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.

Now here’s a sensible solution to the ever-growing financial crisis:

In light of massive state government deficits, brought on by the unfortunate demise of the cast of Wall Street speculators, con artists and “financial experts” who constituted the bulk of New York City’s tax base over the past decade, the ever-creative New York State government has generated a number of interesting new ideas for bilking the citizenry. These revenue-generating ideas have thus far included taxes on everyone from “obese” people (“yea, and they should have to buy two airline seats as well”) to the “super-wealthy” (if only we could find some). Probably, state-sponsored bake sales are not far behind (and that will only make more fat people!). But this week,
Governor David Paterson

launched a real winner: a tax on I-tunes downloads.
Perfect. After years of tireless campaigning, re-education, and lawsuits against Limewire-using little old ladies or file-trading teenagers, the music industry has finally managed to somewhat turn the tide on illegal downloading—thanks more to Steve Jobs than the RIAA or Doug Morris. And now, the Governor wants to penalize people who are buying music legally over the Internet, rather than simply stealing it like all of their friends.Thanks, Guv. Merry Christmas to you too.

In case Paterson and his merry men in Albany haven’t noticed, the music industry is not exactly raking in the cash these days. While digital sales this year topped a billion downloads (those are the transactions when people actually pay money for the music, not when they just borrow it for free), an impressive increase of 27% over 2007, the truth is that this income still has a long way to grow before it can make up for the losses in CD-sales. It’s a little like selling bicycles and automobiles. It’s nice to see an increase in bike sales, but you have to sell a lot of bikes to equal the value of one car. The music industry will need several more years of sustained growth in digital sales before it can begin to dig itself out of the mess that it’s in.

The really unfortunate thing is that the biz has finally taken some steps to actually make that possible, in part by coming up with a system to share the income between labels, artists, publishers and writers. This past year brought a landmark agreement on royalty rates, including rates for digital downloads, which provides a framework for a go-forward business model between digital distributors and the creative community. That only took about a decade to put together, and now the politicians are already stepping in to render it all irrelevant.

I don’t think it’s being alarmist to say that a tax on “I-Tunes” downloads would drastically discourage music fans, especially teenagers (the most active of all music fans) from purchasing music online. Persuading people to pay for something that was available for free with an additional click of the mouse wasn’t exactly easy in the first place. The fact that we’re selling singles for 99 cents—about the same price as in 1970– gives you some idea of how price-sensitive this audience is. At a time of economic difficulty, a few cents could quickly persuade someone to go back to the good old-fashioned freebie—which means no artist royalties, no label income, no songwriter royalties or publishing revenue. It means fewer music industry jobs and less taxes paid, especially in music business centers like New York, LA, and Nashville.

Which brings us to the most obvious flaw in this ridiculous proposal. It doesn’t make any sense (or cents). Taxes like these are usually intended to discourage particular types of behavior (drinking too much soda, eating too many trans-fats, smoking too many cigarettes) that are deemed harmful to society. Is listening to music now considered “negative” behavior? Is our society somehow plagued by people that are wildly overdoing their indulgence in music, to the detriment of other more productive citizens? Does David Paterson just not like people walking around, listening to their I-pods? I don’t get it. Now if he wanted to tax people that download bad music, that would be something else entirely…

Along with the announcement of this idiotic proposal out of Albany (where idiotic proposals are born every day), I also saw another interesting item in the news. It was a story about how legendary blues artist BB King and his nightclub are now offering a special deal to patrons who may be down on their luck. It seems that anyone showing an unemployment check and photo I.D. at BB King’s Blues Club in New York will receive half-price tickets. It’s a generous move in hard times that befits the King of the Blues.

It’s also a smart idea. In moments like these, people need more entertainment, more art, more inspiration, more comfort and more creative stimulus—not less. For all the horrors of the Great Depression, the Thirties in America also mark a time of creative ferment: the advent of the Hollywood studio system, the development of big band jazz, the folk and blues legacy of people like Woody Guthrie and Big Joe Turner. Just because the financial system is in meltdown, doesn’t mean that the world of art and entertainment can’t continue to do its vital work.

No one’s suggesting a music industry bailout. You don’t see any music business weasels going hat in hand, looking for government giveaways (probably because they can’t wake up early enough for a Congressional hearing). All we’re asking is a fighting chance. We’ll pay the tax on the soft drinks and the chicken fingers. But please– leave us our 99 cent downloads for a little while longer…

CALL TO ARMS

Feb 01 2008

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

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

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

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

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

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

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

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

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

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

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

David M. Israelite
President and CEO
National Music Publishers Association