Music licences and the nemo dat rule: trouble for DMX?

Readers of this weblog will no doubt recall the fairly vigorous exchange of views between Lofty Larynx and Moode Media CEO Lorne Abony (here, here and here) over the alleged vices and virtues of Mood Media's US background music service subsidiary DMX.  Some of us had wondered whether this brief flurry of correspondence was ever likely to flare up again. Well, it seems that it has.  The 1709 Blog received earlier today the following missive from Lofty Larynx:

"Hey DMX: Habing Trouble Finding Dat Nemo?

Nemo dat quod non habet

Earlier in the year, readers may recall, there was discussion about the public performance licences which US background music service DMX (a subsidiary of Mood Media) had managed to acquire from some 800 US-based music publishers, bypassing the collecting society system. DMX was swift to try to counter the assertion that they had no right to perform the music catalogues of any writers who were direct members of a performing right society outside the USA.

Regular readers may also recall the distinction at issue: namely, while ex-USA writer members make a personal, exclusive assignment of their rights to their local performing right society and the US publisher thus has no rights in the USA, US writers assign their performing right non-exclusively to their societies -- which enables US publishers to issue direct licences to users in some circumstances.

DMX had assumed, rather like US foreign policy, that what prevailed in the "good ole US of A" applied everywhere else in the world. Sadly, this is not the case.

There has been an outcry from writers across the world (and from some equally cross lawyers and managers), supported vocally and emphatically by their US colleagues, and echoed by concerned publishers – all of whom saw their income plummet as a result of these hasty and ill-considered DMX deals. Why is this? Because the effect of these licences has been to reduce the value of the US background music performing right by 70%. Rich[er] in hope, these writers need not curse their fate as their “bootless cries” have been heard. The transactions have been scrutinised by lawyers with access to all the right sort of documents and precedents (on both sides of the Atlantic). And now ...

An important and active major music publisher has acknowledged to two performing right societies (one in the US and one in the UK) that it (the publisher) does not control the performing right in any works written by direct members of societies outside the USA. The DMX licences did not include, for example, the British catalogue. That’s right – the US rights remain within the society system for all ex-US writers.

The less dominant US publishers should follow suit and admit the sad (for them) truth that they have purported to issue licences to DMX for their entire catalogues when in fact they do not control the US rights to works emanating from the writing community outside the USA.

Or, to put it another way, the direct licences issued to DMX by US publishers excluded all works from the British catalogue, (and by extension excluded the French catalogue, Spanish, Canadian, German, Italian, Australian). So DMX should not be allowing any of their music locations to play any Beatles or Stones, Adele, Amy Winehouse, Guy Chambers, Led Zeppelin, Tiny Tempeh, Elton John, Coldplay, INXS, John Taverner, Sir Peter Maxwell Davis, George Fenton etc etc ...

It might have looked like a good idea at the time, but, as consumer rights groups often advise the unwary, if it looks to good to be true, it probably is.

Lofty Larynx has said “[he] begins to be sympathetic to [DMX’s] position – playing some music that they were assured was granted under a valid licence. One hopes [DMX] will "discuss" their difficulties with their purported licensors.” Well, Mr Abony, it might just be time to pick up that telephone.

After all, as only a complete idiot potential licensee would have concluded a licence with a US publisher without ensuring that publisher gave the usual warranties as to title, one can infer that those DMX licences contain undertakings to DMX that each publisher was granting valid rights – when in fact this was not the case.

Lifting the lid on the small print has come at an interesting time.

Pandora's box

Bloomberg tells us that poor old US music service Pandora is trying to reduce its royalty liability and has issued proceedings against ASCAP “because some large music publishers have announced they are withdrawing new media rights from ASCAP and negotiating licensing fees directly with Web radio services”. Well, good luck with that effort, Pandora! For the all-giving radio goddess may risk too much if she assumes she can take non-US writers’ works as well. She and competitors like Apple Radio would be well-advised to swing by the offices of the performing rights organisations in the USA if they want to acquire rights to play any music written by anyone other than an American!".

Those DMX music licences: some clarification of the issues

Following the recent post concerning DMX's music licensing activities by Deep Larynx and the response from DMX's Lorne Abony, the 1709 Blog has received a rejoinder from Deep Larynx which, we hope, will both clarify the position and reduce the temperature of the dialogue.  It reads as follows:

Lofty Larynx is happy to clarify that no malice whatsoever was intended towards DMX and its vast US music operation. Distilling this complex issue into one page was never going to be an exact science – but it does appear to have worked well enough to engage the attention of Britain’s songwriters and composers – which was the purpose of the text. Concern was solely that revenues for US public performance get through to writers –as opposed to the “trickle up economics” all too prevalent in today’s creative industries.

