#MusicBusinessMonday: About Direct License ‘Black Box’ Royalties And Music Publishing Administrators

(Author’s Note 07/08/2019 10:33 AM PST: An industry associate of mine who is an independent music publishing industry leader and activist/advocate, as well as the owner of a small music publishing administration company, reached out to me to express his concern that my blog post paints all music publishing administrators in a bad light. He explained that entering into direct licenses is common practice for all publishers — including full-fledged publishers that own or co-own copyrights, as opposed to just handling administration like pub admins do — and not just pub admins. I know that. He felt that pub admins are being unfairly singled out in my blog post. As I explained to him, that is not my intent. I have many blog posts of opinions, analyses, criticisms, praises and reviews of many sectors and companies of the music industry. It is my role as a music creators’ rights advocate and watchdog, if you will, to raise awareness about these issues and practices, and educate music creators on their rights and business. This particular blog piece is not about small pub admin shops, like the one he operates, that has an overage of a few thousand dollars at the end of the year from direct deals, but rather the nature and effect of some of the large “catchall” pub admin services aggregating hundreds of thousands to millions of copyrights and the potential voluminous black boxes that direct licenses can accrue for their bottomline. These are some of the issues that we are asked about at TuneRegistry when speaking with songwriters who have or are considering switching to self-administration or to supplement the efforts of their existing large pub admin. Calling out provisions, or lack thereof, in contracts that songwiters may not be aware of, and which ultimately impacts their income, regardless of if it’s a small shop or goliath, is fair industry criticism. But, for clarity, this piece is in direct response to recent inquiries we’ve received at TuneRegistry regarding some of the popular catchall pub admin services on the market and not small pub admin businesses)

In this particular case, I get that he may take offense when the criticism may extend to parties that are not acting malicious — and I’m not saying that the big players are acting malicious anyway, but rather this issue is a fact of the deal that songwriters sign and should be aware of — and want to be presented in a fair light. So, to that end, I’ll update the post and my socials.

A music publishing administrator’s (“pub admins”) job is to register your musical works with CMOs/PROs/MROs in the territories for which you’ve hired them to represent your administration rights and to collect your royalties, prepare and remit income statements and payments to you. However, some pub admins go a step or two further and issue or enter into direct licensing agreements with companies on behalf of the compositions that it represents, such as direct performance licenses for startup social music apps or a blanket license for background music services.

The right to enter into direct licenses may be included in your contract with the pub admin. In this case, you will have explicitly granted the pub admin the right to license your songs, without asking permission per license, to third parties. In some direct deals, companies give advances or negotiate minimum guarantees to be paid to publishers. These advances and minimum guarantees are deducted from the actual earned royalties that are calculated from the usage of songs by the licensed service. However, in the event that there is an overage (meaning, the total volume of usage does not equal or exceed the advance or minimum guarantee) the difference between the overage and the actual earned royalties is the unallocated “black box” royalties.

It is important that these monies flow to the songwriters that the pub admin represent (less an appropriate commission) as the license fees were paid against the licensed catalog of songs, regardless of actual usage.

Surprisingly, although pub admins that ask songwriters to grant them the explicit right to direct license the songwriter’s songs, many pub admins do not have or do not communicate their policy for distributing unallocated “black box” royalties that stem from these direct licenses. And some cases, they just keep the black box royalties as miscellaneous income.

What’s in your contract? Talk you your pub admin about direct license black box royalties.