How Major Music Companies Are Getting Your Royalties: The Global Songwriter Shell Game

Guest post by Jeff Price, Founder & CEO of TuneCore.

While the major music companies' revenue from music sales has gone down, they have a brand new increasing income stream: revenue generated from the sale of other people's music. In the past five years, hundreds of millions of dollars of songwriter royalties have been generated and never paid to the songwriter, or have been given to Warner Bros, EMI, Universal, Sony and others based on their market share- estimates put this new income at over half a billion dollars.

Once these companies get the money, they keep it and don't account to anyone.

All the while, the songwriters that earned this money have no clue their pockets are being picked, their royalties are not being paid, and their rights are being violated.

I discovered this infringement and lack of royalty payments while embarking on a journey to discover how much money TuneCore Artists earned as songwriters. In the past three years, TuneCore Artists have sold over 500 million songs and earned over a quarter billion dollars from the sale of the recordings of their songs. With the help of Jamie Purpora, the former SVP Bug Music Publishing Administration and now President TuneCore Songwriter Publishing Administration, we identified another $60 to $70 million earned by these artists in songwriter royalties. The upsetting part, over 70% of this money never made it back to them. And keep in mind, I'm only talking about artists that use TuneCore—there are many more.

This infringement and lack of payment is one of the biggest outrages of the music industry and yet it is rarely talked about and even more rarely understood.

It needs to stop.

Let me explain the nutshell version of how it happens.

The new music industry is global. However, outside of the United States, digital services require additional rights, use different royalty rates and pay the owed royalties differently than the United States music industry. The end result is:

-The digital music service does not get all the rights needed from songwriters and therefore never pay the songwriter the money he/she is owed.
-At the same time, local performing rights and collection agencies outside the U.S. illegally take a % of the songwriter's money while making it impossible for the songwriter to get what's left over.
-This illegally obtained songwriter royalty money is then given to other major music companies in that country.
-These other major music companies knowingly take other people's royalties from the collection agencies. (Why not, it's free money earned off of music sales from songs they don't represent that they do not have to pay royalties on).

This scheme is beyond outrageous, it's wrong, it needs to stop (and it's why we launched the TuneCore Songwriter Service).

How do they get away with it, three reasons:

1) The existing global songwriter administration system was built for analog, not digital.

The old school music industry was built for the world of analog TV, AM/FM radio and 12" pieces of vinyl or 5" circular pieces of plastic; it was not built for the digital world. However, this old "analog" system is used for the administration of royalties from the digital world causing other people's money not to make it to them. The "analog" songwriter collection and administration industry knows this is occurring but has no motivation to change its existing system as it allows them to take/earn hundreds of millions of dollars off of other people's royalties.

2) It's cheaper to violate copyright than pay songwriters.

The new emerging digital music services have no simple solution to get licenses from and make payments to copyright holders; it's a pain, it's complicated, and, for the moment, it's cheaper to take on the potential legal liability than invest resources and time to comply with the law and pay the right people.

3) The complexity of copyright law and a lack of transparency create huge barriers to understanding.

The complexity of copyright law, the total lack of transparency by the collection agencies and the inability to audit anything, and you have a perfect storm for global copyright infringement with hundreds of millions of dollars of other people's money getting siphoned off and/or not paid to the millions of rightful copyright holders.

Here's a step-by-step description of how this occurs:

THE ONE NEEDED SONGWRITER RIGHT AND ITS ROYALTY RATE FOR DIGITAL DOWNLOAD SALES IN THE UNITED STATES

In the United States, for digital music services to include a song for download (meaning a recording of your song that either you or someone else recorded) it must have one license from the songwriter:

The Right of Reproduction

In the United States, the government created something called a "Compulsory" license for the right of Reproduction: If the government's set of rules (laws) are followed, the license cannot be denied, it's "Compulsory."

The royalties paid for each Reproduction are called "Mechanical Royalties."

The U.S. Government also sets the "Mechanical Royalty" rate—this is called the "Statutory Rate." The current statutory rate for a download of a song in the United States is $0.091; a little less than a dime (unless the song is over five minutes in which case the rate is formula based).

As an example, you write a song called "My Song." A recording of "My Song" is placed into a digital download music service and sells 100 times. The songwriter is owed 100 x $0.091 = $9.10.

THE TWO NEEDED SONGWRITER RIGHTS AND THEIR ROYALTY RATES FOR DIGITAL DOWNLOAD SALES OUTSIDE OF THE UNITED STATES

Outside of the United States, for digital music services to include your song (your recording of it or someone else covering it) it must have two rights/licenses from the songwriter:

1. The Right of Public Performance (aka the right of "Communication")

2. The Right of Reproduction

In addition to needing this one extra right (Public Performance) there is no "compulsory license." In other words, the songwriter can deny licenses.

