Synch licensing has edged past mechanical as source of songwriter revenue, according to National Music Publishers Association president and CEO David Israelite, who pegged the U.S. publishing and songwriting industry at $2.652 billion as of 2016, almost a 20% jump since 2014. But the boom is creating a world of haves and have-nots, with large companies trying to edge the songwriters out of the picture.
Speaking at a keynote session at the 2017 Production Music Conference at the Loews Hollywood Hotel Thursday, Israelite rallied the 600 attendees – mostly songwriters and publishers – to fight for their rights and the value of their work. Quoting a guest column that appeared that day in Variety, Israelite slammed studios and networks for what he called the increasingly common practice of demanding ownership stakes as a condition for licensing music. “You’re basically being put in a situation that is blackmail,” he said. “Our best weapon is sunlight, exposure, public pressure on these companies that are asking creators to pretend that somehow the motion picture studio or network had anything to do with the creative process, and therefore deserves any of the downstream performance money.”
Some companies are even trying to force title changes to support “the false narrative that somehow they were part of creating it.” In the face of such pressure, creators must fight back. “We’re in a battle over the value of music. We’ve been in that battle for a long time, it’s had its ups and down. It’s a battle that will never end.” And one being waged at fever pitch now that the pot is sweetened with a prize of increasing value. Prices paid for song libraries have spiked recently as the music industry once again seems to have a future. Much of the growth is coming from alternative sources
Synch revenue has surpassed mechanical licensing: 21% versus 19%, Israelite noted. “A large part of that is because of the growth of what you all are doing,” he told the group, mostly Production Music Association members who sell to marketing music for trailers and commercials or background music for television and occasionally films. While much of it is created specifically for those uses, in many cases it’s compositional work created by an artist who has agreed to have it exploited for ancillary use.
The industry is enjoying its found money. “Consumers love lyrics, and as an industry we used to give them away. Now they have real value,” Israelite said. “Amazon put out a list of the top requested lyrics from [Alexa] devices, and on YouTube, often the most popular videos are lyric videos, not the official video from the artist.”
Israelite provided a lesson in licensing basics: a performance license is required by artists and labels, while songwriters and publishers require both a performance and something called a “mechanical” license (so-named because the rolls on player pianos “mechanically” reproduced music). Performance licensing governs use of an artist’s recording of a song, and accounts for the majority of publishing revenue, 65%. “Record labels have been very successful in the free market, getting fair value for their sound recordings,” he said, indicating some 50% to 60% of the revenue generated by streaming companies goes to labels, “and in some instances, like with Spotify, they’ve taken equity stakes in a company that may go public for $16 billion.” By contrast, songwriter rates are regulated by the government regulation, an odd disconnect.
While digital is sizzling, growth is also coming from “a lot of the traditional sources” television, broadcast radio and cable. “Mechanical, at 19%, is fascinating to me because, as mentioned earlier, you are seeing the near-death of downloads, the continued path toward extinction of physical product, yet we had growth in mechanicals from 2015 to 2016 because of the mechanical part of interactive streaming.” (Streaming revenues for writers are roughly half mechanical and half performance-generated for writers, he noted.)
Israelite predicted growth will continue through 2017. But it’s not all good news. The Washington-based executive called out a “broken” licensing system that makes copyright infringers of those he said would be happy to obtain proper usage if it was easier. “Anyone who enters this space is going to get sued because it’s practically impossible to license content properly. In the old days, when music was physically sold, the record labels would be the ones seeking the mechanical license. “They’d come to us and say ‘We need these 10 songs.’ Today, I have Amazon in my office saying ‘How do we license 40 million songs tomorrow?’”
He called on the industry to create “a transparent database paid for 100% by the digital companies that use it but managed by creative community.” He lauded competing performing rights organizations ASCAP and BMI for their intent to create a joint rights database, but said even that would not be effective without the participation of the smaller, newer PROs, SESAC and GMR.
Israelite’s talk did not sugarcoat the challenge of smoothing over business relations with the digital giants he made clear are indeed copyright infringers, taking advantage of every loophole in order to avoid or minimize music payments. But given they hold the keys to the music industry’s success, he counseled that they be treated as more than frenemies.
“I don’t think it’s a good idea to try to take songs out of their libraries when we’re in a battle for the hearts and minds of music consumers to pay for a music service every month,” the executive warned. “You’ve got YouTube out there for free that pays us crap. You’ve got Spotify that has a free service to the consumer that’s based on ad dollars which, we can debate, does not pay us well. Then there are paid subscriptions that are offered by Apple and Pandora and some by Spotify, and that is what’s going to save our industry.”
Music makers should focus the steps necessary to get more money for their work. “We can fight about the rate, and we should because they’re not paying us enough, but because the licensing system is broken everybody’s talking about the process instead of whether we’re getting paid fairly. This is a situation that needs to be fixed,” he said, urging creatives to “fight about value and work together over how we license.”
He predicts new legislation from Congress over the next few weeks to address critical inequities like the compulsory license (which originated in 1909) and the 1941 consent decrees (which restrict ASCAP and BMI rates and terms). A more recent obstacle is the Obama administration Department of Justice move to eliminate fractional licensing (which allows multi-party ownership of songs and requires all parties be paid). That battle is winding its way through the courts on appeal.
“It is time to go back to this new administration that may have different views on anti-trust and ask ‘Who needs protection from whom?’ Is it really Google and Apple and Amazon that need protection from the songwriters? Because that’s how the consent decrees are being applied. It’s insane.” But on the bright side, “we as an industry we have turned a corner,” he said, from the blight of piracy and shift from ownership to streaming. To maintain growth, “we must challenge our old ways of licensing, break them down and rebuild them in a way that works for the future.”