Music Copyrights Can Be Gold Mines to Current Owners

Next time you hear someone use the expression “sold for a song,” consider how much a good song is worth these days: “As Time Goes By,” made famous in the 1943 film “Casablanca,” will earn more than $100,000 in royalties this year for the estate of Herman Hupfeld, the man who wrote the song 54 years ago and died in 1951. And “Blowin’ in the Wind” has earned an average of about $100,000 a year since Bob Dylan wrote it in 1962.

“That’s why people are ready to kill to get hold of song copyrights. There are people you’ve never heard of living in Bel-Air on royalties from music publishing,” said Chuck Kaye, chairman of Warner Bros. Music, which holds the copyrights on “Blowin’ in the Wind,” “As Time Goes By” and 250,000 others.

Warner is one of four music publishing giants--including Chappell & Co., CBS Songs and EMI--that account for the lion’s share of the industry’s estimated $750-million annual revenue.

The figure can only be estimated since most music publishers are either private companies or units of publicly held conglomerates that lump the earnings with those of their recorded music operations.

“Publishing” means the distribution of music in commercial form. Through the “Tin Pan Alley” era of the 1920s, music publishing primarily involved the manufacture and sale of printed “sheet music.”

However, with the advent of the phonograph record and other music-delivery technologies, the importance of sheet music as a promotional tool and revenue earner has decreased dramatically.

In the entertainment world, music publishing has long been considered the plain little sister of the more glamorous movie, TV and record industries. That image may be changing, however.

Singer Michael Jackson recently paid $47.5 million for ATV Music, which owned more than 4,000 copyrights, including 251 songs by the Beatles. The deal is reportedly the most expensive publishing purchase ever by an individual.

Ex-Beatle Paul McCartney’s MPL Communications has become a major force in music publishing by buying up thousands of copyrights, including such old standards as “Sentimental Journey” and “Autumn Leaves,” and the songs from such hit musicals as “Grease” and “La Cage aux Folles.”

Composer Andrew Lloyd Webber, co-author of “Jesus Christ Superstar” and “Evita,” has announced plans to make an initial public offering of his Really Useful Co. on the London stock market early next year.

The company owns the copyrights to the Webber musicals “Cats,” “Starlight Express” and “Song and Dance.” According to the music industry trade magazine Billboard, estimates of the amount that may be raised by the Really Useful stock offering range as high as $55 million.

The New York investment firm of Wertheim & Co. last year put together an investors’ group that paid about $100 million to acquire New York-based Chappell & Co., the world’s largest music publisher with about 400,000 copyrights, from Polygram, the European entertainment conglomerate.

“Some people see music publishing as a dull, nickel-and-dime business because publishers collect very modest royalty sums from thousands of copyrights they own or administer all over the world,” said Wertheim Vice Chairman James Harmon, who has been named chairman of the newly reorganized Chappell & Co.

Saw Consistency in Business

However, “We saw a business that was consistent, with many different and stable sources of revenues, that didn’t have the volatility of the other more glamorous areas of the entertainment industry, which didn’t require heavy spending and which was only going to increase with the new changes in the delivery of music, namely music videos and compact discs,” Harmon said.

“In fact, I would say it’s almost recession-proof--if you have a good year, you’re up 10%; in a bad year you’re just flat.”

Warner’s Kaye likens music publishing to “creative banking--if you invest wisely in a song or a songwriter you have income for 75 years” (the length of a copyright, as set by statute).

“Music is so subliminal,” said Kaye. “It floats around you everywhere--in the elevator, in airplanes--and the person who collects the money for that is the publisher.

“He ultimately distributes it back to the songwriter and he also pushes to get that music out there. His responsibility is to keep the copyright working.”

The publisher can either own or administer a copyright, or both. The difference is that the owner is the one who controls or licenses the use of song, and the administrator acts as the agent of the owner, usually for a commission share of the profits.

Even though a songwriter may not “own” his own song copyright, he is still entitled to royalties based on its use, unless he has specifically sold or signed away those rights. Writers may sell their copyrights for anywhere from a few hundred dollars to thousands or more.

Complex, Confusing Process

The collection and distribution of music publishing monies is a complex and sometimes confusing process primarily because it is handled by publishers and several “performance rights” and collection organizations whose responsibilities often overlap.

In general, the system works like this:

As a song is performed or played, royalties and fees are generated for each individual performance, each sale of a recording or each minute of broadcast use.

Each time a record is sold, the songwriter is entitled to royalties known as “mechanicals.” Under U.S. law, the rate of payment is fixed by the Copyright Royalty Tribunal.

The current ceiling on royalties is 4.5 cents per song, or 0.855 cent per minute of playing time, depending on whichever is larger. The rate is scheduled to increase to 5 cents or 0.95 cent per minute in January.

Royalties on record sales are paid by the record companies to the publishers, which then split the income with their songwriters at a contractually agreed-upon rate.

Although publishers collect, literally, pennies per song, “mechanicals” can add up to a huge sum in the case of a hit album. For example, Michael Jackson’s “Thriller” album sold a record 37 million copies, according to CBS Records. Jackson wrote four of the songs on the album.

Assuming he received the maximum rate of 4.5 cents per song, his publishing income would be 18 cents per record, or $6.6 million. Jackson owns his own song copyrights through his company, Mi-Jack Music, which is administered by Warner Music for an undisclosed fee.

Warner is a unit of Warner Communications Inc.

Monitored, Collected

A second source of publishing revenue is created each time a song is performed in any medium--radio, TV, concerts or night clubs. This “performance income” is monitored and collected primarily by two competing performance rights societies--the American Society of Composers, Authors & Publishers and Broadcast Music Inc.--to which most songwriters and music publishers belong.

