Breaking News: Album Sales Hit a New Low

Billboard Bulletin Announced this Week that Album Sales Hit A New Low, stating…
“As streaming gathers momentum, the U.S. music industry keeps breaking sales milestones — the wrong kind. This week’s 3.97-million album sales tally is the smallest weekly sum for album sales since Nielsen SoundScan began tracking data in 1991. It’s also the first time weekly sales have fallen below four million in that time span.”

The Future of Music Delivery Has Started – And That Changes Everything…

UnknownThose who follow the music industry trade magazines know that for many years now, CD sales have been on the decline.  That’s old news, actually.   Only a musician with his/her head in the sand, would not see this.   I mean, let’s get real.  How many of us are buying CDs these days?  Chances are, if you’re reading this blog, you spend a lot of time online.  And if you spend a lot of time online, then you have probably been downloading your music purchases for the past several years.  The real question is… Are you still purchasing downloads to get your new music, or have you moved on ahead to streaming?

The 2013 numbers came out earlier this year and they not only show that physical music product sales continue to decline, but they also show, now for the first time, that digital downloads are also experiencing a decline!   But it doesn’t really take an official report to figure that movement toward streaming is cannibalizing sales of both physical music products (i.e. CDs) AND digital downloads.  If a music consumer can listen to absolutely anything in the world he/she wants to, at any time, for free…  (or even for a small monthly fee), then why would he/she buy music, right?!   Even if the cost of buying or streaming were exactly the same, who wants to waste precious hard drive space with thousands of music files, when it’s no longer necessary?

We’re on a very fast-train moving away from a music ownership model (i.e. you buy and own the CD or mp3s), to a music access model (i.e. access to listen to music online).  Basically, there are two types of internet streams – interactive streams (on-demand) and non-interactive streams.  With interactive streaming, the listener can choose exactly what he/she wants to hear “on-demand” (i.e. can specify the artist, the song, the album, etc.), whereas with non-interactive streaming, the listener has a somewhat limited choice – selecting a genre of music, or music that is like a certain artist or song, rather than the specific artist or song.  For example, with non-interactive streaming I might choose Chris Tomlin, and the music that streams would be a mix of songs by Chris Tomlin as well as songs by artists similar to Chris Tomlin.

Depending on the internet site/app/company offering the streaming music, both interactive streaming and non-interactive images-2streaming are often free to the user and supported supported by ads (like terrestrial radio).   However, if the user does not want to listen to ads, then most providers will also offer a premium service (i.e. without ads and possibly with a few extra bells and whistles) for a nominal monthly fee.  This is the future of music listening!

Some of the more popular companies that offer streaming music today are, Pandora, Spotify, Rdio, and iTunes Radio, although there are many others.

For at least the last 5 years, we’ve been hearing that YouTube.com has been the #1 music discovery tool, particularly for Millennials (a young generation that can’t comprehend or even imagine a world without wifi).  YouTube.com was one of the first places free streaming music could be found.  Thankfully, copyright owners and artists are being paid today by Google/YouTube for these streams.  However, we missed out on several years of collections as we struggled to figure out how to apply copyright law and negotiate royalty fees in this ever changing technology environment.

As the world moves from sales of music to streaming of music, our types of royalty income as songwriters and artists change.  Although many complain now that streaming income is low, the truth is that the whole streaming concept is in it’s infant stage.  Many consumers don’t even know about streaming yet.  Others who know about it, may not have the hardware to actually do it.  When hardware for wireless streaming music becomes commonplace in cars, homes, offices, etc., and the user base grows exponentially because of that, royalty checks will increase.  The hope is that streaming revenue for the writer and artist will replace and even surpass the royalties we’ve seen from traditional sales.

Collecting these royalties is currently complex for the indie songwriter, but there is help available.  As a songwriter, make sure you affiliate with a PRO (ASCAP, BMI or SESAC), and if you’re an artist make sure you also sign-up with SoundExchange.  These organizations will collect your performance royalties related to streaming.  If you have songs being streamed and you don’t sign up with these organizations then you’re missing out on royalties due you.  Also, if you distribute your music through TuneCore, CDBaby and other similar companies, most of them have programs that can help you collect other related royalties due you for those streams.