One can agree without reservation with DMX that:

“When DMX enters into a direct license with a music publisher, the music publisher assumes the obligation to pay the writer’s share of any performance royalty directly to the writer(s) of the licensed composition. Those payments are governed by the contracts entered into between a songwriter and a music publisher ... the writer is also dependent upon their music publisher to accurately and faithfully remit all funds due under applicable contracts.”

So, US writers’ royalties first:

All should welcome DMX’s urging writers to check their statements to check for the “proper allocation of royalties”. Is DMX filing detailed usage data for US writers whose works they play so the publishers can pay the US writers in those directly licensed catalogues? Perhaps Lorne Abony can reassure US writers. Why? Because, sadly, writers are exposed to the risk that they may never see this licence revenue – it being highly likely that their contractual entitlement to be paid arises when usage is "directly and identifiably" attributable to their works.

One cheap and easy riposte from publishers might be to allege deficiencies in the statistical analyses by the societies to inform distributions. Aside from the maxim that smashing up other people’s furniture seldom makes one’s own furniture look any nicer, surely the societies’ administrative function is preferable, even if only as a matter of policy? It seems unfair that writers have to fund publishers’ generous executive salaries and bonuses and dividends to shareholders out of their earnings. Collecting societies, by contrast, are not-for-profit organisations whose senior executives are remunerated well below the levels of the major music companies. And writers sit on societies’ boards, can influence and monitor policy, tariffs and distributions.

Questions about the data relating to the performance by DMX of UK writers’ works, however, are largely academic because regrettably one cannot see how DMX can have been granted a valid licence as the US publishers do not have the UK writers' performing right to grant (though it may be useful to determine losses if any legal action were to ensue). Why?

The writer’s assignment to the publisher is customarily "subject to" the writer’s assignment of the broadcast and public performance right exclusively to PRS for Music. This exclusive grant by the writer is a personal contract (the Membership Agreement) between each writer and PRS for Music. A music publishing contract presupposes a writer's membership of PRS - clarifying the position in terms whereby, should a writer resign from PRS for Music, the performing right will vest with the publisher. But only where the writer resigns their membership. 

One by product of this arrangement is that a publisher cannot compel a writer to resign from the society without exposing themselves to allegations of tortious interference ie inducement breach a contract which, under English law, is a tort. 

There is no question of the PRS issuing licences in the USA. The UK writers’ rights pass exclusively to the PRS and then onward to societies in the US - not to the US publishers. It is interesting to see how many more members of the public than was first thought receive DMX's service – 120 million listeners per day. That’s quite a reach and, as writers are the basic building block of DMX’s supply chain, one begins to be sympathetic to their position – playing some music that they were assured was granted under a valid licence. One hopes they will discuss their difficulties with their purported licensors.

In the meantime, UK (and Canadian, Australian, and Continental European) songwriters, composers and lyricists should be entitled to expect their revenues to be paid to them by PRS for Music, the body that, by contract, they authorised to act as their exclusive licensors – money arriving in Blighty from the USA via ACSAP, BMI and SESAC".

'Lofty Larynx': here's the response from DMX

Last week, in "DMX: call for action over unauthorised music licences", this weblog wrote about DMX and music licensing practices. The blog has now received a full and detailed response from Lorne Abony, Chief Executive Officer of DMX's parent company Mood Media Corporation. Lorne writes:

"The 1709 blog post from ‘Lofty Larynx’ on Tuesday, September 4, 2012, about DMX is full of factual inaccuracies, and misunderstands some basic elements of U.S. copyright law.

I am the CEO of Mood Media Corporation, the parent company of DMX. Mood Media is also the parent company of Muzak LLC and Trusonic, Inc. Combined, DMX, Muzak, and Trusonic provide the leading background/foreground music services in the United States, serving over 435,000 customer locations and reaching over 120 million listeners a day. We are very proud of our success in operating the leading commercial music service in North America, and even more proud of the fees we pay to authors and creators of musical works. In our most recent fiscal year (2011) we paid over US $18,000,000 in royalties for the public performance of musical works embodied in the sound recordings performed in our customers’ locations throughout the United States.

We pay royalties for the public performance of musical works pursuant to validly issued performance licenses. Under U.S. law, we may avail ourselves of the right to publicly perform musical works pursuant to a blanket license issued by a performing rights organization (“PRO”) (e.g., ASCAP or BMI) or subject to an arm’s length, free-market direct license negotiated with the copyright owner of a musical work or the agent thereof (e.g., a music publisher). Both licenses are equally valid and grant users a right of public performance.

DMX has relied upon both forms of licenses in the operation of its business. Each musical work performed by DMX as part of its background/foreground music service is licensed under either a blanket license or a direct license before the musical work is transmitted to and/or performed within a customer location.  It is factually incorrect and irresponsible to say that DMX makes unauthorized uses of musical works.

