Not too long ago, I had an opportunity to work on a project alongside a large, big-name consulting firm. Here was an army of highly-educated wunderkids, all who came bearing one hundred questions, but rarely even one conclusive answer. As the project grew longer and longer, and the answers increasingly elusive, I decided that these people were simply not very good consultants. After all, where were the solutions the client needed?

One day, I shared my concerns with a friend, who herself is one of those sought-after, big-name consultants. She smiled. “Ah… they sound like they’re very good at their job,” she said admiringly. “If they accomplish the objective, everyone goes home. Smart consultants never solve a problem. At least, not before they’ve uncovered a new one.”

This came to mind recently, when I saw NMPA President David Israelite’s recent comments about the need for blanket licensing, bravely made in front of the publishing masses at the NMPA annual meeting, and also reiterated in Billboard:

http://www.billboard.biz/bbbiz/industry/publishing/david-israelite-nmpa-president-s-guest-post-1005250672.story

David Israelite

On the face of it, Israelite’s primary point is unassailable. The current system of licensing, particularly in regards to mechanical and synchronization licenses, doesn’t work and must be fixed. Who could dispute it? As Israelite quite honestly points out, after all the legal sturm und drang about YouTube, if Google came to the publishing community tomorrow and completely acquiesced to all demands, offering to pay whatever it took to license the rights they needed, the publishers would be completely incapable of actually doing the licensing necessary. On a legal, practical, and PR level, that doesn’t put the publishers on particularly solid ground.

Especially when it comes to licensing synchronization uses, music publishers have always insisted that the use of a song in “synchronization” with a moving picture (like a video, film, advertisement or game) requires the licensing approval of each owner of the copyright. That’s a number that as recently as the 1980s
meant potentially three or four songwriters and their publishing representatives, but can now often mean up to ten or twelve writers, some with different publishers in each territory of the world, some of whom may control as little as 1 or 2% of the song.

Needless to say, this could require weeks of phone calls and research, and that’s just to find out who controls the necessary rights. After that, the poor music supervisor, film studio, TV producer or advertising agency still has to come up with a sync fee number and legal terms that will satisfy all parties involved—all of whom of course insist on favored nations status with each other. Now multiply all those headaches by several hundred thousand.

Why several hundred thousand? Because in the internet age, that’s the way companies are interested in licensing music. The focus now is not on one specific featured use in a movie or advertisement. It’s not even on ten songs all needing mechanical licenses to appear on an individual album. Rather, services like YouTube, iTunes, Spotify, and others need to license the whole of popular music, en masse, in order to be able to offer the variety and selection that the consumer demands. In that context, one by one is a little impractical. Like having to obtain permission to use each individual word in your novel.

Needless to say, the need for blanket licensing is pretty obvious, particularly to those who spend each day trying to work through the morass of the current system. Historically, music publishers have not stood out for their foresight and boldness. Yet even they will acknowledge that the crisis has arrived, and something has to change.

In the area of mechanical royalties, Israelite suggests an approach that grew out of an attempt to reform the compulsory license section of the US Copyright Act (Section 115). This would provide for a series of mechanical licensing agents (similar to the PRO’s like ASCAP and BMI). Publishers would have the right to choose among the agents, or change agents, but these designated agents would represent the one-stop, or maybe three or four-stops for anyone seeking a mechanical license. Further, these same agents could also license synchronization rights, on a pre-set, “blanket” rate basis. The blanket licenses would cover everyone and everything, eliminate the back and forth negotiation over each individual permission, and hopefully bestow that warm and fuzzy feeling for which blankets are known.

It sounds more efficient for the publishers as well as for the people seeking to license music or to build services around music. And while it certainly takes away some of the possibility of demanding a king’s ransom for that 7.5% share of the classic copyright that you own, the increase in the number of small wins, on a global basis, will probably more than make up for the loss of the occasional jackpot. Not to mention, it might keep folks like YouTube from just tossing in the towel and taking the music without any licensing at all.

So why hasn’t it happened?

As I said up at the top—not everyone loves a problem-solver. If the consultants fix what’s broken, everyone goes home. Likewise, music publishers don’t necessarily want to remove the logjams in the licensing system. Those logjams are largely the reasons publishers exist in the first place. Simplifying a system is rarely good news for the middle-man. And publishers are the ultimate middle-men between songwriters and the people who actually use the music the songwriters create.

If one agent is responsible for issuing all of the mechanical and sync licenses according to a pre-set fee structure for a particular composer’s catalog, why would that composer need a publisher? After all, the agency is presumably already taking some sort of fee for its role in the process. Why would a songwriter also give a publisher a 25% share of the income for the next 15 or 30 years? To do what? In a more precise example—if the whole music licensing world worked in roughly the same way as ASCAP and BMI do with performing rights, would future songwriters have any real need for a publisher?

Skeptical music weasel that I am, I don’t anticipate that the NMPA membership will be rushing out immediately to champion the cause for blanket licensing. Still, realist that I am—it’s probably worthwhile for those in the publishing game to take a glance at the inevitable and ask, in our customarily self-interested way:

What does this mean to us?

Three quick things to ponder, as our livelihood passes before our eyes:

1. Age before beauty.
The older publishing catalogs, particularly those built in the Fifties, Sixties and even Seventies, when you could still manage to obtain a full-publishing share for life of copyright , are looking even better. They won’t be doing deals like that no more.

2. Quantity over quality.
It’s hard to see how a blanket licensing system will not in some way reduce the viability of building a successful business around a few isolated “big copyrights”. While the sync fees may come down for any one individual copyright, the theory is that the money will be made up in volume. It may well be true, but it’s a system that favors the major publishers, who own thousands of licensable songs, rather than a small independent with one classic in the catalog.

3. The end of the paper tiger.
If licensing problems disappear, administration is no longer a service for which songwriters will pay. That means it’s all about advances (as if it weren’t already) and creative services. Songwriters may still need a bank, at least to keep them alive in the early stages of their career. They may also still need someone to help them jump-start their career and keep it moving—pitching songs, setting up collaborations, and finding opportunities for their music. At least, I hope they will.

Otherwise I’m going back to my consulting business.

Follow me on Twitter @EricBeall

Tomorrow's Forecast

Jun 22 2011

Today was a strange day in NYC —not quite sunny, but not giving in to rain either. The skies were in constant motion, drifting from lightly overcast to grey and ominous to hazy and hopeful in a constant cycle that never seemed to reach a culmination.

It’s not unlike the music business these days. No doubt there are some dark and weighty issues hanging over us, including the massive restructuring (or lack thereof) of the major music corporations, the budding crisis at the PROs and HFA, and our continuing inability to sell music, except when we essentially give it away at 80% off. Still, the mood among the weasels is noticeably brighter these days, and it’s not only due to the promise of a summer weekend with Lyor in the Hamptons. It’s as if those dark grey clouds have lifted a bit, and have been replaced by clouds of the whiter, puffier sort. Clouds that look a lot like an iCloud.

Negotiating season is over, and for once a new music technology is being brought to consumers with the blessing of the music industry—we’ve not been blindsided, ignored, or misled. Or at least we don’t know it yet. In fact, for the first time in decades, the music industry and the publishing business in particular acquitted themselves quite nicely at the bargaining table, not sticking in the fork to gouge a promising innovation but not settling for table scraps either. Maybe ten years of trouble has taught us something. No one wants to mess up what might be the last great hope for the music business.

Of course, at the moment, it is indeed a matter of hope. On the positive side, a partner like Apple certainly instills some confidence. Since the inception of iTunes, they’ve managed to consistently comprehend the way the modern consumer wants to listen to music, and to provide the best, most stylish, and most iconic technology to meet that need, in a way that music companies, including technology giants like Sony, have not.

