Songwriters May Never See a Dime from Apple’s New Music Service

The following guest post comes from longtime music industry attorney Steve Gordon.   

If Apple wants to launch their much anticipated, Pandora-like music service, they must negotiate directly with Sony/ATV for public performance rights.  That’s the word on the street, and if true, a dangerous turn of events.  The reason is that until recently, performing rights organizations — ASCAP, BMI and SESAC (the “PROs”) — offered blanket licenses on behalf of almost all the publishers, including all the majors.  This dramatically changes that, with negative repercussions for songwriters.

So why is Sony/ATV — now the largest publisher after taking over the administration of EMI Music Publishing — doing this?  After chatting with Marty Bandier, the company’s chairman, the New York Times reported that this is “simply an effort to obtain a higher royalty rate for [Sony/ATV] writers.” (Bandier was quoted as saying “This wasn’t us not wanting the service.  We want the service.  It’s like oxygen.  We just want to be paid fairly, no different than the NFL refs.”)

The truth, though, is that songwriters signed to Sony/ATV and EMI Music Publishing may never see a dime from Apple under a direct agreement. Here’s why:

I. Publishers Generally Don’t Share Negotiated Advances

Individual music publishing contracts vary depending on the bargaining power of individual writers or the negotiating skills of their lawyers (among other reasons). But almost all agreements have a provision similar to this one:

“In no event shall composer be entitled to share in any advance payments, guarantee payments or minimum royalty payments which Publisher may receive in connection with any sub publishing agreement, collection agreement, licensing agreement or other agreements covering the Composition.”

This clause was taken from a “model” contract from a book of entertainment agreement forms. Under this provision, if Sony/ATV extracted an advance from Apple, none of those monies would be payable to their songwriters. In fact, Sony/ATV has already negotiated an advance from DMX, another digital music service that provides stores, restaurants and other venues with background music via the internet. DMX paid Sony/ATV an advance of $2.7 million dollars, and in exchange, Sony accepted a much lower royalty rate than that charged by ASCAP and BMI.

In fact, DMX subsequently used that lower rate to successfully persuade the ‘rate court’ to reduce the amount that DMX pays ASCAP and BMI for songs controlled by other publishers (the rate court fixes the rates when the PROs and a music user cannot agree). This was another blow to the writer members of the PROs.

II. Publishers Generally Don’t Share Royalties from Collective Licenses

In addition to the clause quoted above, many music publishing contracts have a provision that states that no royalties from collective licenses, i.e. licenses covering other works as well as those by the songwriter, are payable to the writers. Under this clause, a songwriter would not see any royalties from Sony’s deal with Apple.

III. Many Writers are “Unrecouped”

Writers do not receive royalties from publishers until they earn enough money to pay back the advances that they received from the publisher. Yet most writers, especially those at major publishers such as Sony/ATV, are unrecouped because they never earn enough money to repay their advance. In fact, many writers never see another dollar from the exploitation of their songs except from the checks they receive from ASCAP , BMI or SESAC.  That’s because all these organizations pay the writers 50 percent of every dollar that comes in after deducting a relatively small administration fee (generally around 10 percent), and they pay that to the writers DIRECTLY. If they paid the money to the publisher, the publisher would use that money to pay itself back for unearned advances.

It is worth noting that the oldest PRO, ASCAP, was actually created by powerful writers such as Irving Berlin, and they initiated a system that would guarantee fairness to writers.

It gets worse.  Because a major reason, if not the only reason that Sony/ATV is withdrawing from the PROs in regard to digital licensing, appears to avoid having to pay its writers anything.  And not, as they claim, to make more money for them.  EMI already withdrew its digital rights from the PROs, and Sony/ATV will follow suit, effective January 1st, 2013.

If this becomes the standard operating procedure for all the major publishers (Universal, Warner/Chappell, as well as Sony/EMI) with other digital music services such as Pandora and Spotify, it could result in a major blow to the livelihood of many songwriters and composers.

26 Responses

  1. Visitor

    The solution for new artists is to use something like TuneCore (who’s also a PRO).