How A Music Publishing Deal Works

Contracts between songwriters and music publishers are negotiable, so all publishing contracts are not the same.  However, there are standards and some basic elements, that run through all of them.  This post will explore different types of deals and outline some of the basics of each.

In short, there are four types of deals between the music publisher and the songwriter which are most common: 1)  the Single Song Agreement, 2) the Exclusive Songwriter Agreement, 3) the Co-Publishing Agreement, and 4) what I would call a Catalog Purchase Agreement.   

1)  Single Song Agreement

A Single Song Agreement is offered by a music publisher to a songwriter when the publisher has interest in working with an existing individual song or group of songs, written by the songwriter.  Under this type of agreement the songwriter and the music publisher make an agreement for these individual songs only.   Under this agreement the songwriter has no further obligation to the music publisher for other songs written past or future.

Generally, these types of deals are made for songs which have not yet had any commercial activity or have not generated any revenue to date.  The songwriter assigns these songs to the music publisher so that the publisher can help secure new commercial uses of the song which generate income.  Income generated on the songs is then split between writer and publisher at the percentages agreed to in the contract and paid to the songwriter in accordance with the accounting provisions of the deal.  In standard cases the split of income between the songwriter and music publisher is 50/50.

2)  Exclusive Songwriter Agreement

An Exclusive Songwriter Agreement (ESA) is a deal between songwriter and music publisher whereby the songwriter agrees that all new songs written by him/her for a specific period of time, will be subject to the contract.   The length of these deals is negotiable and can vary, but it is generally around 1 – 2 years, with the music publisher having a number of options to extend the deal, at the publishers election.

The basic elements of an Exclusive Songwriter Agreement are:

  • Term – defines how long the deal will last
  • Territory – defines the territories of the world in which the publisher will have rights
  • Songs covered or not covered under the deal (i.e. the deal may also include some existing songs written prior to the start-date of the contract, or it may be agreed that some new songs written under the deal will be excluded or treated differently for various reasons)
  • Assignment of rights – the writer transfers the copyrights to the publisher
  • Administration – defines who has administration rights in the copyrights and any related fees
  • Royalty Provisions – defines what royalties will be paid to the songwriter for the various types of income
  • Advances – defines what, if any, pre-paid royalties may be paid to the songwriter, when they are to be paid, and how they are recouped.
  • Accounting – defines how royalties will be calculated and when they will be paid
  • Minimum song delivery – songwriter must write and deliver to publisher a minimum number of “commercially viable” songs during the term
  • Demo Recordings – defines who pays for demos, how much and how the cost may be recouped
  • Reversions – some deals may include a reversion of certain songs, percentage of ownership or certain rights back to the songwriter at a designated time
  • Special stipulations – other provisions that may be unique to this particular deal
  • And a bunch of boiler plate legal language (i.e. what happens if someone breaches the contract, warranties, how disputes will be settled, etc.)

In these types of deals, the songwriter and music publisher generally work together as a team, during the term of the deal.   In addition to simply trying to land new royalty bearing uses of the songs delivered under the deal, the publisher will often work to further the songwriter’s overall career, such as helping the songwriter land a record deal (if he/she is an artist), helping the songwriter land production opportunities (if he/she is a producer), making introductions to expand the writer’s contacts and relationships for collaboration opportunities with other top songwriters or recording artists, and working to gain press and industry exposure for the songwriter and his/her work.

Similar to the Single Song deal, under the ESA, the copyright in each song is assigned to music publisher, giving the publisher the legal right to protect, control, license and manage the songs.  This means the publisher “owns” the songs and in return any income generated on the songs is split between writer and publisher at the percentages agreed to in the contract and paid to the songwriter in accordance with the accounting provisions of the deal.  In standard cases the split of income between the songwriter and music publisher is 50/50.  In music industry speak, we usually call 50% of the revenue the “writer’s share” and 50% of the income the “publisher’s share”.

3)  Co-Publishing Agreement

There are multiple ways to do a co-publishing agreement.  A co-publishing situation simply means that there will be more than one music publisher working with the song/songwriter at the same time.  It is an agreement between two or more publishing companies, whereby the publishers co-own, or “co-publish”, the applicable songs.