At the same time, it remains to be seen how much of that genius stemmed directly from Steve Jobs, and how much will endure now that he is no longer an active presence in the company. I’m sure I’m not the only one to at least ponder why someone who refuses to pay even 99 cents for a legal download will pay $25 a year for a music locker, in which to store the contraband. But like the rest of the publishers, labels, artists and songwriters that have suffered through a decade of downloading and file-sharing, I sure hope they do.

In fact, one of the best aspects of the new licensing agreements between labels, publishers, and Apple is the chance to actually monetize, in retrospect, much of the music that has been pilfered in the past. With iCloud, Apple is charging $25 a year to scan and match a user’s existing music collection for songs not purchased from iTunes against the iTunes library—users will then be able to redownload up to 25,000 tracks to those same devices. With labels and pubs actually getting significant share of that $25 fee, this is a chance to recover at least part of what we missed the first time around. Life does not offer many such second chances.

Even better, the technology of the cloud allows true, verifiable accountings of what is being purchased, using iTunes Match to monitor what each individual consumer is putting into their locker. Unlike radio monitoring at the PROs, which is an error-ridden exercise inevitably weighted toward the mainstream pop playlists and the major publishers who represent the bulk of those writers, or the questionable system of divvying up the pots of gold netted in settlements with YouTube, Napster and the like, the accounting practices of iCloud should allow for a reasonably transparent system. While Apple has yet to lock in deals with the indie record companies and independent publishers, they have said that they will offer independent publishers the same percentage as is received by the major publishers who have signed on. Happily, the deal structure that’s in place would seem to be capable of getting everyone a piece of the pie.

Most importantly, unlike previous deals with companies like YouTube, we might be getting a share of a pie that’s actually large enough to mean something. Under the current agreement, the revenue from iCloud will be split with 30% going to Apple, 58% to record companies, and 12% to the publishers (and songwriters). For publishers and songwriters, that’s a big raise from the .091 cent per unit statutory mechanical rate—and most of us haven’t been seeing full stat rate on a consistent basis for a long, long time.

David Israelite

On the songwriter and publishing side, much of the credit for wrangling a more equitable split of the money goes to David Israelite, the president and CEO of the National Music Publishers Association. Easily the savviest of those trade group lobbyist/media spokesperson/diplomat/enforcers who’ve become the real champions of the music industry while the label presidents and publishing chiefs have been busy moving offices, schmoozing with hedge fund managers, and judging TV talent shows, Israelite was not directly a part of the iCloud negotiations. But according to Greg Sandoval’s insightful article in CNET News, Israelite was key in encouraging the publishing community to put some steel in their all too flexible spines. It’s a little like telling Charlie Brown, the perpetual loser, to man up and kick the ball. But lo and behold, it seems to have worked.

http://news.cnet.com/8301-31001_3-20071823-261/apple-google-music-clouds-can’t-snub-publishers/

Now, we can only hope that the publishing powers that be will also listen to Israelite’s advice about the essential need to streamline the process of licensing. Tech services have been demanding this for years, and every person that labors in the publishing community on a daily basis knows that the system as it currently exists is entirely dysfunctional. It doesn’t work for the new technology services, it doesn’t work for the old ones, it doesn’t work for the publishers themselves, and it certainly doesn’t work for the songwriters. If you want a peek at how bad it is, check out my blog “Life In The Slow Lane”:

http://ericbeall.berkleemusicblogs.com/2010/08/12/life-in-the-slow-lane/

But with the prospect of clouds on the horizon, publishers are going to have to sacrifice a certain level of independence in order to make sure that this new technology can be successful. The ability to access all music all the time without restrictions is a key factor in winning over the public to a format that could be the miracle cure for our business. We simply can’t afford to cling to our old system of clearing songs writer by co-writer, publisher by co-publisher, territory by territory around the world. No one has been a more outspoken advocate for the rights of publishers and writers than Israelite. But even he realizes that now is the moment to seize the initiative.

