Direct Licensing: ‘The Fault Is Absolutely With The PROs.’

Direct licensing is not a difficult issue to solve. The difficulties arise when trying to get all stakeholders to work together to find an easy solution.

As the wording suggests, artists who write their own songs own them. If more than one author is involved, each one owns a piece. People can do whatever they choose with what they own. Being able to do as one pleases with something is the very definition of owning it.

What sounds fair and simple turns out to challenge in the live entertainment industry, where major changes were set in motion by the discovery that songwriters could direct license their copyrights to concert and festival promoters.

Promoters are required to pay a fee for the usage of music, and instead of paying that fee through a blanket license with a performing rights organization (PRO), they are now having to increasingly license those rights directly from the rightsholders (songwriters and music publishers).

The main reason for rightsholders to choose direct licensing over being represented by a PRO is the fact that many PROs have been granting promoters kickbacks on the fees they pay.

These kickbacks should have been taken off the overhead of the PRO. Instead, they were taken from the rightsholders’ share, effectively shortchanging them. Additionally, the size of management fees charged by the PROs can be significant.

Given these substantial deductions, it is little wonder rightsholders are looking for other solutions.

More and more publishers, songwriters and performing artists who write their own songs are choosing to bypass the PRO network and license directly, to make sure they’re getting what they deserve. This trend sparked the formation of PACE Rights Management, a company that takes care of the necessary paperwork on behalf of rightsholders.

Pollstar spoke with one of PACE’s founders, Adam Elfin, who explains: “When a songwriter signs an agreement with a PRO, they assign around 12 rights to them: live, broadcast, audio-visual etc.

“You can reassign individual rights within a work – just one of those 12 rights – and leave the other rights exactly where they are. So you can reassign live, but that won’t affect your radio or TV or any of the other rights.

“It is also possible to reassign only certain rights from certain works, so if you don’t want to reassign Song 2, but you want to reassign Song 1, fine. Equally, you can reassign only for certain territories and certain periods. So, for example, if your tour is going to Spain, but not to Portugal, then you reassign the rights for Spain, but not for Portugal. Once a reassignment period ends, the rights automatically revert back to the PRO.”

Many PROs across the globe, such as ASCAP, BMI and SESAC in the U.S. or APRA in Australia, have long since had a reassignment mechanism in place.

Since the EU directive on collective rights management (CRM) became law in April 2016, all PROs within the EU also need to allow their members to reassign individual rights.

Promoters are legally obliged to pay rightsholders. That holds true for direct licensors as well as writers that leave their rights with their respective PRO. But there needs to be a mechanism by which the money is channeled accordingly. If, for example, PRS maintains the 3 percent fee for festivals despite some acts licensing directly, the promoter will suffer increased license fees for live rights, as the promoter still needs to obtain a license for the rights that are getting direct licensed.

“We’re not looking for festivals or promoters to pay more for the rights that they’re licensing than they currently do,” Elfin explains. “What we’re talking about is how the pie is divided. The problem is the tariff and distribution policy of the PROs. The way they decided to apply it is not flexible. One of the many problems is – and the PROs are trying not to understand or accept this – that you have a statutory right, a legal right, for rightsholders to direct license their own rights if they so wish.

“That’s the law. On the other side you have the PRO’s tariff and distribution policy, which is not the law. It’s just their terms and conditions for licensing the rights that they have. You can’t have a situation where your terms and conditions are not compliant with legal rights.

“That’s what promoters need to understand. The PRO’s policies are not the law.”

What needs to happen, according to Elfin, is that the PRO’s tariff and distribution policies with regards to festivals are constructed in such a way that they take into account that certain rights will be direct licensed, and therefore the PRO won’t have those rights. Elfin likes to use beer as an analogy.

“Let’s say the PRO is a supplier of beer to your festival. You do a deal with them that says, for 1 million Euros they will supply beer to your festival. On the day of the event, they show up with a small barrel of beer. The promoter goes, hold on, that’s not going to supply our festival, that’s not worth a million Euros.

 “And the PRO goes, sorry, the agreement says you’re going to pay us a million Euros, but it’s not stipulated how much beer we need to supply to you. That’s what the tariff and distribution policy of most PROs says: you have to pay us a certain amount of money irrespectively of what we are supplying to you.

 “For several years now, we’ve been suggesting to the PROs that what we need to establish are mechanisms, protocols etc. that work for all stakeholders: the rightsholders, the festivals and promoters, and the PROs. It’s not a difficult thing to sort this out. We should all sit down at a table, have discussions so that it’s smooth, efficient, easy and cheap for all concerned. This really isn’t difficult, we’ve already got a mechanism to achieve this.

 However, according to Elfin, “The PROs don’t want to do that, because that’s eroding their power, authority, whatever it is. Irrespective of the fact that this actually is in the best interest of their members, the rightsholders, who they should be representing.

“The fault is absolutely with the PROs.”



The solution is easy: a spreadsheet, and a very simple one at that.

Says Elfin, founder of PACE Rights Management, a company that takes care of the paperwork for direct licensors: “We think the easiest, cheapest, most transparent and fairest way for festivals, is to base the rights income on the fee that’s being paid to the performing artist.

