ASCAP’s Recent Finances Prove Mechanical Royalties are Artists’ Best Friend
On April 5, a tweet by podcast host Jane Marie indicated cause for concern for the music publishing industry. Marie shared images of an email from ASCAP — one of the three largest Performing Rights Organizations (“PRO”) — suggesting that the PRO must delay distribution payments to its songwriters and composers because of COVID-19. ASCAP has since answered some questions, but their writers likely continue to have major questions about how much and how often they will be paid into the future for their royalties. Meanwhile, BMI and SESAC, the other two major PROs in America, have benefited from good publicity since going public with how little their finances have been interrupted thus far.
Marie tweeted out an email, which can now be found in its entirety online, written by ASCAP CEO Elizabeth Matthews. According to Matthews, ASCAP distributions are made on a “cash basis” with “current revenues” (i.e., ASCAP collects money and pays out money quarterly less the cost of operations) as opposed to an “accrual basis” with “past revenues” (i.e., delayed payments from reserves of money). ASCAP claims its members receive their payments faster under this system during “normal times,” but now there is less revenue for ASCAP to distribute to its members because some licensee’s are “attempting to pay less, pay late or not pay at all.”
As a result, ASCAP claims it can no longer guarantee in advance when distributions will be made to its members. “[O]ur licensing revenue will become increasingly variable as businesses remain closed, and the advertising market which drives revenues from television, radio and cable continues to be negatively impacted,” Matthews wrote. Indeed, ASCAP anticipates that “[e]very category of [its] collections will be negatively impacted,” including “airlines, hotels, bars and grills and restaurants.”
To be clear, there is no underplaying the role that COVID-19 is having in disrupting businesses; these are most definitely not “normal times.” Performance publishing royalties in most countries have plummeted due to business shutdowns and limited advertising dollars, leading to revenue downturns in key collection areas like radio, television/cable, and general licensing. Simply put, no customers means no money owed for public performances, and this translates into payment shortfalls to all PROs — not just ASCAP. Many of these businesses, dying with zero assistance from the federal government, are now scrambling to make basic payments and understandably putting their ASCAP invoices last.
Additionally, ASCAP specifically cited streaming revenues as being insufficient to balance its budget because “not everyone in the country will be able to afford a subscription to entertainment services.” Matthews reminded all members in her email that ASCAP’s revenue is negatively impacted on a global scale because 25 percent of its revenues come from outside the U.S., and many foreign territories were affected by COVID-19 much sooner.
According to ASCAP, its distributions originally scheduled for April 6 were delayed until April 28 because of a “domino impact” where some of the PRO’s preferred vendors for processing “hundreds of thousands of distribution files” were materially impacted by COVID-19, which further disrupted attempts at business continuity. But ASCAP is fully guaranteeing its writer distributions on April 28.
“We will make key distribution funding decisions later than usual once we have knowable facts of our revenue collections each calendar month and each quarter,” Matthews wrote. “What this means for you as a writer or publisher member is that your distributions may be delayed as compared to last year.”
ASCAP president and chairman Paul Williams has since added that ASCAP will be transitioning to a more flexible distribution schedule throughout 2020 and 2021.
Digital Music News (“DMN”) has aggressively reported this story this month, following up on the matter by asking pertinent questions such as “Why aren’t lower-dollar checks being sent to writers?” and “If artists are being forced to take a haircut, why aren’t executives?” According to DMN:
“ASCAP doesn’t pay on actual plays in restaurants, bars, and clubs. Instead, ASCAP uses opaque algorithms and estimates that now have to be reworked to accommodate the lowered amounts [of revenue]. It sounds antiquated, but it’s the way ASCAP does business — and it’s also resulting in artists having to forego a performance royalty check when they absolutely need it the most.”
Couple the disappointment of delaying payments to their members with the fact that ASCAP executives are refusing to follow other industry leaders by skipping their salaries until the crisis ends. For example, Live Nation CEO Michael Rapino and LA Phil conductor Gustavo Dudamel both agreed to forego their multi-million dollar annual salaries; Dudamel’s orchestra players and employees also took a 35 percent pay cut. Other examples include Disney’s top executives agreeing to major compensation cuts, matching many executives and employees at iHeartMedia and CAA.
DMN reported that Matthews’ salary is in “the low 7-figure range.”
So how are BMI and other PROs holding up?
Seemingly thrilled to share good news to its members, BMI sent a letter on April 7 that clarified that, unlike its competitor, BMI’s business model is holding up well despite the crisis. Although he anticipates some felt impact by January 2021, BMI President & CEO Mike O’Neill wrote “BMI’s royalty distributions will not be affected by the pandemic in the near future.” The future payment might be a lower distribution for an individual member than typically received under “ordinary circumstances,” but O’Neill is confident that BMI’s business model provides the PRO with “the time and ability to plan for this outcome.”
