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.

While the music industry dives into its annual orgy of self-congratulation, backslapping, and media fawning that is known as the Grammy Awards, it may want to notice that quiet ticking sound in the background. No– it’s not simply the sound of the clock running out on the CD format and the outsize profits that went with it. It’s the sound of a bomb getting ready to level the battle field once and for all, between the record labels and publishers on one side, and the artists and songwriters on the other. While it’s almost guaranteed that most of the industry players will bury their head in the sand (just as they’ve done with every major shift in business model over the past decade), no one can say that they weren’t warned. It was right there in Billboard, in an Op-Ed feature by music lawyer Wallace Collins.

“Copyright D-Day– An Obscure Provision In A 1976 Law Could Let Artists Take Back Their Work”

Forever, it seems, doesn’t mean forever anymore. And those words in your publishing or record contract that used to seem so scary– “in perpetuity” and “life of copyright”– just lost a lot of their sting. According to Wallace, an often overlooked provision of the 1976 Copyright Act may allow songwriters and artists to begin reclaiming the rights to their songs or their recordings from the record labels and publishers who thought they owned them “forever”.

For anyone that’s ever waded through the legalese of “an obscure provision” in copyright law, it will come as no surprise to know that there is a reasonably complex system of determining which copyrights are affected. But the bottom line is indeed pretty shocking. By the year 2013, only four years away, many composers of songs that are 35 years or older will be able to terminate their recording or publishing agreements, and reclaim the rights to license their own masters or publish their own songs.

Certainly, that’s good news for artists and writers. One of the cruelest elements to many recording and publishing agreements has always been the prospect of giving up control to your work forever, often at a very young age, when you have a minimum of bargaining power. The whole concept of a recording agreement, in which a company advances the cost of making the album, recoups it, and even after the album has paid for itself many times over, continues to own the rights to the master recordings far into the future, has always been a sore point with artist advocates.

On the other hand, it is the long-term ownership of rights that is the backbone of most publishing companies and labels. If a company like Columbia Records had to survive on the profits generated by current product, they wouldn’t last a week. It is the catalog sales– the Miles Davis re-issues, and the Dylan albums, and the Billy Joel records– that keep the lights on at 550 Madison (the lights are still on, aren’t they?). While there are publishing companies like Kobalt Music who have tried to develop a business model in which they administer copyrights on a short-term, easy to terminate, basis– no one has really shown that such a model can make money. There is no question that it doesn’t make the kind of money that built companies like Warner Chappell, where the cornerstone of the catalog is a collection of classic, standard songs owned in perpetuity. If your publisher or record label doesn’t return your phone call next week, it’s probably because they’re holding their breath– until 2013.

The truth is, in the battle between creators (songwriters and artists) and copyright holders (labels and publishers) the balance of power has been changing drastically over the past five years. In fact, it’s the empowerment of individual writers and artists to exploit their own music through the Internet and other venues that really makes the whole idea of terminating rights an appealing one to many artists and composers. When the Copyright Act was approved in 1976, artists needed record labels to get their albums into stores around the country. In the same way, songwriters needed publishers in order to collect their songwriting royalties from those labels.

But as CD sales evaporate, and licensing songs to film generates most income, TV and advertising, or selling the songs on I-Tunes, it becomes very hard to define what the record label is adding to the game. This is particularly true for artists who have big, legendary hits from thirty years ago, but are not currently receiving any promotion or marketing support from their record company. If Steely Dan can place a song in an advertisement or sell their music on I-Tunes, why should they have to cut the record labels, who haven’t spent a cent in promotion or marketing for the past 10 years, in on the deal? And if an act does get their master recording rights back, and is essentially marketing and selling their own music, why should they pay a publisher to collect the royalties only to pay the money back to them? They could just keep it all themselves. Say goodbye middleman. Potentially, say goodbye music industry– at least as we know it.

Interestingly, the good/bad, ying/yang quality of all this is not lost on Wallace. Before going off to law school, he himself was actually an artist signed to Epic Records, and his copyrights are about ready to fall into the category affected by this obscure provision. From a creative point of view, I can’t say I mind the idea of artists getting back their own work. In fact, I wouldn’t hesitate to reclaim my own publishing catalog from Universal Music, who has done next to nothing with it over the past decade. On the other hand, the idea of witnessing the complete dissolution of the infrastructure of the music industry is a little daunting. Doesn’t look real good for my future employment outlook.

Or anyone else’s. Don’t assume that this only applies to old guys who wrote big hit songs in the 70′s. This will affect every new artist and new writer, simply because it will dry up what little money the labels and publishers still have to spend. Almost no music company could survive by having today’s hits pay for today’s expenses. When companies begin to lose major hit catalogs from the past, it will make the digital revolution seem like the good old days. The “do it yourself” approach will become a necessity, rather than a choice.

This is a complex subject, and there are many nuances to the Copyright Act itself. But if you own copyrights that date back to the late 70′s or early 80′s you should certainly read up on Wallace’s article and study which termination rights apply in your situation. If you own a publishing catalog that includes older hits, you better either start diversifying into another area, lobbying Congress to change the Copyright Act, or making yourself absolutely indispensable to those writers that you represent. If you’re a new writer or artist, you better start envisioning your career without a record label or publisher to kick around– but you should have been doing that anyway.

