Why Clear Channel's Deal with WMG is Bad News for Artists

Clear Channel this week announced its first terrestrial and digital performance royalty deal with a major label - WMG. Many mainstream media outlets declared that the agreement as a big win for artists, but I disagree.

In fact, this and similar direct master performance rights deals benefit both major labels and broadcasters largely at artists' expense.

As an auditor with many major recording artist clients, some of the problems I see with such direct master performance licenses are as follows:

1. Small indie labels - and artists thereon - are entirely cut out of the terrestrial royalty pie because they lack leverage to land such a deal
2. Artists on those labels with enough clout to negotiate broadcaster deals do not get a fair share because direct deals preserve the scheme under which major labels’ foreign offices collect BOTH the American artist and label shares (since these deals will not unlock reciprocity with foreign performance royalty societies)
3. Labels are very unlikely to split with artists all of the different kinds of compensation they receive from broadcasters - especially non-cash consideration such as equity stakes and promotional airtime, which is basically payola to benefit new artists at the cost of catalog artists
4. What labels share with artists will be subject to recoupment (i.e., unrecouped artists will receive nothing, whereas payments from Sound Exchange are not subject to recoupment)

However, unless artists miraculously manage to organize and lobby lawmakers to create a statutory terrestrial master performance right, broadcasters and major labels have few reasons to stop making these direct deals that disfavor the artist and fend off any action from Congress.  As such, I expect to see many more direct performance licenses between labels and broadcasters.  Sadly, only artists with very strong contractual language and/or leverage have a shot at collecting their fair share through audits of their record companies.

How to Increase Performance Royalty Income

1. Register your works - Make sure your works are registered with the Library of Congress, the PROs in each territory and/or major licensees, including subpublishers
2. Get a bigger slice of the pie - Did you know that writers can negotiate with US PRO's or join an authors' society such as SACEM, which offers a 2/3 share to writers for performances?
3. Record outside the USA - This is how American recording artists can most easily capitalize on neighboring rights
4. Audit the system - Compare TV and foreign theatrical activity reported by PROs to synch license transactions reported by publishing and record company partners. Require synch licensees to submit cue sheet data to PROs and explore use of services such as TuneSat (SEASAC reports performance royalties based on TuneSat).  Follow-up on unreported cues or underreported receipts.  You may need to hire a pro auditor, especially if your publisher licenses rights direct (e.g., Sony and Wind Up license digital rights direct).
5. Bet on the right rates - Consider likely exploitation in selection of PRO, since they pay different rates for any given use.
6. Support performance rights - Consider testifying before congress to expand sound recording performance rights and think twice about abandoning the collectives
7. If you own pre-1972 sound recordings - Notice Pandora on state copyright infringement

Show Me the Money:Four Key Streams of RevenueFor Professional AthletesGuest Post By Jaia A. Thomas, Esq.

Are you a professional athlete?  Do you work with one?  In her guest post below, sports and entertainment attorney Jaia A. Thomas shares with you her expert knowledge about how pro-athletes earn contingent and guaranteed compensation.  Need help maximizing these revenue streams?  Contact Jaia!

Jaia A. Thomas, Esq.

SHOW ME THE MONEY:

FOUR KEY STREAMS OF REVENUE FOR PROFESSIONAL ATHLETES

1).        SALARY - The bulk of a professional athlete’s income is generated from the salary provided for by their team. The salary structure in professional sports varies depending on the league. However, the salary structures in MLB, NBA and NHL contracts are similar in the sense that they provide guaranteed revenue. The salary structure in an NFL contract, on the other hand, does not provide guaranteed revenue, meaning the players who are cut are not eligible to receive their salary from the team. It is worth noting that the NFL does, however, offer players the opportunity to receive additional income through various conditional and non-conditional bonuses:

• Signing Bonus - This is a non-conditional bonus, paid once the player signs his contract.

• Roster Bonus - This is a conditional bonus, paid only if a player is still on the active roster of the team at a specific date.

• Workout Bonus - This is a conditional bonus, paid only if a player works out at the team facilities during the off-season.

2).        ENDORSEMENTS - From sneakers to credit cards to home insurance, there are very few products and services professional athletes haven’t endorsed. Lebron James currently receives over $40 million in endorsement income from Nike, Coca-Cola, Samsung and McDonalds. Professional athletes receive a considerable sum of revenue every year from endorsement deals. These deals usually vary in regards to performance related pay structures. However, payment is usually contingent not only on player performance on the field but also player performance off the field. All endorsement contracts contain a ‘morals clause,’ making payment contingent on an athlete’s ability not to act in a way that significantly devalues the endorsement or embarrasses the company. It is also worth noting that many companies are now offering stock, ownership rights and a percentage in company sales as opposed to traditional monetary compensation.