Billboard clarified BMI’s business model and how it differs from ASCAP:
BMI is not expected to be impacted by the economic downturn until later because it uses a different business model, paying out quarterly revenue from collections made in an earlier time frame. That means that collections from licensees for the quarter ended March 30 will be made in September 2020 while current quarter collections — which are expected to have a bigger revenue downturn than the first quarter, since the economic shutdown didn’t begin until March 12 — will be paid out in January 2021. Consequently, BMI’s payments for the current quarter were from the period ending Sept. 30; and since there was no payment disruptions back then, and it had plenty of time to process performance reports, the PRO made its first quarter payments early so that its writers could at least have some financial certainty as the overall U.S. economy was falling apart.
O’Neill listed two main sources of optimism. First, BMI is expecting retroactive payments from BMI’s recent settlement with the Radio Industry to be spread throughout 2020 and into early 2021. Second, O’Neill was happy to share “growth in domestic revenue generated from subscription streaming services that feature TV shows, movies and music.” In other words, whereas Matthews was willing to group streaming revenues in with all other losing categories, BMI is bullish that “[a]s more and more people are following the recommendations and staying home, they are turning to indoor entertainment and that is translating to increases in viewers and listeners.” O’Neill wrote that “thanks to the diversification of BMI’s revenue portfolio, [30 percent] of BMI’s domestic revenue now comes from digital sources.”
Interestingly, BMI sent its March royalty distribution early to offer its members “a small measure of comfort,” O’Neill said. BMI intends to send its next distribution scheduled for June 19 “slightly earlier” as well.
In a March 18th email to its members, SESAC said it would make its March 31 distribution on schedule and added that subsequent distributions are also planned to occur on their regularly scheduled dates.
In an effort to balance its reporting, Billboard included commentary from the Songwriters of North America acknowledging that although ASCAP’s actions impact songwriters and composers, ASCAP was in a lose-lose situation.
“As songwriters and composers we rely heavily on our performance royalties,” the organization said. “We all count on our PROs to collect and distribute those payments. While having our funds delayed at this time will be very difficult for many of us, we appreciate ASCAP’s transparency in laying out the challenges that they may face. These are unprecedented times. SONA supports those in our music community who are being forced to make difficult decisions every day, including these emergency measures ASCAP has taken which allowed them to fully fund the writer distribution.”
MECHANICAL ROYALTIES TO THE RESCUE
As outlined above — and regardless of which PRO collects your performance publishing royalties domestically and globally — many sources of income for artists are threatened for the foreseeable future because of COVID-19. For example, fans will not be buying tickets to concerts anytime soon, and thus all touring — as well as many major album releases — will likely be postponed until the economy at-large is more stable in order to guarantee profits. But as THE COURTROOM founder Karl Fowlkes reminded his Twitter followers amidst the publishing-pandemonium, this global pandemic only heightens the importance for all artists to make sure their mechanical royalties are being collected.
In December, Fowlkes referred to mechanical royalties as “The Unsung Royalty” on this blog to highlight the common gap in knowledge for too many artists — publishing is not only about “public performance” rights (i.e., what ASCAP or BMI collects) but also about “reproduction” rights or mechanical royalties (i.e., whenever copyrighted work is reproduced either digitally or physically). Notably, unlike public performance rights, mechanical royalties are collected by different societies in each country.
Admittedly, the current mechanical streaming rate of about $0.06 per 100 streams, or $0.0006 per stream, according to Royalty Exchange, appears infinitesimal. But the Copyright Royalty Board is establishing new mechanical royalty rates, with an expected increase from 11.2 percent of streaming revenue in 2018, to 15.1 percent of streaming revenue by 2022 — an increase of 44 percent in the aggregate.
However, many independent songwriters and producers fail to collect their mechanical royalties because the Harry Fox Agency — the industry leader in collecting mechanicals — is, as Fowlkes puts it, “notoriously difficult to deal with [as an independent artist].” Fowlkes recommends organizations like Audiam, which only pays out streaming mechanical royalties in the U.S., and not digital downloads, but generally fills the gap of providing mechanical royalty collection for independent composers. According to Audiam, “any publishing administrator (either self published or a larger publishing entity) can join Audiam as long as they represent the administrative rights to their songs/compositions.”
Artists may also pay a small administration fee in exchange for a publishing administration partnership with companies like Songtrust. The publishing administrator registers and collects publishing royalties across the board, including the mechanical royalties, serving as an efficient option for independent artists hoping to collect the majority of their publishing revenue. To be clear, PROs like ASCAP and BMI do not collect mechanical royalties for its members. But unlike unpredictable and mysteriously calculated performance royalties, mechanical royalties are a steady and calculable source of publishing revenue. Particularly during these tough times, artists must make sure they collect revenue from as many sources as they can secure.
