Music Publishing & Songwriting

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

I told you a couple of weeks ago that a war was breaking out, and now guess what? It’s here. If you don’t know what it’s about, you’d better read up on my recent blog, or study the information below– because what’s at stake will affect your livelihood as a songwriter and music publisher. How important is it? So important that I’m turning over my blog to a letter that was circulated today by David Israelite of the National Music Publishers Association. Read it, tell your fellow writers and publishers about it, and get ready to do battle…

On Monday, January 28, the Copyright Royalty Board (CRB) begins the hearing that will determine mechanical rates for every songwriter and music publisher in America. It will be the most important rate hearing in the history of the music industry because in addition to setting rates for physical products, rates will be set for the first time ever for digital products such as digital downloads, subscription services and ringtones.

The National Music Publishers’ Association (NMPA) will be representing the interests of songwriters and music publishers and will be fighting vigorously to protect those interests to ensure that musical compositions are compensated fairly.

On the other side of this fight stands the Recording Industry Association of America (RIAA) and the Digital Music Association (DiMA). Both the RIAA and DiMA have proposed significant reductions in mechanical royalty rates that would be disastrous for songwriters and music publishers. This is literally a fight for the survival of our industry.

To give you an example of what is at stake, the current rate for physical phonorecords is 9.1 cents. The NMPA is proposing an increase to 12.5 cents per song. The RIAA, however, has proposed slashing the rate to approximately 6 cents a song - a cut of more than one-third the current rate!

For permanent digital downloads, NMPA is proposing a rate of 15 cents per track because the costs involved are much less than for physical products. The RIAA has proposed the outrageous rate of approximately 5 - 5.5 cents per track, and DiMA is proposing even less.

If you find that troubling, it gets worse. For interactive streaming services, which some analysts believe will be the future of the music industry, NMPA is proposing a rate of the greater of 12.5% of revenue, 27.5% of content costs, or a micro-penny calculation based on usage. The RIAA actually proposed that songwriters and music publishers should get the equivalent of .58% of revenue. This isn’t a typo - less than 1%. And DiMA is taking the shocking and offensive position that songwriters’ and music publishers’ mechanical rights should be zero, because DiMA does not believe we have any such rights!

The initial hearing will last four weeks, with the three permanent Copyright Royalty Judges hearing arguments Mondays through Thursdays from 9:30 am - 4:30 pm each day. At the conclusion of the initial hearing, there will be more discovery, followed by a rebuttal hearing in May, and a final decision expected on October 2.

The NMPA will be spending millions dollars in this proceeding to protect the interests of songwriters and music publishers against the much larger record labels and digital media companies. And although we face such an enormous fight, we have an incredible advantage - we represent songwriters, without whom the record labels and digital music services could not exist.

Please forward this to anyone who is involved in the songwriting and music publishing industry. We will be sending out regular updates as the CRB progresses to keep you informed. Through your networks, we hope to reach the vast majority of the industry. If you did not receive this directly, and would like to be added to the master NMPA communications list, please send your contact information to Jamie Marotta at jmarotta@nmpa.org.

As always, we appreciate your support of the NMPA which allows us to wage this fight on your behalf.

David M. Israelite
President and CEO
National Music Publishers Association

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.