ASCAP

Industry news source Digital Music News says the threat of rising music publishing royalties to music services like Pandora is growing -- pointing to hints that Universal Music Publishing will soon adopt the aggressive tactics recently employed by other major publishers.

Major publishing groups (which hold the copyright to written song compositions, for which broadcasters and webcasters alike must pay) like the now combined Sony/ATV and EMI Music Publishing announced last year they would cancel their "digital performance" contracts with performance rights organizations ASCAP and BMI (with whom services can license to access all the music the groups represent). The move frees the publishers from the rate-constraints imposed by the federal government, and forces services like Pandora to negotiate directly with the publisher for a license to perform its music.

In January came news (here) that Pandora's bill for Sony/ATV music went up 25% -- and that's for a one-year term which will need to be negotiated again.

Immediately industry observers began to warn (here) that publishing groups no longer subject to rate regulations can make life very difficult for those who'd license music. Billboard.biz reported this week UMPG has announced it will withdraw its digital rights from ASCAP and BMI (BMG Chrysalis has also negotiated the option to withhold its digital performance rights, but hasn't yet decided if it will.)

UMPG chairman/CEO Zach Horowitz told Billboard, "In order to ensure that our songwriters are fairly compensated, we believe the best approach is for us to negotiate directly with these services. For that reason we notified both ASCAP and BMI at the end of last year that we will be withdrawing our digital rights for controlled catalogs at the earliest opportunity."

According to its financial reports, Pandora pays music publishers 4.1% of revenue for the use of musical compositions, a far cry from the 55% it pays for copyright sound recordings. So while music publishing royalties aren't yet the immediate threat sound recording royalties are, no service is currently ready to take on yet more expense (including Pandora, by far webcasting's most successful). Yet that 12-to-1 ratio of what labels earn versus the publishers, and presumably the sense that a written song is as valuable a commodity as a recorded one, are seen as major drivers in the move towards publishers directly negotiating with services, and getting higher fees.

Read more in Billboard here and in Digital Music News here.

Industry attorney and rights/royalties authority David Oxenford is suggesting the system of simple, one-stop music licensing that has enabled services to easily pay for the use of copyright music, and rights-holders to earn on their creations, may be breaking down.

Last week news broke (here) that webcaster Pandora's bill to perform compositions held by Sony/ATV will go up 25%. Pandora's agreement with ASCAP and BMI no longer covers Sony/ATV work, and they must settle separately -- without the oversight of a rate court. Some fear this is just the first domino falling, soon to be followed by other publishing groups breaking away from the Performance Rights Organizations (PROs) ASCAP and BMI, which aggregate rights and rightsholders (making the licensing of music simpler for both copyright owners and users). See our followup to the Sony/ATV and Pandora news here.

Oxenford joins those warning that if more large publishing groups withdraw from the PROs, the process gets harder for music users -- with no rate court oversight (to regulate rates).

Keep in mind some owners of sound recording copyrights have peeled away from the collective -- in this case, SoundExchange. In those cases, labels or label groups like Big Machine have made separate deals with broadcasters that decrease webcasting royalties.

But, if this fragmenting of rightsholders continues and accelerates, life could become more complex and expensive for smaller players -- both smaller services and smaller rightsholders. As Oxenford points out, smaller services don't have the manpower to negotiate all they agreements necessary for a comprehensive service; smaller publishers may be left relying on the PROs, and with fewer members, admin costs as a percentage of earnings will rise.

"Note, in some cases, any advantages of the larger players may fade away, as marketplace agreements can often be the best evidence of what the royalties set by a rate court or the CRB should be, in which case these directly licensed rates will end up being extended to all players in the industry," Oxenford writes.

Given the direct deals for sound recording and publishing rates so far, "we might see higher rates for music publishing, but lower rates for sound recordings over time."

Read his entire blog post at Broadcast Law Blog here.

Last week we learned (here) that leading webcaster Pandora -- in addition to backing the Internet Radio Fairness Act with the hope of a lower sound recording royalty -- filed suit against ASCAP with regard to royalties on music compositions. A short piece in the Copyhype blog reviews the history of ASCAP, "consent decrees," and "rate court" to show that Pandora's suit is simply "part of the process... The court filing doesn’t allege any sort of malfeasance or breach..."

Reads the blog, "Under the consent decree, ASCAP is required to provide a reasonable fee upon request. If a potential licensee disagrees with the fee provided by ASCAP, it can bring suit in court. ASCAP has the burden of proving the reasonableness of the fee; otherwise, the court will weigh the evidence to determine a reasonable fee."

Pandora and ASCAP -- one of three U.S. performance rights organizations that collect and distribute royalties for the use of song compositions -- have negotiated for a year but have been unable to reach an agreement on what the webcaster should pay. Pandora reportedly wants a deal similar to what AM/FM broadcasters have. Earlier this year ASCAP and radio agree broadcasters would pay 1.7% of their gross revenue, minus deductions based on advertising commissions.

Read the Copyhype piece here.

Pandora has filed suit against ASCAP (the American Society of Composers, Authors and Publishers) in New York federal court, hoping to force the organization to grant it a "blanket" licensing fee for all of ASCAP's works.

The suit follows more than a year of negotiations in which the two sides were unable to settle.

Pandora is one of several webcasters, broadcasters, and technology groups supporting the Internet Radio Fairness Act in Congress, legislation advocates hope will lead to a reduction in the fees webcasters pay for the use of copyright sound recordings.

The fees webcasters like Pandora pay to ASCAP (and similar groups BMI and SESAC), on the other hand, involve copyright song compositions. The benefactors of such royalties are songwriters and publishers.

Pandora reportedly wants -- and ASCAP refuses -- the same terms as broadcasters. Earlier this year ASCAP reached a deal with the Radio Music Licensing Committee, which represents large broadcasters. The deal has radio broadcasters paying 1.7% of their gross revenue, minus deductions based on advertising commissions.

ASCAP and Pandora reached what was called an "experimental" accord on composition fees for the 2005-2010 term. Pandora's suit is for the term ending 2015.

Relatedly, Sony/ATV, a publisher with huge rights holdings, is pulling out of ASCAP to administer its own digital royalties (more here). This adds to webcasters' complications, as the group would be yet another organization with which to negotiate yet another fee. Though such a move should presumably reduce ASCAP fees, it's not known what it would mean for the overall amount webcasters pay to use copyright song compositions.

Read more in Bloomberg here.

The New York Post reported today Apple's inability to reach an agreement with music publisher Sony/ATV made it impossible to coincide the launch of its streaming music service with the release of the iPhone 5.

Sony/ATV is the world's largest music publisher (which means we're talking about song compositions, not sound recordings). A source told The Post Sony/ATV wanted a higher per-song fee to use its compositions than Apple was willing to pay.

What's more, the publishing giant reportedly plans to pull out of ASCAP and BMI after the first of the year. These two performance rights organizations negotiate rights with services that use song compositions for all their members. If Sony/ATV backs out of those groups, as EMI, which Sony/ATV is acquiring (don't confuse this deal with Universal's acquisition of the EMI Recording Group -- we're still talking music publishers here!) announced it would do, securing rights to use this music will become more complicated for webcasters.

"The Sony/ATV snafu means music streaming is more likely to appear as an iPhone update in future months," The Post's sources said.

Earlier this month it was reported that Apple was in negotiations with record labels to introduce streaming music "Pandora-competitor" service. 

According to CNet, "(music) publishers don't like Pandora's model... and don't want to see Apple launch a similar service."

Read The New York Post here; CNet here.