By this time, most of you are probably trying to figure out how a 14 pound turkey is supposed to fit into that tiny little browning bag, or you’re stuck in an airport somewhere trying to reunite with a family that will be driving you crazy within about twenty minutes, if you ever do manage to arrive. If so, then the point of Thanksgiving may already be starting to grow a little hazy.

Having spent the last several Thanksgivings in Italy, on a single-minded mission to educate the unknowing locals about the pleasures of this peculiarly American holiday, I know that it can be difficult to explain what this event is all about, especially in times like the present. As one Italian friend asked, “Thanksgiving, yes… I see. But for what? “

With blessings few and far between in the music industry these days, one could be forgiven for focusing solely on football and food on Thursday. Still, particularly in the hard times, one should always be mindful that even the worst of times have their mitigating factors that allow us to survive and fight another day. Well, at least most of us will survive, unless we’re Guy Hands and EMI.

In the spirit of gratitude for past acts of kindness and hope for the future, here are five things for which we songwriters and publishers can thank our lucky stars. Feel free to make your own list, or offer up suggestions—we need all the help we can get.

This year, let’s be thankful for:

1. Our Friends
No one survives in this business on his or her own. Not only do we have our own personal networks of contacts, cronies, and colleagues, we are fortunate enough to have dozens of organizations both large and small that support the efforts of songwriters and music publishers. Some go out and get our money for us. Some offer career advice. Some recognize outstanding achievement. Some fight for our rights at a government and industry level. Here’s to the whole lot of helpers: ASCAP, BMI, SESAC, NARAS, NARIP, RIAA, Songwriters Hall of Fame, Songwriters Guild, NMPA, AIMP, etc. If you don’t know what those acronyms stand for, it’s time you do some research. You may be missing out on a valuable ally.

2. Little Girls and Old People.
Never thought I’d see this happen, but the truth is that music is no longer a crucial element of youth culture. That spot has been handed over to a whole collection of pastimes from social networking to electronic games. The people keeping us in business these days are adults and their 10-13 year old daughters. Don’t believe me? Go ask Justin Bieber, Taylor Swift, Michael Buble, Susan Boyle, and every top touring act of 2010, almost all of whom are old enough to be Justin Bieber’s grandparent.

3. Hipsters, trend-chasers and buzz-mongers.
There’s certainly enough of these people out there. If you haven’t seen ‘em, just go and spend a few days at SXSW, or MusExpo, or check out any edition of Music Week. No matter how many times these characters chase the new trend that never quite catches on, or fork up massive advances to buzz bands that never make it out of Williamsburg, or fill up endless amounts of blog-space waxing on about an act so obscure that it will never be more than a flea on the industry long-tail, they’ll always have a home in a business endlessly devoted to the next big thing.

For small independent publishers looking for opportunities, that’s a great thing. Because while the hype-sters and the cooler than thou types are drawing everyone’s attention in one direction, a smart, savvy, and yes, conservative publisher can take his or her pick from dozens of proven, steady income-earners to go in business with. They might be songwriters whose catalogs survive on oldies stations, or heritage acts that sell year after year to their core audience, or jazz, classical and world music acts that barely register on the industry radar screen. They’re not too cool or sexy, and they won’t get you any mentions in the A&R Worldwide newsletter. But they will make you money, and they’re being all but ignored by the A&R staffs of most major music companies. For that, I say thank you.

4. Sub-publishing, if not sub-publishers.
Those of you who follow this blog know that several recent postings have dealt with the opportunities and challenges related to sub-publishing. Like most blessings, this one can also be a bit of a curse. For those looking to spread their business to other foreign territories, the subject of sub-publishing is primarily focused on finding partners in other territories where your music might be effective. That’s an opportunity that often winds up being more of a source for frustration than real income.

The problem is that most sub-publishers are simply not very good. Most companies are simply offering lip-service to foreign publishers—promising to promote their music in the local territory, but rarely doing anything but the most basic collection functions, and sometimes not even that. If you’re counting on your sub-publishers to create a global presence for you, you’re likely to be disappointed.

In fact, the bigger opportunity in regards to sub-publishing is often to become a sub-publisher for other companies. By offering to represent viable catalogs in your local territory, you create a whole new set of business relationships, build your roster without having to make a major financial investment yourself, diversify your song catalog, and improve your cashflow—and that’s not even mentioning the 15-20% that you can often take as your percentage. For a small publisher, picking up other catalogs to sub-publish in your local territory is one of the easiest and most cost-effective business strategies you can hope to find.

5. The suits
And finally, a good word for the lawyers. That’s unusual. However, the truth is that the biggest growth area in the music publishing business for the next 10 years will likely be lawsuits—particularly the large-scale, class action kind. Having already seen distributions from YouTube and Napster cases, and in anticipation of receiving payouts from the late payment fund set up by NMPA as part of the recent negotiations over digital payments from record labels, music publishers are anticipating a windfall. Sooner or later, dozens of major internet media and music businesses will be forced to settle up for music that they’ve been using without a license for the last 5-10 years. It won’t be easy or quick, and it won’t happen without a fight. But given that the copyright laws are clearly on our side, we are likely to eventually walk away with some money, with a little help from our trade organizations, and of course, the lawyers.

I know—it’s not the most uplifting list. Anytime you’re actually thankful for lawyers, lawsuits, trade groups, Justin Bieber and heritage rock acts, you know that it’s been a tough year. Nevertheless, we’re still fortunate to be in a business where we are able to spend our days working with music and songwriters. There are a lot worse ways to make a living.

Most of all, I’m thankful for the indomitable spirit of the Music Business Weasel that lives in all of us. Sure, it’s a business that is often short-sighted, ridiculously speculative, and maybe a little bit sleazy. At the same time, it’s a business of survivors. The people I work with each day are clever, full of ambition, endlessly determined, and always sure that tomorrow will bring the big hit that makes it all worthwhile. That’s the kind of weaseling I most admire, and it’s what assures us that there will always be a music business, in some shape or form, for us to profit from and complain about in the future.

Have a great holiday and thank YOU for your support of the blog over the past 12 months. See you in December!

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.

Happy New Year everyone!

