Re: Re: Direct Performance Licensing is Shortsighted from a Writer or Publisher Standpoint
I can't share my clients' personal financial records with you, but I can assure you that they receive millions annually from the PROs. Since mechanical income has declined so much over the past decade, income from the PROs is more important than ever.
Direct Performance Licensing is Shortsighted from a Writer or Publisher Standpoint
Direct performance licensing has been happening for years, particularly in the broadcast industry, and this decision makes it easier. However, one point that people fail to consider when discussing direct performance licensing is why the performance rights organizations exist all over the world:
Perhaps you can negotiate higher fees and get paid more quickly by cutting direct deals for the use of your song, instead of registering it with a PRO (ASCAP, BMI or SESAC). However, if many parties opt to do this, publishers and writers will be in trouble. This is because publishers and writers as individuals do not have as much negotiation leverage - or monitoring and collection capabilities, especially abroad - as they do collectively. This is why the PROs exist in the first place.
Techdirt readers may fundamentally disagree, but this is the bottom line in my view: The overall "pie" will ultimately shrink and there will be less money for composers and publishers to share if there is a big movement towards direct licensing. It may be be a tempting move in the short term, but in the long run, direct licensing is bad for writers and publishers.
Either way, people on both sides of the DMX case are members of the California Copyright Conference, where this issue has been debated in years past. I serve on the Board of the CCC and I expect we will cover this issue with the relevant parties in attendance at our annual Legal Update panel discussion, which will take place in September at the Mariott in Sherman Oaks, CA.
Not to get too off topic, but the CCC Board member who is scheduled to moderate the panel discussion is Kenneth Freundlich, Esq., who represented Royalty Logic and other entities in court when he argued that the US Copyright Royalty Board is unconstitutional. (IIRC, I think DMX may be a client of Royalty Logic, or its founder, Ron Gertz.) Since the constitutionality of the CRB is another topic that has been covered repeatedly by Techdirt, the CCC Legal Update panel discussion mentioned above may be of general interest to some Techdirt readers. You can find more information at http://www.theccc.org if you are interested in checking it out. Hope to meet some of you there.
I am the auditor to which Mr. Masnick refers in his post.
Mike asked, "Has any of it been passed on to artists?"
You might be surprised that the answer is YES.
That said, the record companies have gone to great lengths to minimize the amount that they have shared with artists, publishers and songwriters. Therefore, many amounts have gone unreported or underreported, even though some of the money has indeed been shared.
Here are two tactics employed by record companies in order to avoid sharing infringement recoveries:
- Misallocation - many recoveries have been allocated 90% or 100% to a music group's record companies instead of its publishers (because a publisher is obliged to share more receipts with songwriters than a record company must share with its artists)
- Reclassification as an "investment" - I have previously posted on this site about this practice. The record companies have been misclassifying their income for years. If it is classified as income from an "investment," it won't be shared with artists.
I will not disclose all the tactics that the record companies have used to avoid sharing recoveries with artists. Unfortunately, it seems the only way for artists and writers to get a share of some of these unreported amounts is to go after it by hiring an audit and legal team, which is expensive. Even if you are lucky enough to find an auditor who knows about this, these are not slam dunk claims, so the client is unlikely to come away with his or her full share of the recoveries. More often, clients come away with a portion of what they are actually due.
One question that Mike didn't ask and I can't answer is whether the RIAA had fairly allocated or directed recoveries to its member labels. For example, did all the RIAA members who footed the bill for the litigation get their fair share of recoveries? If I were a smaller label, I would be asking this question.
The settlements and awards on the RIAA's books exclude the hundreds of millions in cash and non-cash consideration that the record labels have received directly from major infringers, which is connected to the RIAA's campaign.
How do you think the record labels have stayed afloat all this time? It is the settlement money that they have not shared much with artists or songwriters.
I have heard Chris speak at many events and I am impressed by his ability to articulate dynamic analysis from a variety of domestic and foreign perspectives. For example, Mr. Castle is one of the few people in the US who is knowledgeable enough to speak on the different interests at play in Europe in connection with Pan-European licensing. Also, he was involved with Snocap, so it is not fair to characterize him as an attorney who solely represents musical artists and songwriters.
