MBU 1110 fall 2017 publishing lecture

What does a publisher do?
• Takes care of the business of songwriting
• Publisher finds users, issues licenses, collects the money, and pays the
writer.
• These are administration rights
• Standard publishing deal: writer assigns the copyright of the songs to
the publisher; publisher administers the songs.

Administration
• Traditionally, publishers split the income 50/50
with writer (except sheet music and
performance royalties).
• Publisher’s Share : 50% for overhead and profit
• Writer’s Share: 50%
• FYI - writers often get a “draw” – an advance on
royalties from the publisher. It’s like a monthly
paycheck so the writer can devote more time to
writing rather than some other job. It is
recouped just like an artist advance.

Publishing Today
• Not as many major writers under contract today.
• Many major songwriters keep their own publishing and administer
their works themselves
• A major writer can get to an artist or producer as easily as a
publisher can.
• Many artists are writing their own songs so there’s less need for a
publisher to get songs to them

Publishing Company Staff
• Administrator – registers copyrights, issues licenses, collects money,
pays writers and co-publishers, etc.
• Song Plugger – “pitches” songs; runs around and gets them cut by
artists.
• Creative Director – signs writers, works with writers, sets up co-
writes, etc.
• At a small company, these can be the same person.

Major Publishers
• Major companies affiliated with record companies:
• Warner/Chappell
• Universal
• Sony/ATV
• Major Affiliates – independent publishers whose administration is
handled by a major.
• Stand-Alones: not affiliated with a major and handles its own
administration.

MECHANICALS
• Mechanical Royalties– monies paid by record companies for the right to
reproduce songs
• Publisher issues a license to the record company that says for every
record made and distributed and each digital download.
• Harry Fox Agency – issues mechanical licenses for publishers; largest in
U.S.
• CMRRA – Canadian counterpart to Harry Fox Agency
• These act as publisher’s agent for mechanicals. They issue mechanical
licenses, police them, and report to the publisher
• Harry Fox charges 8.5% of gross monies collected for the license.
• CMAA charges 6%

Controlled Composition Clauses
• A controlled composition is a song that’s written, owned, or
controlled by the artist – in whole or in part.
• It means any song that the artist has an income or other interest.
• Even if the artist doesn’t own or control the song, if they make money
from the song it’s a controlled composition.
• Can apply to songs that producer owns or controls, too.

• A controlled composition clause puts a limit on the amount of
money that the record company has to pay for each controlled
composition.
• Since record companies don’t recoup any costs out of mechanical
royalties, it’s money going out before they break even. They want to
pay as little as possible.
• Artists should fight for mechanicals because it’s the only money
they’ll see for awhile.

• Artist only gets artist royalties after they’re recouped; if it doesn’t sell
well, that may never happen.
• Touring, especially early-on, can be a money-losing game. (remember
tour support?)
• Mechanical royalties are a very substantial part of the record deal.
Label wants to limit them, artists want to maximize them.

Two Ways to Limit Mechanicals
• Rate per song – record companies pay 75% of the statutory rate on
controlled compositions for most artists.
• *Actually, the label “requires” the artist to license the controlled
composition for 75% of the statutory rate.
• Rate per album – typically 10 times the single song rate for each
album.

Max Rate Per Song
• Percentage of Statutory – record companies pay standard 75% of
the statutory rate on controlled compositions for most artists.
• New artists can’t do anything, mid-level and superstars can get a little
better rate or an escalation on later albums.
• Minimum Statutory Rate – all songs on the album treated as if 5
minutes or less regardless of actual duration.

Max Rate Per Song
• Noncontrolled Songs - rate limits can be applied to all songs on the
record – not just controlled compositions!
• “Outside songs” – songs that the artist didn’t write; therefore not
controlled compositions. Artist must get publisher to go for the
reduced rate; many times this is impossible.
• Record company takes excess mechanical royalties due outside
writer/publishers out of their mechanical rates. How?

