This Week In Royalties: SoundExchange/iHeartRadio Revenues Fall + Sony/Applebee's Lawsuit

Both SoundExchange and iHeartRadio report lower earnings, for completely different reasons. Meanwhile, Applebee's looks to be in a load of trouble over using unlicensed music.
May 5, 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.

SoundExchange Q1 Collections Down Thanks To Pandora Direct Deal (HypeBot)
Benom’s Take:  A few weeks ago we discussed the launch of Pandora’s new interactive, on-demand streaming platform “Pandora Premium.” The new tier means that Pandora takes on more licensing overhead costs because the service has to license and pay royalties directly to the record companies for interactive streaming rights, in addition to still paying SoundExchange for the ad-supported non-interactive platform. With this new development, it makes sense that users are switching and leaving the traditional Pandora service.

So naturally, this means a decrease in non-interactive royalties normally paid to SoundExchange. The direct deals that Pandora cut with the record companies are under Nondisclosure Agreements, so it’s difficult for us to know exactly what the Pandora Premium royalties look like. Nevertheless, SoundExchange’s data still looks healthy with a rise in royalty payees and membership. Plus, a $162 Million quarterly distribution is still a healthy royalty payout. For more details on Pandora’s streaming tiers and how those royalties are paid, see Glenn Peoples article here “Hello Pandora Premium. Now here’s how royalties are being paid for all three Pandora services.”

iHeartMedia Posts Deep Losses, Repeats Warning on Debt in Quarterly Earnings (Billboard)
Benom’s Take: The big news here is about iHeart’s debt restructuring woes. I agree that forcing a Chapter 11 bankruptcy would not be in the best interests of the creditors, iHeart or artists and content owners. iHeart has around some $20.4 billion in debt and only $6 billion of this debt is actually secured by company assets. iHeart has been unsuccessful to convince debtors of a debt and equity swap that are holding about $14 billion in debt. As the article mentions: “...unless it does something to raise cash, or lower expenses, and/or complete its debt and equity has determined that there is substantial doubt as to our ability to continue…”

That’s a scary thought given that iHeart is a major player in the music industry and pays out significant performance royalties to creators and content owners. The fact that a significant brand like this cannot get its debt under control is cause for concern. iHeart’s failure would disrupt the radio industry and have some lasting negative impacts on music discovery and future royalty payments. I’m not going to say that iHeart is “too big to fail,” but its failure would be a blow to the industry.

Sony Music Sues Applebee’s Over Licensing Fees for AC/DC, C+C Music Factory Songs (Billboard)
Benom’s Take: This story is a mess and I don’t think Applebee’s has a leg to stand on. Sony Music claims that Applebee’s has yet to sign an advertising licensing agreement and pay $300,000 in licensing fees that was agreed upon over year ago. Applebee’s claims it paid the fee to a third party clearance company, Music Dealers, and that Music Dealers was actually acting on behalf of Sony Music, not Applebee’s. Applebee’s also claims that since Music Dealers went out of business last year, there’s essentially nothing that can be done about the non-payment.

Herein lies some of the ridiculousness of this story. First of all, Sony Music would never utilize the advertising placement services of a company like Music Dealers. Sony Music is quite capable to pitch and procure licensing deals entirely on its own. In fact, Sony Music spends the lion's share of its time and resources fielding licensing requests from an ocean of music users like Applebee’s and clearance companies like Music Dealers. The major record companies have no need for Music Dealers placement and clearance services, but ad agencies and companies like Applebee’s, do. This claim by Applebee’s is a lie, and they’re clearly trying to shift blame and deflect any liability.

Secondly, if Music Dealers did receive the licensing money from Applebee’s to pay Sony Music and it didn’t pay--that's a separate legal issue between Applebee’s and Music Dealers. It does not relieve Applebee’s of its obligation to sign a license agreement and pay for the advertising license. It also makes no sense for Sony Music to pursue a defunct company when Applebee’s is the true licensee of the advertisements, not Music Dealers. Applebee’s has infringed upon the copyrights of these recordings until they sign the license agreement and Sony Music receives the licensing fees.

So, Applebee’s is in a mess of trouble and I think the best they can do is settle out of court as soon as possible. If they don’t, Applebee’s will likely end up losing this case and probably pay more than $300,000 in attorney fees and legal costs. If their claim against Music Dealers is true, Applebee’s could pursue damages against the executives of the now defunct company for breach of contract, etc.

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