Why You Haven’t Been Getting Your iTunes Match Mechanical Royalties

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I was tipped off on Tuesday by a royalty collections company (working on behalf of publishers) that they hadn’t been receiving iTunes Match mechanical royalties from distribution companies. Immediately, I shot back, “isn’t that the responsibility of iTunes though?” Not exactly.

Congress has decided that “Locker” cloud services are a different mechanical royalty category than streaming or downloads.

Let’s step back. Mechanical royalties are royalties specifically for songwriters (usually collected by publishers). These come from sales or streams. Everyone knows that the statutory rate for mechanical royalties for sales is 9.1 cents per download or physical replication (like from a CD or a vinyl). And (in the US, Canada and Mexico) the rights owner (label or artist) is required to pay the publisher this mechanical royalty.

When it comes to streaming mechanicals, it gets a bit more complicated. The calculation deals with a percentage of the streaming service’s gross revenue. However, Congress tried to make the ratio about the same. $.99 per download sale to 9.1 cents for the mechanical.

hfa-streaming-guide

 

All interactive streaming services are required to pay streaming mechanical royalties directly to publishers.

When it comes to “Locker” services (or Cloud/Match whatever you want to call it), it gets even trickier. In the US, there are only 3 companies that currently offer some kind of cloud scan and match, Locker service: Amazon, Google and iTunes.

In US Copyright law there is also a specific breakdown for what Locker mechanical royalties are. Like streaming mechanicals, it’s similarly complicated to calculate this.

hfa-locker-guide

Amazon and Google opted for the compulsory license and will pay the publishers the statutory rate directly.

However, iTunes’s Match actually came out BEFORE the clause was added to US Copyright Act. It is so new that everyone is playing catchup.

iTunes didn’t want to wait until Congress created Locker mechanical rates, so they decided to place the burden on the distribution companies and labels. In the iTunes contract (read the entire contract here), in Exhibit J “Cloud Features,” Section 6 (a) (ii) it states:

“COMPANY hereby agrees to administer, on ITUNES’ behalf and on at least a quarterly basis, the
payments for Incremental Publishing Rights related to Eligible Content to the appropriate music publishers or other applicable rights holders or administrators (“Publishers”). To that end, ITUNES will provide to COMPANY, at the same time and in the same manner as the payments under Paragraph 5 above, an amount equal to the Publishing Payments, which monies COMPANY will hold in trust until paid by COMPANY to the appropriate Publishers.”

This means, that COMPANY (the distributor) will receive all iTunes Match mechanical royalties (and accounting reports) and the distributor is required to pay the publisher directly.

By law, the rights owner (label or artist) is required to pay the proper party (publisher or songwriter) the appropriate download/sale mechanical royalties. By law, the streaming services AND Locker services are required to pay these to the publishers. HOWEVER, because iTunes Match predates this new law, iTunes put in their contract that the distributor is required to pay this directly TO the publisher. And NOT pass these royalties along to the label or artist to deal with.

However, it hasn’t been happening.

Audiam is a digital rights management company hired by thousands of songwriters, publishers and labels, including The Red Hot Chili Peppers, Jason Mraz, Dolly Parton, Metallica, Jackson Browne, James Taylor, Graham Nash, and the list goes on. They started as a company that collected ad revenue from YouTube and have now evolved into a for-hire “go get our royalties, cowboy” service.

+Jeff Price And Audiam Look To Fix YouTube’s Royalty System

Apparently even big publishing companies don’t understand how these royalties work or how to get them. So they hired Audiam.

Audiam (more specifically, Jeff Price) has been out seeking these iTunes Match mechanical royalties from distribution companies and labels and has not been able to get them.

“All I can say is we have never received any iTunes scan and match money from anyone.  We represent some large and important catalogs.  We are a pretty public company and easy to locate.  ” – Jeff Price, CEO, Audiam

Because this type of royalty is so new to distribution companies (who’ve never traditionally had to deal with distributing mechanicals), they don’t have the accounting setup to calculate or distribute these kinds of royalties.

Audiam has setup an accounting system in place specifically to calculate these royalties. Audiam has been trying to convince distribution companies to pay for this service so they can calculate what they owe Audiam. And then of course pay Audiam that amount. You can see why many distribution companies haven’t taken too kindly to this.

Some have used Audiam’s system for their accounting, but most have contracted Harry Fox Agency’s Slingshot services for this accounting, reporting and payments – but only AFTER Audiam came a-knocking for these royalties.