    • Visitor

      Tunecore isn’t a PRO.

      In fact Tunecore Publishing already goes direct (bypassing the PRO’s) for digital royatlies, exactly the same as what’s being proposed by Sony/EMI here.

      Is it a good/bad thing? That’s debatable…There are cost savings to be had by avoiding the PRO comission, and the it’s easy enough for digital services to report directly to publishers. However as the article points out it’s quite possible the Majors will go after huge advances which they don’t have to pay out and that the actual per play royalty rate for a writer won’t be any higher (or it could even go down).

      It also remains to be seen how the major publishers will handle the massive increase in data they will have to process due to direct deals!

      • Visitor

        Sound Exchange covers the digi cracks within all of the PROs. Just an FYI. They have literally millions in uncollected royalties because most artists do not know that they need to sign up for the service.

  2. Satan

    Ha Ha Ha Ha Ha!

    And the recording artists thought that songwriters had it easy. I am awaiting the schadenfreude.

    It looks like the new digital distribution business models are a windfall for music publishers too.

    First, find a distributor that is fat with cash (Apple or any other digital music distributor that has a cash reserve way exceeding their actual worth) then simply exploit contract clauses that many of your content providers either agreed to before there was an internet or agreed to because they had little or no choice.

    These clauses which previously were a bit risky for a publisher to utilize are now the best if not only way to do business now.

    My hat goes off to you Sony/ATV.

  3. The Insider

    Ah, striking similarity between the language contained in publishing agreements and that contained in recording agreements. Gotta luv it……..

    There’s nothing new or overly revealing in this article. It does beg one to ponder, “How many artists out there wish their attorney could actually see into the future and predict these sorts of calamities or scenarios?”If you answer that question, bingo, find a new attorney.

    Artists please stop feeling sorry for themselves, this is business. By now, SONY/ATV understands the value and contributions of its songwriters and will hopefully do the right thing going forward.

    Welcome To The New Music Business>>>>>>

  4. Realist

    If Sony/ATV leave ASCAP then the songwriters will be no worse off neither will they be any better off. ASCAP pay 50% of any performance royalties direct to the songwriter and 50% direct to publisher. If Sony/ATV leave ASCAP for digital deals any Sony/ATV signed songwriters will still receive their 50% of royalties from digital deals direct from ASCAP provided they remain members of the organisation. As for the 50% publisher share which Sony/ATV wishes to take away from ASCAP any royalties from direct digital deals would be paid to their songwriters like they would have been if ASCAP had negotiated the deal. In other words the composers under both scenarios would, according to the contracts you quote, not be entitled to digital income for the 50% publisher share.

    The reasons for Marty to pull out of ASCAP in respect of digital is to extract large upfront advances to demonstrate to his backers that they did the right thing in lending him the money to buy a declining business. He is being disingenious when he states it is for the benefit of his composers, not that the backers would care

    Its really just bad news for new digital businesses who have one more hurdle to cross in the Marathon Hurdle Race that it takes to sell music.

    • Nice Guy Eddie

      It is only bad news for new digital businesses whose entire business model is based solely on large scale market share and not on anything innovative.

      There are quite a few of them out there that convince investors that they will make a huge return on investment. They don’t offer innovative business models or products. Alll the new business needs to do is scale up as big as ….let’s say…facebook.

      Some of these companies that are good at self promotion are then sitting on a huge pile of cash.

      You can’t blame publishers and recording companies for smelling that cash and insisting on a huge chunk up front. Some even ask for a chunk of the company itself in case they need to do a bustout.

      So what if the new company fails. Since most companies do fail it’s better to bet on the don’t pass line, wait a few years and another new startup with a lot of money and nothing innovative to offer will appear and the betting starts again.

    • Steve Gordon (Author)

      Dear Realist:

      You have a good point. Although they will probably never see a dime from the big advances Sony/ATV will try to extract from Apple, writers affiliated with Sony/ATV or EMI (who are now de facto Sony/ATV writers), will receive their share of royalties from the PROs for monies that ASCAP, BMI and SESAC collect from Apple’s new service.

