future. For now, it runs on auto-pilot. At EMI, the guillotine has been hanging over everyone’s head for months, which can’t help anyone focus on business. The company’s recent royalty fiasco was just one more passing scene in a long downward slide.
Is anyone running these companies? Is anyone actually taking care of the business of music publishing? The lesson here for songwriters is three-fold:
- Read your contract. Know how your contract period is defined, and understand your MDRC.
- Notify the company in writing promptly upon meeting each MDRC requirement, and get written confirmation that the commitment has been fulfilled.
- Keep a calendar handy. You might be the only one who has one and actually knows how to use it.