Enjoy the Grammy Awards this weekend. But remember: the clock is ticking…

While the music industry dives into its annual orgy of self-congratulation, backslapping, and media fawning that is known as the Grammy Awards, it may want to notice that quiet ticking sound in the background. No– it’s not simply the sound of the clock running out on the CD format and the outsize profits that went with it. It’s the sound of a bomb getting ready to level the battle field once and for all, between the record labels and publishers on one side, and the artists and songwriters on the other. While it’s almost guaranteed that most of the industry players will bury their head in the sand (just as they’ve done with every major shift in business model over the past decade), no one can say that they weren’t warned. It was right there in Billboard, in an Op-Ed feature by music lawyer Wallace Collins.

“Copyright D-Day– An Obscure Provision In A 1976 Law Could Let Artists Take Back Their Work”

Forever, it seems, doesn’t mean forever anymore. And those words in your publishing or record contract that used to seem so scary– “in perpetuity” and “life of copyright”– just lost a lot of their sting. According to Wallace, an often overlooked provision of the 1976 Copyright Act may allow songwriters and artists to begin reclaiming the rights to their songs or their recordings from the record labels and publishers who thought they owned them “forever”.

For anyone that’s ever waded through the legalese of “an obscure provision” in copyright law, it will come as no surprise to know that there is a reasonably complex system of determining which copyrights are affected. But the bottom line is indeed pretty shocking. By the year 2013, only four years away, many composers of songs that are 35 years or older will be able to terminate their recording or publishing agreements, and reclaim the rights to license their own masters or publish their own songs.

Certainly, that’s good news for artists and writers. One of the cruelest elements to many recording and publishing agreements has always been the prospect of giving up control to your work forever, often at a very young age, when you have a minimum of bargaining power. The whole concept of a recording agreement, in which a company advances the cost of making the album, recoups it, and even after the album has paid for itself many times over, continues to own the rights to the master recordings far into the future, has always been a sore point with artist advocates.

On the other hand, it is the long-term ownership of rights that is the backbone of most publishing companies and labels. If a company like Columbia Records had to survive on the profits generated by current product, they wouldn’t last a week. It is the catalog sales– the Miles Davis re-issues, and the Dylan albums, and the Billy Joel records– that keep the lights on at 550 Madison (the lights are still on, aren’t they?). While there are publishing companies like Kobalt Music who have tried to develop a business model in which they administer copyrights on a short-term, easy to terminate, basis– no one has really shown that such a model can make money. There is no question that it doesn’t make the kind of money that built companies like Warner Chappell, where the cornerstone of the catalog is a collection of classic, standard songs owned in perpetuity. If your publisher or record label doesn’t return your phone call next week, it’s probably because they’re holding their breath– until 2013.

The truth is, in the battle between creators (songwriters and artists) and copyright holders (labels and publishers) the balance of power has been changing drastically over the past five years. In fact, it’s the empowerment of individual writers and artists to exploit their own music through the Internet and other venues that really makes the whole idea of terminating rights an appealing one to many artists and composers. When the Copyright Act was approved in 1976, artists needed record labels to get their albums into stores around the country. In the same way, songwriters needed publishers in order to collect their songwriting royalties from those labels.

But as CD sales evaporate, and licensing songs to film generates most income, TV and advertising, or selling the songs on I-Tunes, it becomes very hard to define what the record label is adding to the game. This is particularly true for artists who have big, legendary hits from thirty years ago, but are not currently receiving any promotion or marketing support from their record company. If Steely Dan can place a song in an advertisement or sell their music on I-Tunes, why should they have to cut the record labels, who haven’t spent a cent in promotion or marketing for the past 10 years, in on the deal? And if an act does get their master recording rights back, and is essentially marketing and selling their own music, why should they pay a publisher to collect the royalties only to pay the money back to them? They could just keep it all themselves. Say goodbye middleman. Potentially, say goodbye music industry– at least as we know it.

Interestingly, the good/bad, ying/yang quality of all this is not lost on Wallace. Before going off to law school, he himself was actually an artist signed to Epic Records, and his copyrights are about ready to fall into the category affected by this obscure provision. From a creative point of view, I can’t say I mind the idea of artists getting back their own work. In fact, I wouldn’t hesitate to reclaim my own publishing catalog from Universal Music, who has done next to nothing with it over the past decade. On the other hand, the idea of witnessing the complete dissolution of the infrastructure of the music industry is a little daunting. Doesn’t look real good for my future employment outlook.

Or anyone else’s. Don’t assume that this only applies to old guys who wrote big hit songs in the 70′s. This will affect every new artist and new writer, simply because it will dry up what little money the labels and publishers still have to spend. Almost no music company could survive by having today’s hits pay for today’s expenses. When companies begin to lose major hit catalogs from the past, it will make the digital revolution seem like the good old days. The “do it yourself” approach will become a necessity, rather than a choice.

This is a complex subject, and there are many nuances to the Copyright Act itself. But if you own copyrights that date back to the late 70′s or early 80′s you should certainly read up on Wallace’s article and study which termination rights apply in your situation. If you own a publishing catalog that includes older hits, you better either start diversifying into another area, lobbying Congress to change the Copyright Act, or making yourself absolutely indispensable to those writers that you represent. If you’re a new writer or artist, you better start envisioning your career without a record label or publisher to kick around– but you should have been doing that anyway.

Enjoy the Grammy Awards this weekend. But remember: the clock is ticking…