I spoke with many distribution companies to understand their take on why they haven’t been paying these royalties, and most of them thought I was working directly with Jeff Price (yes I consulted him as well).

Apparently, no other publisher even REALIZED that they were owed these iTunes Match mechanicals. And have never asked for them.

Price continues, “iTunes Match has been live for almost three years and there is three years worth of revenue. As I understand it, there are over 3,000 entities in a master deal with Apple in North America. Almost all of them received the money owed to someone else and agreed via a contract to pay it to them. They have not. I suspect that even if it is a little money from all 3,000 entities, when you add it all together it’s a lot.”

I contacted many independent distribution companies to see if they pay out these iTunes Match mechanicals.

My email read:

“It has been brought to my attention that (YOUR COMPANY) is not paying publishers the mechanical royalties owed to them from iTunes Match. As written in the iTunes contract under Exhibit J (Cloud Features), Section 6(a), COMPANY (YOUR COMPANY) is responsible for paying these mechanical royalties directly to the publisher from the cloud service iTunes Match.

 

As you know, Amazon and Google have opted for the compulsory license and are required to pay publishers directly these (Locker) mechanicals, but iTunes chose to negotiate this directly with each distributor. So the responsibility has been on the distributor to pay these mechanicals. By US Copyright law, Locker mechanical royalties are different than streaming (or download) royalties.

 

Can you explain why you haven’t been paying these mechanicals to the appropriate publishers? Or if you have been, can you put me in touch with a few publishers you’ve paid to confirm this?”

No distributor could list a single publisher they have paid. But many have indicated that they have enlisted Harry Fox Agency (HFA) to account these numbers and pay out the publishers.

I spoke with John Raso at HFA to get an understanding of what is actually going on. He explained that HFA’s rights management and accounting service Slingshot helps labels, distributors, streaming services and virtually anyone else that is required to pay mechanical royalties. Many distributors have JUST started using Slingshot to account, report and pay these owed iTunes Match mechanical royalties.

“We’re essentially their administrative back room.” John Raso, Harry Fox Agency

Here’s what a few of the indie digital distribution companies had to say:

INgrooves:

While we do not publicly disclose the details of our heavily negotiated, confidential deals with our retail partners, we can assure you that, in our 12 year history of representing independent artists and labels, INgrooves Music Group has always made timely and accurate payment of royalties our number one priority.

Believe Digital:

– We do not manage publishing/mechanicals for the vast majority of our UK and US clients (they have not granted Believe the right to do so and manage publishing themselves); as such we have no responsibility to obtain those licences, our clients have;
– For clients that have granted those rights to Believe, we have a mix of solutions to pay publishers directly or indirectly (most of European publishers have granted rights to their local collective societies, including for the US and we have direct deals in place with those societies). We are currently looking at an additional solution to accelerate the payment to US based publishers – a very small portion of our catalogue -;

 

I have to admit that the structure of these rights for us is fairly cumbersome for a very small stake at company level (less than 30 K$ of money owed to publishers since the launch of those services). Taking into account what is being paid out to collective societies, we are talking about an issue that represents less than10 K$ per year for us. I hope that collective societies or companies like Audiam and others build solutions to provide one-stop solutions for issues like these.

Tunecore chose to offer no comment on this matter

CD Baby:

CD Baby has contracted with a third party to both administer these iTunes Match royalties and audit past iTunes Match reports to ensure that appropriate payments are being made to publishers. Our 3rd party provider has a large database of both affiliated and non-affiliated publishers to match against the data from iTunes.  This provides matching for the vast majority of non-controlled compositions but for those that remain unmatched, additional manual research is done using lead information provided by the artist when they set up their tracks for distribution. When a match is found, the publisher would get their share paid out via our 3rd party provider.

DistroKid:

DistroKid does not distribute covers and has a check box that every artist/label must check that confirms all music (and publishing) is owned 100% by the artist distributing it (therefore ensuing the money flows back to the songwriter).

Loudr:

Due to the confidentiality clause, we can’t share the specifics of our contract with iTunes and who pays what. But, as you know, Loudr is focused on helping artists legally monetize cover songs, so I can tell you that paying mechanicals to music publishers (and holding them in escrow when publishers cannot be located) is an important part of our business.