I know I said that this blog would carry on our current theme, which is how to get your music out there to people– and it will. But I’m going to save my trouble-shooting blog, what to do when you run into obstacles in pitching your music, for just a minute. After all, has anyone really been making pitch calls over the last two weeks? If you have, you’ve been leaving a lot of voice mails, because it’s dead out there. All of the music business weasels have departed for ski vacations or the Caribbean (nothing like a weasel in a swimsuit) and left LA and NYC to the tourists. So instead, I thought I’d offer up a quick set of ideas to kick off the New Year, and to put me thoroughly in sync with the rest of the blogosphere, offering Top Ten lists ad infinitum. Here’s mine:

TEN THINGS THAT YOU CAN DO IN 2010 TO MAKE YOUR MUSIC MAKE MONEY!!

1. Identify your market.

This year, try narrowing your vision and focusing on the one specific market that best fits what you do. No more dabbling in one style, then another, then another. Most of the reason that songwriters struggle to create that two minute “elevator pitch” that we discussed last week is that they quite literally don’t know what they’re doing– they have never forced themselves to focus on one specific thing sufficiently to be able to articulate precisely what it is that they do.

2. Know your market.

In 2010, the music business is a business of specialists– A&R people, managers, publicists, engineers, producers, and yes, even songwriters, are segmented by genre, and expected to be experts in that particular area of music. That means being familiar with all of the artists old and new in that market, knowing the key business players, the labels, the current production styles. Sound like a lot of information to digest? That’s why you “identified” your market. It’s not plausible to be an expert in three or four genres at once.

3. Strategize.

Once you know your market, and you know all about the artists, labels, managers and producers in it, then you’re in a position to start looking for the openings. Where are the opportunities? Don’t focus on the superstars if you don’t have any track record– those are out of reach. Look for the up and coming artists, or the new trends, or the hot new label, or the young entrepreneurs. That’s where you’ll find your opportunities. Once you see where the openings in the market are, you need to look at every possible way in which you can take advantage of it.

4. Know who you are.

You can’t start meeting people until you know how to introduce yourself. That doesn’t mean just saying your name and handing out business cards. You need to be able to explain in three or four sentences who you are and what you’re doing. You can talk about what you’re doing now (“I’m promoting a new single that just came out…”), what you did in the past (“I had a song on Kelly Clarkson’s last album…”), who you work with (“I co-write with Brett James in Nashville”), or who you are (“I’m a producer from Norway” or “I’m a recording engineer for a jingle house, but I’m also a songwriter”), but you need to have two or three sentences to present a picture that’s clear, interesting and memorable. Whatever it is, memorize it. Ideally, it should be a conversation-starter– that way it won’t be the only two sentences you get.

5. Know what you want.

This is such a big one that it needs to be divided into a big picture and a small one. In the big picture sense, you need to know what your goals are for your music and what would constitute success. Do you want to get rich? Do you just want to be able to have a full-time career in music? Do you just want to support your hobby and have one song on a record somewhere? Everything is acceptable, and there’s a strategy to get you to each goal. But it won’t be the same one. You can’t read a map until you know where you’re going. If you want to take on the big picture question, and you shouldn’t waste a moment on any other plan of action until you do, take the “Music Business Weasel’s Pop Quiz” in my book, “Making Music Make Money”.

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

On the small picture side, you need to think about what you want from the person to whom you’re presenting your music. Are you looking for a record deal? Do you want them to record your song with an artist to whom they’re connected? Do you want them to sign you to a publishing contract? Are you looking for an introduction to someone they know? If what you want doesn’t match up to what the person on the other end can feasibly deliver (a BMI rep can’t offer you a publishing contract; a NY-based A&R rep can’t get your song to a country artist) then you’re wasting everyone’s time. Figure out what each person can do for you BEFORE you reach out.

6. Take the conference call.

No industry in the world has more conferences and networking events than the music business. That just means that there is no excuse for not knowing anyone, or not understanding the business. Every conference has a full array of industry executives in attendance, many of whom are on panels where they share the knowledge of the business and take questions from the audience. Beyond that, there are ASCAP, BMI and SESAC educational events, programs sponsored by songwriter groups like the Songwriters Hall of Fame and NSAI, or events hosted by industry trade organizations like the Recording Academy, NARIP, and the NMPA. Depending on your genre, your goals, and your financial and geographical situation, you can check out: MIDEM, CMJ, South By Southwest, Winter Music Conference, Billboard & Hollywood Reporter Film and TV Music Conference, Biillboard’s Music & Money, Amsterdam Dance Event, or ASCAP’s “I Create Music” Expo. That should fill your calendar for the year. If you can’t afford to register, consider contacting the conference and volunteering to work at the registration desk or within the conference itself. Sometimes you can trade some labor time for a free pass…

7. Ask one good question.

If you do attend a conference, here’s a tip for meeting that key industry player that you want to know:

Find a panel on which he or she is speaking. Then, when the Q&A portion of the panel arrives, step up to the mic and ask one good question. A good question does not directly involve you (“why didn’t you listen to the package I sent you?”), and is not too basic (“how can I get music to you?”). A good question reflects a knowledge of the business and the panelist, is relevant to all of the industry people in the room, and could be the topic of discussion among other panelists (“What do you think of the new rate decision from the Copyright Board?”, “How is your business using the social networking sites to target an audience?”, “Do you see your show widening its use of music, or the genres it uses, or narrowing it?”).

Having done hundreds of such panels, I guarantee you that if you ask one good question, you will be the only one who does. I also guarantee that if you approach the panelist at the close of the discussion, you will be remembered, and probably walk away with a business card and an invitation to be in touch.

8. Educate yourself.

At the music publishing company where I work, someone called our office this week, and began the conversation with “I don’t really understand what you do there…” Believe it or not, this happens EVERY DAY! For whatever reason, music seems to attract a large number of people who are almost entirely ignorant of the business of which they supposedly wish to be a part. Is it any surprise that most of these people are either ignored or taken advantage of?

If you’re serious about pursuing music publishing and/or songwriting as a business, it only stands to reason that you need to have the same knowledge as every other professional in the industry. Invest 12 weeks in “Music Publishing 101″ at berkleemusic.com, and learn exactly what a music publisher does, how to do it, and how to set up your own music publishing business. You’ll come out not only with a thorough knowledge of the business, but also with a full strategy for how to make your music make money.

9. Write hits.

The truth is, most songwriters’ primary obstacle to success is not a lack of knowledge, contacts, or strategy. Most of the time, the real problem is that songwriters are simply not selling what the industry needs. Most songwriters are trying to write good songs. Some are even writing great songs. But what is needed by every A&R person, manager, artist, is something else entirely. These people need “hit” songs.