I do not agree with everything Mr. Castle has said, but if you listen to him speak at length, I believe you would interpret his statements in a different context.
Re: Re: â��...one-in-five albums sold in America were digital...â��
CDs of course contain digital files. However, CDs are distributed through physical channels. I believe that in using the term "digital," Mr. Page meant products distributed through digital channels instead of physical channels.
Re: Re: Re: Re: Re: Re: Re: Re: Re: Payments go to the performers?
Yes, the record label business model is predicated on ripping off artists, since only some of them can afford to hire auditors (and sometimes sue) to get even a portion of what they are due. Companies get "caught" more often than you think, as they are constantly being audited and very few cases make it into the public eye (most are confidentially settled before they reach the litigation phase). Incidentally, a lot of the indies are worse than the majors.
I should point out that it isn't just record labels who do this. I also audit digital media companies, music publishers, cable channels, video game, film, consumer electronics companies in Asia, Europe, Central America, Australia and USA. It's all the same. Any company who owes a party millions in contingent compensation finds ways to underreport, from ambiguous contractual terms to mistakes that happen to be in the licensor's favor. It is pretty consistent regardless of industry, or location. I guess it is just human nature. That's why I have a job.
I just can't believe how many people out there think their business partner would "never do that." They are almost all wrong!
Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Payments go to the performers?
You misunderstand my role. I am a royalty compliance auditor that is best known for my audits of record companies on behalf of recording artists and publishers solely for purposes of disclosing contractual and statutory underpayments due my clients. (Said another way, my audits have nothing to do with taxes or financial statements.)
I think I use Shazaam for Android, so I know what you're talking about. There are a lot of different technologies out there to identify songs and sound recordings, but generally the owners of the technology charge performance rights societies significant license fees, and it isn't as cheap and easy as everyone thinks to have the technology listening 100% of the time, everywhere. Also, the technology isn't perfect. So, while I think we are moving toward 99% digital accuracy in the next decade, I think it is going to continue for some time as a mix of digital technology and logs. Of course, I am not an expert on this matter.
I have been approached by people wanting to sue ASCAP or BMI because it didn't allocate enough or anything to a particular performance. The truth is, ASCAP and BMI are under pressure to be accurate as well as to keep admin costs down. So, they strive to strike a balance between perfection and efficiency. They set aside a fund from which they pay people who claim to be underrepresented. For example, if your band plays bars and sends in its set-lists, ASCAP will send a few bucks your way from this fund. But to hire someone to stand in the bar and write down every song by every unknown writer not in the Shazaam database that was performed would cost more than ASCAP even collects from the bar, so you can see how it is impossible to perfectly allocate the income. I am not a lawyer, but I think the reason there aren't more cases making the argument that you described is that the collection societies do use their best efforts to fairly allocate the license fees without driving up costs and they are able to demonstrate this in court. If you consider that most of the performances are attributable to 10% of the works, most of the performance royalties should go to 10% of the works and the performance rights organizations (PROs) do a pretty good job of doing that and are getting better, especially with respect to the works with relatively few performances (the other 90% of the works), as technology improves and gets cheaper. Sound Exchange has been as good as the digital information provided to it from the webcasters (which is sometimes very good and other times nonexistant), but if it starts collecting terrestrial radio, it will be in the same position as the PROs (ASCAP, BMI and SESAC which collect publishing performance royalties). Bottom line: There is plenty of room for improvement, and things are improving as technology improves and gets cheaper.
As an auditor, I am more appreciative of this point than most people are. When I do an audit, I can't look at every penny because it would cost my client more than he or she would recover. So, I look at the major activity and make sure I claim all of the major unpaid royalties, and then I test the minor activity to disclose other problems. It is the only way to evaluate the data in an efficient manner, to maximize my client's financial recovery. PROs and Sound Exchange have the same concern.