“So if the fee is 100,000 and the Tariff rate in the territory is 5 percent, then the amount that’s paid for the rights performed by that artist is 5,000. If they perform 10 songs, then each song gets 500. Say, there’s one writer and a publisher, and it’s 50/50, fine: each get 250. It’s proportional and super easy. Everyone can understand it. It’s completely transparent.

“It’ll be very quick and cheap to calculate, and it’s fair. Currently the system is so opaque, rightsholders don’t know if they’re getting the correct rights income or what’s been deducted from it.”

PACE’s method would also value the rights of artists fairly.

“The value of rights performed at a festival, or the same stage at a festival, is obviously not the same. The promoter of the festival has already assigned a value to each artist, by the fees they’ve agreed to pay. They’ve already weighted it.

“We think it’s easy to use the artist fees [as a yardstick]. PROs might say they don’t have that information. Then change the system accordingly!” SUISA in Switzerland already collect this information as standard.

Pollstar reached out to Germany’s GEMA, the UK’s PRS For Music and Buma/Stemra from the Netherlands.

While all three societies allow for the reassignment of certain rights, their flexibility, the restriction to entire categories of rights and speed still seem to be an issue.

Buma/Stemra allows its members to reassign their copyrights in five different categories, one of which is live performances. If they want to take advantage of this opt-out system they can do so on an annual basis subject to at least three months’ notice, before Oct. 1 of each year.

“Only the rights covered by the selected categories can be excluded. Exclusion is not allowed for individual works (titles) or users,” a spokesperson for Buma/Stemra explains.

Buma/Stemra’s new general festival tariff, in place as of Jan. 1, 2017, is tiered as follows: “If more than two thirds of all worldwide repertoire is represented by Buma/Stemra, the rate is 7 percent, if the maximum of the total festival program is two thirds of the worldwide repertoire represented by Buma/Stemra the rate is 5 percent, and when the maximum is one third of the total duration of the program the rate is 3 percent.”

If only one or two acts at a festival decide to direct license, chances are, Buma/Stemra still represents more than two thirds of rights, which would mean the festival organizers still had to pay the 7 percent rate.

What is more, if Buma/Stemra only controlled 1 percent of the rights being performed, it would still demand a 3 percent rate, which still represents 42.86 percent of the full 7 percent rate.

The PRO’s spokesperson emphasized that “the new general tariff is not imposed on the live market. Our general tariff is the result of joint efforts; this tariff is constructed in collaboration with live music and festival organizers such as Mojo/Live Nation, independent promoters and the Dutch venues such as Paradiso.”

It should be noted that promoters, festivals and venues in The Netherlands still receive a share of the rights license fee deducted from concert settlements.

PRS For Music explains in a statement that its “members can withdraw their live public performance rights by giving written notice and an indemnity to PRS in respect of the works/territories they wish to be directly licensed. PRS will then issue a copyright assignment to the member(s) they have the rights/works that they need to directly license.”

GEMA allows for the reassignment of certain rights categories since the ’70s. It also requires a written notice of termination for the desired categories from rights holders six months prior to the end of the calendar year.

If rights holders want to reassign their live performance rights, they lose representation by GEMA for those rights across all their works. The reassignment of individual works is not possible. What is more, if songs are then covered by other bands at other concerts or festivals, rights holders usually won’t be aware of it, “which is why there are PROs in the first place,” according to a GEMA spokesperson.

Elfin responds that it is the promoter’s not the rightsholder’s job to make sure licensors are paid.

“If you don’t get it licensed, you’re breaking the copyright law,”

GEMA also said that its remuneration refers to the revenue generated through ticket sales, whether or not a promoter uses works that have not been assigned to GEMA. Which is exactly what Elfin says needs to change.

GEMA’s position seems to be that they are charging a tax on ticket sales, which is not true, it’s a license fee,” Elfin said. “And that license fee can only be applied to rights that they have to license. Maybe we should introduce GEMA to their regulator, the DPMA [Deutsches Patent- und Markenamt].”

Elfin said he thinks festivals and promoters should join the table to work out a functioning system. Some promoters are currently taking the stance not to book acts that direct license.

“The thing is, they can’t,” says Elfin.

“You’re asking the agent or the performing artist to guarantee that none of the rightsholders will direct license. The agent doesn’t represent any of the rightsholders, and the performing artist cannot guarantee that, because they don’t own the rights. The only way for a performing artist to guarantee that no direct licensing will happen on their set, is to only perform public domain works…Happy birthday to you!”

You can have a situation at a festival where a band is performing a cover. And the rightsholders of the cover decide to direct license. The band has no control over that. For example, if a band performs a Beatles cover, they won’t have any control over whether Sir Paul McCartney or Sony/ATV decide to direct license.

Equally, a band whose biggest hits have been written by songwriters that aren’t in the band has no control over whether those co-writers and/or their publishers decide to direct license. All they could do at a festival to avoid any direct licensing situation is not play their biggest hits.

Elfin explains, “We know that there are some headliners at major festivals that are probably going to direct license, because we’re in those conversations. And then what? Are you going to tell the headliner at your festival that they aren’t going to perform? That’s going to be an interesting conversation.”