As most readers of this blog will know, copyright is territorial in nature – meaning there is a separate right of public performance in the United States from the right of public performance in the United Kingdom. This means that different entities may have the right to license the same musical work in different territories. For example, whereas PRS may have the right to license a musical work in theUnited Kingdom, that same right of public performance could be licensed by an individual music publisher in the United States or by a U.S. PRO. DMX need not obtain a license from PRS to publicly perform a copyrighted musical work in the United States. Those rights can be obtained right here at home on our side of the Atlantic.

This territorial application of copyright appears to have been lost on ‘Lofty Larynx’. Just because a license has not been obtained from PRS does not mean activities in the United States are unlicensed.

Furthermore, contrary to the licensing landscape in the United Kingdom, where PRS (the single analog to the three PROs in the United States) obtains exclusive rights to license the public performance of musical work; in the United Kingdom, the two largest U.S. PROs (ASCAP and BMI) are prohibited – pursuant to consent decrees entered into with the United States Department of Justice – from obtaining exclusive grants of rights from their affiliated songwriters and publishers. This is to prevent the PROs – which are fixing prices on behalf of competitors, an otherwise per se violation of the U.S.antitrust laws – from exercising undue market power.  By ensuring that songwriters and publishers can license services such as DMX directly, U.S. law ensures that copyright owners can determine with whom they want to do business and on what terms. Individual publishers can choose whether to have their royalties collected and distributed through a third party or handled directly.

Every music publisher that has directly licensed DMX to make public performances of musical works made a voluntary choice to enter into a bilateral license agreement. The music publisher could have refused to grant DMX a direct license. DMX could still have publicly performed that publisher’s music if the publisher’s music was subject to license by a PRO, but the publisher did not have to “do business” directly with DMX. Yet more than 800 music publishers chose to do business with DMX and get paid royalties directly, bypassing a PRO.

In engaging in direct licensing, DMX did not terminate its license agreements with ASCAP and BMI, contrary to another incorrect assertion in the blog post. Those licenses are still in effect and DMX (and its sister companies) continue to pay millions of dollars in royalties each year to ASCAP and BMI. Those licenses will remain in effect and music publishers can refuse to license DMX directly and accept payment through their PRO instead, subject to the collection and distribution policies of their PRO. Nevertheless, more and more publishers are choosing to license their catalogs directly to DMX as they recognize the benefit of having a direct license arrangement with the distributor of their music.

Another incorrect charge is that songwriters will never see their share of performance fees for uses that are subject to a direct license. When DMX enters into a direct license with a music publisher, the music publisher assumes the obligation to pay the writer’s share of any performance royalty directly to the writer(s) of the licensed composition. Those payments are governed by the contracts entered into between a songwriter and a music publisher. Just as writers depend upon a collecting society to distribute certain royalties, the writer is also dependent upon their music publisher to accurately and faithfully remit all funds due under applicable contracts. If ‘Lofty Larynx’ is saying that songwriters will not get paid because DMX has licensed directly, then he or she must be saying that individual music publishers will intentionally and in breach of a contractual obligation fail to pay songwriters. Any such failure obviously ought not to be placed at the doorstep of DMX. Everything that DMX has done in obtaining the rights to publicly perform musical works within the United States has been in accordance with U.S. law.

Moreover, it is also entirely untrue to suggest that the licensing regime in existence in the United States today is the construct of one inexperienced judge. I shall avoid here any commentary on the tremendous hubris inherent in such a statement, suffice that two United States district court judges – in separate rulings – established the mechanism whereby DMX could obtain a credit for the fees otherwise payable to ASCAP and BMI for content that was licensed directly from individual music publishers. The judges’ rulings were not only correct but sensible. By adopting adjustable flexible blanket licenses, the district court judges prevented DMX from paying twice for the same use of the same composition (and I would assume most readers of this blog would agree that double payment for the same work is not only inefficient economically but also inappropriate as a matter of fairness).

Moreover, the rulings of the district court judges were affirmed in a forceful ruling by a three judge panel of the United States Court of Appeals for the Second Circuit (available here). ’Lofty Larynx’’s characterization could hardly be further from the truth.

The only thing I can agree with the blogger about is the recommendation that songwriters check their royalty statements for the proper allocation of royalties from either a PRO or a music publisher. When DMX pays royalties under a blanket license or a direct license negotiated at arm’s length in the free market, we fully expect songwriters to receive their fair share. Nothing less would be acceptable. However, and at the end of the day, DMX is not responsible for paying songwriters directly. DMX pays licensors (PROs or music publishers), and the licensors are the ones responsible for distributing collected royalties in accordance with applicable agreements.

