While the U.S. music publishing industry may have generated an annual revenue of $2.21 billion in 2013, National Music Publishers Association president and CEO David Israelite estimated (at the organization's annual meeting on June 11) that it's losing out on another $2.31 billion due to the Department of Justice's consent decrees, which hobble the two large performance rights societies, ASCAP and BMI, as well as the compulsory licenses that result in unfair rates imposed on mechanical licensing.
He pointed out that with he applied the 10% all-in rate negotiated with iTunes Radio through direct deals (instead of Pandora's rate court mandated 4% rate and terrestrial radio's less than that), 52%, or $1.09 billion of U.S. publishing revenue, comes from performance rights. He then said he applied a 13% rate to 23% of that revenue, or $507 million, that comes from mechanical licensing.
The 13% comes from the Copyright Royalty Board, which first set that rate for satellite radio as the suggested upside of what the organization would award music rights holders if not for the 801-b standard, which bases rates on four stipulations but doesn't include a willing buyer/willing seller estimated rate, a condition that the Songwriters' Equity Act legislation recently introduced in Congress.
With the trade association changing how it collects dues, he added, lobbying for such legislation is one of membership's benefits. But lobbying costs money, he pointed out, urging members to stay onboard despite what will likely be a higher fee structure than the previous $100 a year when the NMPA depended on Harry Fox Agency revenue.
In the nine years he has headed the trade group, Israelite said, it has spend $35.1 million litigating against services that do not properly license music from music publishing -- a process that has produced additional membership benefits in the form of a return of $472 million. Additionally, payouts from three more litigation efforts will insure that all members will not only get the equivalent of a free NMPA membership this year, but will get a payout on top of it.
"We have the luxury of having three settlements in the bank, and you will get more already than what you will pay" this year, he said. "I would love to think you will still join and remain members for all we do, but I thought I would also highlight this amount."
Israelite had also testified in Congress the day before. While he would love to see the compulsory license go away, if that doesn't happen he said he sent the message loud and clear that the only thing music publishers and songwriters want is a fair situation where a free market prevails.
"The internet is already one of the most disruptive forces in our industry," Israelite said. "Now get ready for the next great disruption, which is the move to consumer access of music on mobile phones."
He then moderated a short keynote discussion with Meredith Attwell Baker, who recently joined to head up the Wireless Association trade group CTIA, and Dan Hesse, CEO of Sprint, which recently announced a bundling deal with Spotify.
"There is no other source for music than the cell phone . . . This is how the young consume music today," said Hesse, who said he has two children. "Music is in a 2G time warp in terms of quality. Everything else has gotten better: voice quality, faster surfing -- except for music sound quality, which is still highly compressed."
But he added that his company would create a differential for music consumers, since Sprint has plenty of memory, a 4G network, and includes a $150 headset with each phone. "There is no reason not to have great-sounding music today available through cell phones," he said. "Our [mobile phones] will be at the center of music consumption, and I want to make a really enjoyable experience with good sound fidelity for our customers. I am committed to doing the missionary work of bring mobile to the hi-fidelity world."
Baker agreed that these changes in technology would benefit the music industry; after all, there was a reason Steve Jobs wouldn't bring Apple's iPhone to customers until the mobile phone industry had developed better networks. "Now phones have fantastic networks with great infrastructure and apps," she said, "and when you put that all together, we are just at the beginning of what will be a fantastic experience from mobile phones."
But when Israelite pointed out that as consumers move from ownership to the access model, compensation seems to be going down for the rights holder, Hesse countered that's why you need mass adoption. In partnering with Spotify (a music service that is not yet profitable, he reminded the audience), he hopes to "addict our subscribers to the premium rate . . . If we can scale that, a lot more revenue comes into the system."
Following the meeting, Irwin Robinson, the NMPA chairman, was honored with the organization's Service Award. Congressman Doug Collins, the initial sponsor of the Songwriters' Equity Act, then gave an inspirational keynote worthy of a televangelist. He admonished publishers to stop viewing songs as an intellectual right and start talking about them as "hopes and dreams." When you describe them like that, he said, they're qualified it as a property right that people won't steal.
Music "is the greatest export this country has," he said (adding that he also sponsored the Songwriters' Equity Act "to be fair," another bedrock principle of the United States, he added). Since it all starts with a song, songwriters' compensation is worth protecting. "I stand with you, who give me dreams and hope," he said. "This song you write today may have a listener who will be the songwriter of tomorrow."
Singer and songwriter Jon Bon Jovi was awarded the Icon Award. In his acceptance speech, he reminded everyone how long he was in the industry. "I was there for the gold rush when a single album could sell 20 million . . . and I was there when Tower Record closed its stores," he said.
"The arts are all interdependent," he added. "Think about the book that inspires the song, and the music that inspires the painter. Think about a movie without a soundtrack."
"We just have to appreciate the music and nurture it with all the exuberance of youth," he added -- but also all the wisdom and experience that those in the room had accumulated over their years in the industry. "They call on us to pass the torch to light the way for the generation [of songwriters] to come. Thanks to listening to the songs and these words."
The show ended with a performance of Bon Jovi's "Livin' On A Prayer," sung by internet sensation and "The Voice" contestant Christina Grimmie.