If you don’t understand the difference, then check out my book, “The Billboard Guide To Writing and Producing Songs That Sell”. In an age where the album cut has become entirely irrelevant, there is no formula for success that doesn’t involve writing “hits”.

http://www.amazon.com/Billboard-Guide-Writing-Producing-Songs/dp/0823099547

10. Do the work.

I read an incredible article last year in the New Yorker by author Malcolm Gladwell, called “How David Beat Goliath”.

http://www.gladwell.com/2009/2009_05_11_a_david.html

Perhaps the most profound point made in the article was this, and I paraphrase:
most people don’t succeed simply because they are not willing to do the work required.

Having had the opportunity to work with superstar writers from Steve Diamond to Billy Mann to Andy Goldmark to Stargate to David Guetta, the one thing that all of them share is a “work ethic” that simply dwarfs most of their competition. This is not to diminish their individual talent, which is significant and unique. It is to say that there is no way you will be able to compete with these A-level writers on the basis of talent alone. Even if you have the same gifts as a songwriter, their drive, ambition, and willingness to go anywhere and do whatever it takes will put them on top. If you are going to compete, you have to do what is needed to win.

I know that most of the songwriters reading these suggestions will ignore them entirely, and search instead for a shortcut to success that involves less effort. A few will resolve to try three or four of the ten, and at the end of the year, will have excuses for why they only accomplished one or two. But be aware: the successful songwriters and music publishers will do all of these every year.

You can’t “try” to do something. Either you’re doing it, or you’re not.

Best wishes for a great 2010! Thanks for your support of the blog. See you at the top of the charts…

It Takes an Army

Jun 20 2009

Okay, so let me start by saying that after watching “Total Eclipse of the Heart” (Literal Video Version), I take back all the bad stuff I said about YouTube. Sure they steal from copyright holders (think about the fact that this literal video version has earned nothing for the songwriters or publishers of the song, despite millions of views). But I gotta be honest, this video is really, really funny.

http://www.youtube.com/watch?v=4XkD5sJwwrE

On a completely different note…

One of the more important events in the world of music publishing took place last week, and most songwriters probably didn’t even know it happened. The International Confederation of Authors and Composers (CISAC) held its second annual World Copyright Summit on June 9-10 in Washington, DC, with an invitation list that included representatives from across the entertainment and technology fields, including executives from the Motion Picture Association, the Consumer Electronics Association, Microsoft, my good friends at YouTube, as well as government officials and legislators. But the guest list was heavily weighted toward the music publishing community, with senior executives from a wide variety of publishers large and small, as well as collection societies from all over the world.

While I did not attend (someone’s gotta stay home and take care of business, after all), I understand that the discussions were comprehensive and thoughtful, and relatively free of vitriol, despite sizable differences amongst many of the parties involved.

The truth is, both sides are frustrated with the licensing systems that exist, which are admittedly far out of step with the realities of the digital, global world in which we live. Rights-holders feel utterly unprotected and incapable of mounting any defense against the endless and uncontrolled proliferation of copyright violators. On the flip side, many well-meaning entrepreneurs watch their business plans crash on the rocks of the licensing laws, where the use of even one song on a website can require the permissions from publishers and collection agencies around the world. Having recently completed a book that required lyric reprint permission from a number of sources, I can tell you first-hand that the licensing situation, as it exists today, is a slow-moving horse and buggy caught in the middle of a high-speed, worldwide Information Highway.

http://www.amazon.com/Billboard-Guide-Writing-Producing-Songs/dp/0823099547

From what I’ve heard, one of the most constructive ideas that emerged in the conference was the idea of a worldwide licensing database that would allow licensors to go to one stop to obtain permissions on a worldwide basis. Just the challenge of tracking down the rights-holders in each individual territory can often be overwhelming. I still remember working as an A&R person on the “Wild Thornberrys” soundtrack for Jive/Nickelodeon, and trying to license a beautiful African song called “Awa Awa”, a journey that took us from France to Africa to Brooklyn that almost resulted in a last minute change in the movie due to the difficulty of tracking down the rights holders. Multiply this by several thousand songs and you start to get some idea of the challenges faced by many start-up, music-based ventures who are trying to do the right thing by licensing the music they use.

The spirit of cooperation and thoughtful discourse that dominated the Copyright Summit is exactly what we need to begin to address the challenges of making music make money in 2009, and beyond. But the Summit is also a demonstration of the increasing advantages of being in business with a large publisher or collection society in this generation of copyright disputes and international piracy. I’ve been outspoken in my first book, Making Music Make Money, about the importance and viability of songwriters creating their own music publishing venture, and this blog has emphasized over and over an independent approach to the business of songwriting and music publishing. But, it has to be acknowledged that it is becoming increasingly difficult for small, independent publishers, especially those who are not affiliated with the major collection societies like Harry Fox Agency, to get paid, and more importantly, to protect their interests on a worldwide basis.

If you look at the attendees at the Copyright Summit, they were predominately representatives from the major publishers, large independents, the major collection societies like HFA, ASCAP, BMI, SESAC and their international equivalents. By virtue of size and influence, these are the people who will be at the table when the decisions about the future of music publishing are made, and consequently, whatever new systems emerge will be designed primarily to serve these companies and organizations. Between the battles with the record labels, the digital music providers, the international licensing organizations and the governments of countries all over the world, it’s becoming more and more challenging for a lone songwriter/publisher to defend his or her rights, and also to actually collect the royalties that are due.

Having said that, I’m not telling anyone that they should give up their independence. But I am suggesting that songwriters and independent publishers are going to feel increasing pressure to find partnerships with larger entities, at least in the short term. We are living in a moment in which the rule-book is being drastically re-written. At least during that formative period, there are definite advantages to having one of the major players on your side. When you’re in a street fight, it’s good to have a big friend.