For the first time in a very long while, music publishers are in the drivers seat, but we have to keep the motor running. As we’ve already seen with YouTube, technology will move ahead with or without us. If people can’t get what they want legally, they will simply find another way. It’s up to us to create a centralized, global, uniform licensing system. If we can provide that, we are in a position to leave behind a mechanical royalty rate that even at its best was wildly weighted in favor of the record labels.

The current deal with Apple is a good one, and any competing service is going to have to match or better it in order to get in the game. Moreover, no one can win this game unless they have access to all our songs—old, new, hits, misses, and obscure album cuts.

All we have to do is go back to making music that matters to an audience, and figure out a quick way to make it available to them. The opportunity is there. As any kid who’s ever stared into the sky could tell us, clouds are what you make of them. If we make the necessary changes in the licensing process, they could bring an end to the longest drought of our lives. But there has to be something to put inside them. The cloud without our music is just that – an empty, substance-less piece of dead air. It’s up to us to make it rain.

Follow me on Twitter @EricBeall

The Great Pie Fight

Feb 19 2010

There’s an old musician joke about how to make a trombone player miserable… the answer being: “Give him a gig”.

The corollary to this could be, “How do you make music business weasels fight?”. Answer: “Give them some money.” Of course, not many people have been giving the hungry weasels anything for the past several years. But all of sudden, manna from heaven has arrived, courtesy of the National Music Publishers Association and the recent late-fee settlement with the RIAA. And now, true to form, the fangs are being bared, and the weasels are going to war…

Granted, the found money should be good news. The late-fee settlement reflects an agreement by the Recording Industry Association of America to pre-emptively settle on behalf of the four major labels the countless claims against them for monies (songwriter and publisher mechanical royalties, to be more specific) that have been held in what are known as “pending and unmatched accounts” for the years 2000-2006. We’re not talking chump change here. The settlement, which represents a negotiated total that is undoubtedly less than what is owed, but certainly more than publishers could have hoped to collect on their own (and perhaps more than labels can actually pay at the moment), provides a fund of approximately $285 million dollars that will be dug into like a giant pie at a picnic by music publishers both large and small. Or, at least that’s the idea…

If you’ve been reading your Billboard regularly, you’ve seen that a debate has already started about how this money will be distributed among major and independent publishers, and then consequently to the songwriters themselves. My friend, attorney Wallace Collins, recently penned an insightful op-ed for Billboard warning of the feeding frenzy to come, and the danger that major music publishers (Universal, EMI, Sony-ATV, and Warner Chappell) are going to gobble up all the good stuff, leaving only scraps for the independent publishers. That piece was quickly followed by a rebuttal of sorts from NMPA CEO and master negotiator David Israelite, who reassured the little guys that the process would be fair and equitable (if such a thing exists in the music industry jungle). Both pieces are worth reading and understanding. If you’re a songwriter who has had songs released on major labels within the last decade, we might be talking about your money.

http://www.billboard.biz/bbbiz/content_display/magazine/opinion/e3i220a283f9e160800ab47d42d660d4f87

But where did this bonanza come from anyway? And isn’t ten years a bit long for an IOU? If the money was owed, why have labels been holding it all this time? Don’t mechanical licenses require payment of the royalties owed to songwriters and publishers within a more reasonable time span than a decade?

This is where the textbook rules of music publishing crashes into record business reality. In my course at Berkleemusic.com, Music Publishing 101, I explain that under the mechanical royalty licensing system, the statutory rate provides for a royalty of 9.1 cents from the record label to the music publisher for every song sold. Sweet. But there is usually a chat later on in that week, detailing the less than pretty picture that prevails on many record releases. You can check out my book, Making Music Make Money, if you want to understand how the system is supposed to work. But the game isn’t always get played by the book.

http://www.amazon.com/Making-Music-Make-Money-Publisher/dp/0876390076

Most of the money in the late-fee fund results from the record company practice of releasing albums on which the licensing process for the individual songs has not been completed. Theoretically, every song released commercially should have a mechanical licensing agreement in place. The truth is, the licensing requests may not be sent from record label to publishers until months after the record is already in the stores. It would be easy to blame this on the usual record label inefficiency and administrative tangle, but that wouldn’t be entirely fair. In truth, when the labels finally do manage to get the license request out to pubs, it’s often the publishers and the songwriters who are ill-prepared to complete the paperwork.

