How Private Copyright Deals Are Cutting Artists Out…

The following guest post comes from Kristelia Garcia, a Visiting Fellow at Yale Law School, and a Visiting Associate Professor at George Washington Law School.  She’s also a former executive at both MySpace Music and Universal Music Group.

 

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[DMN Update: US Federal Court judge Denise Cote has just ruled that Pandora direct licensing deals are a violation of law.  More on that here.]

quotationmarksIn June 2012, DMN reported a new, private licensing deal between Clear Channel and Big Machine. That deal shook up the industry by doing two significant and unprecedented things: first, it circumvented the statutory license, and SoundExchange, for the first time ever.  Second, it established a terrestrial performance right – a right that not only doesn’t exist under the current copyright laws, but which has been hotly contested in the music industry for decades.

DMN has reported on a series of copycat deals since that initial deal, all with smaller, independent labels like Glassnote and Fearless.

Then last week, the first major label deal came down when Warner Music Group and Clear Channel announced a “wide-ranging strategic alliance” in which Warner “will share in revenue from all platforms.”  The deal covers all Warner artists across all Clear Channel platforms, including all of its broadcast radio stations and its iHeartRadio digital service.

The fact that these private deals are happening at all points to serious problems with the statutory regime, originally put in place by Congress to make content licensing easier and more efficient.

To the contrary, broadcasters and record labels have demonstrated that they can do better on their own, both in terms of cost savings and promotional advantage.

First, the cost savings: Under the terms of the private deals, both performance royalties – digital and terrestrial (the latter of which doesn’t even exist under the statutory license) – are paid directly from the broadcaster to the record label. This potentially saves the parties money on two simultaneous fronts:

(1) they save on SoundExchange’s administrative fee; and

(2) they save on the statutory license’s direct-to-artist payment requirement.

(The statutory license requires a portion of royalties collected be paid directly to songwriters, recording artists, musicians and vocalists. Private deals avoid this payment altogether).

As for promotion, record labels stand to gain a potential promotional advantage for their artists in the form of increased feature opportunities on the platform, while broadcasters may benefit from early and exclusive content.

So to recap:  we’re seeing cost savings for broadcasters and labels, and better promotion for artists – so what’s the problem?

Unfortunately, there are several, and they affect the very parties the system is intended to protect: artists and the small guy.

For one thing, payments that go directly from broadcaster to record label bypass artists, leaving them to collect solely under the terms of their recording agreements (which often leave unrecouped artists with nothing). Under the statutory license, artists are paid directly, regardless of recoup status.

In a rare moment of clarity, Congress recognized the divergence of interests between labels and artists, and put these protections in place specifically to keep artists from getting cheated out of their cut, but now the private deals are cutting them out anyway.

Another problem with these private deals has to do with rate setting.  Because terrestrial performance rights do not yet exist, there is no statutory rate for them. By being “first to market” with a rate, Clear Channel and Big Machine (and the other private dealmakers) can significantly influence the future rate by presenting their private valuation as a “market” rate (after all, theirs is the only terrestrial performance rate for the CRB to look to).

Next, as more and more parties opt out of the statutory license (and, by extension, SoundExchange), the parties left behind suffer under a SoundExchange that is both poorer (since it is now both collecting fewer revenues in the form of admin fees), and weaker (since it now represents less content, and so presents less value to potential licensees).

Is it worth it for a broadcaster to do a blanket deal with SoundExchange if they’re going to have to do a separate deal with Warner, and Big Machine, and Glassnote, and so on?

Finally, as more and more players opt into private deals, the value of those deals themselves is diminished – think about the Big Machine artists who have given up their direct royalty payments in anticipation of getting special promotional treatment from Clear Channel, only to now find the full roster of Warner artists join the fray?  And now that the full Warner roster is on board, how valuable is it for another label to join up?  How many artists can Clear Channel “feature” before the privilege loses its value?

 

This is the problem with the bandwagon effect – you’re damned if you do, and damned if you don’t.

This doesn’t mean all hope is lost.  A couple of modestamendments could allow private dealmaking – and the efficiency it brings for some parties – to continue, without harming artists or misrepresenting market rates.  With Register of Copyrights Maria Pallante calling for a full rewrite of the copyright laws, the time to push for these artist protections is now.quotation-marks2

8 Responses

  1. Amanda Harcourt
    Amanda Harcourt

    In addition, these direct deals do not release licensees from their obligation to pay performers (for example) outside the USA. There is a worl dof creators outside the shores of the States and they have rights that are different from those that prevail in the US. Perfomers in countless countries have a statutory right to revenue when their recorded performances are broadcast or publically performed. What about the payment to them by Clear Channel? In Germany the right is vested directly in the performer and the labels have to claim from THEM. In other countries, the right is vested equally in label and perrformer. So Clear Channel should still be acquiring and paying for licences from the performers in these countries. Also, contractual provisions usually state that an artist (or songwriter) is only paid of the revenue is directly and dientifiable attributable to their work. Lump sum payments will not find their way to the talent. There is a system, Use it! Doubtless tech companies want their money to find its way to the creators. There should be an insistence on the licensor accepting line by line music usage (all technologically possible) from licensees so that the labels and publishers have to pay the singers, musicians and songwriters the revenue share the corporations have cntracted to share. Otherwise these licences merely become, from executives and shareholders perspectives, exercises in the extraction of capital.