Effects on Outside Songs
4 Outside Songs on an 8 song album looks like this:
If not enough controlled comp songs to cover it, difference comes from artist’s
record royalties

10 Song Limit
• If artist is limited to 10 times 75% of the statutory rate, to pay
outside publishers the full statutory rate:
• Artist has to take a reduced rate on their own songs or
• Put less than 10 songs on the album
• Ex- 5 outside songs and 5 controlled comps. Remember max per
album rate applies to all songs on the record; not just controlled
comps

Controlled Comp Clauses
• Ultimate is to only limit to 10, 11, or 12 times statutory. Still minimum
statutory rate, though.
• Multiple Albums – double albums don’t pay double the allowance on
controlled comps. Can get the ten-times limit raised but it won’t be to
twenty.
• Typically, companies only increase the mechanical royalties in
proportion that the wholesale price increases over that of a single
disc album.
• Box set mechanicals are negotiated beforehand.

Controlled Comps and Videos
• Promotional usage – record company should get a free promotional
video license. It’s being used to promote the artist’s records.
• Commercial Usage – for home videos, independent publishers not
subject to controlled comp typically get 8 to 15¢ per song.
• Hard for Artists to get anything for home video use.

30
The Major Players: Publishers + Songwriters
WHO ARE THEY? Those with an interest in
the composition (the lyrics and underlying
melody).
The music publishers and songwriters want
to see things like the compulsory
mechanical rate and DMCA disappear.
. Want to create permanent collection
societies or private administrators for the
publisher’s mechanical rights and
synchronization rights - in order to
“streamline” and make for more efficient
music licensing to consumers and licensees.

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The Major Players: Publishers + Songwriters
SESAC bought Harry Fox (HFA). HFA was formerly
owned by NMPA.
Allows SESAC overrall deals covering mechanical
licenses alongside broadcast, digital and performance
royalty collection.
SESAC to have access to digital music data that ASCAP
& BMI don’t have.

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The Major Players: The PRO’s
• Performance royalties are paid by radio
stations, venues, and TV networks to
Performing Rights Organizations like
ASCAP, BMI, SESAC, and SOCAN (in
Canada) who then distribute the money
to their affiliated songwriters, composers
and publishers
• What’s their position?
The PRO’s are very active defending the
interests of publisher and songwriter
members. They’ve always played a key
role in music industry/technology issues
and are a strong asset in national
legislation movements for the
publishing/songwriting community.

33
The Major Players: The PRO’s
• Anticipate more legal battles between the PRO’s
and digital licensees. Until a genuine debate on
Capitol Hill takes place for the Next Great
Copyright Act, the PRO’s will continue to slug it
out with digital licensees one by one.
• SOUND EXCHANGE – Collects the digital
performance royalty for Featured Artist and
Owner of Sound Recording from non-interactive
digital sources. (satellite radio providers, cable
tv music, and webcasters) Admin fee of 4.9%

34
LEGISLATION – 100% Licensing
In 2016 the DOJ began an investigation into 100% Licensing.
Today, and historically, BMI and ASCAP, and the licensees who use your
music, have operated under a model where each PRO collects for and
pays out for only the shares of musical works each represents in its
respective repertoire; this practice is known as fractional licensing. It
allows a co-owner to license only their own share in a work and receive
direct payment from their PRO for that share. To put it simply, each PRO
collects and pays their members for their share of a co-written song under
our specific valuation system
100% licensing would allow any one co-owner of a work to license 100%
of the work without needing the permission of the other co-owners.
Essentially, each writing partner could have 100% control over the
licensing of your song, without your say, subject only to an obligation to
account to you for your share of licensing revenues.

35
LEGISLATION – 100% Licensing
What happens with 100% Licensing?
In an example where a BMI writer writes with ASCAP:
• ASCAP could license co-written works at ASCAP’s own
rate, not BMI’s.
• ASCAP could reduce payment by its own overhead rate
even before it enters BMI’s distribution system causing
double fees.
• writer could be subject to ASCAP’s distribution
methodology, not BMI’s.
• Distributions could be delayed by this process.
If this interpretation were put into action, in order to avoid
this and ensure your PRO licenses your share in co-written
works, you would have to collaborate only with other same
PRO writers.

36
LEGISLATION – Songwriter’s Equity Act
In March of 2015 a bipartisan group reintroduced the Songwriter Equity
Act (H.R. 1283 and S. 662) in the 114th Congress.
This legislation, which was first introduced early 2014, is important to
music creators because it addresses two outdated sections of the US
Copyright Act that currently limit your ability to get paid fairly when
your music is streamed.
Section 115 of the law sets conditions by which mechanical
royalties are set, but doesn't include not allowing a rate
court to consider other royalty rates as evidence.
Section 114 of the Copyright Act prohibited rate courts for
considering rates paid to recording artist when setting
songwriter royalty rates.