To recap, (1) DMX has obtained valid licenses to publicly perform all musical works transmitted to and/or publicly performed by it within its customers’ locations in the United States; (2) direct license agreements negotiated at arm’s length with music publishers are as valid as licenses issued by a PRO; (3) U.S. PROs or music publishers have the right to license DMX to publicly perform musical works in the United States even if those same works may simultaneously be licensed by PRS outside of the United States; and (4) songwriters should be paid performance royalties by their music publisher or the PRO with which they are affiliated for all royalties paid by DMX.

I have no desire to enter into a public debate with an anonymous critic, but I hope you will understand that we cannot allow the false and unfair statements about our company in the blog to be left uncorrected.  I confirm that I am happy for you to publish this as the requested response from DMX and Mood Media".

The 1709 Blog thanks Lorne for taking the time and trouble to post so thorough a response but rather suspects that readers will not yet have heard the last on this clearly sensitive and important topic.

DMX: call for action over unauthorised music licences

A little bird with impeccable credentials, known to him only as Lofty Larynx, has told the 1709 Blog about some momentous developments within the field of music licence revenue.  The information received by your blogger reads as follows:

"Get moving!

Composers' and songwriters' future income is at stake and you should INSIST that PRS for Music acts against the US publishers who have issued and been paid for music licences when they had NO RIGHT TO DO SO.

Email PRS for Music’s CEO, insisting that action be taken to protect your revenues and stop this unlawful licensing practice.

Write to BASCA (the British Academy of Songwriters, Composers and Authors), asking them to take this issue to the PRS and insist on action to protect your revenues.

What Happened? 

A large US music service, DMX, has been granted licences by certain US publishers in exchange for licence fees paid direct to those publishers and not to the US societies. The effect has been to reduce the value of the US performing right for DMX to approximately 30% of what it was when the catalogues were licensed by the US societies. One major publisher (soon to be even bigger) was paid a seven figure sum by DMX for these rights. 

Crucially, the US publishers in question do not own the performing right in your work if you are a direct writer member of PRS. You, the writer, have assigned the performing right exclusively to PRS for Music. DMX is using your music without a licence from the rightowner – your society, PRS for Music.

Why does this matter? 

1. The value of the performing right has been reduced to 30% of the value of a society licence. 

2. The US publishers do not own the performing right in any songs or compositions written by direct members of PRS for Music – you granted that right exclusively to PRS for Music. 

3. It is unlikely you will ever see your share of these licence fees. 

4. DMX is a large US music service, part of Mood Media. DMX and Mood supply 580,000 commercial locations in over 40 countries performing PRS songwriters’ music (without a licence) to 100 million people every day (Mood Media’s own figures). 

5. DMX has no right to play the music of The Beatles, The Stones, U2, Pink Floyd, Coldplay, Amy Winehouse, Adele, Guy Chambers, Elton John, The Shadows, INXS etc etc ... you get the picture. But then we should leave DMX to sue those US publishers for selling them a pig in a poke. 

How was this done? 

Unlike most of the rest of the Western world, US writers and publishers grant their performing right to their society non-exclusively. This means that US music users can go direct to US publishers. 

DMX already had licences from the US societies but wanted to cut costs. They went to publishers and paid lump sums for direct licences and then terminated their society licences. Interestingly many US publishers did not renew once they saw their revenue had been eroded. The deals remain in place for other US publishers, especially those who took large upfront fees.
ASCAP and BMI sued and lost – they had a very inexperienced judge at first instance. Publisher representation on society boards makes it unlikely they will act without real pressure from the writers.

What can you do about it? 

UK writers: If you are a direct writer member of PRS for Music (or indeed APRA in Australia, IMRO in Ireland, SOCAN in Canada or any of the European Continental societies) you should write to your society, asking them what they propose to do about US publishers issuing licences for rights they do not own! The PRS Board is 50% publishers, so they need to be pressured by you to act in the best interests of the writers who are the life blood of music. 

US writers: Every US songwriter that is a direct writer member of ASCAP, BMI or SESAC (or their managers) should be looking at their publisher statements to see where their DMX performance revenue is itemised. If it is not there, ask your publisher if they signed one of these DMX deals. If they did, ask them to show you on your statement where you have been paid for the public performance of your work by DMX.

Useful email addresses 

PRS CEO Robert Ashcroft Robert.ashcroft@prsformusic.com
BASCA Chair Sarah Rogers sarah@tutti.co.uk
Also, as MEPs are debating European Collecting societies this month (September), your own MEPs --- and Francois Arbault (EU Commission Cabinet Member with Responsibility for IP),
francois.arbault@ec.europa.eu 

Text of the Judgment here

DMX Announcement: here".

This blogger has no prior knowledge of this and would appreciate any further information from readers, as well as from DMX, Mood Media, publishers, composers and responsible organisations.