What They'll Never Tell You About the Music Business

by Peter M Thall

  Errors in Excess of 5% to 10%

  Artists’ and writers’ lawyers and accountants like to insert into contracts a provision that if an audit determines that an error of 5% or 10% has occurred in favor of the auditing party, the party being audited must pay for the costs of the audit. What is the value of this? Actually, very little (other than the representative’s bragging to a client that he or she got this into the contract). Why? Because, as indicated earlier, most audits result in settlements, and a settlement is just one way for an audited party to tell you to go away. (The settlement figure will always take into account the costs of the auditing party, and this is so even when this item has not been specifically addressed.) There is rarely, if ever, an admission of liability, so it is usually futile to seek to particularize the audit result.

  The record company does not want to be precluded, in future audits, from asserting the same defenses it has chosen to raise in a current audit. Paradoxically, the more the deficiency, the more likely there will be a settlement and the less likely there will be a detailed breakdown of the areas being settled. Although the preliminary audit claim will particularize the areas in which the claims are being asserted, in the end, a lump sum payment will probably be offered and accepted.

  It should be noted that in Europe and in Australia, settlements are less the norm, and these provisions are easier to obtain. It is therefore more viable in deals outside of the United States to seek a provision providing for compensation for audit costs where a deficiency amounting to 5% to 10% has occurred.

  THE RIGHT TO AUDIT: A CONTRACT ISSUE

  In New York State, there is no inherent right on the part of a royalty participant (or a party who has received a promise to be a royalty participant) to have access to the books and records of the promising party. Record companies that do not insert audit clauses into their artist contracts or permit them to be included in mechanical license agreements are impeding access to the very information on which all remuneration to the artist or publisher is necessarily based. Companies that refuse to insert such clauses after a request that they do so are acting in bad faith and should not be trusted.

  In addition to ensuring that a reasonably and clearly worded audit clause is included in an agreement, it is a good idea to check with a professional auditor before any royalty-based agreement is signed. As we have seen, a traditional audit clause may not be sufficient to protect the royalty participant. For example, if the publishing agreement between a songwriter and the songwriter’s publisher (or copublisher) is in the nature of a “receipts” deal whereby the administrating publisher pays the writer based on its receipts, how is the infamous Black Box income to be treated? The receipts contract may limit the writer’s income to “money allocated to specific songs.” Yet Black Box income is just a pot of money that is paid to publisher members of foreign rights societies. It is not necessarily money allocated by specific title. If it were, it would have to be shared with the writers or original publishers. For example, if an original publisher’s catalogue represents 10% of the total income of a particular German subpublisher, and the German subpublisher is rewarded by GEMA with $1 million of “unallocated” income, rebates of rights society commissions, etc., then, theoretically, 10% of this should be attributable to that catalogue. The way to obtain this Black Box income is to provide specifically that the original publisher be paid in the same proportion as the original publisher’s catalogue earnings are allocated to the society member (that is, the subpublisher) by the society. If the subpublishing deal provides that for every $1 collected by the subpublisher with respect to a specific song, 15% is to be retained by the subpublisher and 85% is to be paid to the original publisher, then, in the $1 million example above, 85% of $100,000 (which is 10% of the million dollars of Black Box income received by the subpublisher) must be paid to the original publisher.

  Since upward of 30% of all publishing earnings in Italy (and 15% and more of such earnings in France and Germany) flow into the Black Box, a goodly portion of a writer’s income may be unintentionally diverted right out of his or her bank account—all because of the use of the phrase “specific songs,” which appears, on its face, to be straightforward but may in fact lead to the loss of substantial monies.

  Obviously, once an agreement has been signed, it is too late to patch up the deficiencies in the audit clause.

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  What does a formal audit—as opposed to a desk audit—accomplish for the client? A survey has suggested that a 10% to 15% recovery over and above the accountings presented by the record companies is not unusual. Settlements are reached in 95% of all audits, and only 10% of the remaining 5% end up in court. Chances are that the audit settlement will end for all time any controversy that may have arisen about the issues raised by the audit—whether these be substantive (for example, nonreporting of income) or definitional (for example, disputes over the meaning of contractual words or phrases). A careful choice of an auditor and cooperation among the auditor, the attorney, the manager, and the artist are essential to achieve a fair result.

  13 • MUSIC PUBLISHING

  The Odyssey of the Song

  When asked: “Why do you write?” Frederick Delius answered, “Because I cannot swim.”

  No man but a blockhead ever wrote, except for money.

  —SAMUEL JOHNSON

  Let’s talk about music publishing. It worked for Beethoven; how will it work for you?

  This is the most intriguing, most complex, and surely the least understood area of the music business. Yet every budding recording artist (and his representatives) should have a high degree of awareness and sensitivity to this stepchild of the industry. For even the novice songwriter knows that long after the records are relegated to the oldies bin and the live performances are a distant memory, music publishing income will endure. This is the annuity, the social security, of the songwriter. How an artist’s songs are owned, exploited, and, most of all, protected, can determine whether or not the artist’s career will, in the end, be a financial success, or whether the artist will have to, God forbid, get a job.