Venzo Digital:

iTunes Match royalties are something we are currently paying to our Venzo users and will begin to transition into our Streammer brand next year. It’s very crucial artists are able to maximize their earnings potential on the iTunes Store.

The Orchard didn’t respond in time with a comment.

Ditto Music:

Are you a lawyer now Ari or are you simply blackmailing a hard working company that you know nothing about for the sake of a few web hits?

 

Your source will have been Jeff Price who knows the legalities of his bogus claim more than you do unfortunately.

 

Which is why he is not taking any action himself.

 

If you had looked into this properly, with ourselves and the Harry Fox Agency who are helping with this then you would not be issuing such a threat.

 

I have a great legal team and a wealth of knowledge on this subject that you clearly do not.
I understand you asking me about this. I do not understand you blackmailing me for a comment so that you can get hits on your website.

 

I won’t be commenting to you and my legal team will be combing your articles with a look to sue for every libellous (sic) comment printed.

 

Paul. As a supporter, writer and an advertiser on your site. Consider our relationship terminated if  i ever hear from this “employee” again.

 

L”

+We Asked Ditto If They Pay Mechanical Royalties. This Is What They Said…

Not quite sure how my inquiry merited this response unless Ditto is seriously hiding something. Which makes me think they are.

But Parsons did mention they are working with HFA. Most companies wanted to keep who their third party is quiet. Raso mentioned that Ditto just recently hired HFA to help them account and report these and because they are only required to pay once every quarter (per the iTunes contract) they have not yet paid out these royalties (from the past 3 years) to publishers, but will doso when the quarter comes around.

Now, I don’t think any distributor has been withholding this money maliciously. I think they just didn’t realize they had to pay this. And don’t have the proper accounting and reporting systems in place for this very new payment structure. And that’s why many have enlisted a 3rd party (like HFA or Audiam) to handle this.

And honestly, these mechanicals don’t add up to much.

Most people don’t even know what iTunes Match is, let alone use it. But even if it’s just a few bucks here and there, when added up all together could be a lot for a publisher (or royalty collection firm), like Audiam. Hence Jeff Price’s crusade to gather up these royalties.

But, the fact of the matter is, these royalties are owed to publishers (and songwriters) and regardless of how much they are, they should be paid.

Ari Herstand is a Los Angeles based singer/songwriter and the creator of the music biz advice blog, Ari’s Take. Follow him on Twitter: @aristake

 

19 Responses

  1. MikeShupp

    I use iTunes Match, and love it. My entire library on my phone, without taking up any space. And, as an artist myself, I do see royalties being administered and paid via CD Baby.

    Reply
  2. AwwwwDamn

    they call it “advertorial” and it’s a reality in the modern world of digital publishing. the troubling part is that reputable publishers usually disclose somewhere on the page that they’ve taken money to write a story but I guess DMN is too “rogue” for that.

    Reply
  3. Robbie Fields

    I am cross posting as Taleban Ari is doing the same.

    Anywhere outside North America Apple is paying these mechanical royalties. They ought to be in North America, too, but their PhDs and J.D.s have maintained the fiction that iTunes is not a licensee of music, merely a retailer. By that logic, the digital distributors aren’t either : they are wholesalers and wholesalers have only ever been responsible for mechanical royalties only if they import (a red herring here).

    As Apple has passed the buck to the distributor/aggregator level, the latter in turn contractually require the provider of the recordings to do the actual mechanical licensing. Some on the middle tier sensibly duck this issue by refusing to distribute “cover” recordings (but may do so unknowingly).

    Yes, Ari you’ve turned a technical issue into a moral crusade. Nobody above the label and recording level is misappropriating these nano pennies. I hear you crying … it’s the principle! You dare not reveal how much is at stake here. Yes, you make an oblique reference to how little.

    Apple (iTunes) pays a gross amount to the aggregators and their other direct accounts. The aggregators take their usual cut and pass on the reduced amount to the labels. Do the indie labels and vanity labels break out the mechanicals from their gross receipts and account? Rarely, sad to report. For 30+ years, indie labels have resisted proper mechanical licensing and accounting. You see it does not go well with their artists to see their piece of the pie shrunk to accommodate others.

    The very real problem for publishers is getting a full accounting of all mechanical royalties from North American sales made by the Big 2, iTunes and Amazon.

    If Jeff Price wants a crusade, go pick on them, not some pisher distributors trying to do the right thing and caught unawares on a purely technical issue.

