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Universal publishing chief addresses questions around direct licensing of digital

By Chris Cooke | Published on Thursday 4 June 2015

The newish boss of Universal’s music publishing business Jody Gerson has sent a memo to her staff worldwide (published by Hits Daily Double here) dealing with some of the discussions around what will happen if and when the major publishers Stateside decide to pull their digital rights from the collective licensing system and license streaming platforms directly.

As previously reported, frustrated with the royalty rates they were receiving from key digital services, a few years back the bigger publishers in the US decided to follow the lead of their European counterparts and pull their digital rights from the collective licensing system, meaning that organisations like BMI and ASCAP would no longer be able to represent the performing rights of the big publishers’ repertoire when licensing digital platforms.

When music rights owners license through their collecting societies there is extra copyright regulation at play, designed to counter competition law concerns about the record or publishing sectors licensing as one. This usually means that, ultimately, unhappy licensees can take the matter to a statutory mediator, in the US the rate courts, where a judge will decide what royalties should be paid. And when it came to digital, the US rate courts always seemed to set the rates pretty low.

For the majors, one solution to this dilemma was to stop licensing digital services through the collective licensing system, moving to a direct licensing scenario where the rate courts have no role. Except that when they tried to do just that, Pandora – which knew it would have to pay higher royalties if negotiating direct – argued that under collective licensing rules in the US, contained in the so called ‘consent decrees’, the publishers couldn’t choose to licence digital direct while still licensing broadcasters and public performance collectively.

And the courts agreed. The consent decrees said publishers had to be ‘all in’ or ‘all out’ when it came to collective licensing. Which means that if the US publishers started licensing digital directly, they’d have to license every radio station, gig promoter and music-playing bar directly too, which no one really wants to do. Though Sony/ATV boss Marty Bandier has threatened to do just that if the Department Of Justice – which controls the consent decrees – doesn’t change the rules to allow partial withdrawal.

The DoJ has been busying reviewing the collective licensing rules, and the publishers are hopeful that the consent decrees will be rewritten later this year to allow them to withdraw just digital. Collective licensing regulations in Europe, which are a little more flexible, already allow publishers to license digital direct while still dealing with other licensee types through the society system.

Though the prospect of the big publishers moving to direct dealing on digital in the US has thrown up lots of questions in the songwriting and legal community, and the main question is this: can the publishers actually pull digital from BMI and ASCAP without the permission of each and every songwriter on their roster?

In Europe the publishing industry’s collecting societies are generally more powerful than their counterparts in the US, because the societies rather than the publishers control certain elements of the copyright (so PRS controls the performing right element of its members’ songs, with the publishers simply having a contractual right to a cut of the income). This means that where the big five (Sony/ATV, Universal, Warner/Chappell, BMG and Kobalt) license digital services direct, they have to do so in partnership with a performing rights organisation, with some of the income being paid direct to songwriters via their societies.

But what will happen in the US where collecting societies are less powerful? How will songwriters be paid their cut of digital income? What will they receive a cut of? If they haven’t recouped on their advance, will they not see any performing rights income (whereas currently, even in the US, they’d be paid this direct by their society even if they haven’t recouped)? And what about non-US repertoire, represented by BMI and ASCAP under reciprocal agreements with other societies around the world, societies which may actually control elements of the copyright? Are you keeping up with all this? Basically, lots of questions.

And it is some of these questions that Universal Music Publishing Group CEO Jody Gerson has addressed in her memo, after stating that all the chatter around this issue has led to “misrepresentations” that are “misleading the songwriter community”. Universal’s lobbying effort for consent decree reform is, she insists, simply part of the firm’s ongoing mission to do the best for its songwriters, and “to protect their rights and do all we can to deliver the greatest value for them”.

But what about all those questions? Well, the three bullet points in the middle of the memo are most important in tackling these issues. Gerson writes…

1. We will adhere to a standard of transparency with our performance rights licenses by sharing with our songwriters terms and all monies under such licenses, whether royalties, unearned advances, or flat payments.

2. We will not apply the writer’s share of performance income against unrecouped songwriter advance balances; in fact, at a songwriter’s election, we will direct licensees to pay the writer’s share of performance income directly to the songwriter’s performance rights organisation of choice.

3. To the extent a songwriter is a member of an ex-US performance rights society, we will not license such songwriter’s performance rights unless authorised to do so by the songwriter or society concerned.

She concludes: “As we move into a world of direct performance rights licensing, we need to continue to listen to our songwriters and respect any concerns or questions raised by their representatives and songwriter trade organisations. We need to ensure that they are secure in the knowledge that when we act, we act to serve their best interests”.

So there you have it. Though – lawyers repping songwriters will no doubt insist – the devil is in the detail, and while Gerson’s commitments will be welcomed, many songwriters on her roster will want to know more about how any directly-negotiated digital deals will work.

True, a certain amount of information can be unofficially gleaned from the contracts Sony/ATV and Universal negotiated with Pandora before they were told direct dealing wasn’t allowed. Those contracts were used and therefore revealed in the previously reported Pandora rate court hearing, and are dissected by Music Business Worldwide here. But songwriters and their reps would prefer to be told upfront by the publishers themselves exactly who is paying what to whom, and how each songwriter’s royalties will be calculated and paid.

On that front the songwriters are at one with recording artists. “Transparency” remains the buzzword de jour. And while the Universal record company has now followed the lead of Sony and Warner in insisting that it shares those “unearned advances” (to use Gerson’s term, or “breakage” if you insist) with its artists, there remains much confusion in the management community as to what these commitments mean, when the sharing of breakage was implemented, and where managers should be looking for it on artist royalty statements.

And anyway, some suspect that the majors (though probably not Warner, which everyone agrees has been doing this for a while) have opted to start sharing breakage just as the streaming services are bringing in sufficient income each year that the advances are always recouped anyway, so there is no unallocated revenue to share. Which is cheeky. But hey, maybe we can put this one to bed for now anyway, and let the resentment silently brew amongst the artist community, ready for an almighty explosion when Spotify floats and the majors don’t share they equity spoils.