If your company is at the stage of earning consistent, measurable royalties, it may be time to consider striking at least an administration deal (an arrangement in which one publisher does not share the control of the copyright, but simply collects the income and distributes it, in exchange for a percentage fee) with a larger company or organization. Beyond the major publishers like EMI, SonyATV, Universal or Warner Chappell, there are numerous independent publishers that excel at these kinds of services. Check out:

Kobalt Music: www.kobaltmusic.com
Bug Music: www.bugmusic.com
Royalty Network: www.roynet.com
PEN Music: www.penmusic.com

You could also use a collection service like Harry Fox Agency, which is the largest collection organization for mechanical royalties in the US. Remember, these partnerships are not a matter of giving up any control over your copyrights. These partnerships are simply a means of issuing licenses and collecting your money. Just as importantly, they can offer some assurance that you will have a piece of the often haphazard payments being made by digital music companies or monies collected in lawsuits. At the very least, you need to become an active member of ASCAP, BMI, or SESAC, as well as trade groups like the NMPA. Now is not the time for going one on one. The challenge of getting paid requires some teamwork.

http://www.harryfox.com

http://www.nmpa.org

If you want to learn more about administration deals and how they work, I’d encourage you to check out my online course, Music Publishing 101 at Berkleemusic.com. The whole course is focused on helping you to create your own independent publishing company. Nevertheless, there is also ample discussion of how to build an effective team to support you in your independent venture, and that includes organizations that can help you get paid. The new semester is starting soon– so check it out today…

Alright– I promise. This is the last YouTube diatribe at least until the end of the summer. But since the most recent call to arms on this blog, I actually wound up doing a NPR radio interview for a story about the growing influence of YouTube in the music biz. The prospect of being on the firing line prompted me to do a bit more homework about the licensing battles involving YouTube at the moment– and the more I read, the more angry I’ve become. So now, I’m really fired up.

Yes, I know that YouTube provides a very valuable service to unknown and developing artists in helping to expose them to a wider audience. I know that YouTube can be a useful A&R service, helping to draw label and publisher attention to particularly reactive songs or artists. But for active or aspiring songwriters and music publishers, I think it’s worthwhile to understand how YouTube has approached rate negotiations with publishers, record labels, and copyright owners. It certainly presents a pretty clear picture of the level of seriousness they are bringing to the negotiating process and to complying with copyright law. It also makes very clear the actual monetary value they attach to music.

In a nutshell, here’s the situation:

With the record labels, YouTube is currently in negotiations to renew licenses made several years ago. While the labels thus far have fared better than anyone else with YouTube, the actual income generated under these early license agreements is negligible. YouTube income has certainly not done much to break the free-fall in which labels now find themselves, nor has it softened the blow to the artists, most of whom are still wondering when that elusive YouTube income is going to show up on their accounting statement.

But on the publishing side, it’s even uglier. For the performing rights organizations, led by ASCAP, the last three years of negotiation have proven extremely disillusioning. Back in 2005, YouTube agreed to make performance payments, based on an understanding between ASCAP and YouTube that both parties would eventually settle on a reasonable rate. Unfortunately, it’s easier to agree to agree than to actually agree. After years of negotiations, YouTube and ASCAP have failed to reach an agreement upon a reasonable rate, and YouTube has paid nothing to the PROs while that fruitless negotiating was going on. If you want to know why those talks fell apart, here’s one clue:

Just last week, a judge from the US District Court ordered YouTube to pay 1.4 million dollars for the unlicensed use of ASCAP’s material from 2005-2008. Then, the judge ordered YouTube to pay $70,000 a month, beginning in January of 2009. To put that in proper perspective, consider that Imagem Music recently purchased the Rodgers and Hammerstein song catalog for somewhere around $20 million dollars. So while the purchase of one song catalog from one writing team (granted a pretty good one) will set you back $20 million, the judge is granting YouTube unlimited access to HALF OF THE ENTIRE SONG CATALOG IN AMERICA FROM THE LAST 100 YEARS for $1.4 million dollars. Even the judge acknowledged the measly nature of the sum, saying:

“Even considering that the fees paid to ASCAP will represent only about one-half of the total fees that YouTube pays to music performing rights, the contemplated interim fees are clearly reasonable, even conservative, in comparison to those called for in other licenses for the performance of copyrighted content on the Internet,” Judge Connor said.

Well, he got that right. $1.4 million dollars is scraping the bottom of the barrel, given the extent of unauthorized use of copywritten material over the past four years. But get this– YouTube thinks even $1.4 million its too much! How much would it like to pay for access to the entire ASCAP catalog, which includes thousands of classic songs from every era in modern music history? Uh, maybe about $80,000?

Huh? Did someone forget a zero or two on that number? No. YouTube has proposed that they will pay $80,000 to cover the last three years, and then about the same amount annually in 2009 and beyond. That’s a pretty sweet deal. It’s also a pretty revealing one, in case you’re wondering what YouTube and Google think copyrighted music should be valued at. Basically, less than the annual salary of one mid-level executive in their office.

Of course, YouTube and Google claim that since YouTube has proven woefully unsuccessful at actually making any money, they shouldn’t be saddled with the hindrance of having to pay fees for use of the material that is at the core of at least fifty percent of their most popular programming. The flaw here is that YouTube was never actually designed to make any money.

Like many internet businesses, the strategy from its conception seems to have been to create a site that was immensely popular rather than income-generating. Of course, this was done with the knowledge that such a popular destination could then be flipped for a massive financial payout to its creators, despite the fact that there were no actual earnings. Not surprisingly, this is exactly what happened when Google purchased YouTube for $1.65 billion. How convenient for the creators that they didn’t have to share any of that $1.65 billion with the people that created the material upon which their “network” is based. They probably would have sent over a check for 80 grand.

When one considers the financial burden of paying ASCAP royalties upon a company like YouTube, it’s worth remembering that YouTube is basically an entertainment network that creates absolutely nothing of its own. Every minute of its programming is made up of things either donated or stolen. YouTube is a TV station that doesn’t even own a camera. Given that they have virtually no overhead, it doesn’t seem unreasonable that payments for rights to the material they use should cost them at least half of what they actually bring in, maybe more.

During the interview with NPR, I was asked about the promotional service that YouTube provides to the music industry. Surely, the exposure that it offers artists at all different levels has to acknowledged. In fact, in this blog, I’ve suggested on several occasions that the smartest career strategy for a new, unknown artist would be to create one great song, do a truly inventive, provocative, funny, attention-grabbing video and post it on YouTube, then see how the audience reacts. As a means of being “discovered”, there aren’t many better, or more accessible forums.

But for established artists, record labels, and publishers, the “promotional” value of YouTube is starting to look rather dubious. Promotion for what? To help artists sell albums? That’s clearly not working. Check the album sales of the music industry as a whole since 2005. Whatever promotional service YouTube is providing, it’s not very effective.

Suppose you owned a butcher store and a man set up a table in front of your shop, handing out free hamburgers. You might complain— but then he would explain that really he was providing a promotional service for your butcher shop, showing people just how tasty a well-cooked piece of beef could be. What seemed to be direct competition for your shop would prove to be a boon to your business. Great.

But what if your butcher business then proceeded to crash and burn, as your customers took the free hamburgers, ate them for dinner and never came into your store again. How long would you wait until you tried to get rid of the less than helpful “promoter” outside your store?