The most common use of the term “co-publishing” is generally in reference to a music publisher working alongside a songwriter’s own publishing company.  For example, if the songwriter has his/her own music publishing operation, he may at some point choose to partner with another music publisher for help.

In recent decades, high-profile, successful, or “in-demand”, songwriters have been able to negotiate co-publishing deals with a music publisher, not because they truly have an operational music publishing company of their own, but because they have enough clout to demand a larger piece of the pie in an exclusive songwriting deal.  In such case, the deal actually becomes an, Exclusive Songwriter and Co-Publisher Agreement.  In this type deal the ownership of the song copyrights would be split between the two publishers (i.e. the traditional music publisher and the songwriter’s music publishing entity), usually 50/50, which means the publisher’s share of income would also be split between the two publishers.  In this scenario the songwriter would receive his/her writer’s share of income from uses of the song, plus half of the publisher’s share of income, in effect making it a 75/25 deal between writer and publisher.  In this type of deal, the traditional publisher is only making half of what he usually makes.  This generally means the publisher is going to expect the writer to generate a lot of commercial activity on his own (i.e. acting as a partner publisher), thus increasing the overall revenue to make it a win for the publisher at the discounted rate.

4)  Catalog Purchase Agreement

In the music business the term “catalog” refers to a group of properties.  It can be a group of songs (i.e. intellectual property), a group of recorded masters (i.e. physical and intellectual property), etc.  For the purpose of this blog post, when I refer to “catalog”, I’m taking about a group of existing songs.  For example, all of the songs that we publish at my publishing company are referred to as our catalog.  I may also refer to all the songs written by Writer A as, “Writer A’s catalog”.  Similarly, if I’m talking about all of our songs that are affiliated with the performing rights organization SESAC, I may refer to them as our “SESAC catalog”.  It’s simply a way to reference a grouping of songs.

Often times, music publishers may wish to purchase a group of songs, or all the songs, from a songwriter or from another music publisher.  A recent example in the news was music publisher, Ole’ Music’s purchase of the Rush catalog, called Core Music (i.e the songs of the classic rock band, Rush).  A purchase generally only takes place with songs that have earned, and/or are currently earning, income.  (Compare to a Single Song agreement above, which is usually,  (1) for a smaller group of songs, and (2) for songs that have not yet earned any royalties).   The purchase price is usually determined from formulas based on the historical earnings of the song catalog and the estimated future earnings.

In a catalog purchase deal, the purchasing party is typically only buying existing songs.  However, in certain cases it might also include what I call a “go forward deal”, which could be the purchase of any existing Exclusive Songwriter and/or Co-Pubishing agreements that are tied to the catalog, or a new exclusive term deal with the songwriter-owner of the catalog.

SunzooStudios-Songwriting

Some Basics…

How options work

Some deal terms may include “options” to extend the term.  For example, if the term of an Exclusive Songwriter Agreement is, “one year, plus a one year option”, that would mean the deal will only last one year, but at the end of such year a party would have the option to extend the deal for another year, if he wishes.  Most commonly deals will have 2 or 3 options.

The option to extend is almost always the music publisher’s option, and is not mutual.  This is because the publisher is the one investing time and money into the songwriter.  The publisher must have the sole right to extend or to end the deal, in an effort to either stop his losses or to have more time to recover his investment.

How advances work

Music publishers will often agree to pay estimated royalty earnings to the songwriter in advance.  This is generally done because of the typical lag time between sales and royalty payments.  There can also be a lengthy start-up period after signing your publishing deal.  Let’s look at an example:

Writer A signs a music publishing deal in January.  He begins writing songs in January at the rate of 2 songs per month.   He writes his 7th song in April (2 in Jan, 2 in Feb, 2 in Mar), and the publisher flips out over this 7th song.  This is a “hit” the publisher says.  “We’ve got to get this song to Katy Perry, it’s perfect for her”.  Well, Katy Perry is not going into the studio to make a new album until July.  So let’s say the publisher successfully gets the song to Katy and she loves it.  Maybe she also wants to write a second song with Writer A.  Both songs are recorded by Katy in July.  Her record company schedule’s the release of the album for October.