3).        EVENT EARNINGS/WINNINGS - In such sports as golf, tennis and boxing, where players are not employed by a specific team, they earn money through event earnings. However, even in those sports where players are employed by a team, players can earn additional revenue from event winnings. For instance, in 2012 the Patriots players earned an additional $62,000 each as part of the NFL’s playoff shares and even though they did not win the Super Bowl, they did receive an additional $44,000 for making a Super Bowl appearance (the Giants players received $88,000 each).

4).        APPEARANCE FEES - From Eric Berry (Kansas City Chiefs Defensive Back who charges $5,000 for an appearance or speaking engagement) to Robert Allen Dickey (Toronto Blue Jays Pitcher who charges $20,000 for an appearance), athletes frequently earn additional revenue and income from speaking engagements and appearances.

Jaia A. Thomas is a sports and entertainment attorney, focused on transactional and intellectual property matters. She is a graduate of Colgate University (BA) and The George Washington University Law School (JD). She also holds a Certificate in Television, Film and New Media Production from University of California, Los Angeles. She is the author of “Entertainment Law: The Law Student’s Guide to Pursuing a Career in Entertainment Law,” available via Amazon and Barnes & Noble. For more information: www.jathomaslaw.com or @jaiathomaslaw. 

5 Must-Know Facts About French Collection Society SACEM

French SACEM/SDRM repertoire is administered in the U.S. by two-time California Copyright Conference ("CCC") president Teri Nelson Carpenter’s Reel Muzik Werks LLC, the moderator of the CCC's April 16 panel discussion.  In honor of the panel, we present 5 must-know facts about SACEM:

1. SACEM pays writers better - it allocates 2/3 of its performance fees to writers and 1/3 to publishers
2. SACEM in 1985 cofounded SODRAC in Canada
3. SACEM is a major collection society; it collected approximately $1 billion (US) in 2012
4. SACEM's streaming revenue should grow in the future – Streaming services represented just 14% of SACEM’s 2012 income and YouTube temporarily stopped monetizing the SACEM repertoire earlier this year when YouTube and SACEM had difficulty renegotiating.
5. Is your American repertoire with Universal?  As of this month, SACEM represents your YouTube royalties for all of Europe.  Look for some Europe synch income growth on your statements over the next couple of years.

Sign up to attend the California Copyright Conference's discussion with SACEM here.

Streaming Royalty Calculations

A writer researching record company accounting practices recently asked me for information about how record labels account to recording artists for streaming exploitation of masters.  I thought my response to him would make a good blog entry, so here it is:

Most artists are entitled to share in a record label's interactive streaming net receipts, so when we audit a label, we try to ascertain its net receipts from streaming companies (just like we aim to account for all the physical records it manufactured).

Since modern recording contracts usually provide that an artist is entitled to share only in net receipts that have been specifically allocated to masters by the licensee, labels structure certain deals with streaming services so that only a portion of the total compensation to the label is specifically allocated to the masters by the licensee, while the rest is not allocated to specific masters ("unallocated receipts").

When we audit, the information that a label may make available is usually limited to samples of the statements it receives from streaming licensees, since these are the receipts that have been allocated to masters by the licensee (which typically the label reports on artist royalty statements).  However, in order to ascertain unallocated receipts, we need more information than the labels are willing to provide, including copies of agreements with streaming services and documentation of all compensation received from the streaming services, which can include both cash compensation (e.g., advances or settlement payments) and non-cash compensation (e.g., an equity interest in a streaming service or valuable marketing expenditures).

Regardless of whether a record agreement entitles artists to share in unallocated receipts, it takes a lot of leverage to gain access to documentation of unallocated receipts, and when we are granted access to such documentation, it is always on the condition that we keep the non-public details confidential, so we can't use it for other audits.

Even in the limited cases when a label reports to artists some of its unallocated receipts,  it doesn't mean that amount reported is proper or fair.  For example, a record company may allocate a settlement payment it receives from a streaming service to unrecouped artist accounts, because the less it allocates to recouped artist accounts, the less it actually pays out.

Therefore, at least historically, the basic concerns with respect to artists getting their fair share of streaming net receipts have been related to the allocation of receipts (i.e., Are the licensee’s allocations to masters proper?  Did the label report its unallocated receipts?  If so, were the label’s allocations proper?  If not, what shares are allocable to the artist?), especially non-cash unallocated receipts like equity interests in YouTube, Spotify and Vevo.

In addition, a few labels take packaging/container and other deductions from streaming receipts, particularly when the contract is old and does not contemplate streaming, and when a label claims it was not compensated for a stream, those streams are usually categorized by the label as “free” distributions on which no artist royalties are paid.

Recently, in calculating the net receipts reportable to artists, labels have become more aggressive in the deductions they take from gross receipts, such as deducting foreign affiliate fees.  I expect to see more of this in the future.