BMO Capital Markets media analyst Daniel Salmon estimates that in 2019, Netflix could spend as much as $15.1 billion on licensing and creating original content -- up from $12 billion in 2018 -- to its 158 million subscribers worldwide. The entertainment giant has locked up such reliable hitmakers -- producers, showrunners and filmmakers -- as Shonda Rhimes (Grey’s Anatomy; Scandal), Ryan Murphy (American Horror Story; Pose), Martin Scorsese (The Irishman) and Game of Thrones creators David Benioff and D.B. Weiss with multi-year deals reportedly valued as much as $300 million. Netflix is also increasingly ramping up local production overseas to sign up non-English-speaking consumers as its subscriber base grows faster outside the United States: 7 million of the 7.6 million subscribers Netflix is expected to add in the fourth quarter 2019 will come from outside the U.S.
The streaming service is not nearly so generous when it comes to the songwriters and composers that score its programming, however. According to more than three dozen composers, agents and lawyers interviewed for this story, Netflix and other Hollywood players are seeking buyouts via contracts that require composers to give up all or most rights to their work and any future royalties for its use in exchange for a one-time payment.
Netflix is not alone, nor is it the first, in its efforts to seek buyouts from composers. But given the company's power and influence in the entertainment industry, the practice has spurred North American composers to push back. Earlier this year, one group, led by award-winning composers including Carter Burwell (The Ballad of Buster Scruggs; Three Billboards Outside Ebbing, Missouri), John Powell (Solo: A Star Wars Story; The Bourne Identity) and Miriam Cutler (The Ghosts of Abu Ghraib; Love, Gilda) started an online initiative called Your Music, Your Future, to educate their peers about their rights to their music. To date, it has attracted more than 3,700 signatories.
Although most sources interviewed for this story over several months asked to remain anonymous to avoid a public battle with Netflix and for fear of losing work, several prominent composers who have not been affected by buyout contracts spoke adamantly against the practice, calling it a threat to composers’ livelihoods and intellectual property rights.
“This is not acceptable. No one should have to accept” a buyout, says Burwell, whose recent scores have included one for Joel and Ethan Coen's 2018 Netflix release, The Ballad of Buster Scruggs. He adds that if Netflix, or any other streaming service "came to my agents with a deal like that, it wouldn’t last long.”
Netflix does not use the term "buyouts" to describe contracts in which it buys a musician's rights to a composition for a flat fee. The company instead uses the term "direct licenses" to refer to deals, in which the streaming service and affiliated production studios directly negotiate with composers to buy out a composer's future royalties for content streaming on Netflix, circumventing performing rights organizations that negotiate fees and collect ongoing royalties on behalf of composers.
Still, it says these agreements aren't mandatory. “It is not true,” says a Netflix spokesman, that for composers to work on a Netflix production “their only choice is to sign a direct license.”
“We’re committed to paying our creative partners fairly regardless of how the industry evolves,” he says.
But music industry sources say Netflix and its producers appear to require direct licenses of composers who, unlike Burwell or Carter, have less leverage and can't afford to pass on the work or complain about the terms for fear of being blacklisted. One award-winning composer says he agreed to a buyout because it was his only option if he wanted to score a Netflix documentary.
Composers and lawyers also point to what is referred to as a handbook that has given to independent producers that is titled "Netflix Delivery Requirements.” The document spells out production specifications, including a composer agreement. The document, obtained by Billboard and reviewed by music lawyers, instructs producers that it must provide a “work for hire” agreement with composers. Among the specifics, the agreement allows Netflix to use the compositions, lyrics, performances and recordings “without limitation” and “throughout the universe in perpetuity.” Lawyers and composers say these terms are worrisome and go beyond the language in standard contracts. A Netflix spokesman says the contracts are negotiable.
Composers from other countries, especially continental Europe and Britain, have stronger copyright protections than the U.S. and other parts of the world, but sources say those rights are now being tested as well. Netflix music executives have been meeting with music industry organizations across the continent and in the United Kingdom to address differences in contracts and compensation models.
In France, executive producers working for Netflix do not have the legal right to negotiate buyouts directly with composers, but that doesn’t stop them from attempting to do so, says Cecile Rap-Veber, director of licensing, international and operations for the non-profit French rights group Society of Authors, Composers and Publishers of Music, or SACEM. Rap-Veber says SACEM’s members have declined what she refers to as an American agreement when they are approached by local producers working with Netflix.