6 - I won't get into why, but major record companies are not going to make their sound recordings available via a creative commons license, although some indies or artists who own their masters might, although I wouldn't recommend it. And no label will have to license each station because most stations are owned by the same handful of companies, and for smaller stations it will make much more sense to opt for the statutory license because it is so cheap (it will cost most of them less than $1,000/year, many just $100). It will probably make sense for the big conglomerate stations to do this as well, since the statutory license fees are simply not nearly as expensive as the NAB makes them out to be. The whole point of the statutory license and rates (that people here call a tax) is to make the licensing process as painless and automatic as possible for all parties, but stations can opt to license directly if they choose.
7 - Not sure I understand your question. Are you asking whether anything can be done to stop the station from broadcasting music subject to the creative commons license? I would have to re-read the creative commons license language (it has been a while), but if the station could document that the recordings it broadcast were subject to the cc license, then Sound Exchange wouldn't have a case against a station for playing it. Now, there are different types of licenses from Sound Exchange that a station can choose, and some of them are blanket licenses where it wouldn't really decrease the fee a station paid just because one of the tracks was not subject to the blanket license. Other licenses are per use licenses, so the repertoire programming would impact the license fees. However, these licenses were designed for stations that do not play much music, so most music stations would be better off with a blanket license, unless they were mostly playing directly licensed music.
8 - Webcasting is very similar, except webcasters are already paying sound performance royalties. (Despite the uproar that it would put them out of business, it didn't.) If a webcaster has direct licenses, CC or not, my understanding is that it need not pay SoundExchange. Realistically, most of the music that people want to webcast is not CC and therefore it is easiest and cheapest to go through Sound Exchange. Now, you mentioned a secondary channel. The question of what constitutes a "channel" is not clear. Live 365 is a service that lets anyone set up a webcast station and it was one of the two plaintiffs I previously mentioned who argued that the CRB was unconstitutional. It was very interested in this because it had so many thousands of "channels" compared to other webcasters. I think it lost the case on summary judgement and didn't appeal. It looks like it is still in business, so I don't know whether it is paying the fee for every channel, or if it has been able to convince Sound Exchange that it is just one webcaster, or obtain direct licenses from the majors. In any case, I do not think it is perfectly clear what constitutes a channel.
Hope I answered your questions. Have a great weekend.
OK, I will do my best to address your questions, since they are the best questions anyone has asked in this thread:
1 - Like ASCAP, BMI and SESAC royalties, the blanket license fees charged to music radio stations will be allocated on a song by song basis, but probably based on sampling, since the cost of using the technology to cover everything, everywhere, 100% of the time would cost more than the license fee itself. (You want there to be plenty of pie left over to eat.) However, it is moving in the direction of more accuracy, as costs decrease to the point where the benefits of having exact information outweigh the costs.
2 - This is less desirable than sampling because radio stations are known to provide incorrect logs. But, probably in areas where there is not enough electronic sampling, or for purposes of verifying the electronic sampling, logs sheets will be requested on a test basis
3 - Sound Exchange audits its licensees, but they don't use the best auditors. I know they don't have the best auditors because they aren't my client yet. However, Sound Exchange does not seem to be very transparent. (This is a whole other subject that I could go on and on about... but I digress.)
4 - Are you referring to Sound Exchange or to companies it hires to monitor airplay? If you mean an action to force the playing field open to competition amongst different collection agents, I know an attorney who has sued twice (arguing the CRB and therefore Sound Exchange as the sole collection agent are unconstitutional), but I think his clients keep giving up. If you know someone else who wants to sue, LMK! I do think the government made a mistake by giving Sound Exchange a monopoly, although the competition isn't any better, IMO. At least Sound Exchange has some very active artist advocates on its board. It isn't totally affiliated with the RIAA. I think the CRB may open up the market in the next five years, if it isn't forced to do so sooner.
5 - It isn't a tax. A radio station can opt to use creative commons license or public domain recordings and songs, or it can obtain a license (including a gratis or free license) directly from the copyright holders, in which case it won't have to pay anything to Sound Exchange or any other similar CRB-designated agent. Paying a statutory royalty (what you called a "tax") is just one option available to broadcasters.