  Those who are interested in music publishing are not lonely. The company enjoyed by the songwriter includes the music publisher who, in exchange for services, participates in the income and the asset accumulation as each musical composition gains value. Users of musical compositions have a distinct interest in them: record companies, film and television companies, product owners who use compositions in commercials, etc. And let’s not forget video game companies, website owners, and Apple’s (and others’) online music stores. Everyone wants (needs?) a good song.

  In most respects, music publishers’ and songwriters’ attitudes toward, and interests in, musical compositions coincide. There are areas in which their interests diverge, and these are covered later in the chapter, but predominantly they have the same goals: protecting the controlled use of the song, maximizing the eventual income from the song, and ensuring that copyright protection, and attendant compensation rights, are as broad as possible throughout the world.

  Music publishing is a creation of the music business. Yet music publishers are the most significant contributors to the maintenance of all copyright rights throughout the world and the most effective lobbyists for those rights. Collectively, in many ways, they are the engine that makes the entire music industry run.

  WHAT IS A MUSIC PUBLISHER—AND WHAT DOES IT PUBLISH?

  There is no simple, universal definition of what a music publisher is, and the term appears in the US Copyright Act only twice. Yes, there are references to copyright owners, authors, and “rightholders”; many references to “publication” (the distribution of copies or records of a work to the public by sale, rental, lease, or lending); and language about performing a work “publicly” (that is, at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered). But the lawmakers were not the ones who had to figure out h
ow to commercialize the concept of publication. Others did. They created the “publisher.” A publisher can be as simple as a name under which the author does business (dba, or “doing business as”) or as complicated as a multinational such as Universal Music Publishing Group, which looks after the rights of more than 1 million musical compositions.

  This chapter will explore the changing role of the music publisher in the 21st century, discuss some of the traditional concerns of publishers and songwriters alike, and identify some of the ways in which music publishers’ interests and methods diverge from those of the writers. Before we proceed, however, let me define briefly some of the terms that I will be using in this chapter.

  • An administrating publisher is the entity responsible for the myriad tasks associated with licensing and collecting income derived from the exploitation of musical compositions. There may be one or more administrating publishers, each responsible for a portion of the song.

  • A copublisher refers to a publisher that actually owns a portion of the copyright to a song, the so-called “publisher’s share.” A copublisher can be an administrating publisher, but is not necessarily one. For example, an artist who writes may copublish his or her own songs, but it is usually the other copublisher—perhaps a major such as BMG Music Publishing Company—that provides the administrating (or song management) services.

  • A subpublisher is the foreign equivalent of the American administrating publisher. Subpublishers are vital to domestic publishers because they belong to performing and mechanical rights societies around the world and can collect directly, and monitor accurately, the monies generated by the exploitation of musical compositions in their respective territories.

  Traditionally, music publishers have had two major roles:

  1. To administer, exploit, and nurture copyrights. The rights specifically granted to copyright owners of musical compositions under the US Copyright Act are the right to perform, to mechanically reproduce, to synchronize, and to print. Music publishers seek to ensure that federal and world copyright protection is sought and acquired, that users of their musical works throughout the world are properly licensed, and that users of the works pay the requisite fees—for mechanically recording the works on records, synchronizing them on film or video, performing them live or through broadcast, or reproducing them via visual notation. Music publishers also actively seek out potential users of their copyrights, for example, by convincing a musician to record a song or a film or television company to include the song in a film or video production.

  2. To provide sufficient funds (a) to help a songwriter live while he or she is writing, (b) to cause songwriters to meet each other wherever they are in the world for the purpose of encouraging cowrites, and (c) to pay for the cost of demonstration recordings that are the means by which potential users of the works get to hear them in the first instance. This chapter is primarily concerned with the first of these functions: administering, exploiting, and nurturing copyrights.

  COPYRIGHT: A BUNDLE OF INTANGIBLES

  What exactly is a copyright?

  The concept of copyright, that is, the right to reproduce an original work, has undergone an extensive evolution since the first US copyright law was passed in 1790. For example, the 1909 copyright law protected musical compositions from being mechanically reproduced, without permission, by any “parts of instruments.” At the time, the “instruments” (devices) in question were player piano rolls and eventually Edison cylinders—the first record players. It was not long before circular records were being produced (from 78s to 45s to 33s), then tapes (from eight-track to cassettes), then CDs, DVDs, etc. Eventually, we began to refer to the various devices by which musical compositions are reproduced as “sound carriers” because we could no longer specify what form the “parts of instruments” might take. Now, of course, we do not even work solely with forms. We work in cyberspace (MP3 and other digital download formats) with digital phonorecord deliveries (DPDs). Thus, over the last one hundred years, the rights of copyright holders under the copyright law have been found to apply to every one of the devices used to reproduce them, even though most of these “parts of instruments” had not been invented, or even imagined, in 1909. We are introduced periodically to new technologies, such as computer programs and Internet applications, which invite expansion of what are often referred to as the “bundle of rights” subsumed under copyright legislation.

