Record Labels Welcome Rise from Streaming, But Songwriters Aren’t Smiling Yet

By Verde Music Group on Oct 06, 2016 in Blogs , Music Business , Music Streaming , Publishing , Record Labels - 0 Comments
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Originally Posted in Billboard.com by Andrew Flanagan 9/23/2016

 

Is the digital revolution, and the first growth of the record business in nearly two decades, passing songwriters by?

Earlier this week, the American recording industry celebrated the very good news that they made more money during the first half of this year than they did during the first half of last year — something that hasn’t happened in any meaningful way for a long, long time. Streaming services, which have spent the past five years gaining acceptance stateside, seem to have reached a tipping point.

But as record labels watch their balance sheets go up and to the right, songwriters say — and have been saying for some time — they’re being cut out of streaming’s success.

Essentially, songwriters and publishers — the companies that oversee and manage the use of songwriters’ compositions, which are legally separate from therecordings of those songs  — see the problem as twofold. First, they say they’re being forced to compete in an open marketplace with one hand tied behind their back, because of regulations put in place by the U.S. government in 1941 over fears of antitrust. 75 years ago, the government had a legitimate reason to be worried that control over who could play what music was overly concentrated, and mandated that those in control of licensing songs to various businesses would have to license those songs at a rate that was reasonable and predictable, preventing price gouging. However, songwriters, publishers and the performance rights organizations — principally ASCAP and BMI, who originally agreed to the consent decrees — argue that being mandated by these regulations in 2016 is unfair in a chaotic, and competitive, market.

“When labels negotiate, they set their terms and if they don’t like them, they get to say no,” says David Israelite, president of the National Music Publishers Association. “The songwriters and publishers are operating under a patchwork of antiquated regulations that don’t allow them to say no.”

“The consent decrees don’t allow songwriters and publishers to negotiate in a free market,” says Dina LaPolt, an entertainment attorney who works with Songwriters of North America (SONA), tells Billboard. “The recording industry can negotiate in a free market for interactive services [also known as “on-demand” — those that let listeners pick what they want to hear, like Spotify].”

One source from a digital service counters that publishers say they want a competitive market, but not “true capitalism… Because in a truly competitive market, prices always come down.”

Those who license music from publishers and labels explained their stance in a recent letter written under the umbrella of the MIC Coalition, whose members include Google and iHeartMedia (and from which NPR and Amazon withdrew), “The protections provided by the consent decrees protect licensees from the massive market power of a few collectives over vast catalogs of non-substitutable musical works.”

Another argument is that digital music services are paying out most of their revenue for “content costs” — the music they play. If songwriters were allowed to collectively negotiate for higher rates, the lucrative new streaming economy would collapse.

“That’s not how markets work,” counters Israelite, saying that the labels and publishers wouldn’t negotiate the industry’s newest, massive revenue generator into an early grave.

Matt Pincus, CEO of the independent company SONGS Music Publishing, says that if he were able to freely negotiate the rates he charges digital services, as labels do, the result could be more money for the songwriters he represents. “Look at the one source of revenue where we can bargain, synch [the placement of songs in movies and television], we get fifty-fifty — the same as the labels.” (Pincus also obliquely references another ongoing dispute — that publishers/songwriters should receive an event split of money from digital services. However, labels take on additional overhead, like recording and marketing, that publishers do not. Fear not, that debate will continue.)

The other problem, according to songwriters and publishers, is that record labels are getting “the lion’s share” of digital revenues because of considerations labels secured during negotiations for the Digital Millennium Copyright Act (DMCA). At the time of these negotiations — the mid-’90s — labels argued that, because publishers receive performance royalties (the money owed from playing songs on the radio, in venues, and on the web) from multiple sources, labels should receive, at least, a digital performance royalty. Regulators agreed.

“First of all, it’s not our fault,” says Israelite, of the fact that record labels receive no money from broadcast radio. “We want them to get paid. The fact that they’ve gotten beaten in congress is no reason to punish songwriters.” But more importantly, he says, is that because of how the music industry — really any media business — has evolved, all of the money is in digital anyways. This is clear from the very thing that prompted this article — that the record business is growing after a long period of decline based entirely on digital sources of income.

“No one I know is against streaming services,” writes David Lowery, a songwriter and professor, in an email to Billboard. “The issue is compensation — or lack thereof.”

“The main way that songwriters have earned money, performance royalties,” Pincus says, “are now being directed to labels because of the DMCA.” He offers the example of Pandora, which pays out 55 percent of total revenues (compared to Spotify’s roughly 70 percent) back to the industry, of which he says 4 percent makes its way back to publishers. “It flips around the economics of the business in a fundamental way.”

Record labels counter that the overhead of their business — marketing, recording, for example — makes every dollar they make more expensive than publishers’ business.

So… what’s the solution?

“Whether its a performance share [of digital royalties], or a greater share of the other sources of revenues from streaming,” Pincus says, “we need to secure more of the revenue paid out by streaming services in order to keep the income of songwriters healthy.”

LaPolt is more pointed: “Blow it up and rebuild it. We’re asking these old hags who have been in the business for 30 years to deal with something they barely understand,” she says, in reference to the industry’s tectonic digital pivot. She also says that waiting for a legislative solution is a fool’s errand. “We need to put a lot of pressure on the government, and not through legislation — politicians spend ninety percent of their time trying to keep their job.” So, she says, “the only other thing to do is sue! Sue everybody’s asses off.”

In the meantime, songwriters are left with little recourse but to wait for the titans to reach a median. “How many Etta James’ have to die alone, penniless,” LaPolt asks. “How many B.B. Kings will need to get up on stage when they can barely stand?”