As I’ve said before, the day of reckoning may have arrived. Warner has taken a bold, if marginally effective step, by pulling product off of YouTube. ASCAP continues to fight the good fight. On the other hand, Universal has immediately abandoned the protection of its writers and artists, and hopped into bed with YouTube, trying to put the rest of the industry at a disadvantage. And here’s another less than encouraging story from the front-lines of the battle:

PRS, the licensing organization for publishers and songwriters in the UK, has been in its own rate dispute with YouTube, running into the same negotiating brick wall that ASCAP, NMPA and others have encountered. In a move that took the industry somewhat by surprise, YouTube recently countered PRS’s tough negotiating stance by pulling off all PRS-licensed, premium music videos supplied by the labels in the UK.

It now appears that PRS has come back to the negotiating table with a new offer. Rather than insisting on the previous royalty rate of .22p per track, they have put forward a new compromise. The new per track price?

0.0085p

Yep. From 22 pence to less than a penny. There’s not much you can buy for less than a penny anymore– here or in London. Apparently, a song is one of them. For songwriters and publishers, what you can see on YouTube tonight is your career slipping away…

Alright– I promise. This is the last YouTube diatribe at least until the end of the summer. But since the most recent call to arms on this blog, I actually wound up doing a NPR radio interview for a story about the growing influence of YouTube in the music biz. The prospect of being on the firing line prompted me to do a bit more homework about the licensing battles involving YouTube at the moment– and the more I read, the more angry I’ve become. So now, I’m really fired up.

Yes, I know that YouTube provides a very valuable service to unknown and developing artists in helping to expose them to a wider audience. I know that YouTube can be a useful A&R service, helping to draw label and publisher attention to particularly reactive songs or artists. But for active or aspiring songwriters and music publishers, I think it’s worthwhile to understand how YouTube has approached rate negotiations with publishers, record labels, and copyright owners. It certainly presents a pretty clear picture of the level of seriousness they are bringing to the negotiating process and to complying with copyright law. It also makes very clear the actual monetary value they attach to music.

In a nutshell, here’s the situation:

With the record labels, YouTube is currently in negotiations to renew licenses made several years ago. While the labels thus far have fared better than anyone else with YouTube, the actual income generated under these early license agreements is negligible. YouTube income has certainly not done much to break the free-fall in which labels now find themselves, nor has it softened the blow to the artists, most of whom are still wondering when that elusive YouTube income is going to show up on their accounting statement.

But on the publishing side, it’s even uglier. For the performing rights organizations, led by ASCAP, the last three years of negotiation have proven extremely disillusioning. Back in 2005, YouTube agreed to make performance payments, based on an understanding between ASCAP and YouTube that both parties would eventually settle on a reasonable rate. Unfortunately, it’s easier to agree to agree than to actually agree. After years of negotiations, YouTube and ASCAP have failed to reach an agreement upon a reasonable rate, and YouTube has paid nothing to the PROs while that fruitless negotiating was going on. If you want to know why those talks fell apart, here’s one clue:

Just last week, a judge from the US District Court ordered YouTube to pay 1.4 million dollars for the unlicensed use of ASCAP’s material from 2005-2008. Then, the judge ordered YouTube to pay $70,000 a month, beginning in January of 2009. To put that in proper perspective, consider that Imagem Music recently purchased the Rodgers and Hammerstein song catalog for somewhere around $20 million dollars. So while the purchase of one song catalog from one writing team (granted a pretty good one) will set you back $20 million, the judge is granting YouTube unlimited access to HALF OF THE ENTIRE SONG CATALOG IN AMERICA FROM THE LAST 100 YEARS for $1.4 million dollars. Even the judge acknowledged the measly nature of the sum, saying:

“Even considering that the fees paid to ASCAP will represent only about one-half of the total fees that YouTube pays to music performing rights, the contemplated interim fees are clearly reasonable, even conservative, in comparison to those called for in other licenses for the performance of copyrighted content on the Internet,” Judge Connor said.

Well, he got that right. $1.4 million dollars is scraping the bottom of the barrel, given the extent of unauthorized use of copywritten material over the past four years. But get this– YouTube thinks even $1.4 million its too much! How much would it like to pay for access to the entire ASCAP catalog, which includes thousands of classic songs from every era in modern music history? Uh, maybe about $80,000?

Huh? Did someone forget a zero or two on that number? No. YouTube has proposed that they will pay $80,000 to cover the last three years, and then about the same amount annually in 2009 and beyond. That’s a pretty sweet deal. It’s also a pretty revealing one, in case you’re wondering what YouTube and Google think copyrighted music should be valued at. Basically, less than the annual salary of one mid-level executive in their office.

Of course, YouTube and Google claim that since YouTube has proven woefully unsuccessful at actually making any money, they shouldn’t be saddled with the hindrance of having to pay fees for use of the material that is at the core of at least fifty percent of their most popular programming. The flaw here is that YouTube was never actually designed to make any money.

Like many internet businesses, the strategy from its conception seems to have been to create a site that was immensely popular rather than income-generating. Of course, this was done with the knowledge that such a popular destination could then be flipped for a massive financial payout to its creators, despite the fact that there were no actual earnings. Not surprisingly, this is exactly what happened when Google purchased YouTube for $1.65 billion. How convenient for the creators that they didn’t have to share any of that $1.65 billion with the people that created the material upon which their “network” is based. They probably would have sent over a check for 80 grand.

When one considers the financial burden of paying ASCAP royalties upon a company like YouTube, it’s worth remembering that YouTube is basically an entertainment network that creates absolutely nothing of its own. Every minute of its programming is made up of things either donated or stolen. YouTube is a TV station that doesn’t even own a camera. Given that they have virtually no overhead, it doesn’t seem unreasonable that payments for rights to the material they use should cost them at least half of what they actually bring in, maybe more.

During the interview with NPR, I was asked about the promotional service that YouTube provides to the music industry. Surely, the exposure that it offers artists at all different levels has to acknowledged. In fact, in this blog, I’ve suggested on several occasions that the smartest career strategy for a new, unknown artist would be to create one great song, do a truly inventive, provocative, funny, attention-grabbing video and post it on YouTube, then see how the audience reacts. As a means of being “discovered”, there aren’t many better, or more accessible forums.

But for established artists, record labels, and publishers, the “promotional” value of YouTube is starting to look rather dubious. Promotion for what? To help artists sell albums? That’s clearly not working. Check the album sales of the music industry as a whole since 2005. Whatever promotional service YouTube is providing, it’s not very effective.