Note:  At this point, Writer A has been in his publishing deal for 10 months with no income yet.   Things are going extremely well!  He has a publishing deal and two songs on the upcoming Katy Perry album.  But he’s still eating beans and rice and working at Starbucks between writing sessions.

Katy’s album releases in October and starts selling well on iTunes right away.  Let’s assume iTunes pays royalties monthly, 45 days after.  So, Katy’s October sales would be paid to her record company on December 15.  Her record company closes their quarter at the end of December and pays mechanical / dpd royalties to publishers 6o days after the close of the quarter (that’s the beginning of March).

Note: So now it’s been 15 months since Writer A has signed his publishing deal.  He has 2 songs on a successful artist release but has still seen zero royalties.

The music publisher receives royalties in March for the one month of sales of Katy’s release (i.e. October sales).  If the music publisher is on a quarterly royalty cycle (some are on semi-annual), he closes his 1st quarter at the end of March.  If his deal with Writer A is to pay 60 days after the close of the quarter, then he remits Writer A’s royalties to Writer A around June 1st.

Note:  So Writer A has been in his deal for 1 1/2 years before he sees the first dime.  And so far, he’s only been paid on 1 month of sales of Katy’s album.  He will have to wait until the next quarter (3 months) before he sees his next royalty payment.  Hopefully by now, he has other cuts and therefore more royalties coming down the pike.  

The scenario above is not unusual at all.  This is why music publishers agree to make “advance” payments to songwriters.  Often these advance payments are in the form of a monthly “draw”.  In other words, the songwriter is taking a draw against his future earnings, which will be paid back as the earnings come in.  Advances are almost always “recoupable”, because the publisher estimates and pays the writer his royalties early, and will then be reimbursed when the royalties arrive.

Paying royalties is a risk for the music publisher and can make cash flow difficult for the publisher.  The music publisher is in essence giving the songwriter a no-interest  “loan” for which the publisher’s ONLY form of reimbursement is from the songwriter’s future earnings.  If the songwriter has no commercial uses of his/her songs, and therefore no earnings,  the songwriter is actually not obligated to pay back the loan.  This puts the burden, and an incentive, on the music publisher to make things happen with the songs.  This is extremely advantageous for the songwriter.  However, the songwriter must be careful not to negotiate or accept too large an advance.  Because if the songwriter does not deliver strong enough songs that the publisher can generate activity for, the publisher will have a large loss and will be more inclined to end the deal early than to exercise an option to move forward, and the writer loses his deal.

Sidenote:  If there is little to no activity on songs, writers will often blame the music publisher for not landing “cuts” or generating other commercial uses of his/her songs.  But the other side of the coin is that the music publisher may be trying to do so, but the writer is simply not writing hit songs.

In Closing

Music publishing deals must be mutually beneficial in order to work.  They must be a win/win for both parties.  Publishers pony up the cash for investment in the songwriter and they crank up their company machine to go to work for the writer.  The writer has an obligation to  write commercially viable songs and to write enough of them to pay back the advances and make a profit for everyone involved.  It’s a team effort and works best when there is mutual respect between the parties, and when both parties understand the other’s responsibilities.

ALL THE SAINTS – Live from the CentricWorship Retreat – No. 1

I don’t believe I’ve ever used by blog to promote projects that I’m working on, but this is one I’m very excited about and wanted to share with you.  Releasing March 11th!   Hope you enjoy…

In September of 2013 we invited 12 worship leaders to join us for our first ever worship retreat in the beautiful Methow Valley of Winthrop, Washington. It was to be a week of worship, refreshing and new friendships. Our retreat was filled with both tears and laughter as we dug into the Word of God each day and spent time in the presence of our Lord. By the end of the week, we had written 18 new songs and recorded 21 during our morning and evening worship times! This first EP is our way of sharing a small part of that experience with the world. Our prayer is that these new songs will assist you in your prayer and worship as you continue the journey with us, closer and closer to the heart of Jesus. – Steve Rice, Executive Producer / VP CentricWorship