SACEM, which was started as a music authors and composers collective in 1851, also collects payments for American composers when their work appears on French television, movie theaters or streaming platforms. SACEM then distributes the royalties to the U.S. performing rights organizations, such as ASCAP and BMI, who in turn pay their members.
Rap-Veber is concerned that Netflix could try to push the U.S. buyout business model worldwide.
“What I want is to get fair remuneration for my rights holders,” Rap-Veber says. “The numbers of subscribers, of streams and Netflix revenues have dramatically increased in the world thanks to the works of our creators. They should then benefit from that success, too, which is the case for the time being in France."
In Europe, music industry advocates and composers point to the passage earlier this year of the EU Copyright Directive, which is expected to provide protections to composers as it is adopted over the next two years. Already, there are many questions over how it will be implemented and enforced. One important rule requires streaming services to report streaming data to enable artists to get fair compensation if a show is a success. Unlike major film studios and traditional television networks and cable channels measured by Nielsen, Netflix does not report streaming data to artists.
One global artist rights organization, the International Confederation of Societies of Authors and Composers, or CISAC, has been studying the legal ramifications of buyout contracts, and refers to them as “exploitation.” CISAC’s president, French composer Jean-Michel Jarre, wrote earlier this year, “In this struggle, we face giant opponents -- the Goliaths of the tech world.”
CISAC’s director general, Gadi Oron, says it’s unclear whether American video on-demand services can impose U.S. market practices and contracts on non-U.S. creators that “force the composer to surrender and waive all rights in all countries. “The organization is investigating whether those contracts conflict with the legal framework outside the U.S.,” says Oron. European and U.K. laws make it difficult, if not potentially illegal, for Netflix to impose buyouts on composers.
British composer Dru Masters says he received a standard Netflix contract containing a buyout clause. The contract, however, also had a clause exempting British composers who have agreements with the country’s Performing Rights Society for Music, which negotiates on behalf of composers and songwriters, and collects royalty payments for them, says Masters.
With the advent of video streaming, actors, writers and even composers that perform their scores have also dealt with new contract provisions spelling out how they will get paid for their work, but they are represented by guilds and unions that advocate on their behalf. Composers were unionized from the 1960s until 1971, but efforts to organize since then have not succeeded.
Composers say that if buyouts became standard in the industry, it would greatly affect their earning potential. Composers’ pay is typically broken into at least two components: an initial upfront fee for their time writing a score or theme song; and the cost of producing the music. (For example: renting a recording studio and hiring musicians to perform on the score.) The average fee for a one-hour network show could be as high as $277,500 in the first season, according to the latest edition of Music, Money and Success, by music lawyers Todd and Jeff Brabec. A composer could earn as much as $330,000 in a second season of a successful show, says Todd Brabec, a former ASCAP executive. He estimates composers can earn more than $500,000 over three years in public performance royalties when a show has a second run on network, and then airs on cable and streaming services.
But, Brabec adds, the upfront fee isn’t a lot of money. “If a composer breaks even or makes a little money, they are fortunate," he says. "The cost of producing eats up the entire amount.”
Composers make most of their money on royalties paid for repeated viewings or plays of their music. Major production companies typically own the copyright to an original score for a film or television series as part of a “work for hire” contract, but composers retain a financial interest in the copyright and share in the royalties, also called public performance fees.
Emmy award-winning composer Jeff Beal, who has scored multiple network and cable shows as well as Netflix’s first original series, House of Cards (a series that was produced by MRC Studios, a division of Billboard's parent company), says, “In any given year, the [royalty] amount equals or exceeds the amount you get upfront. That’s the value of [intellectual property] over time.” He points out that royalty fees for streaming are much lower than for network shows. (Beal nevertheless praises Netflix for taking risks. “They really believe in the artists,” he says.)
Industry sources say royalty fees range from as much as $300 a minute for a 15-minute score on a network show to as low as six cents a minute for shows streaming on Netflix.
Composer Joel Beckerman, whose scores include NBC Nightly News with Lester Holt and the late Anthony Bourdain’s Travel Channel series No Reservations, says he has made the “vast majority” of his income through royalties on a handful of hit shows. “If you don’t get the back-end on your hits, you can’t make a living,” says Beckerman, who is one of the composers leading the Your Music, Your Future education initiative. “It’s how [composers] put food on the table.”
