Why Direct Licensing Deals Won’t Benefit Songwriters…

  • Save

Steve Gordon is a top music industry attorney.  In this open letter to Congress, he tries to explain why direct licensing with services like Pandora is actually detrimental to songwriters.

Dear Senator Lee,

Greetings. Earlier I watched with a great deal of interest the above referenced hearing.  I am a music attorney, and author of the The Future of the Music Business (Hal Leonard 4th ed. 2015).

I would like to share with you an article I published on a related topic.

Direct Licensing Controversy: Will Publishers Be Able to License Public Performance Rights To License Public Performance to Digital Music Services Directly (Instead of Through the Performing Rights Organization) and What Are the Consequences for Songwriters? (pages 72-76)

This article focuses on a crucial issue:  If the major publishers were allowed to enter into licenses directly for the public performance of their songs with digital services, songwriters could be badly hurt.

Here’s why: if large publishers could bypass ASCAP and BMI and negotiate directly with digital services such as Pandora, they could probably secure huge upfront advances in exchange for granting a license to play their songs. However, if this happened most songwriters would never share in this money.

Standard music publishing agreements include a clause that states that the publisher does not have to share monies that it receives for “unallocated” advances.  This means that if the advance received by a publisher was for all songs in their catalogue, i.e., a blanket license, they would not have to share any of that money with their writers.  But if major publishers entered into direct deals with digital services, those agreements would most probably be for all songs in their catalogues.  Therefore, the advances would be “unallocated,” that is, not tied to any particular song or songs.  Also, most songwriters are “unrecouped” — meaning the publishers provide advances to them and then take all the money their songs generate until the advance is paid off.  But when ASCAP or BMI collect the money from music users they pay the writers 50% directly and 50% to the publishers directly. If the publisher received the money, most songwriters would not be paid because most writers are unrecouped.

I think this is a huge danger and must be recognized.  In her testimony, attorney Ms. Jodie Griffin pointed out that when the major labels enter into direct deals with the digital services they also try to receive huge upfront advances (as well as equity) and they generally do not share this money with their artists.

If the major publishers, which are all affiliated with major labels, could do direct deals with the digital services, I think this is likely to occur again, and the songwriters would suffer.

I would also like to point out that many of the music organizations that purport to represent songwriters have an inherent conflict of interest. I believe their leaders sincerely would like their songwriters members do better financially. Yet the publishers, particularly the majors, have a huge amount of influence on their positions. Moreover, these organizations have a duty to support the interests of their publisher members as well as their songwriters members.

In short, while changing the consent decree or allowing the major publishers to do direct deals may be very good for the publishers, particularly the majors, it may be disastrous for the songwriters.

My article explains these facts in detail.

Please let me know if you would like to have any further conversation on this matter, or of you had any questions for me. Thanks you in advance for your attention.

Best Regards,

Steve Gordon

  • Save

17 Responses

  1. Ari Herstand

    Well put! Thank you for pointing this out Steve. Of course, we’ve seen similar things happen with label advances from streaming services – which of course never get passed down to their artists.

  2. JTVDigital

    This is very interesting.

    We have many similar cases in Europe.

    Technically any major record label (yes I write “label” instead of “publisher” since all major labels have a publishing division or sister company that songwriters whose songs are released by the major label are gently “invited” to sign their publishing with) are in a position to bypass PROs (what we call collecting societies here, not exactly the same since US-based PROs only take care of performance royalties whereas collecting societies directly or indirectly manage performance+mechanical royalties) when it comes to digital services.

    Why are majors in a position to bypass collecting societies? Because they receive all the data from the digital services, and they have the technical infrastructure to process this data (with more or less luck) what most collecting societies still unfortunately struggle with.

    It did not happen yet, but it could, at anytime. So far this “power” / capacity / option has been used as a leverage (blackmail) to obtain favorable agreements when it comes to revenue splits with some digital services.

    When it comes to digital services, any major label or even digital distributors could very easily bypass collecting societies (if they were collecting the corresponding royalties for performance and mechanicals, which is obviously not the case at the moment).

    • Sarah

      So we’re kind of addressing this issue on RepX (the first streaming marketplace – opening for artists soon). Would love your feedback.

      On RepX, we have features to automatically send data and royalties to designated rightsholders.
      Basically, when the content is uploaded you have the option to designate other individuals/companies who have rights in the work, as well as to allocate royalties directly to them so that all of the accounting, processing, and payments are handled centrally and automatically. Relevant information is completely available and transparent to all interested parties (legally interested, that is).

      That way, when content is streamed and/or money is earned, every interested party gets the information (and payment, if they choose to use the system) instantly and directly from RepX.

      Our goal is to be more efficient but also to introduce significant transparency into the process.

  3. George Johnson

    It is a problem, but not that big of a hurdle. Artist attorneys such as yourself, managers, and artists have to determine and per-play value and negotiate for it like normal people. Keeping 100 years of socialist centralized economic planning at $.0000001 for a Spotify play because we are all SCARED.

    Furthermore, as far as this the 3 majors “could” leave ASCAP and BMI and “could” cut deals with Pandora, THEY ALREADY DID.

    Let’s have new consent decrees for foreign Sony, Warner Music and Universal Records in Japan, Russia and France, and then consent decrees for their publishing companies. Then lets do new consent decrees for Pandora with their 80% monopoly of all internet radio.

    • Sarah

      George, would love to give you a demo of RepX.

      We’re the first streaming marketplace, and we’re doing things very differently – that includes trying to move forward from that “100 years of socialist centralized economic planning” by introducing processes and systems that make it easier and more efficient for artists to take control over things like licensing (see my comment above).

