Bizness 101

So here’s a perspective on performing rights organizations I just got my head around and I wanted to share.

First, some quick background, and for those of you who already know what a public performance is, just skip down a few paragraphs.

For every recorded song there are two copyrights: one for the recording of the song (usually owned by the record label), and one for the song itself, the music and lyrics (owned by the songwriter/publisher).

To use the now beaten-to-death example, Dolly Parton wrote the song “I Will Always Love You.” Columbia Records hired Whitney Houston to sing a version of Dolly’s song. The version of this recording of the song is owned by Columbia Records, but the copyright to the song itself (the music and lyrics) is owned by Dolly Parton.

As Dolly owns the song (‘cause she wrote it) she gets six legal copyrights, and these six rights drive the entire music industry. You can download a free PDF booklet on them here.

One of these copyrights is the exclusive right to “Publicly Perform” the song. Under this copyright law, a songwriter is granted the exclusive right to publicly perform his or her song. A public performance is when a song is played on the radio, in a bar, in a restaurant, live in a venue, on TV, in an elevator, in a retail store, streamed on the Net via YouTube, Pandora, any streaming music service, or anywhere else that falls under the legal definition of “public performance” (you can read the legal definition of Public Performance here ).

This means that no one else can “publicly” play your songs (either your own recording of it or someone else’s recording of it) without negotiating a license with the publisher or administrator (which, most likely, is you).

Sounds good to me, songwriters should be rewarded for their talent. After all, songwriters, like all artists, make culture. But let’s turn to the reality of this law. To assure that your song is not being publicly performed without your OK, you need to run around the world and listen to what is being played in restaurants, bars, elevators, hotels, TV shows, retail stores, venues, bookstores and more. In addition, you also have to watch every video on YouTube that has a song in it, get a list of every song that was played by every streaming music service, get every playlist of all the songs that were played on every radio station and the list goes on and on. And when you find a place that is playing your song without your OK (meaning no license was granted to them by you) you get to sue them or force them to pay you.

On the other side of the coin, if there is an entity that wants to comply with copyright law and get a license to publicly perform your song before they do it, they need a place to go to get the license. This means they would need to go to millions of songwriters around the world, and if they can find all of you, strike million of different deals.

In other words, it’s a great element of copyright, but one that is tough (impossible!) to enforce, license, track and police on your own. So what’s one to do?

This is where the three U.S. Performing Rights Organizations (called “PROs”), BMI, ASCAP and SESAC come in. These three organizations might not have been built to work for publishers, but these days they sure do. Writers and publishers enter into an agreement with a PRO that allows the PRO to act as the writer/publisher’s representative specifically and ONLY for public performances. The PRO performs all of the duties listed above. This grant of rights from the writer/publisher to the PRO allows the PRO to negotiate rates on their behalf with various entities that desire to publicly perform the works of the writer/publisher. In addition, this grant of rights allows the PRO to collect the fees on behalf of the writer/publisher.

In return for these services, the PROs take a percentage of the money they collect to offset their costs and pay for lots of other things like cars, salaries, office space, lunches, etc… (go to page 18 of the ASCAP 2010 year end report to see some of the line items ).

Case in point of the public performance police in action, check out ASCAP’s recent lawsuit against a bar in New York for having a Bruce Springsteen cover band night, but not paying Bruce, represented by ASCAP, for the right to publicly perform his songs (note, it was not Bruce who sued them, it was ASCAP on Bruce’s behalf. The article gets it wrong). And before you get angry with ASCAP, remember, this is their job! They should be doing this. They are protecting and enforcing the rights they represent. Perhaps they could have handled it a bit more diplomatically, but this is what they do.

Now this next point is key, this right to publicly perform is controlled by the publisher.

For example, if you write your own songs, you are, by default the music publisher. This means that, until you assign your publishing to a publishing company, you control both the “writer’s” share and the “publisher’s” share of the rights to the songs you write. If you enter into a music publishing deal, you then transfer your rights to this other entity and they then represent you for music publishing.

However, even major music publishing companies like Sony/ATV, Warner Chappell Music Publishing, Universal and EMI don’t have an infrastructure to track and police public performances. They too “hire” a PRO and rely on the them to police, license, collect and disburse public performance income.

For those of you out there who state:

“Waaaaait a second. How can you say that?! The PRO represents the songwriter, not the publisher! Of the money the PRO collects, they send half to the songwriter and the other half to the publisher to assure songwriters get paid. Their entire existence is to serve the songwriter”

True, they do, and I am glad they do it! But, as I understand it, the idea of paying the songwriter directly originated with the PROs, not with a law.