      This is because these writers will still be members of the PROs. Just because Apple is paying Sony ATV for the public performance rights for Sony and EMI songs, doesn’t mean they don’t have to pay ASCAP, BMI and SESAC. They still have to pay the PROs for all the other songs that Sony/ATV and EMI don’t represent. And when ASCAP, BMI and SESAC receive the money from Apple they will probably allocate the prorated share of those monies to ALL their writers including those affilaited with Sony/ATV and EMI.

      Also, and this is very important, Apple may well be able to reduce the amount of money payable to ASCAP, BMI and SESAC. Right now the rates are 1.85% for ASCAP and 1.75% for BMI of gross income, and a smaller amount to SESAC. But Apple may balk at paying the PROs approximately 4% of their gross income if the PRO’s are no longer able to license songs represented by Sony/ATV and EMI. In effect the value of the blanket licenses afforded by the PROs will be reduced because those blanket licenses will not cover EMI and Sony songs, and those songs represent a huge number of the most commercially successful songs in the world. The amount payable to the PROs may be reduced by private negotiation between Apple and the PROs, or Apple (or some other digital service) could initiate a proceeding in the “rate court” governing what ASCAP and BMI can charge and argue, as DMX did successfully, that the rates charged by ASCAP and BMI should be reduced. In that case all the songwriter members of ASCAP and BMI will suffer.

      • Visitor

        Thank you for the clarification.

        It is basic business sense that if a distributor makes an upfront deal like this then that distributor is also going to negotiate the rate paid to an SRO down to or near 0%

        Several commenters here suggest that the composer’s share of revenue won’t change and this is business as usual. They are part of the problem with the music industry.

        If you are a composer/performer and one of these individuals is your attorney or agent, my advice to you is hire a new attorney or agent.

        If these commenters represent publishers then composers should avoid those publishers, they will rip you off.

  5. Madjack

    Music companies can always be counted on to do the right thing… once they have exhausted the possibilities of doing the wrong thing first..

  6. zog

    The person writing this article is looking for head lines. This is a Sony/ATV business transaction nothing to do with the writers. Sony /ATV is looking out for there business which happens to be song writers. Headlines,headlines, headlines!!!!!

  7. foster

    You say that publishers generally don’t share negotiated advances with their writers. That’s generally true at the outset of an agreement like this between Sony ATV and Apple. However, when accountings are made to the publisher, and the earnings from that ongoing activity is recouped against the advance, the publisher is generally obligated to make payments to the songwriters at that time from the advance monies that they have received. Rarely are advances given to anyone in this industry that aren’t recoupable. So at some point, the writers will see their share of these monies. The advance to the publisher is just an inducement to sign the deal – it’s a matter of cash flow to the publisher and for Apple it’s about securing rights to any entire catalog. This is not a scam to cheat songwriters out of money. I agree with a previous respondent: Digital Music News is just looking for a headline.

    • Laura Merry

      When you have this “collective license” advance situation, while it is true the advance may not be shared with anyone else, when the earnings are reported, those earnings will be credited to all all the copyright owners by the publisher at the time they are reported. So, it might very well be that as between Apple and Sony/ATV (in this situation) the advance may not be “recouped”, but the publisher will process the earnings (as they contractually should) when those earnings are reported to them

  8. AB

    While there are some items within this article that are fact based, it seems to me that there are an awful lot of persumptions. When you can obtain proof straight from said publishers and songwriters, let me know. Lastly, if songwriter’s wouldn’t ask for such large advances they wouldn’t have a problem with their unrecouped status.

    • Visitor

      That’s a good point and one that a lot of people choose to forget, it’s like taking a bank loan and then complaining that they actually ask you to pay it back.

    • Bandit

      First, I’ll admit I am not an expert at this, but my personal experience has been that composers (especially those in pop bands) know the risk of taking money upfront and they generally don’t “ask for such large advances” they are prompted into taking it.

      When negotiating a contract, a few take the money and hope for the best. A few wisely say I’ll wait for the revenue.

