This Week In Royalties: Feb. 6 - 10

Feb 10, 2017

Benom Plumb, Assistant Professor of Music Industry Studies at the University of Colorado Denver, reviews the biggest stories of the week affecting music royalties. He is a music industry professional, not an attorney.

Spotify Rumored To Delay IPO, As Profitability Questions Remain (Bloomberg)
Benom’s Take:
A Spotify IPO has been on the horizon for sometime now, but the elephant in the room still remains: “Why can’t Spotify turn a profit, despite rapid revenue growth?” It’s probably some nebulous combination of (1) Very high executive/employee salaries and (2) high licensing payments to major record labels (approximately 55% of  Spotify revenue is paid to the labels). On #1, it’s been reported that the average Spotify employee salary is approximately $160,000/year. Which by the way, would mean that for a songwriter to earn that same amount, it would require approximately 250 to 300 million Spotify streams! Of course, that’s the average employee salary. Spotify executives are paid much, much higher salaries. If Spotify doesn’t show some profitability in the near future, investors will tire of pouring cash into it. If that happens, it could potentially hand the keys of the streaming kingdom over to the Apple Empire. It always comes back to Apple somehow, doesn’t it??

Pandora’s 2016 Financials Show Growth But Net Loss (Again) (Music Ally)
Benom’s Take:
Same song, different verse. An important difference to note between Spotify and Pandora is that Pandora is considered a non-interactive streaming platform. This means that Pandora pays lower royalty rates to record labels and music publishers than Spotify does for its interactive platform. Non-interactive means that you don’t know which song will play next, while interactive means you get to choose the song that is played next. I would submit that, yes, Pandora has high royalty overhead costs, but like its competitor Spotify, Pandora’s losses could be attributed to overpaid executives as well. (Cough, cough - CEO, Tim Westergren.)

Music Publisher’s 4Q Report Keeps Sony/ATV On Top (Billboard)
Benom’s Take:
Sony/ATV Music Publishing once again dominates market share in the music publishing sector with approximately 26% market share. The other two majors, as usual, round out the top three with Warner/Chappell at 19% and Universal at 14%.  What’s interesting (but not at all uncommon) is that these three companies all have copyright and royalty interests in the same #1 song, “Closer” by The Chainsmokers. This is especially common in music publishing when a song has multiple songwriter collaborators (six songwriters in this case). A #1 song always means a significant influx of royalty payments, especially public performance royalties from radio airplay. A #1 Pop radio hit like this one could easily pay out high six-figures to millions in radio performance royalties over a 9-month to 12-month period.  CHA-CHING!!

Dept. of Justice Consent Decree Lawsuit Proceeds (Billboard)
Benom’s Take:
Imagine you own a rental property and there is a disagreement about the rent rate with your tenants. Now imagine the government steps in and requires you to continue to rent the property to the tenants at below market value rates. The government then proceeds to hear arguments between you and the tenants to settle on a new rental rate. You can’t refuse to rent to these tenants and you can’t kick them out either. Oh, and that’s not all. You also share this rental property with another owner and they quoted a low rental rate you disapprove of and did not authorize. The other owner was paid this low rent but they don’t know how to pay you your share. Sounds crazy, right?  Welcome to the music business!!

When it comes to U.S. public performance royalties, that’s pretty much how the Department of Justice’s “Consent Decree” and “100% licensing” works for music publishers. Publishers must, by law, “consent” to a license even when the licensing rates are being disputed and “100% licensing” means that even a co-owner could license and get paid on 100% of the copyright (even when they don’t control 100% of the copyright!) What is encouraging about this lawsuit is that it may help deregulate the music publishing business while simultaneously getting rid of the DoJ’s “100% licensing” interpretation.