Remember, in the “old days” most signed artists and/or professional songwriters did deals with publishing companies. When they did, they transferred their right of public performance (along with others) to this other entity.

When the PROs were “hired” they simply refused to pay the publisher all of the money they collected for public performance. This assured that songwriters made some additional money. The PROs did not want songwriters that transferred their publishing rights to get screwed by wonky accounting or get nothing as they had not earned back “advances” from the publisher. Therefore, the PROs insisted that half of the money they collected (after they took a % off the top) get paid directly to the songwriter. The PRO was there to protect the songwriter and this model of direct payment to the songwriter for half the money became industry standard.

However, the publisher has the power to undermine the PRO. The music publisher has the public performance right to grant; therefore it has the control. In other words, if a songwriter does a deal with a publishing company, like Warner Chappell, and then signs up as a songwriter with a PRO, like BMI, the publisher can undercut the songwriters relationship with the PRO by not granting the PRO the right to represent the public performance of that songwriter. To this point in time publishers have not done this and also agreed to hire the PRO. In return, they give up some of the money collected.

Which then leaves the door open for changes to occur. What happens if a music publisher no longer needs a PRO to collect and monitor some of the public performances? For example, YouTube. YouTube has a sophisticated tracking system that can accurately track how many times a song was played in a video. It’s an automated system that can spit out reports and email them to publishers. Same with Spotify and the new Apple iMatch service and many others.

In these cases, why would a music publisher want to have its YouTube, iMatch, or Spotify public performance money go to a PRO who is going to take 12.5% of the money off the top (remember, all the overhead mentioned above) and then only pay the publisher 50% of what’s left (remember, the other 50% gets mailed directly to the songwriter)? They wouldn’t, which is why they have started “going direct” (see the ground-breaking EMI announcement). In this case, EMI is collecting all of the public performance income directly, and will only pay the writers if the writer is recouped.

So what will be the impact of this new trend?

First, My heart goes out to the “legacy” artists who did deals with the old school music publishers. Many of these songwriters received “advances” from the publishers that must be paid back before they get more money from the publisher. When the PRO was collecting the public performance royalties, it took a chunk off the top, but from what was left, 50% was mailed DIRECTLY to the songwriter and the other 50% went to the publisher; the songwriter was assured to get additional money from public performances regardless of whether or not they were recouped with the publisher. In this new “direct” model, the PRO is cut out. Therefore, if a songwriter is unrecouped with a publisher, they get no money from public performances. Frankly, this kind of sucks.

On the other hand, for the new music industry artists that control their publishing rights and do not have “unrecouped” balances, they could potentially hire an entity like a TuneCore to go “direct” with places like YouTube, Spotify and Apple, thereby getting more money into their pockets more quickly and with more transparency. This is a great thing for songwriters.

As for digital stores and services, they are going to have to deal with the new reality that they cannot just go to a PRO like BMI/ASCAP/SESAC to get public performance licenses for all the music in their stores. Despite this, many stores and services are stating they refuse to go “direct” as it’s a “headache,” but there is no way around it. The law requires them to get a public performance license in order to have the music in their store. For example, EMI “withdrew” its catalog from ASCAP. This means a digital store will now need to go to ASCAP for the songwriters/publishers it represents as well as go to EMI Publishing for the songwriters it represents. The stores and services cannot just say “we don’t want to deal with EMI because it’s a headache.”

The bottom line is that as technology makes it easier to track all public performances that occur online, the ”old school” methodologies and business models need updating as well. Artists and songwriters should be able to get as much of their money as quickly as possible with as much transparency as possible. They should not be told “that’s the way it was, so suck it up and shut up”. It’s beyond bizarre that this point has to even be argued.

More and more artists are now the record label, performer, publisher, songwriter, etc… They are able to control and exploit all of their rights associated with the copyrights to their work. Like all of the old entities, they must make certain that they are getting all of their money, and as much of it as possible, from all the available revenue streams. Public performance—once the bastard step-child of the six rights; frequently ignored, almost always misunderstood by all but the most successful artists (i.e. those with lots of radio play)—is increasingly becoming the most important right with respect to its relationship to revenue. Collection and tracking of this right must innovate at the same speed that usages do.

And we intend on helping that change occur….

Stay tuned.