Article: Performance rights groups face challenges and uncertainty by By Ed Christman


NEW YORK (Billboard) – After decades of occupying one of the most stable corners of the music business, performance rights organizations (PRO) are starting to face uncertainty and competitive challenges.

EMI Music Publishing announced in May that it plans to issue bundled mechanical and performances licenses directly to online services for its EMI April Music catalog, assuming responsibility for functions previously handled by ASCAP. It’s a move that other leading music publishers are expected to make.

Greater interest in direct digital licensing among publishers, efforts to establish Pan-European licensing and the creation of a global repertoire database are reshaping the landscape being navigated by ASCAP and its fellow U.S. performing rights organizations BMI and SESAC.

ASCAP CEO John LoFrumento says that decisions by clients to take charge of some digital licensing won’t threaten the PRO’s business. He points out that EMI’s move only affects online music users who aren’t currently licensed or do not have licenses in effect with ASCAP and excludes broadcast or broadcast digital rights, cable, satellite and all other offline media. Moreover, he notes that the online dollars represented by EMI’s decision could amount to less than one percent of ASCAP’s total annual revenue.

“We see the efficiency of licensing in bundles,” LoFrumento says. “We feel very strongly that is something that will be the next step in this business environment. This will result in a new business model over the next few years.”

U.S. PROs continue to enjoy relative financial stability. For instance, ASCAP’s annual revenue fell 6% in 2010 to $935 million, but that was down from a record-high $995 million in the prior year. Still, moves toward direct licensing could potentially erode PRO revenue. But Richard Conlon, BMI senior VP of corporate strategy, communications and new media, says the PROs will weather these challenges, though he acknowledges that the business is in flux.

“The core construct of BMI will be very different in five or 10 years as we start to virtualize and as the dynamics of the global footprints start to change the global nature of copyright,” Conlon says.

In a statement, SESAC president/COO Pat Collins says that PROs have already contended with technological changes for years.

“More music is being consumed today than ever before,” Collins says, adding that the Internet has “brought efficiencies to the tracking, identifying and payment processes that were unthinkable 10 years ago. These developing technological advances will allow SESAC to achieve even more robust licensing on behalf of the copyright owner, thus increasing royalty distributions.”

In a trend that’s bound to be discussed again at the World Copyright Summit in Brussels June 6-8, publishers and collection societies across the Atlantic are contending with a shift to Pan-European licensing.

To meet a mandate by the European Commission to provide one-stop licensing for digital music providers that want to do business in multiple European countries, Universal Music Publishing Group and Sony/ATV Music Publishing have each formed a joint venture vehicle with a European collection society to handle all of their Anglo-American repertoire, while EMI has formed a JV with two societies.

Warner/Chappell Music’s Pan-European Digital Licensing initiative is working with seven European societies so far to provide digital music users a choice of which society they want to work with. Each time one of these vehicles handles licensing for a digital music service, it eliminates opportunities previously handled by each country’s own collection society.

Moreover, some industry observers suggest that the Pan-European licensing vehicles concept could soon evolve into global licensing mechanisms for the digital marketplace.

As they establish bundled, all-in digital licensing for both mechanical and performance rights, publishers must be careful not to undermine standard royalty rates, Conlon says. “When bundling you are doing so to make it easier to license, but you have to make sure not to squeeze out some value.”

Meanwhile, efforts to create a global repertoire database could enable direct licensing, which would further affect local societies’ revenue collections. But others dismiss that possibility, saying that a global database would ensure a more efficient marketplace — for example, ensuring songwriting claims don’t add up to more than 100 percent, a very common problem, while allowing collection societies to continue to compete on services.

In the meantime, the ability of digital music users to track and report in greater detail will also spur change. The emerging digital market is already providing “more transparency and accountability,” says Conlon, who notes the PROs do well in worlds of complexity that are also becoming more fractionalized.

“We scale well and are totally exponential,” he says. “We are dealing with and translating the long tail … handling billions of performances every quarter. We are optimized to handle what will be an increasingly fragmented medium and marketplace.”

But improved accounting systems have enabled “some to consider going direct” to rights-holders like publishers, Music Reports Inc. founder/chairman Ron Gertz says. “They will trade the convenience of to do a la carte licensing.”

That dynamic will be matched by major music publishers looking to increase profits in difficult times by doing direct licensing deals in easily trackable media like those offered by digital music providers. The bundling of rights and direct deals are among the market forces that will increase competition among collection societies.

If publishers pull back licensing rights from PROs, how will those organizations compensate for that lost revenue? Some industry executives are predicting mergers will take place among collection societies around the world, creating regional licensing hubs. But others speculate that some societies may move to grant multiterritory rights for their exclusive repertoire.

Meanwhile, music publishing executives predict that current trends will lead to a consolidation of backroom functions among rival PROs. In fact, ASCAP’s LoFrumento is advocating that scenario.

Collection societies “use the same database and we have the same information on the members’ share; we all use similar systems,” he says. “The idea of multiple back offices with multiple personnel doesn’t bode well for us. As the music industry faces the future, we have to look at the functions that we are not competing on and combine them. We need to start a dialogue with other societies.”

In the meantime, ASCAP just finished development of a new back-office distribution system, which will provide members with 24/7 access to the organization’s database as well as increased transparency.

Another issue expected to drive the evolution of PROs is the growth in the number of registered songwriters, who are demanding more services.

Regardless of what happens in the digital market, PROs will always have general performance licensing to fall back on because monitoring song plays at bars, clubs and stores requires boots on the ground to track.

But here, too, they face challenges, as was illustrated last year when two federal courts approximately halved the negotiated annual blanket fee that music service providers like Muzak and DMX pay BMI and ASCAP for every apparel store, beauty salon and health club for which they program music.

(Editing by Chris Michaud)

SOURCE:

http://www.reuters.com/article/2011/06/04/us-rights-idUSTRE75309R20110604

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