37
LEGISLATION – Songwriter’s Equity Act
Impact of a rate disparity is that the value of the
performance of a sound recordings is at a level
approximately 12 times greater than the actual musical
compositions from which they are created.
Simply put: The rate courts should be able to look at
evidence of other rates when setting the rates that
songwriters are to be paid.
i

38
LEGISLATION – DOJ Consent Decrees
ASCAP and BMI are governed by “consent decrees” originally
issued by the US Department of Justice (DOJ) to curb the
anticompetitive tendencies of the publishing sector.
(Monopoly) Intended to promote competition in the
marketplace for musical works,
Music publishers, PROs and some songwriters have asked the
DOJ to eliminate or modify the existing consent decrees due
to concerns over rate-setting and other perceived limitations.
Government regulators have solicited public comment and are
currently deciding what approach—if any—to take.
PRO Income comes from Public performance of the
Composition. BMI reported distributing a record $977
million in revenue in 2014. Who collects public
performance of the Sound Recording?

39
Why do the consent decrees exist in the first place?
Consent decrees are limitations agreed upon by parties in response
to regulatory concern over potential or actual market abuses. It
was a trade off to allow them to be monopoly-like without having
to face further regulation or break up.
The consent decrees encourage ASCAP and BMI to compete with
one another to attract licensees and recruit new
songwriter/publisher members.
Michael O’Neil – BMI Testimony to Congress
https://www.c-span.org/video/?c4500983/bmi-consent-decree

40
What do the consent degrees do?
1. Only Performance Rights: ASCAP and BMI can only
administer performance rights, not any other, often related,
rights.
2. Non-Exclusive Licenses: PROs must have non-
exclusive licenses, meaning that publishers retain the ability
to directly license their catalogues.
3. Required to Grant License: ASCAP and BMI are
required to grant a license to any party that requests one.
This license is then valid while the two parties attempt to
negotiate a rate.
4. Rate Courts: If the two sides are unable to reach
an agreement on a rate, the dispute is settled by a special
rate court, which was created under the consent decree.

41
2012 - Pandora filed a lawsuit against ASCAP in rate court.
Pandora said that ASCAP was failing to set “reasonable” license
fees for them and sought relief in the courts. However, the issue
changed from royalty rates to a different question, whether
publishers could pull their digital rights from ASCAP and other
PROs while staying with the PROs for other licensing, such as to
bars and restaurants. The court ruled they do that, that they
were “all or nothing” if they chose to partner with a PRO.
However, shortly after the ruling, the DOJ, at the request of ASCAP
and BMI, began to look at reviewing the terms of the consent
decrees, which coincided with a hearing by the House Judiciary
committee on the subject of music licensing.
The reasons for the reforms and the proposals are important to
understand.

42
Changes being considered:
1. Whether content owners should be able to pull out of PROs
for certain types of rights, such as digital rights.
2. Whether to replace the rate court, which is a federal court
with all of the expense of a federal lawsuit, with mandatory
arbitration.
3. Whether PROs should be able to grant rights beyond
performance rights.
4. In general, whether the consent decrees are helping or
harming competition.

43
Benefits for songwriters:
•More level playing field in which all composers, from
emerging young writers to veteran hitmakers, are treated
the same
•Writer’s share goes to writer without going to publisher
first.
•Prevent ASCAP and BMI (or their members) from playing
favorites with one service over another, which allows for
new radio stations and music platforms to more easily
enter the marketplace.

44
Benefits for independent publishers:
• A performance of a song published by a small independent
publisher is worth the same as any other.
• Allow for efficiencies that are responsible for the
tremendous growth of AM/FM and digital radio, which has
expanded the pie for publisher compensation.
• The current system also means that smaller, independent
publishers can make their catalog available to potential
users just as easily as their multinational peers.

45
Benefits of Consent Decrees for Licensees
• New services that may not have the capital or clout to
cut direct deals at the rates demanded by the big
publishers.
• Reduce concerns of copyright infringement for licensees
using a blanket license: if the agreed upon fee is paid,
they have access to the entire repertoire of works in
covered by a PRO, secure in the knowledge that the
PRO will pay songwriters and publishers directly.

