Networking Pays Off

Most video multi-channel networks, known as MCNs, have been operating for the last few years without licensing or making proper payments for cover versions of songs used in videos played on their various channels. The licensing deals that Fullscreen and Maker Studios recently cut with Universal Music Publishing Group (UMPG), and the one the former had with Warner/Chappell Music, shows good intent, but it doesn't mean they, and hundreds of other MCNs, are off the hook yet with music publishers.

Besides those two deals, thousands of smaller publishers are still waiting to reach a legal agreement, let alone receive just compensation, including retroactive payments, for their intellectual property. With MCNs beginning to play a major role in the growing YouTube ecosystem, millions of dollars could be at stake. For example, Maker Studios is a network of more than 5,000 YouTube channels that, together, have about 140 million subscribers.

Unless an industry-wide solution can be negotiated with the National Music Publishers' Assn., a lawsuit may still be filed. The NMPA says MCNs have significantly profited, often without compensating the songwriters whose work is being used. "There are dozens of [MCNs} we have identified," NMPA president/CEO David Israelite says. "If they want to come to the table and pay back royalties, we can talk; if not, we are preparing to sue."

The MCNs represent the final frontier in the NMPA's campaign to enforce video licensing and receive fair compensation for the use of songs in music videos. The other two fronts in its campaign are to receive proper compensation for official music videos played by Vevo and YouTube and for music incorporated into user-generated content posted on the latter site by individuals.

For years, official music videos were regarded as promotional tools, even by record labels, as MTV built a broadcast empire off of the clips. But in the new digital economy, music videos remain the final puzzle piece to generating income, a strategy that started with Vevo.

Though labels have been earning money for official music videos screened on Vevo and YouTube, most independent music publishers have been patiently waiting for the labels to carve out deals with them.

So far, UMPG and Warner/Chappell have agreed to terms with the publishers, under which the major labels will pay 15% of advertising revenue, sources say, as well as retroactive payments, for an all-in synch license. Music publishers are confident they'll reach an agreement with Sony Music Entertainment, and also figure out a way to receive payment from the thousands of independent labels, too. Meanwhile, the major labels are already paying the major publishers their cut, sources say.

In the settlement negotiated between the NMPA and YouTube on user-generated content, publishers get 15% when a master recording is used and 50% of ad revenue when user-generated videos feature cover songs. But according to sources, MSNs get 55% of advertising revenue from YouTube. While music publishers may say that the MCNs' business model is not their problem, it's easy to see how the math may not work. Still, some feel there's room to maneuver a deal, because MCNs can deliver a target audience, and charge a higher advertising rate for it.

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So while on a percentage basis it doesn't appear that they can manage to both satisfy the expectations of rights holders and video makers while still turning a profit, there might still be a way for the two sides to reach an accommodation if enough money is generated.

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