The following guest post comes from longtime music industry attorney Steve Gordon.   

If Apple wants to launch their much anticipated, Pandora-like music service, they must negotiate directly withSony/ATV for public performance rights.  That’s the word on the street, and if true, a dangerous turn of events.  The reason is that until recently, performing rights organizations — ASCAP, BMI and SESAC (the “PROs”) — offered blanket licenses on behalf of almost all the publishers, including all the majors.  This dramatically changes that, with negative repercussions for songwriters.

So why is Sony/ATV — now the largest publisher after taking over the administration of EMI Music Publishing — doing this?  After chatting with Marty Bandier, the company’s chairman, the New York Times reported that this is “simply an effort to obtain a higher royalty rate for [Sony/ATV] writers.” (Bandier was quoted as saying “This wasn’t us not wanting the service.  We want the service.  It’s like oxygen.  We just want to be paid fairly, no different than the NFL refs.”)

The truth, though, is that songwriters signed to Sony/ATV and EMI Music Publishing may never see a dime from Apple under a direct agreement. Here’s why:

I. Publishers Generally Don’t Share Negotiated Advances

Individual music publishing contracts vary depending on the bargaining power of individual writers or the negotiating skills of their lawyers (among other reasons). But almost all agreements have a provision similar to this one:

“In no event shall composer be entitled to share in any advance payments, guarantee payments or minimum royalty payments which Publisher may receive in connection with any sub publishing agreement, collection agreement, licensing agreement or other agreements covering the Composition.”

This clause was taken from a “model” contract from a book of entertainment agreement forms. Under this provision, if Sony/ATV extracted an advance from Apple, none of those monies would be payable to their songwriters. In fact, Sony/ATV has already negotiated an advance from DMX, another digital music service that provides stores, restaurants and other venues with background music via the internet. DMX paid Sony/ATV an advance of $2.7 million dollars, and in exchange, Sony accepted a much lower royalty rate than that charged by ASCAP and BMI.

In fact, DMX subsequently used that lower rate to successfully persuade the ‘rate court’ to reduce the amount that DMX pays ASCAP and BMI for songs controlled by other publishers (the rate court fixes the rates when the PROs and a music user cannot agree). This was another blow to the writer members of the PROs.

II. Publishers Generally Don’t Share Royalties from Collective Licenses

In addition to the clause quoted above, many music publishing contracts have a provision that states that no royalties from collective licenses, i.e. licenses covering other works as well as those by the songwriter, are payable to the writers. Under this clause, a songwriter would not see any royalties from Sony’s deal with Apple.

III. Many Writers are “Unrecouped”

Writers do not receive royalties from publishers until they earn enough money to pay back the advances that they received from the publisher. Yet most writers, especially those at major publishers such as Sony/ATV, are unrecouped because they never earn enough money to repay their advance. In fact, many writers never see another dollar from the exploitation of their songs except from the checks they receive from ASCAP , BMI or SESAC.  That’s because all these organizations pay the writers 50 percent of every dollar that comes in after deducting a relatively small administration fee (generally around 10 percent), and they pay that to the writers DIRECTLY. If they paid the money to the publisher, the publisher would use that money to pay itself back for unearned advances.

It is worth noting that the oldest PRO, ASCAP, was actually created by powerful writers such as Irving Berlin, and they initiated a system that would guarantee fairness to writers.

It gets worse.  Because a major reason, if not the only reason that Sony/ATV is withdrawing from the PROs in regard to digital licensing, appears to avoid having to pay its writers anything.  And not, as they claim, to make more money for them.  EMI already withdrew its digital rights from the PROs, and Sony/ATV will follow suit, effective January 1st, 2013.

If this becomes the standard operating procedure for all the major publishers (Universal, Warner/Chappell, as well as Sony/EMI) with other digital music services such as Pandora and Spotify, it could result in a major blow to the livelihood of many songwriters and composers. [DigitalMusicNews]