Time for Vevo to Pay Up?

The online video service reported revenue of $150 million in 2011. So why aren’t independent publishers and their songwriters getting a cut?

Many people read with excitement the news that the online video service Vevo earned $150-million dollars in revenue in 2011.  Any healthy new source of music earnings is welcome in an industry in need of positive news.  On the heels of the recent news that Vevo supplies roughly 40% of the content streamed on YouTube, we should all be encouraged by this new monetization of music videos. 

What has gotten far less attention is the fact that independent publishers and the many songwriters we represent, have not received any money from Vevo. Ever. That's right.  Vevo: $150 Million.  Independent publishers and songwriters: Zero.  

Vevo doesn't pay us because the major record companies have warranted that they have the right to license songs to Vevo on behalf of publishers, backing up that claim with an indemnity.  So, Vevo pays the major record labels, and the record labels take on the responsibility to pass through an accounting to the publishers, as they do with iTunes track sales.  The problem is, the labels don't do that.  They simply sit on the money.

To license videos to Vevo and other outlets, record labels generally rely on unclear language embedded in a section of their artists’ recording contracts called the Controlled Composition Clause.  The Controlled Composition Clause applies to artists with respect to songs that are written specifically for their records, hence "controlled" by the artist and/or associated parties (producers, co-writers, etc). The clause does not apply to covers of songs that are written by unrelated third parties or, in many cases, samples of third party work.  

The Controlled Composition Clause purports to give labels a free synchronization license to exploit music videos containing controlled songs for promotional uses i.e. uses for which the labels are not directly paid. This language was originally meant to cover MTV’s airing of videos on television.  Labels are apparently now using it to avoid paying indie publishers for Internet streams of music videos e.g. Vevo. 

This logic is inherently flawed.  Videos may have initially been considered purely promotional back when MTV was created, and labels were not paid by broadcasters for airing them.  Now, they are a significant source of revenue for record companies.  So there is some question as to whether the labels have the right to grant a license to Vevo for controlled songs.  Songs Music Publishing represents more than 300 songwriters, many of whom are recording artists.  None of the Controlled Composition Clauses to which our writers are subject expressly grants a label a gratis license for Vevo videos.

What is clear is that labels do not have the right to issue a gratis license for videos containing songs that are not controlled, to Vevo or to anyone else.  Without a contractual link between a label and songwriter, it follows there can be no grant of music video rights.  Synchronization licenses are not compulsory.  Yet, labels are doing it anyway.  I see uncontrolled songs that we publish in videos broadcast on Vevo, and we are not getting paid for that. It makes no sense. 

The major record labels, which are all owned by corporations that also own publishing companies (and two of whom have equity stakes in Vevo) receive money from Vevo.  So, major publishers are, directly and/or indirectly, getting paid royalties by major labels.  Meanwhile, independent publishers are not getting anything.

There has been a lot of attention paid recently to the groundbreaking settlement reached last quarter between the National Music Publishers Association (on whose board I sit) and YouTube.  Independent publishers will now collect a healthy share of net ad revenue from YouTube for user generated content.  Ironically — and contrary to popular belief — the agreement does not cover Vevo.  

To illustrate, my company publishes a current Top 10 song, "Rack City" performed by the rapper Tyga.  We are getting paid directly from YouTube for a video that a kid made of himself lip-synching the song with his grandmother dancing in the background.  Somewhat nonsensically, we are not getting paid from the official video featuring Tyga that was produced by Universal Records. Seems illogical to me.

Are record companies to blame for relying on shoddy language to withhold royalties, or is it Vevo's responsibility to insure that the songwriters that helped it pull in $150 million this year share in their success?  Whatever the case, this issue of fairness must be addressed.