How Big Music Companies Are Stealing Hundreds Of Millions In Royalties From Artists

It's no secret that various major labels and big music organizations have a history of not paying artists what they're owed under the law. We've covered plenty of examples of fancy "accounting" to avoid having to pay, such that even big stars claim they never see royalties. However, Jeff Price, over at Tunecore has uncovered what may be an even bigger scam on the publishing/songwriting side of the business, creating a giant shell game, wherein major labels are getting hundreds of millions in royalties that are owed to songwriters, but are never paid.
The details are quite complex. Jeff's post has all the details, but let's just focus in on one key part of it. Basically, outside the US, digital music services need to pay two separate licenses to US songwriters -- one for reproduction rights and one for public performance rights (we won't get into why there are two separate rights and how they collided back together in digital music, as that's a different rant for a different day). However, almost no one actually buys both licenses. Typically they just get one (the reproduction right, as provided as a compulsory rate via ASCAP/BMI/SESAC) which they then pay through a local collection society. Technically, that means digital music services outside the US need to directly negotiate deals with US songwriters for the public performance right. But they don't do that.
Instead, they just pretend that the reproduction license they have covers it. And then, the local collection society arbitrarily split the reproduction license into components, pretending some of it is for the ASCAP/BMI/SESAC and some of it is for the public performance license... even if no such license has been secured (as it rarely is). Then, to make it even crazier, the local collection society skims its own take off the top for administration (despite having no right to the money in the first place) and then passes the money on... to the major labels. Jeff lays out an example:

You are a member of ASCAP, BMI or SESAC. These three organizations are in a relationship with other performance rights organizations around the world to collect and pass back and forth Public Performance royalties.

Your song sells via download in Japan (the same scenario plays out in just about every country).

The digital store pays the songwriter’s money to the local collection agency in Japan (called JASRAC) for the right of Public Performance. JASRAC has the right to issue licenses and collect money for the songwriter’s Public Performance as the right of Public Performance was passed to it by ASCAP/BMI/SESAC.

Now here’s where it gets really screwed up:

JASRAC arbitrarily splits the money paid by the digital store between mechanical royalties and Public Performance. For example, JASRAC decides 70% of the money it got paid by the digital music service for Public Performance goes to mechanical royalties and 30% of the money goes to Public Performance royalties.

There is no basis in copyright law for how the split is determined. The split differs from country to country and from collection agency to collection agency. It is based on who sits on the board of directors at each collection agency. If there are more publishers on the board, the split goes more toward mechanicals; if there are more songwriters, the split favors Public Performance.

Important: JASRAC does not represent the songwriter for Reproduction and has no right to split the money paid to it by the digital store. Nevertheless, the collection agencies ignore this (and apparently so do many digital music services).

For the mechanical royalties, JASRAC takes around 15% of the songwriter’s money as an “administration” fee despite not administering it (not to mention it had no right to the money in the first place).

Then, as the songwriter never joined JASRAC to get the mechanical royalties that JASRAC had no right to collect, JASRAC gives the songwriter’s money to Warner Bros., EMI, Sony, Universal and others based on each company’s market share in that country.

In other words, they give some portion of the songwriter’s money from Public Performance away to other entities. Eerily close to stealing the songwriter’s money…

He goes on to point out that it's effectively impossible for a songwriter to actually get this money that is required by law to go back to the songwriter.
Jeff has been on the warpath about this, trying to get back the royalties songwriters signed to Tunecore are owed. If you heard the story last month of Amazon suddenly taking down all Tunecore music in Europe, you might reasonably put two and two together to recognize that someone wasn't getting all the licenses required...
This is unquestionably a complex legal issue, with a variety of different separate rights under copyright law, which collide in slightly awkward ways online, combined with different laws in different jurisdictions on a global internet. The root of the problem is how copyright law itself is setup -- which is that each time a new technology comes along, regulators duct tape on a different "right" to handle things, and assume that they've fixed the issue. But that leaves us in a bit of a mess today where the internet is sorta like a sale, sorta like a license, sorta like a performance, etc... and then there's a big mess.
A true solution would be to recognize that the way copyright law is set up today is a huge Frankenstein-beast, but that seems unlikely to happen. In the meantime, however, this level of complexity appears to have opened up a way for the major labels to effectively just steal (and yes, in this case it is stealing) a ton of money from songwriters by more or less laundering the money through the complex and nearly impossible to understand international collection society system. As Jeff summarizes, the whole thing is pretty crazy:

The digital store has not gotten the right to Reproduction and has never paid the songwriter the money he/she is owed.

• The collection agency has taken the songwriter’s Public Performance royalties, split them into two, taken a % of the royalty it does not represent and then has made it impossible for the songwriter to get what’s left over.
• Other entities that have no right to the songwriter’s royalties knowingly take the royalties from the collection agencies.

From the portion of the money JASRAC was legally allowed to collect and arbitrarily assign to the Public Performance royalty, it takes somewhere between 15% – 25% of it as an administrative fee (it is not clear how much as they will not reveal the exact % they take from a particular source) and then about 6 – 12 months later, JASRAC passes it back to ASCAP/BMI/SESAC.

ASCAP/BMI/SESAC then takes an international administrative fee of around 3.7% of what’s given to them and then splits the Public Performance royalty in half, assigning 50% of the money to the songwriter and 50% of the money to the “publisher” (side note: there is no basis in copyright law for this, but it was done to protect songwriters in publishing deals).

ASCAP/BMI/SESAC then pays the songwriter 50% of the leftover Public Performance royalty 6 – 12 months after having gotten it (almost two years after it was generated) and the other 50% gets sent to the publisher; if the songwriter is both the songwriter and publisher, the songwriter receives both payments. If the songwriter is in a publishing deal, the publisher payment goes to the other entity that takes another 10% – 50%. This entity then sits on it for another 3 – 6 months before finally sending the remaining royalty back to the songwriter close to over three years after it was generated.

No one can follow exactly what is going on due to the complexity, lack of transparency and audit trail, and time delays. In the process songwriters’ royalties are either being taken from them or not paid to them in the first place.

It’s one hell of a global copyright shell game that funnels songwriter money into the pockets of everyone but the songwriter.

Yeah, and all the folks profiting then talk up in the press about how they're doing so much to "protect" artists and musicians?
Mike Masnick @'techdirt'