46
Criticisms of the consent decrees
•Publishers and PROs often criticize the consent decrees for
being “outdated.”
•Rate setting procedures established by the decrees have
resulted in unreasonably low royalty rates.
•Publishers wish to directly license their catalog and use
the PROs simply as a royalty collection and distribution
agency allowing them to secure far higher rates for their
catalog
•The process through which rates are determined can lead
to expensive litigation that can reduce the capital available
to ASCAP and BMI to provide better service to members

47
What the major publishers and PROs want
•ASCAP and BMI have stated that the consent decrees should be
eliminated or gradually phased out. OR they should be allowed to
bundle other rights under their services offered to members,
including mechanical royalties and synch licenses.
•Arbitration.
•Use “interim rates” to cover periods being negotiated.
•The major publishers have threatened to remove their entire
catalogs from the PROs if the consent decrees aren’t either gotten rid
of or heavily modified to serve their interests. To avoid this
outcome—which would surely weaken the relevance of the PROs—
ASCAP and BMI advocate for partial catalog of digital rights by the
publishers in exchange for the ability to bundle other rights.

48
Early July 2015 – Sony /ATV presented the “nuclear option.”
If there was not a resolution acceptable to the publishers,
they would consider withdrawing 100% from the PROS.
What might happen?
u Independents would lose benefit of collective bargaining likely
leading rates to plummet.
u Independents would have to take over the significant operating
costs no longer being paid by the majors.
u Perhaps a disastrous effect on innovation in the streaming
marketplace. Streaming services would be forced to negotiate
licenses with the three major publishers, and possibly some of the
top independent publishers, in addition to obtaining licenses from
ASCAP, BMI, and the third PRO, SESAC. The combined cost of these
licenses would likely prove too great for any new startup to bear.

Public Performance Royalties
• Impossible to police every club and radio
station in the country and make them get a
separate license for every song they play.
• Blanket Licenses – covers all of the music that a
particular performance rights society
represents.
• The blanket license fee gives the user the right
to perform all of the songs controlled by all of
the publishers affiliated with that society
• ASCAP, BMI, and SESAC are the biggest in
performance rights societies U.S.

Public Performance Royalties
• Writers are paid directly by the societies with
which they are affiliated.
• A writer’s performance earnings (radio, T.V.,
clubs, restaurants, etc) are not paid to the
publisher, but paid directly to the writer.
• Writers can only affiliate with one society.
• Publishers can affiliate with both ASCAP and
BMI (and SESAC, if they want)

How Do Societies Keep Track?
• BMI requires licensee stations to keep logs of all the
music they play; rotating between the stations for
about 3 24-hr days per year.
• BMI projects from those logs to the entire country
• BMI also uses a digital listening service that
monitors major stations, matches the to a database
and reports what it hears.
• ASCAP doesn’t use station logs. They use a digital
monitoring service to listen to hundreds of
thousands of hours of programming and extrapolate
that for the rest of the country.
Radio

• T.V. stations are required to keep cue sheets
• Lists all songs played, how long it was played, and how it
was used: theme, background, etc.
Cue sheets are filed with the societies and specific dollar
amounts are paid for each song and type of use
Amount also varies with size of market; Network pays a lot
more than local.
ASCAP and BMI supplement cue sheets with digital
monitoring of broadcasts.
Television

• Societies now pay for domestic live performances, but only for the
top 200 grossing tours according to PollStar.
• Pay is based on set lists
• BMI recently started tracking sports stadiums and arenas.
Live Events

ASCAP, BMI, and SESAC are not permitted to collect public
performance monies for motion pictures shown in theaters in
the U.S.
Reasons are historical and political
• Foreign film performance monies can and are collected.
• Can be substantial as they are a percentage of the box office
receipts.
• Fees are collected by local societies, then turned over to
ASCAP, BMI, and SESAC
Motion Picture Performance Money

Fees for Synch Licenses
• Motion pictures:
• Major studios – typically run $15,000 to $100,000; buys out all rights in
perpetuity.
• Fees are higher if used in trailers and ads.
• Main title uses (opening credits) run $50,000 to $250,000
• End titles - $35,000 to $100,000. Why less?
• Will be less if more than one song over end credits
• If studio really wants a hot, recent hit song, fees can get well into six
figures.

