Sony Threat Raises the Ante in Royalties Showdown

Marc Hogan

By Marc Hogan

Lead News Writer
on 07.11.14 in News

The world’s largest music publisher has warned that it might withdraw from the basic music licensing system in the United States. Sony/ATV told its songwriters the company might pull out of ASCAP and BMI, the two music licensing giants, in order to fight for higher songwriting royalties. The threat from Sony/ATV head Martin Bandier is the latest flashpoint in a broader debate about royalties in the streaming era, but it’s one that carries particular force because it comes as the U.S. Justice Department is reviewing the 73-year-old ASCAP-BMI arrangement.

Sony/ATV oversees the rights to more than 2 million songs, ranging from the Beatles‘ catalog to more recent work by Kanye West and Taylor Swift, as well as current hits like Pharrell‘s “Happy” and Iggy Azalea‘s Charli XCX-featuring “Fancy.” In a letter posted on Sony/ATV’s website, CEO Martin Bandier told songwriters that “because the current system results in what we believe to be inequitable royalty rates, the amount being paid to songwriters is unacceptably low and in no way reflects the vital contribution you make to the success of these services.” Hear, hear.

Sony/ATV wants the Justice Department to let music publishers withdraw certain performance rights from ASCAP and BMI so they can negotiate their own deals with digital music services, which would theoretically be more lucrative for songwriters. Federal judges ruled late last year that publishers’ deals with the licensing organizations must be all or nothing. If the Justice Department and appeals courts decide not to allow partial withdrawals of performance rights, Bandier warned that “we may have no alternative but to take all of our rights out of ASCAP and BMI.”

The Justice Department opened its review of the licensing regime, which dates to 1941, early last month. The regulatory agency will be taking comments until August 6. After that, the department could suggest new rules, which would first have to pass a review by federal judges.

As The New York Times notes, big publishers’ withdrawals would make the licensing process only more complicated. Universal, another major publisher, has also talked about pulling out of ASCAP and BMI, which combined handle nearly $2 billion in annual royalties.

ASCAP, for its part, separately recommended last week in comments to the U.S. Copyright Office that the “antiquated” agreements governing them “must be updated, if not eliminated.” A BMI exec, in response to Sony/ATV’s letter, told the Times, “An all-or-nothing choice is not in the best interest of songwriters, composers and publishers.” The streaming radio provider Pandora, meanwhile, has been fighting ASCAP and BMI in court — and so far has mostly prevailed.

Streaming is a rare spot of growth for the music industry. But the royalty rates are lower than for downloads and other sales. For instance, “Living on a Prayer” writer Desmond Child got just $110 for 6 million Pandora streams in the first three months of this year, Sony/ATV boss Bandier told the New York Post. “Beautiful” writer Linda Perry got $349 for 13 million streams during the same time frame, he said.

Read Bandier’s full letter to his company’s songwriters below.

I’m reaching out to share some important news about our rapidly changing industry and what we’re doing about it. As you may recall, last year I wrote to you to announce that Sony/ATV had taken the lead in protecting your rights in the digital space by withdrawing certain digital performance rights from ASCAP and BMI.

As I explained, there were numerous reasons for this withdrawal. One was that ASCAP and BMI operate under very old antitrust consent decrees which dictate how they negotiate and grant licenses. As a result, the performance rights licensing process is often lengthy, expensive and results in artificially deflated rates. By withdrawing certain rights and entering into direct deals, the process
becomes more efficient, less costly and, ultimately, more transparent and beneficial for everyone.

Unfortunately, in two legal decisions at the end of 2013, the Federal Courts ruled that music publishers could not selectively withdraw public performance rights from ASCAP and BMI. In other words, a publisher had to keep all of these rights (including digital) with the two performing rights societies, or leave altogether. As a result, all of our performance rights are currently with ASCAP and BMI.

Like you, we passionately want digital music services to be successful as they provide fantastic new ways for music lovers to listen to music and have the potential to generate significant new revenues for all of us. However, because the current system results in what we believe to be inequitable royalty rates, the amount being paid to songwriters is unacceptably low and in no way reflects the
vital contribution you make to the success of these services.

To overcome the challenges of the present legislative and regulatory system, we are aggressively pursuing the following activities:

Working on your behalf with the U.S Department of Justice to revise the consent decrees and allow partial withdrawal of performance rights.
Appealing the rate court decisions so that partial withdrawals are permitted.
Exploring other options, including the potential complete withdrawal of all rights from ASCAP and BMI.

It is our hope that the DOJ and appeals process will recognize the benefits and fairness produced by partial withdrawals of performance rights. This would enable us to remove only those rights that we believe we can more efficiently license ourselves (e.g. digital), and keep other rights with ASCAP, BMI or others where collective licensing (e.g. for bars, restaurants and venues) makes sense
for the writers, publishers and licensees.

That being said, because the DOJ and legal process is not fully within our control, we may have no alternative but to take all of our rights out of ASCAP and BMI. We recognize that full withdrawal is a significant step and we are carefully looking at all of the issues associated with this, including speaking with potential partners to assist us.

All of us at Sony/ATV take our responsibility as your music publisher very seriously. We know we face some difficult decisions ahead that will impact our business for years to come.

We are optimistic that we will overcome these issues and set the stage for a better future for you, our songwriters. As the streaming market continues to grow rapidly, we are excited about all of the opportunities that lie ahead. We will be sure to keep you updated as significant events develop.

Martin Bandier,

Chairman & CEO,

Sony/ATV Music Publishing