NMPA, Major Labels Sign On Terms Of Agreement

The National Music Publishers Assn. and the four majors-with Recording Industry Assn of America acting on their behalf-have signed a terms of agreement sheet that will result in better business practices being enacted to ensure prompter mechanical royalty payments to publishers. It will also provide a way to disburse up to $264 million in pending and unmatched funds due to publishers from mechanical royalties residing on the ledger of the four majors because their information is lacking on who to pay that money.

While the terms of agreement is legally binding and contains broad outlines of the agreement, a longer memorandum of understanding, which spells out all the nuances of the agreement is expected to be signed next week. As a result, going forward the industry will institute new procedures that are fair to major labels and publishers that will improve how publishers get paid mechanical royalties.

"The issue is how you deal with the pending and unmatched; it's an issue of some materiality," says RIAA chairman and CEO Mitch Bainwol. "You want to get the money out the door."

Consequently, the RIAA and the NMPA have devised a three-phase formula for paying out the approximately $264 million in pending and unmatched funds, and have hired lawyer Kenneth R. Feinberg, who administered the September 11 Victim Compensation Fund and is currently administering TARP bailout funds for the U.S. Department of the Treasury, to serve as a special master overseeing the settlement distribution of funds (Billboard.biz, Sept. 16).

“Not only will this agreement provide pending and unmatched monies to songwriters and music publishers, but more importantly it will establish the framework to prevent such problems from occurring again,” said NMPA’s president and CEO David Israelite.

Unpaid funds that accumulated pre-2007 will be distributed based on publishers marketshare, as determined by how much the labels paid each publisher from the period of 2000-2006, explains Israelite. Feinberg and his team will build the marketshare by requesting data from the majors and publishers.

For the period pre-2007, it would be difficult for labels to figure out amounts owed on "release by release or product by product or account by account," says the RIAA's executive VP and general counsel Steve Marks, which is why marketshare will be used to determine payouts.

By enrolling in the process, publishers will receive information on how much they will receive. If they agree with the settlement amount they can opt in, and receive a check for those funds; but they are also committing to participate in the other two phases. If publishers don't participate in the first phase, then they can still pursue royalty payments from the majors from the pending and unmatched funds, using whatever means are at their disposal.

Meanwhile, using newly developed best business practices, the labels hope to pay down the $104 in pending and unmatched funds from 2007-2008 to publishers during the next year. At the end of the year, whatever is left of those pending and unmatched funds will be paid out by publishers marketshare as determined by major royalty payments made during those two years too each publisher.

At the Assn. of Independent Music Publishers mid-September meeting in New York, Feinberg said, "I have done a lot of these [settlements], but this is a rather unique and curious industry." He said in his view everyone is equal, and he has a reputation of doing things without any favoritism to the major players. Also, "I must verify the data provided to me," he added. "I am charged to make sure the data is as accurate as possible."

He also said he is charged with gathering a large of pool of publishers as possible and give them a chance to partake in the settlement.

“This important agreement demonstrates the commitment of labels and publishers to find more efficient ways to license and distribute mechanical royalties,” the RIAA’s Bainwal says. “More significantly, the cooperative efforts of labels and publishers signal a partnership that will ensure more resources can be directed to bringing new products and services to music fans.”