Also different from the U.S.; there is no government-set statutory royalty rate; the songwriter can negotiate and set any royalty rate he or she wants. However, the average royalty rate for mechanical royalties outside the U.S. tends to be 8% – 11% of the amount the song was sold for.

HOW THE SONGWRITER GETS PAID FOR DOWNLOADS IN THE UNITED STATES

In the U.S. it is customary for the record label, NOT the digital music service, to pay the songwriter the owed mechanical royalties for downloads.

As an example, Columbia Records sells 100 copies of a recording of a songwriter's song via download in the United States. Columbia Records then pays the songwriter (or publisher) the mechanical royalties.

Assuming the record label accounts to the songwriter accurately, the songwriter gets his or her royalties.

(If you use TuneCore for distribution, the songwriter royalties are included in the money you receive from download sales.)

HOW THE SONGWRITER GETS PAID FOR DOWNLOADS OUTSIDE OF THE UNITED STATES

When a song sells outside of the United States, the digital music service does NOT pay songwriter royalties to the record label to pay the songwriter. Instead, the digital music service directly pays the person or entity that controls the songwriter's rights.

(If you use TuneCore for distribution, the songwriter royalties are NOT included in the money you receive from download sales outside of the U.S.)

Herein lies the problem: where is the songwriter's money?!

The answer gets even more confusing depending on whether or not a songwriter is affiliated with a performance rights organization like BMI/ASCAP/SESAC and even then, the songwriter is not getting all of his/her royalties.

Here are three scenarios to explain it further.

Scenario One: You are NOT a member of any collection agency/performance rights organization anywhere in the world

In this case, the digital store must get the two licenses and make royalty payments to you directly.

Therefore, if you ever had a recording of your song sell via download outside of the U.S., and you did not issue the license and get paid, the digital music service owes you money and has infringed on your copyright.

If the digital music service claims they paid your money to a local "collection agency," that agency does not represent you and has no right to issue licenses or collect money on your behalf. The digital service must get the licenses from and make payments to you.

Scenario Two: You are a member of one of the U.S. based performance rights organizations (ASCAP/BMI/SESAC)

This scenario has a long, confusing explanation, but it's vital songwriters understand it.

Recall, there are two rights needed by the digital music services outside of the U.S.:

– Reproduction

– Public Performance

ASCAP/BMI/SESAC (and other performance rights organizations) only represent Public Performances; they do not represent the right of Reproduction.

Therefore, the digital store must still go to the songwriter (or the entity that represents the right of Reproduction like a "publisher") and get the license for, and make payments directly to the songwriter/publisher that controls this right.

If the digital music service does not do this, it is violating copyright law and not paying songwriters/publisher all of their royalties.

This digital music service cannot claim that it paid the songwriter's money to a local collection agency in another country as that local collection agency does not represent the songwriter's right of Reproduction, only Public Performance.

To make matters worse, the foreign collection agency actually dips into the songwriter's Public Performance money and takes more than it is allowed to and then gives others what's left.

Let me provide an example:

You are a member of ASCAP, BMI or SESAC. These three organizations are in a relationship with other performance rights organizations around the world to collect and pass back and forth Public Performance royalties.

Your song sells via download in Japan (the same scenario plays out in just about every country).

The digital store pays the songwriter's money to the local collection agency in Japan (called JASRAC) for the right of Public Performance. JASRAC has the right to issue licenses and collect money for the songwriter's Public Performance as the right of Public Performance was passed to it by ASCAP/BMI/SESAC.

Now here's where it gets really screwed up:

JASRAC arbitrarily splits the money paid by the digital store between mechanical royalties and Public Performance. For example, JASRAC decides 70% of the money it got paid by the digital music service for Public Performance goes to mechanical royalties and 30% of the money goes to Public Performance royalties.

There is no basis in copyright law for how the split is determined. The split differs from country to country and from collection agency to collection agency. It is based on who sits on the board of directors at each collection agency. If there are more publishers on the board, the split goes more toward mechanicals; if there are more songwriters, the split favors Public Performance.

Important: JASRAC does not represent the songwriter for Reproduction and has no right to split the money paid to it by the digital store. Nevertheless, the collection agencies ignore this (and apparently so do many digital music services).

For the mechanical royalties, JASRAC takes around 15% of the songwriter's money as an "administration" fee despite not administering it (not to mention it had no right to the money in the first place).

Then, as the songwriter never joined JASRAC to get the mechanical royalties that JASRAC had no right to collect, JASRAC gives the songwriter's money to Warner Bros., EMI, Sony, Universal and others based on each company's market share in that country.

