Home > Uncategorized > Best Practices for Unmatched Royalties

Best Practices for Unmatched Royalties

June 24, 2014

The Copyright Office Music Licensing Study Roundtables have brought up a couple of nagging issues regarding connecting royalty payments with the songwriters or artists who are entitled to payment.

The first comes up with services that rely on the Section 115 compulsory license for songs.  The statute requires the digital service that uses the song to send a notice in advance of using the song.  The notice informs the songwriter that the service intends to rely on the compulsory license.  There are some procedural safeguards built into this notice process, but common sense will tell you that if you’re going to send the notice, the service has to know who the songwriter is and probably how to reach them.

This means that there should be a very limited category of unknown songwriters whose music is used without being notified.  It also assumes that the service does not use the music without having a license.

And therein lies the rub.  Medianet is an example of a company that increasingly relies on the compulsory license for its white label back room operation for major retailers.  In Aimee Mann’s litigation against Medianet, a declaration was produced that showed that 23% of songs available through Medianet were unlicensed and at one point had a “match rate of less than 55%”. (Declaration of Stephen E. Grauberger, Esq. in Appalseed Productions, Inc. et al v. Medianet Digital, Inc. et al, currently available at http://www.scribd.com/doc/155513456/grauberger-declaration)

Before you blow that number off, realize that Medianet has approximately 20 million songs available in its white label service for digital retailers (I believe, for example, they do work for Beats).  23% of 20 million is 4.6 million songs.  So if the songs are both unlicensed and earning money, what should we expect the services to do in order to find the people whose songs were used without a license?  (Leaving aside potential infringement claims for unlicensed works.)  Because you can see that this creates quite the moral hazard.  We should not be surprised that services have a great incentive to sit on the songwriter’s money and not spend any additional effort to find the songwriters.

If we look at the other compulsory license for music we can get some best practices–the compulsory license for the public performance of sound recordings permitted under Section 114.  SoundExchange is charged with collecting these compulsory licensing royalties and statements from digital services and then matching the statements it receives–statements that SoundExchange did not prepare–with the artists and sound recording owners who are entitled to the royalties.

Unlike the compulsory mechanical license, there is relatively little notice giving required in order for a service to use the sound recordings.  Given the need for artists and sound recording owners to register with to SoundExchange, this is a prime area for best practices as SoundExchange has given effect to a number of programs designed to connect artists with their money.

So this is the first step that digital services could follow for the statutory mechanical license:  Take proactive steps to find the people entitled to the money.  Don’t just sit there until the statute of limitations runs.

Are the SoundExchange practices absolutely perfect?  Of course not.  But making a sustained proactive effort to connect people with their money is nothing to turn up your nose at.

Royalty Database:  SoundExchange has a searchable database of unmatched royalties (“Does SoundExchange Have Royalties for You?).  This allows artists and labels to search for their names to see if there are royalties for them.  Imagine if YouTube did this for the extraordinarily convoluted ContentID?

Direct Outreach:  It’s always possible to pick up the phone which is another way that SoundExchange tries to locate artists and labels.  Digital services that sit on royalties until the songwriter tracks them down simply offload the cost of matching from the service’s balance sheet to the songwriter.  The songwriter can’t stop the service from using the music, but the service can stop the songwriter from getting paid for their use simply by not trying too hard.

Matching Against Other Services and Organizations:  SoundExchange has conducted a bunch of matching efforts (over 150 according to SoundExchange) by comparing the names of artists with unclaimed royalties to rosters at dozens of organizations like ASCAP, BandPage, CDBaby, MySpace, Reverbnation, Redlight Management, CMJ, SAG-AFTRA, AFM, SXSW, ATO Records, Glassnote Records and Republic Records.  Imagine if Spotify, YouTube and Medianet compared their unclaimed mechanical royalties to rosters at the Songwriters Guild of America, Nashville Songwriters Association International and the three major PROs?

If the Aimee Mann lawsuit shows anything about unclaimed royalties at digital services it is this:  It’s hard to understand what happened to royalties for the apparently millions of songs that are unmatched–and unlicensed.  And if the services are using songs without a license, where are the royalties?

If SoundExchange can manage to conduct sustained outreach programs for artists and labels, then you would think that others could do, especially a $3 billion company like Beats, a public company like Pandora with a couple hundred million in cash laying around, or a company like YouTube that not only grosses billions but is owned by the smartest guys in the room.  But these services get away with doing nothing of the kind in their rush to enrich their executives with the creators’ money.

%d bloggers like this: