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DMX Wins Major Direct Licensing Royalties Case; May Fundamentally Change Performance Royalty Landscape

A court decision this week may fundamentally change how composers, songwriters and publishers are paid royalties for public performances of their music, as the precedent created has laid the groundwork to shift many more music performances out of the hands of ASCAP, BMI and SESAC and into direct license deals with publishers and writers.

After nearly 30 months of litigation, DMX, Inc., a leading provider of commercial music services, won its rate court proceeding against performing rights organization BMI. In a July 26 opinion and order (click to download), federal district judge Louis Stanton of the Southern District of New York ordered BMI to provide DMX with an adjustable fee blanket license (AFBL) that allows DMX to make deductions from its BMI license fee bill for performances of music that DMX licenses directly from music publishers and writers.

This has the direct effect of creating a financial incentive for DMX and any other music user who receives the AFBL license to license performing rights directly from publishers and writers. Local television stations have already requested the AFBL, and other companies are expected to follow soon.

DMX’s accounting to publishers and writers for direct licensed works features quarterly accounting 45 days after the end of each quarter, as opposed to the typical performing rights organization schedule of 9 or more months after a performance. DMX also provides direct counts of the number of plays of each work.

The precedent has the potential to fundamentally change the landscape of performing rights in the US, as currently most music users use a blanket license from the US royalty societies which provides no financial motivation to direct license music. The AFBL gives copyright owners the ability to directly license their own content when they determine it is in their interest to do so, and is expected to put pressure on performing rights organizations to reduce administrative fees and increase transparency as they compete to offer both music users and copyright owners better value and service.

Ron Gertz, Chairman of Music Reports, Inc. which handles licensing and royalty administration for DMX said, “This is a historic decision that is going to provide real opportunities for music publishers to promote their catalogues directly with music users, increase their revenues and obtain much more transparent accountings than ever available before.”

Christopher Harrison, DMX’ General Counsel said, “DMX believes that securing licenses directly from music publishers presents an opportunity for the publishers – and the writers they represent – to receive greater royalties through DMX’ increased use of their musical compositions. In addition, DMX’ royalty reporting is completely transparent, allowing publishers to see exactly how many times each one of their songs was performed on DMX’ service and the resulting royalty payments.

R. Bruce Rich, senior partner and co-head of Weil, Gotshal & Manges’ IP & Media practice, who represents DMX, describes Judge Stanton’s decision as “a gratifying affirmation of the role of the BMI rate court as a means of establishing meaningful alternative license structures to the blanket license. The Court’s implementation of a sensible crediting mechanism against blanket license payments otherwise owing where a user such as DMX has made significant investments in direct licensing should have broad application for other industries.”

BMI issued a statement late yesterday stating, “We strongly disagree with the court’s decision in the DMX case, which ignores the long history of Performance Right Organization (PRO) licensing agreements in the background music industry. We are examining the decision in depth and evaluating the basis for an appeal.”

When a music performance is direct licensed, a deal is struck between the broadcaster and the copyright owner of the music that represents a direct payment for performance royalties, and those performances no longer are licensed through the performing rights organizations. These direct payments can take the form of a single lump-sum buyout of the performing right or a series of payments that are paid as long as the program is broadcast.

The creation of a widely available broadcaster direct licensing credit for individual works has the potential to profoundly affect how composers and songwriters are paid for public performances, as many more broadcasters could be in a position to realize significant cost savings by direct licensing the performance right directly from composers or as part of the composer’s agreement with a production company.

The resulting shift of the performing right licensing process away from royalty societies and into individual, private deals with production companies, music libraries and composers could create major changes in how composers and songwriters are paid performance royalties for their music as private negotiations by individual copyright owners replace collective representation by the performing rights societies. For example, production companies that own copyright as a result of composer work-for-hire agreements could be paid a direct license fee by one or more broadcasters for score music they own. What portion of those direct license fees would be payable to composers depends entirely on the individual composer’s agreement with the production company.

Music libraries could also find themselves in the position of being potential middlemen in negotiations for direct license payments with production companies, leaving composers dependent on whatever language may be in their agreements with music libraries to determine what portion of direct license fees, if any, is paid to the composer. So-called “retitling” libraries who do not own copyright may represent a better option for composers in this situation, since they do not own copyright and cannot grant a direct license unless their contract specifically gives them the ability to do so.

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