  Establishing Authorship

  Under United States Copyright Law, the exclusive right to own, control, and protect one’s creation from unauthorized reproduction is a right granted upon the creation of the work. Most people do not realize this. They think they have to “copyright” the song first. Well, rest easy. Upon creation, any original work of authorship “fixed in any tangible medium of expression” has federal copyright status and protection. (Note that copyright protection does not extend to any “idea, procedure, process, system, method of operation, concept, principle, or discovery” [Section 102 of the Copyright Act], nor does it extend to any work “authored” by the US government.) However, the subsequent registration of a claim to copyright in Washington, DC, gives the creator some wonderful additional benefits:

  • The right to sue in federal courts for specific statutory damages and to seek injunctions for unauthorized copying.

  • The right to collect compulsory license royalties according to the rules established in the Copyright Act of 1976 (misnamed, because the act didn’t actually take effect until 1978). Section 115 of that act provides that “to be entitled to receive royalties under a compulsory license, the copyright owner must be identified in the registration or other public records of the Copyright Office. The Owner…is not entitled to recover these royalties for any phonorecords previously made and distributed.”

  • Concrete and credible evidence, via the Certificate of Copyright Registration issued by the US Copyright Office, proving that the work had indeed been created and was in existence at the time the claim to copyright was filed.

  The copyright certificate rendered by the US Copyright Office obviously does not prove that the person claiming authorship or ownership actually wrote or owns the work, but it does prove that the claim to ownership in the song was in fact filed on a certain date. It is also prima facie proof of the facts stated thereon. This means that if the copyright registration form says that writer A wrote the song, and writer B says that he or she actually wrote the song, the burden of proof in any legal proceedings is on writer B to prove that he or she, not writer A, wrote the song. This can be a very valuable piece of paper indeed. This does not mean that for every composition a songwriter creates, he or she must register a separate claim to copyright in Washington. The Copyright Office will accept multiple registrations (for example, a CD or tape containing ten songs can be the subject of one registration). Finally, if for some reason—usually financial—a songwriter cannot formally register a work or works with the Copyright Office, the writer can still mail a registered package to him- or herself (or to an attorney) containing a copy of the work and leave it unopened. (In 2016, the cost to register claims to copyright in a musical composition was $85 via physical/paper registration, but the online cost is only $35, or sometimes $55, per registration.) In any copyright infringement action, it is necessary to prove not only that the defendant had access to another person’s work, but that it was substantially similar as well. But if the defendant can prove that the work existed before the plaintiff’s work was even written, the rest doesn’t matter and the defendant is home free.

  Digital Print Rights

  This represents a new world for music publishers. Whereas for most of the 20th century, phonograph record owners became used to the addition to their financial vocabulary of new and different means of transmitting music for home use to consumers, music publishers have long been reduced to concerning themselves with the four rights mentioned above: performing rights, mechanical rights, synchronization rights, and print rights.

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sp; A millennium gift to the music publisher is, virtually, a fifth right: a new product that has been developed in the digital age—digital sheet music. This is an awesome addition to the arsenal of music publishers and one that has not yet been entirely recognized for what it is: a revolutionary method of distributing “sheet music” inexpensively, instantly, and with a great deal of variety and satisfaction—24/7 and forever “in print.”

  Digital print rights are the rights to digitize musical notation and graphs (such as guitar tablature) as well as textual information (such as lyrics) in a manner in which they may be used through all means of digital delivery, such as the Internet, on CDs, as part of DVDs, and via music scanners. As of this writing, one distributor of digital print rights, Musicnotes.​com, includes digital data representing pitch and duration that can be accessed through midi (musical instrument digital interface) or by way of CDs themselves. Digital print rights are exploited the same way digital audio rights are exploited, except they can be translated into a readable visual text identical to musical notation. As with digital audio rights, they provide immediate access to content and do not require a trip to a music store, nor is any concrete medium, such as a CD, involved. Unlike audio rights owners, digital print rights owners have thus far conquered the problem of protecting their assets from unauthorized appropriation.

  There are approximately eight thousand dealers of musical instruments and products in the United States. About four thousand of them carry printed copies of music; perhaps one hundred of these specialize in the print area, and it is estimated that those one hundred do not provide more than 1% of the world’s printed music to their customers, despite the fact that some do order the music for later delivery. (Note that a similar situation exists in the record industry: Probably fewer than 1% of the sound recordings in existence are actually available from your local CD chain store, if you even have one of these days.)