    Reply
  2. John Cate
    John Cate

    Thank you for an incisive perspective. The only solace for content owners and creators is that terrestrial radio is dying so this turn of events (not new, as you pointed out) is relatively short-lived. What is ironic is that industry stakeholders continue to fight each other for slices of a shrinking overall pie under the illusion of “empowerment” when the shrinking pie is actually a result of their collective disempowerment. The real battle is about reimagining broadcast rights in the internet era. The re-write of copyright must reflect practice- whether we like the practices or not- and be mindful of the impact of new media on the economics of our creative practices and all participants in the value chain- writers, labels, and others- and the fact that revenue sources for recorded music are shrinking as consumer behavoirs change. What is really needed in an era of huge business (lets not forget the entire gross revenues of the US recorded music business are smaller than the NET income of Apple) is a unified voice. This can come via our PROs including SoundExchange. The PROs must get with it and assume a leadership role and voice, lest they lose their relevance entirely, which would ultimately be a defeat to the industry, not a win.

    Reply
    • Radio & Records Vet
      Radio & Records Vet

      The only solace for content owners and creators is that terrestrial radio is dying so this turn of events (not new, as you pointed out) is relatively short-lived.

      Boy do I ever disagree with this statement. If you’re 20 perhaps you see an end to terrestrial radio. I’m pushing 60 – and the end is nowhere in sight. In fact, major broadcasters are currently utilizing analog spectrum to broadcast HD signals – and more and more of us are migrating to using platforms like iHeart radio.

      The only thing that will really change is that we won’t use FM or AM spectrum to broadcat OTA, we’ll use digital data delivery mechanisms .. in 30 years AM/FM won’t be remembered outside of a museum – or old guys.

      In the case presented there is no solace for content owners and creators … if a major group such as CC can negotiate the rates out from under SoundExchange, that means that any broadcast OTHER THAN terrestrial is at risk of a) not having the royalty paid directly to the musicians on the record (who obviously have to file to claim those royalties) .. and b) being lower than the statutory rate mandated under current law.

      Reply
  3. Music observer
    Music observer

    A bit embarassing to see a visiting professor at Yale and GW make such misunderstand so much of music licensing. Someone should fact check for the author to make sure they understand what they are writing about.

    1. “(The statutory license requires a portion of royalties collected be paid directly to songwriters, recording artists, musicians and vocalists. Private deals avoid this payment altogether).” This statement is false. The statutory license in Section 114 does not govern the payment of royalties to songwriters.

    2. “they save on the statutory license’s direct-to-artist payment requirement.” This statement may or may not be false as a sound recording copyright owner direct licensing their works may still have the 50% artist share paid to SoundExchange for distribution to artists. Without the terms of a license being disclosed, no one could say whether artists lose their share.

    3. ” first, it circumvented the statutory license, and SoundExchange,” The author should know that the statutory license contemplates and even gives precedence to direct licensing, making the use of the term “circumvent” misleading.

    4. “Second, it established a terrestrial performance right – a right that not only doesn’t exist under the current copyright laws” A private deals does not establish a terrestrial performance right; that can only be done by an act of Congress. The deal gives the copyright owners a share of revenues from terrestrial activities and I would expect that upon termination of the agreement between the licensor and the licensee there is to be no implication that royalties are due for any public performance by means of terrestrial exploitation.

    Reply
  4. The Denmaster
    The Denmaster

    These deals hurt independent artists and the artists that do them. They also hurt the audience and force classic rock onto the airwaves forever. Younger audiences have to leave the current distribution channels to find their voice. These guys want to lock you out of the airwaves and keep playing the same old boring music they grew up with and have under contract for pennies.

    Reply
  5. flashlight2013
    flashlight2013

    The question for September from http://www.flashlight2013.com :

    “How many more sealed court cases do we have to endure, before WE THE PEOPLE, become part of this cover-up too!?”

    This quote came to us as a result of our reporting on the Federal Court cases that have been placed “under seal” (hidden from the public) and outline some of the Armen Boladian lawsuits related to the extensive list of copyrights he has “mis-appropriated” including:

    * There are over 300 Federal Court cases in Nashville that have been hidden from public view, for what reason we are not sure… (over 300 court cases and their transcripts, not just the exhibits or documents!)

    * The Special Masters agreement between Armen Boladian’s company and others, which has been called “the collusion agreement” by some of the artists that have been victimized by it.

    * The Jane Peterer deposition that contains Copyright Office fillings that show the “potential fraudulent activities” of Armen Boladian, his company and their business partners including Universal Music Group and B.M.I.

    We have Ms. Peterer’s non-sealed deposition on our website here: http://flashlight2013.com/depo.html and we continue to call on the NY TIMES and ABC NEWS to grow some balls and finally report on the facts they have uncovered,….which are summarized here: flashlight2013.com/motiontounseal.html?_ga=1.146804863.919432567.1377051678

    ABC Detroit showcased a 4 minute interview on this exact issue in February 2013 and then were immediately “forced to remove it from all websites worldwide”.

    Why did this happen? Why did the reporter have to “retire” immediately after the report? Why is the NY Times not reporting the facts they have uncovered? Why is no other media outlet picking up this story?

    We believe it is part of the continuing “cover-up” and we now call on President Obama and the “Gang of Four” to investigate and act on our complaints.

    #‎WARPATH‬ ‪#‎FLASHLIGHT2013‬

    Reply

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