Suppose you owned a butcher store and a man set up a table in front of your shop, handing out free hamburgers. You might complain— but then he would explain that really he was providing a promotional service for your butcher shop, showing people just how tasty a well-cooked piece of beef could be. What seemed to be direct competition for your shop would prove to be a boon to your business. Great.

But what if your butcher business then proceeded to crash and burn, as your customers took the free hamburgers, ate them for dinner and never came into your store again. How long would you wait until you tried to get rid of the less than helpful “promoter” outside your store?

As I’ve said before, the day of reckoning may have arrived. Warner has taken a bold, if marginally effective step, by pulling product off of YouTube. ASCAP continues to fight the good fight. On the other hand, Universal has immediately abandoned the protection of its writers and artists, and hopped into bed with YouTube, trying to put the rest of the industry at a disadvantage. And here’s another less than encouraging story from the front-lines of the battle:

PRS, the licensing organization for publishers and songwriters in the UK, has been in its own rate dispute with YouTube, running into the same negotiating brick wall that ASCAP, NMPA and others have encountered. In a move that took the industry somewhat by surprise, YouTube recently countered PRS’s tough negotiating stance by pulling off all PRS-licensed, premium music videos supplied by the labels in the UK.

It now appears that PRS has come back to the negotiating table with a new offer. Rather than insisting on the previous royalty rate of .22p per track, they have put forward a new compromise. The new per track price?

0.0085p

Yep. From 22 pence to less than a penny. There’s not much you can buy for less than a penny anymore– here or in London. Apparently, a song is one of them. For songwriters and publishers, what you can see on YouTube tonight is your career slipping away…

Admittedly, at least on the profit and loss ledger, 2008 is shaping up to be a real turkey. Wherever you live, whatever you do, the meltdown of the global economy is hard to ignore, and hardly bodes well for a robust 2009. As the song said, for the time being, “money’s too tight to mention”. So let’s move on to brighter subjects. For music publishers and songwriters, there are still a few things to be thankful for. In between the football and the food, let’s take a minute to celebrate the good stuff:

1. We’re not in the record business.

After another year of declining profits for recorded music and further steep drops in CD sales, not to mention the shuttering of additional retailers, it’s now official: the business of selling little plastic discs with music on them can be safely declared dead. Happily, we are not in that business.

2. We can be in the “new” record business.

If music is going to be bought and sold digitally, there’s no reason that music publishers can’t be in the business of directly selling music, rather than licensing it to a third party. After all, there are no longer manufacturing costs, packaging, or physical distribution centers to maintain. We have the music. All we have to do is market it and sell it. Beats waiting on a royalty statement from EMI Records.

3. People are still buying music.

In fact, they’re buying more of it. At long last, the digital sector is becoming genuinely meaningful on a financial level, and it’s showing a healthy growth. In a depressed economy, we are the sellers of truly inexpensive entertainment (I mean, 99 cents per song? How much more value can you give?). We’re cheaper than a movie or video game, and longer lasting than a Broadway show or a fancy meal. If the last Depression is any indicator, we are in a pretty good position to hold our own in a difficult economy.

4. We might actually get paid for the music people are buying.

Now there’s an exciting bit of news. Kudos to the NMPA, David Israelite, ASCAP, BMI, SESAC, HFA, and the many others that fought for the rights of publishers in this year’s battle over mechanical royalties and digital rates, as well as court decisions with YouTube, Yahoo, and others. Happily, the US government has re-affirmed (at least for the moment) that copyright holders have the right to get paid. As music publishers and songwriters, that definitely helps our business model.

5. When you are your own boss, no one can lay you off.

Never thought I’d see the day when songwriters and publishers would be better off than investment bankers. But at least when you’re a songwriter, no one can give you a pink slip and make you stop. If you’ve got songs that you’ve written, then you are automatically a music publisher. You don’t have to look in the “help wanted” ads to find a gig.

The truth is, those of us in the creative community are used to financial struggles, and making the best of things in difficult times. Any successful veteran songwriter has risen from the ashes at least a couple of times in his or her career. Most music entrepreneurs are as well acquainted with failure, as with success– so they don’t have to be afraid of either one. The music business weasel may be slimy, but he or she is also scrappy, cunning and infinitely opportunistic. Those are good qualities to have when times get tough, as they most assuredly will be.

So be thankful that despite all the turmoil, you can continue to do what you do, make the music you want to make, and hold the keys to your own future. Best wishes for a great Thanksgiving!

The Buyers' Market

Oct 16 2008

If you’ve been watching the stock market plummet in the past week (and who hasn’t?), or better yet, if you’ve noted the recent moves by financial guru Warren Buffett, then you’ll recognize a buyers’ market when you see it. And you’ll probably be seeing one shortly– if not right now. The principle is simple: when everyone is desperate to sell, when prices are dropping, when the sky is falling, that’s the time to go on a buying spree, so long as you’re buying quality assets with long-term value. It’s true in real estate, in stocks, and it’s even true with music publishing catalogs.

I had a recent comment on the blog that asked about how one goes about purchasing a publishing catalog of songs– so I thought now was as good a time as any to take up the subject. Why? Because all indications are that we’re soon entering a period where some very valuable song catalogs are going to be auctioned off by desperate sellers for far less than their purchase price only three or four years ago.

In the past five years, there has been a sudden influx of new publishing companies into the marketplace, many of them backed with money from banks, hedge funds and pension funds. Unlike most traditional music publishing companies, these firms were not interested in discovering the hot new writer, or the next big star. Instead, they were focused on acquiring songs as investments, like a fine painting or precious jewelry. These companies were looking for proven, tested hit songs, that had maintained relatively steady earnings over a 10 or 20 year period.

Needless to say, those types of catalogs are unusual, highly valued, and very expensive. But these companies had money to burn, and were quite aggressive in going after what they wanted– often paying 50% more, or even double what a traditional music publisher might have offered. The theory was that these “classic” copyrights would only become more valuable with the explosion of media outlets for music, the growth of markets like India, China, and Eastern Europe, and a more aggressive approach to film and TV licensing. Can you guess the end of this story?

It’s not too hard to predict how this worked out. Unfortunately, the stock market collapse, the credit freeze and the complete disappearance of many of the most prominent investment banks has put these new publishing ventures on the ropes. Most of them have learned that it’s not so easy to increase earnings on song catalogs, nor does the money come in all that quickly or consistently. Over a ten-year period, most classic song catalogs have a pretty consistent average performance. But within a shorter period of time, say 3-5 years, the earnings can vary wildly, based on collection issues, currency exchanges, copyright disputes, or pure dumb luck. The bottom line is that there are plenty of people looking to sell their publishing catalogs at the moment. This means it’s a buyers’ market for everyone that’s left in the game.

