Publishers Have An Option

MIDEM has been a traditional meeting place for music publishers -- especially independent publishers seeking foreign representation of their catalogs through subpublishers.

Michael Closter is founder and president of Reach Global, a New York- and Florida-based music publisher. In addition to its subpublishing network, Reach Global and its entities are direct publisher members of the Australian, Belgian, Canadian, French, German and U.K. rights societies.

MIDEM has been a traditional meeting place for music publishers -- especially independent publishers seeking foreign representation of their catalogs through subpublishers.

While meetings between publisher and subpublisher will likely continue unabated, there is a shift in strategy occurring in certain publishing companies that could diminish the relevancy of subpublishers. These publishers are bypassing subpublishers and instead becoming direct members of various international collection rights societies. The primary benefits of direct membership for the publisher are faster international royalty payments and the elimination of subpublisher commissions.

Going direct -- combined with the revenue gains from the dollar's record lows against the euro, the British pound (12-year low) and the Japanese yen (five-year low) -- can help a U.S. publisher offset the revenue losses from CD burning, piracy and peer-to-peer downloading.

To better understand this model, one must understand the primary role of subpublishers. In America, music publishers have the ability to collect, for example, mechanical royalties from album sales directly from record companies. Subpublishers and/or collection rights societies are not required.

However, for virtually all other countries, a publisher (or subpublisher) does not have the option to license and collect mechanical royalties directly from a record company. Instead, local laws or contractual arrangements require that record companies pay royalties to a collection rights society. A publisher must be a member of an appropriate collection society to directly claim and receive its royalties. This is where the subpublisher enters the picture. A subpublishing company, which has already established membership with a collection society in a specific territory, will provide this function on behalf of the original publisher. Thus, the subpublisher directly registers the song and collects the royalties from the societies, then remits payment to the original publisher.

This payment procedure for music publishing royalties -- from the record company to the collection rights society to the subpublisher to the publisher and, finally, to the songwriter -- takes time. A lot of time. In fact, 18 months is not unusual for this sequence. And every party takes a commission or receives a rebate along the way. From a publishing perspective, all the links in this chain are currently immovable, except the subpublisher. The subpublisher is the vulnerable link. That is because the publisher can potentially displace the subpublisher, either by affiliating directly with a collection rights society or by establishing a foreign entity that affiliates directly.

If the subpublisher is eliminated, the publisher receives royalty statements and payments directly from the societies. This enables the publisher to receive royalties faster and with complete accounting disclosure, as opposed to possibly receiving delayed or abridged subpublisher statements. Direct society statements also eliminate subpublisher commissions. These enhancements benefit the publisher and, ultimately, the songwriter.

Nevertheless, the benefits of direct membership are mitigated by a variety of expenses and complexities. A publishing company that is contemplating becoming a direct member of international collection rights societies would encounter three primary difficulties:

1) Financial: In forgoing a subpublisher, the publisher must also forgo subpublishing advances, which many rely on to fund their operations. The loss of subpublisher financing is compounded by the additional legal and accounting expenses incurred by creating foreign corporations and maintaining foreign bank accounts.

2) Administrative: There is an increased workload as well as a learning curve involved in affiliating, communicating and registering song titles directly with the collection rights societies. Furthermore, certain societies have stringent membership requirements and procedures.

3) Cultural: A publisher needs to understand the local culture and often speak the language of the local collection society in order to have an effective membership.

Subpublishers are the beneficiaries of the above factors, which create barriers to entry for the original publisher. Subpublishers can also take actions to increase the benefits of their services, thus diminishing publishers' desire to pursue direct membership. These actions involve three areas:

1) Royalty statement preparation: Subpublishers should prepare royalty statements that better focus on clarity and transparency while accurately reflecting and summarizing the detailed information they have received from the collection societies and third-party music users.

2) Speed of payment: Subpublishers should provide quicker and more frequent accounting statements. This is especially relevant when subpublishers receive frequent payments from collection societies, because such frequency often is not passed along to publishers.

3) Creative activity: Subpublishers should strive to keep publishers informed of local synchronization placement opportunities, collaborative writing possibilities and other creative services that are not offered by the collection societies.

Publishers ultimately will use their own internal metrics to determine how highly they value a traditional subpublisher relationship compared with direct membership. Their decisions in the ensuing years could determine if future MIDEM meetings between publisher and subpublisher become obsolete.


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