As the housing market in the U.S. heats up, the fair market value of homes is on the rise. As the digital age in music has brought more music available to more people than ever before, is the fair market value of songs on the rise as well?
Many of us have bought and sold houses at least once in our lifetime. When you want to sell yours, the process goes something like this. You look around at the market and determine what you think the house is worth compared to others around you, and then you price it a little above that. That’s the “starting point”. Normally, someone will make an offer which is less than the starting point price, not really expecting the offer to be accepted, but anticipating a counter offer of somewhere between the two. After some more back and forth, the price normally ends up somewhere right around the center of the starting point and the counter offer. You feel pretty good because you negotiated a deal in the ball park of your starting point, which would be considered successful if you sell a $200,000.00 house for $195,000.00. But what if the house you just sold had a fair market value of $400,000.00?
The seller normally sets the starting point price. It may not always be a realistic value, but it is the sellers right to set it wherever he wants. And by doing so, he sets a sort of expectation, or paradigm of the value of the house. And most of the time, others accept that price as a ballpark true value. The negotiations generally begin based on that starting point, even if it is way off the mark.
Let’s relate that to the music industry and the value of a song. When the royalties for owners of song copyrights used in recordings was first defined in the 1909 Copyright Law, they were based on piano rolls and the early phonorecord discs and cylinders. There was a physical product associated, and necessary, in order to bring the music to the consumer. The product’s primary function was music delivery. The license rates for songs started around 10% of the retail price of the product. However, over the following decades, as product prices increased and the statutory license rate stayed at 2 cents, that percentage decreased to substantially less than 10%. When statutory rates began increasing in 1978, song owners saw their royalties once again get closer to the 10% ballpark value of the physical product.
During that time, song uses in media like television, motion pictures, television advertising, and even video games became more popular. When both the song and the original artist’s recording were used, the licenses were normally of an equal value for each. That is, if the master recording received $5,000.00, then the song owner would receive $5,000.00. The process soon moved to each of the rights holders making the deal to include a “most favored nations” term, meaning that the recording and the song copyright owners would each be guaranteed to receive an equal amount. This “equal value” practice was accepted for uses where there was no physical product used primarily for music delivery. If there was physical product involved, its core purpose was to deliver some other value, such as a movie, a show, or a game.
As an industry, we seemed to settle in to valuing a song compared to a recording around 10 to 90 for licenses for physical delivery products, and 50/50 for uses without physical products.
So my obvious question is this. Why do we use a ballpark 10% value as a “starting point” when negotiating rates with digital delivery entities, where no physical products are involved? Have we, as an industry, been lulled into accepting a 10 to 90 relationship with recordings when a more proper value is closer to 50%, as we have practiced in certain media? Should the creation of new words and music really be worth a tenth of the value of an artist’s interpretation and performance of that original work?
I applaud those who have been on the front line of negotiating new rates for songwriters and publishers. NMPA, NSAI, SGA, and others have continuously pushed for better and better rates for song copyrights. I believe the publisher and songwriter communities would be in a worse situation were it not for the efforts of these fine organizations and individuals. But I want to encourage all of us to pause a bit, look at the current valuation paradigm, and ask the question, “why not 50%”?
When we start with a ballpark 10% value, then we feel better when we negotiate a rate of 11.5% for certain rights. Sony ATV and EMI Publishing recently negotiated a direct performance license rate with Pandora which is estimated to be an increase of 25% from the prior rate. However, the old rate was 4.1% of Pandora’s revenue, compared to the almost 50% of revenue paid for the recordings. We started at less than a 10/90 ratio, and now applaud the fact that someone was able to nudge the rate up to about 10% of what recordings get.
Billboard recently published an interview with Marty Bandier, chairman/CEO of Sony ATV Publishing, who was asked about what Pandora thought when he asked for a higher rate for publishers and writers. Marty said, “When you compare it to the rate record companies are getting, it was really miniscule. How do you differentiate the song’s value from the artist performance? Are they that disparate to warrant that kind of spread?” Is Marty suggesting the “miniscule” rate for songs is way out of proportion?
Del Bryant, president/CEO of BMI, published an open letter to the industry just yesterday (2/12/13), regarding the withdrawal of catalogs from performing rights organizations by some music publishers for certain digital uses. In it, Del says, “While recent developments may have added complexity to an already complex rights landscape, we see opportunity. We see an opportunity to level the digital playing field and to allow the courts to consider all precedents across the digital spectrum. We see an opportunity to value performances of musical works fairly when compared to performances of sound recordings.” (Italics mine). Is Del saying he believes the values are unfair at the current levels?
I realize I will probably ruffle quite a few feathers in the industry with this view, especially record companies and artists. But I would call on all of us in the publishing industry to shift our paradigms on the value of songs. As in house selling, if we identify our “starting point” around a 10% or slightly higher value, we can only expect slight increases. But if we work to shift the industry’s thinking to something around a 50% value for the song, as we have already accepted in many areas of licensing, then perhaps we really can, in Del Bryant’s words, level the digital playing field and value music works more fairly when compared to recordings.
I am only one opinion. I welcome and encourage comments and discussion on this topic. Let’s kick this around a bit. What do you think? Feel free to comment below.
Why not 50%?
ClearBox Rights, LLC
“We see the world, not as it is, but as we are – or, as we are conditioned to see it.” – Stephen Covey
© 2013 John Barker. All rights reserved. Information contained in this Blog is of a general nature and should not be considered or relied on as legal advice. Any reader of this Blog who has legal matters related to information addressed in this Blog should consult with an experienced attorney. This Blog contains no warranties or representations that the information contained in it is true or accurate in all respects or that it is the most current or complete information on the subject matter covered. John Barker is President and CEO of ClearBox Rights, LLC.