So what goes into a catalog acquisition? First of all, MONEY. You need a lot of money. As in any buyers’ market, the first requirement is cash on hand. On this point, I can’t offer much help. Get some money before you start– preferably cash, rather than credit. Once your wallet is full, here are the four primary steps in purchasing a catalog:

1. Find Something To Buy. This is harder than it sounds. Many of the best catalogs are taken. Often, sellers are hesitant about openly announcing that their catalog or their company is on the market. Ideally, you need a network of industry insiders to keep you on the alert as to what might be available, or who might consider an offer. Most buyers build a team around one or two prominent music business attorneys, some consultants with a long history in the music publishing business, and a large network of contacts, including people at the PRO’s (ASCAP, BMI, SESAC) and the NMPA (National Music Publishers Association).

Beyond that industry insider approach, you can also watch the key trade publications– Billboard often contains public notices of catalogs being auctioned off by writers or publishers in bankruptcy. You can also check tipsheets like New On the Charts and Songlink International, which sometimes list catalogs currently up for sale.

2. Know What You’re Buying. Remember, there are two sides to every song. There is the writer’s share of the copyright (which represents 50% of the total income generated by the song) and the publisher’s share (which represents the other 50% of the income, and the control of the copyright). Theoretically, it’s possible to purchase either share, or both of them together. In practice, most publishing acquisitions involve the purchase of only the publisher’s share. In other words, if you purchase the song, you will control the copyright, collect all the income, pay the writer 50% of that income, and keep the other 50% as your publisher share.

Historically, it has been frowned upon for publishers to purchase the writer’s share of the income– as it brings to mind countless episodes in the Fifties, when songwriters down on their luck unknowingly sold off their copyrights (and the right to all future income) only to see their songs emerge as classics a few years later. ASCAP and BMI have always discouraged publishers from purchasing writer share– and most major publishers refused to consider it, even as recently as a decade ago. However, in the past few years, several companies, most notably Primary Wave, have begun doing very high-profile deals with superstar artists or writers (or their heirs) to purchase the writer share of income. Consequently, more and more companies are now open to the prospect. But keep in mind that purchasing the writer share does not give you control of the copyright. That only comes with the publisher share. Whoever controls the copyright has the sole power to decide where and how to license the song, as well as the responsibility to collect the money and pay it out. If you buy writer’s share, you have to know who your business partner, the publisher of the song, will be.

3. Determine the Price. First, get a calculator. Then, get the income records for what you’re looking to buy. Anyone selling a catalog of songs must be prepared to provide income statements, demonstrating what the catalog has earned over the past 3-5 years. This will mean accountings from the current publisher, as well as BMI or ASCAP statements, showing performance income. Once you’ve got all the records, and you’ve checked them VERY carefully, it’s time to be fruitful and multiply.

Song catalogs are purchased for a multiple of their annual earnings. This means that if a song generates $100,000 a year for the publisher’s share (that’s 50% of the total income), then it will likely be valued at somewhere between 8-15 times that annual income. A catalog showing an NPS (net publisher’s share) of $100,000 annually, valued at a 10 multiple, would sell for $1 million dollars. All things remaining equal, the buyer would need 10 years to recoup their investment– after that, they would begin to turn a profit.

Most of the negotiation on catalog acquisitions involves determining the proper multiple. In the past, publishers usually valued catalogs at 8-10 times earnings. But just as in the real estate market, once the investment bankers came to town, the prices soared. Many “classic” catalogs, ones that contain a healthy portion of truly timeless hit songs, have recently sold for multiples from 15-20. And like the real estate market, most of these prices today look highly inflated. If a catalog has one or two “hit” songs, and a few prominent album tracks, it’s probably around an 8 multiple. If it’s a deeper, more valuable catalog, it might be worth 10-12. If it’s Leiber-Stoller or the Motown catalog, you can expect to wait at least two decades before you pay off your investment– and it will be worth every penny.

4. Do Your Due Diligence. This is where the business becomes an art. There are a myriad of things to consider when purchasing a catalog, and there’s not nearly enough space to discuss them here. But you better think about:

Has the catalog’s earnings peaked? Did the last two years of income fall dramatically?

Did the catalog’s earnings recently spike? A key film or ad placement can cause a catalog to suddenly jump in earnings, driving up the 5-year average to a somewhat artificial high. Be aware that you can’t count on those kinds of placements in the future.

What is the long-term creative outlook for these songs? Is the style of music fading in popularity, or experiencing resurgence? Are there new outlets that would be a perfect fit for these particular songs?

How long will the songs last? Generally, publishers purchase songs for the life of copyright– which is 75 years after the death of the last composer. If you’re buying old songs, that date may not be so far off. Once songs go public domain, your earning days are largely over.

As you’ve probably discerned by now, the buying game isn’t for everyone. It’s definitely not for the average individual, the conservative investor, or the weak of heart. But I do think the investment community got this one right. Over time, classic songs have shown that they hold their value as well or better than most other works of art. Certainly, the long-term prospects for increased earnings from music are solid, especially as we start to get the digital realm to produce real income. And if you’re looking for the time to strike, the pendulum is swinging your way. As New York real estate brokers like to say:

Bring your checkbook.

The Buyers’ Market

Oct 16 2008

If you’ve been watching the stock market plummet in the past week (and who hasn’t?), or better yet, if you’ve noted the recent moves by financial guru Warren Buffett, then you’ll recognize a buyers’ market when you see it. And you’ll probably be seeing one shortly– if not right now. The principle is simple: when everyone is desperate to sell, when prices are dropping, when the sky is falling, that’s the time to go on a buying spree, so long as you’re buying quality assets with long-term value. It’s true in real estate, in stocks, and it’s even true with music publishing catalogs.

I had a recent comment on the blog that asked about how one goes about purchasing a publishing catalog of songs– so I thought now was as good a time as any to take up the subject. Why? Because all indications are that we’re soon entering a period where some very valuable song catalogs are going to be auctioned off by desperate sellers for far less than their purchase price only three or four years ago.