If you have checked out “Making Music Make Money”, you’ll know that I harp incessantly on the importance of having written song split agreements in place for any song in your catalog. Here’s why:

If there is a split dispute on a song, and the writers and publishers are not able to agree on how the ownership shares are to be divided, there is no way for the publishers to issue the necessary mechanical license. That means no money until the fight is settled. But it gets much, much worse…

Over the last decade, the record labels, seeing an opportunity, have used those split disputes, along with arguments about controlled composition clauses attached to producer contracts, three-quarter rates, and sample clearances to withhold payment for ALL the songs on an album in which even ONE song has not been licensed. This means that one split dispute on one song on an album can hold up money for every songwriter and publisher with a song on that record, often for years and years.

Much of this relates to the nature of the “controlled composition and royalty cap” clause that is often a part of recording artist contracts and producer agreements. Under this clause, there is often a maximum amount of money per album allotted to be paid out as mechanical royalties. If one song is licensed at a “full statutory rate”, it may require that all the other songs on the record receive a reduced share. Thus, it is theoretically impossible to calculate what the royalty rate should be until all the licenses for all of the songs have been agreed upon. In reality, record labels have been only too happy to keep all of the money locked up in their coffers as songwriters, publishers, and producers fought their issues out among themselves.

Does all this sound esoteric and remote? Having worked at both major publishers and labels during this entire decade, let me clue you in– we are talking about hundreds of songwriters with cuts on superstar, multi-platinum albums that have never seen a dime in mechanical royalties. These are the kinds of cuts that songwriters work lifetimes to achieve– only to find out that because two other writers on another track are fighting about five percent ownership shares, they will receive nothing this year. Or next year. Or the next.

So now we should be happy, right? The labels have finally agreed to pay out much of the money they’ve been sitting on, and all those long-suffering writers and publishers are about to get their due. Again, it may not play out exactly by the book…

As Wallace Collins points out, the primary stumbling block is that the monies in the fund are set to be distributed based on “market share”, rather than attempting to distinguish the exact amount owed to each specific publisher and writer (probably an impossible task anyway). Each publisher who believes they are owed money will have to claim their share, and then the “special master” (who wouldn’t love that title?) Kenneth Feinberg (who administered the TARP bailout for the US Treasury) will determine who gets what, based on their share of the market. Collins is quite correct when he points out that this system is likely to greatly favor the major music publishers and the larger independents, at the expense of the very small independent publishers, who may only represent one or two writers. While it is possible for those who don’t agree with Feinberg’s determinations to pursue other action, those small publishers are very unlikely to have the resources to fight that battle.

Collins makes two other very important points:

These problems of split disputes, sample clearances, and producer “controlled composition clauses” that cause the withheld payments are predominately centered in urban music genres. My rough estimate based on experience would be that at least fifty percent of this money is owed to writers in the urban genre, where such disputes are almost constant, while the other fifty percent would be split between country, pop, rock and other genres, which are far less likely to have royalties withheld. The market share calculation is likely to mean that small independent publishers specializing in r&b and hip-hop will receive far less than their fair share, while those in the pop and rock fields may get a bit of a windfall.

At the same time, songwriters may actually be the ones most at risk of being shafted (wow, there’s a surprise). In a key point, Wallace points out that “each songwriter will need to pursue his or her publisher for a share of what the publisher collects from the NMPA settlement. Otherwise, there’s a strong likelihood that publishers will simply hold the monies that they collect in their own ‘pending and unmatched’ accounts indefinitely, just as the labels had done previously.”