      However, a majority who are on the fence have a manager encouraging them to take the money because the manager collects more money upon signing.

      So naturally a majority of artists are taking the money and signing publishing agreements in conjunction with recording contracts that they shouldn’t sign.

      • AB

        That is very true; however, with that said, it is not the publisher, manager or anyone elses fault that they decide on taking the advance. Time and time again it is proven to me that artists/songwriters (some not all) do not care enough about the business side of their art. The excitement about the possiblity of becoming the next big thing tends to outweigh common sense. It’s sad, but if you are dependent upon songwriting for your income then you need to take more responisibility and stop the blame game. If you get a $500,000 adv chances are incredibly high it will never (ever, ever) be recouped. Naivety is not an excuse.

        • Bandit

          Agreed. Everyone knows there is no such thing as free money (unless you are or personally know a politician)

          However, anyone who is getting a $500,000 advance has already made it. If they are complaining their contract they can try to sue their attorney for malpractice.

          and yes naivety is no excuse.

          but like I said when a performer/composer is on the fence and I personally know a few that were, there was a manager who was supposed to be representing their interests telling them to take the money.

  9. oracle

    $500,000.00 publishing advances are not very common these days. I signed a publishing deal in 1992 that had a $75,000.00 advance, and that amount was offered by the publisher. It was split 5 ways ( 4 band members, 1 manager ), but prorated by actual members’ shares of the actual compositions contained on the pending release, which was on a major label, with an expectation of a top ten single.

    Considering that this advance was supposed to help support an entire band while waiting for the record sales profits and radio performance royalties from outside the US, which would arrive approximately 18 months after sales and broadcast reports, the advance was not extreme, unwarranted, etc. During those months following the advance, the band was expected to be available to promote the release, make videos ( whose budget is also part of the overall monies advanced by the publisher ), and also work on material for the next release, tour, etc., so it’s not like the band members could keep a regular job on the side. In fact, the number of work hours in the average bandmembers’ day is around 14, so besides possible profits from merch or public appearances, an advance is the sole means of survival for a “signed” artist until sales profits and/or PRO income is generated, accounted for and payed out to the band member.

    That advance is also used to buy and maintain equipment, costumes, labour for touring, etc. ( running the company, so to speak )

    I find it hard to get why Pandora, and the like, are expecting to profit from exploiting music that the actual creators and artists haven’t even profited from. It’s equally baffling how a responible business doesn’t factor in the cost of the product it is selling before going into said business.

    Lastly, DMCA is a evolutionary act, which restored performance rights to artists and recording owners. Every industrialised nation , besides Korea, already pays artists and recording owners for performances, regardless of the kind of transmission – terrestrial radio in France has been paying artists on traditional radio for decades. They are governed by the Moral Rights Clauses that are mandatory in contracts and agreenments between artists, composers, producers, coreographers, etc. ( creators ), and the production companies, record labels and broadcasters.

    I don’t have any intimate knowledge of European Radio, but I think it’s safe to say that somehow, they were able to pay creators and stay in business.

    Instead of going with Korea, perhaps we should follow France into a moral highground, and agree that if you want to have a successful internet radio business, you will have to step into the future of music, and not expect the world to devolve simply to support the very selfish viewpoint that if American terrestrial radio can avoid the moral highroad, everyone should also be able to, despite the fact that there are new laws that are set in place to prevent that, and then they have the audacity to claim that they are being treated unfairly.

    If you want to make obscene profits, start a videogame company. It’s 2012, not 1972. Look forward, not backward.

    I, personally, would like to see a compromise that is “fair” for everyone, whatever that is.

  10. Carolyn Mitchell

    I can’t imagine what life is like for a songwriter now. This is blatant thievery. Yes, we will take your music and make millions of dollars from it, but we are not paying you a dime. Even stars are paupers.

    • Ludwig Van

      Ahh, remember the days when a composer’s success and to a large degree very existence was dictated by an elite group of entitled royalty?

      I am so glad that this new digital age allows the modern composer to free themselves from the shackles of tyranny