In the past five years, there has been a sudden influx of new publishing companies into the marketplace, many of them backed with money from banks, hedge funds and pension funds. Unlike most traditional music publishing companies, these firms were not interested in discovering the hot new writer, or the next big star. Instead, they were focused on acquiring songs as investments, like a fine painting or precious jewelry. These companies were looking for proven, tested hit songs, that had maintained relatively steady earnings over a 10 or 20 year period.

Needless to say, those types of catalogs are unusual, highly valued, and very expensive. But these companies had money to burn, and were quite aggressive in going after what they wanted– often paying 50% more, or even double what a traditional music publisher might have offered. The theory was that these “classic” copyrights would only become more valuable with the explosion of media outlets for music, the growth of markets like India, China, and Eastern Europe, and a more aggressive approach to film and TV licensing. Can you guess the end of this story?

It’s not too hard to predict how this worked out. Unfortunately, the stock market collapse, the credit freeze and the complete disappearance of many of the most prominent investment banks has put these new publishing ventures on the ropes. Most of them have learned that it’s not so easy to increase earnings on song catalogs, nor does the money come in all that quickly or consistently. Over a ten-year period, most classic song catalogs have a pretty consistent average performance. But within a shorter period of time, say 3-5 years, the earnings can vary wildly, based on collection issues, currency exchanges, copyright disputes, or pure dumb luck. The bottom line is that there are plenty of people looking to sell their publishing catalogs at the moment. This means it’s a buyers’ market for everyone that’s left in the game.

So what goes into a catalog acquisition? First of all, MONEY. You need a lot of money. As in any buyers’ market, the first requirement is cash on hand. On this point, I can’t offer much help. Get some money before you start– preferably cash, rather than credit. Once your wallet is full, here are the four primary steps in purchasing a catalog:

1. Find Something To Buy. This is harder than it sounds. Many of the best catalogs are taken. Often, sellers are hesitant about openly announcing that their catalog or their company is on the market. Ideally, you need a network of industry insiders to keep you on the alert as to what might be available, or who might consider an offer. Most buyers build a team around one or two prominent music business attorneys, some consultants with a long history in the music publishing business, and a large network of contacts, including people at the PRO’s (ASCAP, BMI, SESAC) and the NMPA (National Music Publishers Association).

Beyond that industry insider approach, you can also watch the key trade publications– Billboard often contains public notices of catalogs being auctioned off by writers or publishers in bankruptcy. You can also check tipsheets like New On the Charts and Songlink International, which sometimes list catalogs currently up for sale.

2. Know What You’re Buying. Remember, there are two sides to every song. There is the writer’s share of the copyright (which represents 50% of the total income generated by the song) and the publisher’s share (which represents the other 50% of the income, and the control of the copyright). Theoretically, it’s possible to purchase either share, or both of them together. In practice, most publishing acquisitions involve the purchase of only the publisher’s share. In other words, if you purchase the song, you will control the copyright, collect all the income, pay the writer 50% of that income, and keep the other 50% as your publisher share.

Historically, it has been frowned upon for publishers to purchase the writer’s share of the income– as it brings to mind countless episodes in the Fifties, when songwriters down on their luck unknowingly sold off their copyrights (and the right to all future income) only to see their songs emerge as classics a few years later. ASCAP and BMI have always discouraged publishers from purchasing writer share– and most major publishers refused to consider it, even as recently as a decade ago. However, in the past few years, several companies, most notably Primary Wave, have begun doing very high-profile deals with superstar artists or writers (or their heirs) to purchase the writer share of income. Consequently, more and more companies are now open to the prospect. But keep in mind that purchasing the writer share does not give you control of the copyright. That only comes with the publisher share. Whoever controls the copyright has the sole power to decide where and how to license the song, as well as the responsibility to collect the money and pay it out. If you buy writer’s share, you have to know who your business partner, the publisher of the song, will be.

3. Determine the Price. First, get a calculator. Then, get the income records for what you’re looking to buy. Anyone selling a catalog of songs must be prepared to provide income statements, demonstrating what the catalog has earned over the past 3-5 years. This will mean accountings from the current publisher, as well as BMI or ASCAP statements, showing performance income. Once you’ve got all the records, and you’ve checked them VERY carefully, it’s time to be fruitful and multiply.

Song catalogs are purchased for a multiple of their annual earnings. This means that if a song generates $100,000 a year for the publisher’s share (that’s 50% of the total income), then it will likely be valued at somewhere between 8-15 times that annual income. A catalog showing an NPS (net publisher’s share) of $100,000 annually, valued at a 10 multiple, would sell for $1 million dollars. All things remaining equal, the buyer would need 10 years to recoup their investment– after that, they would begin to turn a profit.

Most of the negotiation on catalog acquisitions involves determining the proper multiple. In the past, publishers usually valued catalogs at 8-10 times earnings. But just as in the real estate market, once the investment bankers came to town, the prices soared. Many “classic” catalogs, ones that contain a healthy portion of truly timeless hit songs, have recently sold for multiples from 15-20. And like the real estate market, most of these prices today look highly inflated. If a catalog has one or two “hit” songs, and a few prominent album tracks, it’s probably around an 8 multiple. If it’s a deeper, more valuable catalog, it might be worth 10-12. If it’s Leiber-Stoller or the Motown catalog, you can expect to wait at least two decades before you pay off your investment– and it will be worth every penny.

4. Do Your Due Diligence. This is where the business becomes an art. There are a myriad of things to consider when purchasing a catalog, and there’s not nearly enough space to discuss them here. But you better think about:

Has the catalog’s earnings peaked? Did the last two years of income fall dramatically?

Did the catalog’s earnings recently spike? A key film or ad placement can cause a catalog to suddenly jump in earnings, driving up the 5-year average to a somewhat artificial high. Be aware that you can’t count on those kinds of placements in the future.

What is the long-term creative outlook for these songs? Is the style of music fading in popularity, or experiencing resurgence? Are there new outlets that would be a perfect fit for these particular songs?

How long will the songs last? Generally, publishers purchase songs for the life of copyright– which is 75 years after the death of the last composer. If you’re buying old songs, that date may not be so far off. Once songs go public domain, your earning days are largely over.

As you’ve probably discerned by now, the buying game isn’t for everyone. It’s definitely not for the average individual, the conservative investor, or the weak of heart. But I do think the investment community got this one right. Over time, classic songs have shown that they hold their value as well or better than most other works of art. Certainly, the long-term prospects for increased earnings from music are solid, especially as we start to get the digital realm to produce real income. And if you’re looking for the time to strike, the pendulum is swinging your way. As New York real estate brokers like to say:

Bring your checkbook.

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…