Uh, yeah. Call me a cynic (you wouldn’t be the first), but I’m quite confident that one reason the major labels finally agreed to pay this money out was with the idea that they could move the “held” money from one division of the corporation (the record label) to another division (the publishing division), while still avoiding the massive late-fee payment penalties that would have been imposed, had they not agreed to settle. Having spent my whole life in either the songwriting or publishing business, I can assure you that Wallace is on target here– some publishers, not all, but certainly some big ones, will funnel most of this settlement into a ‘pending and unmatched’ account, sharing none of it with the writers, unless or until the writers demand it. The publishers will claim that they are researching who should get what, how to locate writers that are owed money but have fallen out of their accounting system, how to deal with writers that have changed publishers since the time the song was released, and on and on.

While they’re doing all that, the money will remain in the publisher’s special account, earning interest and in many cases, vanishing into the ether. It’s just how this game gets played. Listen to Wallace: songwriters need to make their claims to publishers now and let them know that they are aware of the NMPA settlement and want what they are owed. That too, is how the game gets played.

So is David Israelite wrong in his rebuttal to Wallace Collins, in which he defends the agreement? No– not at all. Israelite ends his reply saying “Distributing up to $285 million to an entire industry isn’t an easy task, but what a wonderful problem to have”, and he’s certainly on the mark with that. The truth is, Wallace Collins is an attorney, responsible for ensuring that individual clients, often small publishers or individual songwriters, get their fair share of what they are owed. Such work requires one particular type of mindset. David Israelite is a negotiator, who is responsible for reaching agreements between various parties that are each protecting their own interests, and he is extremely good at that work, to the benefit of the whole music publishing and songwriting community. It’s a different job, which requires a more forgiving point of view.

This agreement frees up money that has been tied up for ten years, and that alone is a very good thing. Much more importantly, it makes major strides in resolving the problem going forward, which will be of benefit to every songwriter and publisher, large or small. Wallace is right when he points out that the settlement distribution will not be perfect or without some injustices to the little guy. David Israelite is equally right in pointing out that it’s better than what we had, and certainly better than continuing to fight.

Something is better than nothing.
Them that’s got shall get, them that’s not shall lose.
You don’t get, if you don’t ask.

People don’t drop by $285 million dollar pies every day. Make sure you get your piece.

Sometimes, just standing still can be considered progress. Sometimes not losing is winning. After last week’s debacle in the stock market, would you have felt pretty good if you wound up even? In times like these, damage control is not a bad strategy.

That said we could join with the National Music Publishers Association and its member publishers, as well as songwriters around the country in celebrating what the NMPA calls “an important milestone for the music industry”. Admittedly, it’s not quite the victory that some might have been hoping for. But when the Copyright Tribunal voted on Thursday to leave the mechanical royalty rate at 9.1 cents, and to apply that rate to permanent digital downloads, the creative community heaved a sigh of relief. It may not be the 15 cents the NMPA was asking for (which nobody thought we’d get), but it’s not a rate reduction either, which is what organizations like Digital Media Association (DMA) who represent clients like Apple, Amazon, and Pandora) had been advocating. With the ground shifting relentlessly beneath our feet, we’re perfectly happy just standing still.

Actually, music publishers and songwriters did better than standing still. While the general mechanical rate remains the same, that rate has now clearly been extended to all services that offer music to download. The gray area is gone. Everyone pays, and best of all, they pay retroactive to 2001.

On the ring tone side of things, we may have done better. Here we got a big raise. Instead of the 9-10 cents that is more or less the standard today (although in fact, there are no standards), ring tones are now to be licensed at 24 cents. Given that on many pop songs, the ring tones are outselling the album, this is a huge bonanza for writers and publishers.

A quick review might be in order:

“Mechanical” royalties are payments made by the record label or whoever is selling the music, to the songwriters and publishers of the song. Mechanicals are paid on any “mechanical reproduction” of the sound recording– that means CDs, ring tones, digital downloads, and any other product we can manage to sell.