In other words, they give some portion of the songwriter's money from Public Performance away to other entities. Eerily close to stealing the songwriter's money…

What gets even more messed up is that even if the songwriter decided he/she wanted to become a member of JASRAC to get the money JASRAC had no right to collect, JASRAC has a few rules that make this impossible:

– The songwriter has to have a business in Japan.

– The songwriter cannot be a member of any other performance rights organization in the world.

So in a nutshell:

The digital store has not gotten the right to Reproduction and has never paid the songwriter the money he/she is owed.

-The collection agency has taken the songwriter's Public Performance royalties, split them into two, taken a % of the royalty it does not represent and then has made it impossible for the songwriter to get what's left over.
-Other entities that have no right to the songwriter's royalties knowingly take the royalties from the collection agencies.

From the portion of the money JASRAC was legally allowed to collect and arbitrarily assign to the Public Performance royalty, it takes somewhere between 15% – 25% of it as an administrative fee (it is not clear how much as they will not reveal the exact % they take from a particular source) and then about 6 – 12 months later, JASRAC passes it back to ASCAP/BMI/SESAC.

ASCAP/BMI/SESAC then takes an international administrative fee of around 3.7% of what's given to them and then splits the Public Performance royalty in half, assigning 50% of the money to the songwriter and 50% of the money to the "publisher" (side note: there is no basis in copyright law for this, but it was done to protect songwriters in publishing deals).

ASCAP/BMI/SESAC then pays the songwriter 50% of the leftover Public Performance royalty 6 – 12 months after having gotten it (almost two years after it was generated) and the other 50% gets sent to the publisher; if the songwriter is both the songwriter and publisher, the songwriter receives both payments. If the songwriter is in a publishing deal, the publisher payment goes to the other entity that takes another 10% – 50%. This entity then sits on it for another 3 – 6 months before finally sending the remaining royalty back to the songwriter close to over three years after it was generated.

No one can follow exactly what is going on due to the complexity, lack of transparency and audit trail, and time delays. In the process songwriters' royalties are either being taken from them or not paid to them in the first place.

It's one hell of a global copyright shell game that funnels songwriter money into the pockets of everyone but the songwriter.

Scenario Three: You are a member of a non-U.S. based collection agency

Non U.S. collection agencies vary country to country. For example, in Japan, JASRAC represents both Public Performance and Reproduction (mechanical royalties) whereas in Canada, SOCAN represents Public Performances and CMRRA represents the right of Reproduction (mechanical royalties).

You can join one or both or neither.

If you join both in your own country, you will get some portion of your owed royalties from sales in your own county and other countries that allow for Public Performance royalties to be passed back and forth via bi-lateral agreements. You will also get your mechanical royalties from other countries if your collection agency is a member of the BIEM organization (allows for mechanical royalties to be passed back and forth, not all collection agencies are members).

Along the way these organizations will dip, double dip and in some cases triple dip into your money, provide little to no transparency as to royalty rates of their administrative fees, and pay out the money one to two years after it was earned with no audit trail. No one knows if it's the right amount—songwriters are just grateful to get something. And in some rare cases, songwriters will never get their money as it appears organizations may have embezzled it.

The problem is that the old school music industry was built for the world of analog TV, AM/FM radio and 12" pieces of vinyl or 5" circular pieces of plastic. It was not built for the world of digital. The old songwriter collection and administration industry is not motivated to change the system, as the existing system allows them to take/earn hundreds of millions of dollars from other people's royalties.

In regards to the new emerging digital music services, they have no simple solution to get licenses from and make payments to copyright holders; it's a pain, it's complicated and, for the moment, it's cheaper to take on the potential legal liability than invest resources and time to comply with the law and pay the right people.

The complexity of copyright law, the total lack of transparency, and the inability to audit anything, creates a perfect storm for global copyright infringement. The end result: hundreds of millions of dollars of other peoples' money getting siphoned off and/or not paid to the millions of rightful copyright holders.

This has to stop, and it's why we launched the TuneCore Songwriter Service.

What You Can Do

First, spread the word that artists are not getting paid all of their royalties.

Next, directly contact digital music services and ask them for proof that they have the required licenses and are making the required payments.

They may attempt to suggest you do not understand the issue. Make it simple, tell them you want to see proof that they have the licenses for both Public Performance and Reproduction. If they can't provide them, they don't have these rights.

If they can provide them, look at who granted them the rights. If the entity granting them the rights is not authorized to do so, tell them.

Post the responses you get, share the information, have other artists contact them and ask the same questions and publicly post replies.

By working together as a collective voice, you will be heard.

Artists deserve to get their royalties: it truly should not be this hard.