Sunday, October 4, 2015

Who Really Owns Music - Part 3.5-4 The Conversation Now Transparency, Fairness, and The Future

Payments, Complicated - A Thought Experiment
(Part 3.5 - 4 by Glen Sears)

Remember you Elvis-only streaming service? Now that you know about payments, what would it be like for you to pay royalties on a single stream of "Heartbreak Hotel?" Let's make up one possible scenario. (Disclaimer: this is not an actual breakdown of the "Heartbreak Hotel" ownership stack, and is only for the purpose of example.)

Your company makes $1 per play of "Heartbreak Hotel.' In reality the number is many times smaller than that, but for this example we'll embellish (we wish music plays made that much). Your sound recording license deal stipulates a 60% payment to RCA Victor, so $0.60 goes to them.


In addition, you owe royalties to the songwriters: Presley, Axton, and Durden. Let's say Presley and Axton are with Warner/Chappell, and Durden is with Sony/ATV. Each songwriter hold an equal share of the composition rights.


The mechanical royalty rate (set by Congress) is determined using a 4 step process with 15 sub-steps.  Here is just one example of the mathematics and process used to determine the amount of money earned by songwriters:

   4. (step 4) Calculate the Per-Work Royalty Allocation for Each Relevant Work. This is the amount payable    for reproduction and distribution of each musical work used by the service provider by virtue of its licensed activity through a particular offering during the accounting period. To determine this amount, determined in three 3 steps  in paragraphs (b)(3) of this section must be allocated to each musical work used through the offering. The allocation shall be accomplished by dividing the payable royalty pool determined in step 3 for such offering by the total number of plays of all musical works through such offering during the accounting period (other than promotional royalty rates plays) through the offering during the accounting period. For purposes of determining the per-work royalty allocations in all calculations under this step 4 only (i.e., after the payable royalty pool has been determined), for this section. Notwithstanding the foregoing, if the service provider is not capable of tracking play information due to bona fide limitations of the available technology for the services of that nature or of devices usable with the service, the per-work royalty allocation may instead be accomplished in a manner consistent with the methodology used by the service provider for making royalty payment allocation for the use of individual sound recording.   
Only one step of 4 in the royalty calculation process (via the U.S. GPO)

If reading this excerpt seems confusing, that's because it is. Mechanical royalty calculations are extremely complex. In essence, publishing royalties are paid based on the revenue of the entire music service, not each work. The series of calculations eventually spits out the "Per-Work Royalty Allocation" you see above. This is the amount each composition earns based on the total number of plays. This is paid to the publishing company, to be delivered to the songwriters.

Before that payment (let's say a total of ($0.30, $0.10 for each songwriter) is delivered to the songwriting trio, it is subject to the terms of their individual publishing agreements. Maybe Axton and Presley have a deal with Warner/Chappell to retain 100% of royalties with a 10% administration fee, so they each receive $0.09 and Warner/Chappell receives $0.02.

Durden, on the other hand, may have a co-publishing deal with Sony/ATV which splits the publisher royalties 50/50. In this case Durden retains his 50% writer's share of $0.25.  It's worth noting here that royalties are the primary income for songwriters and composers.

On the performance royalty side (remember, in this case a digital stream counts as a "public performance"), the PRO also receives also receives a percentage of your music service's overall revenue. Let's say all the writers are represented by ASCAP. When that money is distributed to ASCAP, another deal determines how much the trio receive of that payment.

One more thing --- these numbers are only true for one type of streaming music service in the United States. If "Heartbreak Hotel" is played on a different type of service, things change. In the UK, another entirely different set of contracts and rules. Russia? Same story. Each country has its own societies, administrators, and organizations, along with different laws that must be adhered to.'
All to pay for one single play, of one single, song, on one single service.

Part 4 - The Conversation Now
(Transparency, Fairness and The Future)
Now that you know, in somewhat simple terms, how music is owned and paid for the current conversation around transparency and fairness can be seen in context. The information required to process and pay for digital music use often passes through at least 6 different entities. Every step of the way, data has the opportunity to be obscured or lost. 

Berklee's Fair Music Report and its contributors see this as the primary issue facing digital music today. When an artist's song is played, it can be exceptionally difficult to know who to pay, or don't care to know. It's time to demand more accountability and transparency. - Casey Rae, Future of Music Coalition.

From outside the industry, it can seem like a simple problem. Fix the pipes, centralize the information, make it clear where money is going. But these complex practices have had over 100 years to grow, and not everyone has made the graceful transition to digital. The truth is it isn't a surprise digital music is broken, and it isn't any one person's fault or singular responsibility.

Instead, every company working in digital music has to work together to ensure music use is licensed, tracked when distributed, reported in an easy-to-understand format, and properly paid for. Paid to labels, artists, producers, musicians, publishers, PRO's, songwriters, composers, lyricists, adminitrators --- everyone.

Every contributor to a piece of music has the same right to proper payment. We're all in this battle together. Conversations about how much each person in the musical supply chain is paid won't mean a thing until we can ensure the existing contracts are fulfilled. Music needs systems that tie ownership, rights, licensing, reporting, and payments together in order to succeed. The entire music industry needs to know for certain who owns what and how much they're owed ---- then we can begin deciding if it's enough.

----THE END-----

Glen Sears is Editorial Content Manager at MediaNet, powering the world's best-loved music apps with catalog, licensing, payments, reporting, and rights management.

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