Services that offer streaming or subscription services are not covered by this specific ruling, as those are not considered “mechanical” reproductions. However, it does appear that the RIAA and the NMPA are also close to an agreement with the DMA on those issues– with everyone agreeing on a royalty rate tied to a percentage of revenue generated by the service.

Here’s what it all comes down to:

Money. A major windfall of money to be distributed by Harry Fox Agency (which quickly announced that they were “ready to implement” the new rates (I’ll just bet they are), and to pay out the royalties that they’ve been collecting since 2001. That means a big bundle of money going out to publishers over the next 12-18 months, who will then pass it on to songwriters. As bad as our business has been over the past 3 years, the truth is that some of the gloom and doom was an illusion. Music was still being sold and listened to– we just weren’t being paid for it. Now we will be, and that’s going to make everyone on the creative side feel much more optimistic about the future of the music industry.

On the other side, this will clearly increase pressure on record labels, who were hoping for some relief on the mechanical royalties that they have been paying– as well as those royalties that they often have NOT been paying, like ring tone income. Record companies have never been very happy about paying the folks who write or publish the songs, and now they get to do even more of it. The bright side for the record companies is that they will now have a new income stream to help their bottom line, once they begin to see some of the “streaming and subscription” money now on its way.

The big danger in this decision is the threat it will pose to many digital services. I-Tunes has already threatened that it may require a significant price increase for the single song download. But I-Tunes is the strongest player on the team. Many digital services, as well as ring tone companies, subscription services, and streaming sites are barely surviving at present. Few of them are solidly profitable. Faced with having to pay royalties on the music that they’re using, many may not be able to survive.

While I have no great love of companies that want to use music as a fundamental part of their platform but don’t want to pay the people that make the songs, we do have to acknowledge that the music industry needs these innovative companies who are desperately trying to figure out how to sell music in our new digital age. We need at least some of these companies to thrive, and we need new people to continue to try fresh, exciting music-based ideas. Overall, 9.1 cents seems fair. 15 cents would have likely closed down many of these fledgling companies, in some cases before we ever found out whether their business model was effective.

Someone said that in a democracy, the best solution is usually the one that leaves all parties feeling less than satisfied. Publishers and songwriters didn’t exactly hit the jackpot with this ruling, but we did take a step to fairness. That’s probably the best we could expect– and probably the best thing for the overall industry. A quick shout out of congratulations to the NMPA’s man of the hour, David Israelite, who was the music publishers’ primary spokesman and negotiator on this issue, and by all accounts, did an amazing job. It’s a curious phenomenon that in most cases, the lobbyists who are constantly courting lawmakers are generally one hundred times smarter and shrewder than the bumbling politicians with whom they’re dealing. Don’t know why that is. But David Israelite is as sharp and savvy a representative as the music industry has ever had. If only he were running a record company…

Really enjoyed hearing your comments about last week’s blog on “product placement” in songs. There was some very insightful stuff that came from the wide variety of people that watch this space each week. Thanks so much for weighing in, and for supporting the blog!! Keep the feedback going…

Sometimes, just standing still can be considered progress. Sometimes not losing is winning. After last week’s debacle in the stock market, would you have felt pretty good if you wound up even? In times like these, damage control is not a bad strategy.

That said we could join with the National Music Publishers Association and its member publishers, as well as songwriters around the country in celebrating what the NMPA calls “an important milestone for the music industry”. Admittedly, it’s not quite the victory that some might have been hoping for. But when the Copyright Tribunal voted on Thursday to leave the mechanical royalty rate at 9.1 cents, and to apply that rate to permanent digital downloads, the creative community heaved a sigh of relief. It may not be the 15 cents the NMPA was asking for (which nobody thought we’d get), but it’s not a rate reduction either, which is what organizations like Digital Media Association (DMA) who represent clients like Apple, Amazon, and Pandora) had been advocating. With the ground shifting relentlessly beneath our feet, we’re perfectly happy just standing still.

