Why Sony/ATV's Direct License with Apple's New Music Service Could be a Catastrophe for Writers

I recently published an article that the the blog, Digital Music News, titled “Songwriters May Never See a Dime from Apple’s New Music Service. . .”  To incorporate my thoughts after reading the comments on  the article, I revised the article  to demonstrate that, while songwriters may continue to receive royalties from ASCAP and BMI for Apple’s new service, it is likely that they will see much less money than they have in the past.

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, could prove to be 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.  Sony/ATV’s plan to license its music directly to Apple dramatically changes that practice, with severely negative repercussions to follow 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 chairman Marty Bandier, the New York Times reported that the decision 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 1. songwriters signed to Sony/ATV and EMI Music Publishing will probably may never see a dime from the monies that Sony/ATV receives from Apple, and 2. The monies that they receive from the PROs will be dramatically reduced. 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 book of model entertainment agreement forms.  Under this provision, if Sony/ATV extracted an advance from Apple, none of those monies would be payable to their songwriters.

II. Publishers Don’t Pay Income from Performing Rights

Because Publishers expect that songwriters will be paid directly by the PRO with which they are affiliated, most songwriter agreements contain a provision precluding songwriters from sharing in any monies paid to the Publisher for performing rights.  The following clause from a model agreement is exemplary:

“Writer shall receive his public performance royalties throughout the world directly from the performing rights society with which he is affiliated and shall have no claim whatsoever against Publisher for any of the so-called publisher’s share of public performance royalties received by Publisher from any performing rights society which makes payment directly (or indirectly other than through Publisher) to writers, authors, and composers.”

If Sony/ATV avoids the PROs altogether by licensing its entire catalog to Apple directly, under the contract, the songwriter would have no right to share in the proceeds. 

III. Absence of Catch-All Provisions

Another way in which typical songwriter agreements make it possible for Sony/ATV to avoid paying its songwriters is the absence of a so-called “catch all” provision.  These provisions detail the royalties to be paid to songwriters, generally at the rate of 50 percent, on a number of other rights, including mechanical, transcription, reproduction, and synchronization rights.  Many contracts explicitly exclude public performing rights from the list.  Consider the following example:

“Fifty percent (50%) of any and all Net Income (less applicable foreign taxes) derived from the exploitation of the Compositions by Publisher in respect of mechanical rights, electrical transcription, and reproduction rights, motion picture and television synchronization rights, print rights and all other rights (excepting public performing rights) therein.”

This language obviously negates the possibility of songwriters receiving royalties from the Publisher on their performance rights.  However, even if the contract is not this explicit, the list of rights is generally interpreted to be a closed list.  So, if the songwriter does not specifically negotiate for a catch-all provision stating that he is entitled to 50 percent of all other monies not specifically referred to in the agreement, performing rights will be excluded. 

IV. 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.  In reality, 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 for the checks they receive from ASCAP, BMI, or SESAC.  That's because the PROs 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 percentage DIRECTLY to the writers.  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 ASCAP, the oldest PRO, was founded by powerful writers, including Irving Berlin, to create a system that would guarantee fairness to writers and avoid precisely these types of issues.

V. Sony/ATV’s Deal Could Hurt All Songwriters

It gets worse.  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 still 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 Apple doesn’t have to pay ASCAP, BMI and SESAC for all the other songs represented by other publishers.  When ASCAP, BMI and SESAC receive the money from Apple, they will probably allocate the prorated share of those monies to ALL of their writers, including those affiliated with Sony/ATV and EMI.

Notwithstanding this, songwriters affiliated with any publisher could be hurt by Sony's deal with Apple, and here's why.  Apple may well be able to reduce the amount of money payable to ASCAP, BMI and SESAC.  Right now, the rates are 1.85% of gross income for ASCAP, 1.75% for BMI, and a smaller amount for SESAC.  But Apple may balk at paying the PROs approximately 4% of their gross income if the PROs 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 is reduced because they will not cover EMI and Sony songs, which represent approximately one-third of the market.  The amount payable to the PROs may be reduced by private negotiations with Apple, or Apple (or some other digital service) could initiate a proceeding in the "rate court," which governs what ASCAP and BMI can charge.  In that event, all the songwriter members of ASCAP and BMI will suffer.

VI. Conclusion

A major reason, if not the only reason, that Sony/ATV is withdrawing from the PROs in regard to digital licensing appears to be avoiding paying its writers; not, as they claim, to make more money for the writers.  EMI already withdrew its digital rights from the PROs, and Sony/ATV will follow suit, effective January 1, 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.