• Uses include in-context advertising and trailers for the film.
• In-context means that the song is used in exactly the same way
it’s used in the film.
• i.e. – same song, same scene used in TV ad
• Trailer – “preview of coming attractions” online and in the
theater.

• Out-of-context use – song is used differently than in the film
• Song is used over different scene in same film in trailers, ads, etc.
• Any use other than the original use in film is considered out-of-
context
• Pays much more money because they’re using song like a
commercial.
• How much? $20,000 for instrumental cues; songs get from
$25,000 to $250,000 more!

Independent Films
• Step deals – money for song use comes in steps
• Say, initial fee of $2,500 plus another $2,500 when film released to home
video.
• “Kickers” – additional fees for certain benchmark successes. Say, additional
fee at over $3,000,000 box office gross.
• Can give film company limited rights for showing at film festivals,
then make them do a market-rate license if they sell the film.

Television
• Due to new and emerging technologies, most TV license
are in perpetuity.
• Include all rights now and hereafter known.
• Can get from $10,000 to $50,000 plus depending on
popularity of song.
• Indie artists can gain great exposure by getting their song
on a TV show; often licensing their song at a very cheap rate
($1,000 or less).
• Only uses not covered by these licenses (for which you can
get more money) are for out-of-context ads.
• Can typically get additional $1,500 to $5,000 per week
while out-of-context promotion runs.

Television
• Commercials:
• Songs can get from $50,000 to $200,000 for
one-year national usage in the U.S. on TV
and radio. J
• Really well-known and classic songs can get
over $1,000,000!
• Current trend is downward L
• Prices scaled down for regional or local
usages
• Periods of less than one year

Video Games
• Video games don’t typically pay royalties
• They typically pay flat fees
• Fees can be from nothing up to $50,000 for a major
hit.
• Typical video game fee is around $8,000 to
$10,000 for use in perpetuity.
• Only exception to royalties are song-centered
games like Guitar Hero and Rock Band. Pays a
fraction of mechanical rate and there’s usually an
advance.

Electronic Transmissions
• Untethered Downloads
• Typical iTunes-type unrestricted download
• Treated just like sales of CDs
• Copyright owners get full mechanical royalty rate J
• Ringtones/ring backs – copyright owners get mechanical royalty of
24¢
FEES FOR OTHER USES:

Noninteractive Streaming
• Noninteractive means you hear what someone else decides to play
• Essentially a radio station that’s not over-the-air.
• Publisher only gets performance monies just like if a radio station
played the song.
• Rates are a percentage of revenue, with minimums.

Interactive Streaming
• Interactive streaming – streaming on demand
• Examples: Napster, Rhapsody, MySpace, Yahoo!
• Rate is the greater of:
• 10.5 % of subscription fees or 10.5% of ad revenue
• If record company pays publisher: 17% to 18% of the
monies paid to the record company for masters and
publishing combined.
• If streaming service pays publisher: 21-22% of money paid
to record company for masters alone
• 15¢ to 50¢ per subscriber, per month

Foreign Subpublishing
• U.S. publishers make deals with local publishers in
each territory – local publisher is called a subpublisher
• In most foreign territories, there is a mandatory
mechanical rights collection society; usually
government owned
• Society collects money, keeps it, makes interest on it,
then distributes it to the appropriate publishers.
• Remember – it’s the entire album that’s licensed; not
individual songs. Rate is a percentage of wholesale
price divided among all songs on the album.

Foreign Performances
• All foreign territories have some sort of
performance rights society.
• Usually only one per country and usually government
owned.
• These societies pay the publishers share of
performance monies to the local subpublisher, and
the writer’s share directly to ASCAP, BMI, and
SESAC.
• Takes much longer for U.S. publisher to get money if
there is no foreign subpublisher.

Subpublisher Charges
• Typical subpublisher deal is is from 15% to 25% of monies earned.
• Contracts read that the subpublisher collects the money then
‘remits’ 75% to 85% to the U.S. publisher.
• Referred to as 75/25 or 85/15 deals.

The Big 3 accounted for over 50% of Global Music Publishing

MBU 1110 fall 2017 publishing lecture

MBU 1110 fall 2017 publishing lecture

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