by Derek Crownover LLP - attorney with the Nashville office of Dickinson Wright
The music industry is being rocked by the new age of digital media and distribution. This is no more evident than in the recent legal battle between music streaming service Pandora and performing rights organizations ASCAP.
ASCAP and the half-million songwriters it serves are fighting an uphill battle because the courts have ruled Pandora can license digital rights to ASCAP songs for just 1.85 percent of revenue. ASCAP argues that rate should be 2.5 to 3 percent.
Song publishers are losing leverage, too, because the judges also say they cannot cut separate and direct deals with Pandora for the digital rights to the publishers’ song catalogs if they are already members of ASCAP. Said another way, publishers simply can’t give digital rights to Pandora and then ask ASCAP and other performing rights organizations, such as BMI and SESAC, to collect royalties on all other types of performances, such as concerts and at stadiums, motel venues and bars. It’s all or nothing, the courts say — either give all rights to the performing rights organizations or give them nothing.
The result is ASCAP, BMI and SESAC are sweating out the potential for large publishers to cut ties with their organizations in order to leverage their own deals with digital companies to preserve their futures. A year from now, these performing rights organizations could be shadows of their former selves. This is a potentially huge shift in power on Music Row as well — and the biggest struggle of all could be happening in the small publishing houses.
The music oligopoly
Even if consent decrees are relaxed in pending appeals or future lawsuits, large publishers are the only ones that have real leverage with large digital aggregators to negotiate the best rates for catalog uses — leaving Music Row’s small and medium-size publishers facing their own battle for sustainability in the digital age.
With a catalog of a few hundred to a few thousand copyrights versus the tens of thousands owned and active across digital platforms by major publishers, smaller publishers and songwriters aren’t equipped to dole out blanket licenses for their material. Generally, they have to leverage off of a larger entity, such as ASCAP and BMI, to maximize their values for digital or airplay uses around the world.
While large publishers and organizations may use a small publisher’s song rights to grow their assets and attract attention from digital companies, it’s the large publishers that receive advances and ownership stakes. Small publishers may never receive their full share of royalties and must struggle amid shrinking performance checks.
Small publishers generally don’t have the technology or the wherewithal to track, collect and distribute micropayments from digital companies. Digital micropayments are big data that require a complex accounting system to allocate funds among publishers and writers. In these instances, publishers are literally chasing fractions of pennies without the manpower or technology to find out whether these totals are accurate. The infrastructure and the incentives just aren’t there.
These smaller publishers are caught in a paradox: They need to embrace the digital landscape for sustainability but lack the resources to do so independently and fairly.
Fighting for regs
Right now, there are no fundamental regulations for auditing digital rights within performing rights organizations or under the Copyright Act to ensure that publishers and songwriters are receiving accurate royalty payments when it comes to digital performances. Many direct deals with the larger aggregators conveniently leave out the ability for smaller or mid-size publishers to audit and find the truth. The extreme minutia of royalty micropayments, coupled with the swift onset of digital music streaming, often has led to performing rights organizations and smaller publishers accepting payments at best-effort levels and face value, but not necessarily accurate.
What is needed is an accountable system of regulations established under the Copyright Act that results in fair and accurate tracking and distribution of digital rights and royalty payments.
If all publishers can be certain, through the law and oversight, that the system for digital rights is fair and honest, as well as efficient, then smaller publishers won’t need their own technology to seek their own truth in their royalty payments. It also would alleviate the need to hitch themselves to large publishers or invest in technology and processes they cannot afford.
A good accounting system, upheld by the law, could shift the publishing world from its oligopolistic state to a competitive, entrepreneurial society that offers more leverage for publishers with smaller catalogs.
What that exact system looks like is hard to say, but it’s one the music industry must fight for. Otherwise, our independent publishers could continually fade to black.
Derek Crownover is a member attorney with the Nashville office of Dickinson Wright and heads up the firm-wide Entertainment Law Practice Group. Contact him at DCrownover@dickinsonwright.com.