Actually, music publishers and songwriters did better than standing still. While the general mechanical rate remains the same, that rate has now clearly been extended to all services that offer music to download. The gray area is gone. Everyone pays, and best of all, they pay retroactive to 2001.

On the ring tone side of things, we may have done better. Here we got a big raise. Instead of the 9-10 cents that is more or less the standard today (although in fact, there are no standards), ring tones are now to be licensed at 24 cents. Given that on many pop songs, the ring tones are outselling the album, this is a huge bonanza for writers and publishers.

A quick review might be in order:

“Mechanical” royalties are payments made by the record label or whoever is selling the music, to the songwriters and publishers of the song. Mechanicals are paid on any “mechanical reproduction” of the sound recording– that means CDs, ring tones, digital downloads, and any other product we can manage to sell.

Services that offer streaming or subscription services are not covered by this specific ruling, as those are not considered “mechanical” reproductions. However, it does appear that the RIAA and the NMPA are also close to an agreement with the DMA on those issues– with everyone agreeing on a royalty rate tied to a percentage of revenue generated by the service.

Here’s what it all comes down to:

Money. A major windfall of money to be distributed by Harry Fox Agency (which quickly announced that they were “ready to implement” the new rates (I’ll just bet they are), and to pay out the royalties that they’ve been collecting since 2001. That means a big bundle of money going out to publishers over the next 12-18 months, who will then pass it on to songwriters. As bad as our business has been over the past 3 years, the truth is that some of the gloom and doom was an illusion. Music was still being sold and listened to– we just weren’t being paid for it. Now we will be, and that’s going to make everyone on the creative side feel much more optimistic about the future of the music industry.

On the other side, this will clearly increase pressure on record labels, who were hoping for some relief on the mechanical royalties that they have been paying– as well as those royalties that they often have NOT been paying, like ring tone income. Record companies have never been very happy about paying the folks who write or publish the songs, and now they get to do even more of it. The bright side for the record companies is that they will now have a new income stream to help their bottom line, once they begin to see some of the “streaming and subscription” money now on its way.

The big danger in this decision is the threat it will pose to many digital services. I-Tunes has already threatened that it may require a significant price increase for the single song download. But I-Tunes is the strongest player on the team. Many digital services, as well as ring tone companies, subscription services, and streaming sites are barely surviving at present. Few of them are solidly profitable. Faced with having to pay royalties on the music that they’re using, many may not be able to survive.

While I have no great love of companies that want to use music as a fundamental part of their platform but don’t want to pay the people that make the songs, we do have to acknowledge that the music industry needs these innovative companies who are desperately trying to figure out how to sell music in our new digital age. We need at least some of these companies to thrive, and we need new people to continue to try fresh, exciting music-based ideas. Overall, 9.1 cents seems fair. 15 cents would have likely closed down many of these fledgling companies, in some cases before we ever found out whether their business model was effective.

Someone said that in a democracy, the best solution is usually the one that leaves all parties feeling less than satisfied. Publishers and songwriters didn’t exactly hit the jackpot with this ruling, but we did take a step to fairness. That’s probably the best we could expect– and probably the best thing for the overall industry. A quick shout out of congratulations to the NMPA’s man of the hour, David Israelite, who was the music publishers’ primary spokesman and negotiator on this issue, and by all accounts, did an amazing job. It’s a curious phenomenon that in most cases, the lobbyists who are constantly courting lawmakers are generally one hundred times smarter and shrewder than the bumbling politicians with whom they’re dealing. Don’t know why that is. But David Israelite is as sharp and savvy a representative as the music industry has ever had. If only he were running a record company…

Really enjoyed hearing your comments about last week’s blog on “product placement” in songs. There was some very insightful stuff that came from the wide variety of people that watch this space each week. Thanks so much for weighing in, and for supporting the blog!! Keep the feedback going…