    Reply
  4. Anonymous

    JP would probably get better results if he wasn’t cold calling labels and aggressively accusing them of owing him money. But that’s just Jeff being Jeff I guess.

    Reply
    • seconded

      Or at the very least, if you’re demanding money from someone, come armed with like which bands/songs/releases you’re owed money on.

      Reply
  5. Average Music Label

    Oh, that happened to you guys too? I am hearing from dozens of record labels that Jeff Price is making these accusations to them claiming that he has the publishing or even sending very poorly sorted spreadsheets expecting us all to go through them for him. This so-called start up what’s it called, Nauseum? is a joke. No wonder he got fired from his own company. When is DMN going to write about how he screwed up the ISRC numbers for TuneCore?

    Reply
  6. Jeff Perry

    So Ari I checked out your music and realized why you became a journalist, or at least are trying to become one. Now I read this article and have come to realize that you’re equally as horrible of a journalist as you are a musician. It’s time to move on to yet another new career. Maybe third time’s a charm?

    Reply
    • Nina Ulloa

      Ari’s music is not the kind of genre I’m into, but I think it’s pretty obvious that he’s successful at it. H8rs gonna h8.

      Reply
      • JUSTIN MAYER, look me up ill say it to your face if you need... :)

        No doubt…

        I’m a music LOVER, and Ari would be considered competition of course since i do it as well, and even saying that i can say that he has some really good music, well written and put together. Some of it sucks of course as does some of mine to certain people, but overall the music business is such a festering shithole of assholes its unbelievable. Always having to take shit from people who dont make music, they are jealous and they take it out on others by trying to break them…. I cant stand it….

        So many little dick big ego insecure people in it for the wrong reasons. To be famous to get attention etc. And all they do is try and kill others careers all the time with their slave driving militant piss down and shit on people.

        It is one of the most toxic shitholes ive ever had the pleasure of being in, and thats why im like why im like. I dont take asshole little minded neanderthal bullshit like that of whoever that Jeff Perry douchebag is!

        Real hard to stay classy in the old music biz.

        Reply
        • Anonymous

          Music business has become about gang and posse wars instead of music… its the dumbest lamest shittiest thing around, that is fo sho…

          Reply
          • Anonymous

            so what they do now is try and make music free and that makes it impossible to get anywhere career wise… they dominate the market and claim anyone not with them has no chance, no career, terrible music and will do anything to scuttle them

            and the best part is the low indies are pushing the free thing just playing right into the big boys hands…

            They are losing their importance and are scrambling to re assert and perpetuate it. They want all roads to lead through them. This is happening in more industries then one. Its a scam….

            It is going to be harder and harder going forward for anyone not with them to break into the music biz and generate a career at it. The fact Ari supposedly has, makes him a target for assholes like that.

            Anyways, life goes on…

          • Anonymous

            well just throwing stuff out there seeing if anything sticks anyways, who knows, i actually have no idea about anything, im sure as all the marketing suggests, we are currently living in Utopia and no one would ever do anything like that…

            Could be it all is just happening, who knows… I know nothing and that is all i know…

  7. AwwwwDamn

    If this site took no money for this story then, judging by the content and the way it was researched, its safe to say you are either highly susceptible to editorial manipulation by outsiders, or need to go to business school to learn how to make money.

    Reply
  8. steveh

    What I observe:-

    1. iTunes Match mechanicals are surely pretty small beer. Why such an eruption over such a small anomaly?

    2. Lee Parsons of Ditto could have just replied non-combatively and blandly saying that Ditto were looking into the question. Why the big eruption of agression?

    3. This guy Jeff Price seems to generate a lot of negativity. How therefore will he achieve his aims if the companies can’t stand to deal with him? Personally I find his approach to arcane digital publishing royalties opaque and confusing.

    Reply
  9. Lost

    Hey, people, calm down. Old-schoolers like me need Itunes so we can ‘get our music on’ with as little hassel as possible. Artists need to be paid for their art – and I need to be able to purchase music, burn it to a CD and make myself HAPPY!!!! HURRY UP AND GET THIS RIGHT!!!

    Reply
  10. Colorado

    I thought this article was quite informative (as a baseline) for the non-industry curiosity seeker. What I’m really curious about is how an artist like Tool is compensated for songs I ripped from CDs and uploaded to iTunes Match. If it’s not matched to anything in the library, does it not generate any royalty?

    Reply

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