Netflix is hardly the first entertainment company to pursue buyouts with composers: CBS made an unsuccessful attempt in the 1980s. The Discovery Channel is seeking to directly license music from composers via buyouts as it rewrites terms of contracts with production studios, according to industry sources close to the discussions. Discovery has informed composers and musicians that it will require composers and musicians to sign licensing contracts similar to those used by Scripps Networks Interactive, which it acquired last year, according to the same individuals.
In a written statement, Discovery’s Nathaniel Brown said, “Our 8,000 hours of original programming a year drives enormous economic value to the music community. We compensate countless composers and musicians for their valued contributions, and will continue to do so.”
Facebook has also aggressively pushed for buyouts with composers for its “Facebook Watch” platform, according to composers. One composer says his lawyer tangled over the buyout provision for weeks with Facebook’s team before they finally reached an agreement. The composer retained his standard rights.
ESPN has long bought out composers’ copyrights, paying no royalties, according to composers and lawyers. But these buyouts are considered less of an issue because the Walt Disney Company-owned cable sports network uses mostly stock library music and typically does not have reruns.
In the U.S., composers can trace their right to royalties back to 1914, when composer Victor Hebert sued a Manhattan restaurant after hearing a song from his comic operetta, Sweethearts, performed there with an orchestra. The eatery's owners argued that patrons were there for the food, not Hebert’s music, but the U.S. Supreme Court ruled in favor of the composer.
Around the same time, Hebert and his peers started ASCAP, the first U.S. organization to protect the rights of composers and songwriters. Since then, songwriters and composers have received royalties or public performance fees for the commercial use of a copyrighted song or score.
On television and in streaming, creators’ royalties are based on several metrics, including the length of a composition and how frequently a show featuring the composition is broadcast or streamed. Studios track compositions in conjunction with third-party systems and PROs. Composers then get detailed statements that show how often an episode aired featuring their work.
But while Amazon and Hulu self-report how many times a show is streamed, Netflix does not. With the rare exception of major hits such as Bird Box and The Irishman, where viewership is released to the media, lawyers and agents say that Netflix reports only that an episode or film streamed once, even if it was streamed by millions.
“Where are the metrics?” says one composer who was not required to take a buyout and is waiting on a royalty payment from a Netflix documentary. “I’m sure they are fudging the data.”
The streaming service's lack of transparency when it comes to its streaming numbers may change in the near future: Netflix has said it would provide more viewership data on its shows, and the EU Copyright Directive could force it to fully report its data if the company wants to do business in Europe.
When it comes to negotiating contracts that contain buyout clauses, entertainment attorney Joe Carlone says, “There’s no blanket rule," and adds that he encourages composer and songwriter clients to weigh whether it makes sense to take an upfront payment for a limited project that may not run for more than one season. Until streaming reached a critical mass, the yardstick for success for a TV series was at least four seasons of 22 episodes that would have an afterlife in syndication or on cable -- which would result in years of royalty payments for a composer. It is not unusual for Netflix and other streaming services to commission a limited series of eight or so episodes and cancel the series after its first season. In that case, a buyout may have been a smarter financial move, says Carlone, explaining, “We factor in the present value of the money, when and how long [the public performance royalties] would come in.”
But another longtime music lawyer says he discourages clients from directly licensing their music to Netflix. He says the lack of streaming metrics makes it difficult to know how well streaming series are performing in general, which is important in determining a fair buyout price to compensate for no backend royalties.
“Everyone is throwing numbers at a dart board,” says another veteran music lawyer.
British composer John Powell recognizes young composers, in particular, face a tough decision. “If you give [your rights] away, you get some money up front,” he says. “But if it’s a huge hit, you earn 10 times or more. It’s a gamble that proves to be very difficult when you are trying to get your career off the ground.”
To manage its increased investment in original content and worldwide expansion, Netflix is ramping up its music legal and business team globally with hubs in London, Amsterdam and São Paolo, Brazil. In the last year, Netflix hired Amy Dunning, the former head of music for Lionsgate studios. The streaming service has brought on music licensing veterans from Disney, Sony and Warner Brothers studios.
It is also looking to cut costs and ensure predictable expense streams, says industry experts, and reducing what it pays to license music is one way to do so. Disney and Apple's entry into the streaming business has only amplified concerns that buyout contracts will “become normal across other streaming services -- that like a virus it spreads,” says composer Beckerman.