      Right now we’re giving demos to artists (and indie labels) to get feedback and start a discussion about your needs and preferences, which we’ll actively use to improve the platform before we open to consumers (sometime in the near future – est. 4-6 weeks)

  4. Me2

    My favorite quote was from Mr. Miller about songwriters being “handcuffed to the bottom of the ocean”.

  5. Jeff Robinson

    And this is exactly how the equity deals major labels have with entities like Spotify ensure that the signed artists on the roster never see a dime of royalties from the streams.

    • Sarah

      Oh it’s the exact same situation and I tend to think that the publishers will do this if given a chance (there’s no reason to believe they’re different than the labels on that front). Power corrupts and all that, and their contracts with artists give them a lot of power.

      But if you as an artist make a bad deal or choose an unscrupulous label, no platform can do anything about that unfortunately. The best a platform can do is be transparent and fair by having everyone compete on the same terms. It’s up to artists to choose labels that are run by good people and will stand up for them, instead of going for the easy money.

      • Jeff Robinson

        Sarah, we are talking about legacy artists that were signed, made records and maybe don’t have that deal anymore with the label still owning the recording and distributing it.

        • Sarah

          Thanks for clarifying, Jeff – but are those problems a result of the deals that were actually made by the artists, or are they the result of something else (external to the artist-label contractual relationship)?

  6. Anonymous

    The real problem here is the clause in the contract between the publisher and writer, and for streaming, the label and the, ugh, artist…

    How did they ever manage to weasel that kind of clause in there and why have lawyers let it go on for so long?

    I think that is the right question…

  7. Anonymous

    It’s actually not that dissimilar to banks… Who leverage mortgages elsewhere for money and give none back to the person who signed the deal in order to buy a house, all insured or else if failure a certain bailout, so for the bank it’s a win-win with tons of upside and nearly zero downside, although it supposedly has been tightened up a bit, and for the home owner(who technically really is the bank until final payment is made but in this case will just say the person buying), it’s a long play risk with immediate expenses and taxes, a lot of interest, and of course, long term indebtedness, with a hope that an already inflated housing market will actually go up the usual percent over the long haul…

    Of course i guess if you have the money and can work the numbers and with a strong rental market, which is going to keep getting more and more popular as mine and all later generations will have more and more trouble even just getting a mortgage, then owning houses can be a minimal risk and a huge portfolio and wealth build, so the rich get richer really, same as it ever was…

    It all seems setup as a very long play to maybe in 25+ years perhaps borrow enough from the rich in order to maybe if lucky work all the time having no life all to maybe build some wealth for old age when the health fails, as who else other then with a major publisher and label or just overall tons of debt, is actually putting any real liquid-able wealth together?

    Ultimately they all have us by the balls and they know it and thats why that clause is status-qua…

  8. esq

    While the bigger problem is quite serious, the artist’s attorney can contractually resolve the above-issue by simply listing each song in a schedule along with language to automatically cover new releases. Therefore, if the artist’s catalog is “licensed” by the publisher, any advances would not be “unallocated,” since they are tied to specific songs.

    • not quite

      Having a Sch A in a pub deal has nothing to do with the deal struck by the publisher with the service. What Steve is saying is that the pub will get an advance for the whole catalog, versus a particular advance for a specific song. However, publishers already do this all the time with various sorts of deals.

      The problem isn’t nearly as significant as Steve suggests w/r/t unallocated advances. The real solution – and it’s present in virtually every deal – is for the language to specify that the publisher pays the writer for royalties “received by or credited to ” the publisher. Thus, even though the publisher gets to keep the big up-front advance, as soon as the service makes use of a particular song within the writer’s catalog, the writer will get paid (because the earned royalty will be credited to the publisher’s royalty account, which will then require the publisher to pay the writer the earned royalty from the advance previously received).

      As for the publisher’s recouping the writer advances against this performance income, it’s more of an issue – that income has been sacred ground and generally untouchable for publishers to use for recoupment. However, that’s a problem easily solved contractually.

      • Steve Gordon

        “Thus, even though the publisher gets to keep the big up-front advance, as soon as the service makes use of a particular song within the writer’s catalog, the writer will get paid”

        The problem is that that publishers could set the advances so high they are never recouped. Also it’s not certain that all publishers would implement your interpretation of “received by or credited to” provisions of the contract.

        • Anonymous

          The problem is that that publishers could set the advances so high they are never recouped. Also it’s not certain that all publishers would implement your interpretation of “received by or credited to” provisions of the contract.

          Then the lawyers and the writers need to get higher advances when they sign the publishing deals, so high the publisher will never be able to recoup them, or else axe that clause and make sure to put something else in, or else sue them for that business practice, its akin to chattel trading, old school dark ages human trafficking slave trading, thats essentially what it is, claiming property and selling it on while chaining up the property with the rats and other slaves and tossing them maybe a few crumbs of bread down through the grates while they whoop it up drinking and partying…

          That sounds awful…

          Why even bother making music then if thats how everyone is going to be treated?

          Theres no women in it, thats a myth, theres no money in it, thats a myth, the fame, that sucks, why even bother then?

          If you have to be looking over your shoulder at your publisher and label all the time to see how bad they are lubing you up, constantly having to audit them and just make sure they play fairly with their legos while they sip from their little squeeze juice boxes, then who would want anything to do with music or the business of it?

          And they are looking for husbands?

          Sheer craziness…

  9. An Indie

    Most important article published in DMN this week, imo. Take it to heart songwriters and smaller publishers, ALL of this noise and fury being whipped up by the NMPA and the major publishers is all intended to do nothing but create an opportunity to play the same kind of “hide the money” as the major labels are doing on the master side. Don’t let them harm the statutory structures that have served songwriters so well for so long. Speak up!