ASCAP and BMI license their repertoire to all music users--primarily broadcasters, but also hotels, bars, circuses, ice shows, concert promoters and companies such as Muzak--for the most part on a blanket basis.

The users pay a yearly fee and “our music is then accessible for them to play as much as they wish,” ASCAP President Hal David said. “We monitor the performances and pay our members based on the amount of usage.” That means that the more a song is played or performed, the more the songwriter and his publisher receive of the total collected.

Acknowledging that it’s “impossible to monitor every performance of every work,” David said ASCAP “scientifically” monitors 60,000 hours of radio programming each year and 30,000 hours of TV in the United States and Canada.

Annual license fees range from a few hundred dollars for a small independent TV or radio station to more than $8 million for a major network such as NBC, according to David, who says that ASCAP this year will collect from subscribers about $245 million in performance income for its 37,000 members.

The money is then distributed on a 50-50 basis to the songwriters and their publishers--less 17% for ASCAP’s cost of operation.

Advertisers Also Pay

A third major source of publishing revenue comes from the licensing of music to advertisers for use in commercials and to movie companies for use in films.

The collection system puts the music publisher in the center of the money flow. “Whatever facet of entertainment you’re in--radio, TV, records or movies--you have to use a piece of music, and to do that you have to contact me, you have to get a license from me, the publisher,” Chuck Kaye said.

“In a very real sense, I’m in almost everyone’s pocket in the entertainment industry.”

However, Russ Sanjek, author of a book on music publishing titled “From Print to Plastic,” claims that it’s the record companies that wield the real power these days.

“The chief way of getting a song distributed to the public today is the phonograph record,” said Sanjek, who retired as a vice president of BMI in 1981 after 40 years with the company. “Writing a great song doesn’t do you any good unless someone records it.”

“The record companies dominate the music business today the way the publishers did half a century ago,” he said. “It used to be that no record company would record a song unless a publisher had already agreed to work it.

“Now it’s the other way around--publishers stand outside the doors of the record companies hoping to get their songs recorded.”

Sanjek says the record companies’ domination of the business hasn’t been a boon to songwriters in general, primarily because the companies are releasing fewer albums each year, with fewer songs on each album.

According to industry statistics, the number of new albums released has declined by more than half in the last 20 years. “That means less opportunity for songwriters,” Sanjek said.

Promotional Work Cited

Warner’s Chuck Kaye doesn’t dispute the record companies’ clout, but he counters that publishers perform important services for their writers that record companies don’t, especially in the area of promotion.

“We have people who work for us who do nothing but exploitation--contacting record and movie producers, merchandising houses, advertising people. They are constantly romancing creative directors at ad agencies all over the world, because if you get one of your songs on a United Airlines commercial you’re talking about $200,000 to $300,000 in income over three years.”

Last year, Warner licensed Cole Porter’s “Anything Goes” to the Egg Council for its “Anything Goes with Eggs” commercials and George Gershwin’s “I Got Rhythm” went to Toyota. The company currently is negotiating with American Telephone & Telegraph for commercial use of “As Time Goes By” and with Volvo for Gershwin’s “Rhapsody in Blue.”

Jay Morgenstern, Warner’s executive vice president and general manager, said he recently licensed “Tea for Two” to a small appliance manufacturer in New York who came up with a device for a teapot, “a miniature calliope that plays the song when the steam rises.”

Teapots Big Gift Item

“Teapots are one of the biggest gift items there is,” he said. “I don’t know why that is, but this guy expects to sell a couple million of these things over the next five years and we get $2.50 a pop, which is a lot better than 4.5 cents a record.”

According to Kaye, Warner currently is in a running battle with the movie studios over the use of music in films. “The usage of our copyrights in movies is immense and we’ve taken a bold stand,” he said.

“Motion picture companies today, my own included, want to pay a flat fee for the use of a song. They say, ‘Here’s X, don’t come back and bother us.’ But our position is very strong--we’re in a royalty-bearing business, so we want a royalty on the sale of videocassettes.”

Kaye has also been pressing ASCAP and BMI to come up with a formula for collecting performance income from such events as the recent Live Aid concert, which, he said, “has more historic implications for music publishing than I can grasp at the moment.”

“Because of Live Aid there are entrepreneurs who are going to get four acts and put on a worldwide concert. It can be done now, it’s proven to be successful. The question is, how much money is going to be generated? If we have one song performed on that show, what do we make? If Madonna sings eight songs that she wrote and that we publish, what’s it worth to this company--$8,000, $50,000? I honestly don’t know.”

International Complications

ASCAP’s Hal David said his organization is trying to come up with answers for Kaye’s questions. “The problem is, every country has its own ASCAP or BMI,” he said.

“At this moment we’re working out international understandings as to where we would be paid--would it emanate from where the concert was performed or at the point of reception? If it’s not settled, the performance income could dissipate through the cracks. There are so many interests involved internationally that it’s hard to negotiate, but by end of next year, hopefully, it will be worked out.”

In the meantime, Warner is busy trying to generate income from Bob Dylan’s performance of “Blowin’ in the Wind” at the close of Live Aid. “That rejuvenated the copyright,” Kaye said. “I immediately sent telexes to our people all over the world telling them to start servicing local talent with the song, trying to get them to record it, saying, ‘The song is brilliant, the time is now.’ ”

Kaye said he expects to see “a performance upsurge” of “Blowin’ in the Wind” in the next year and a half that could net Warner Music between $75,000 and $150,000.

“This is really what a publisher’s job is,” he said, “turning little pebbles into the Rock of Gibraltar.”

Here is how royalties are still paid on one memorable song, even though it was written 54 years ago: 1. In 1931, Herman Hupfeld writes the song “As Time Goes By.” Immediately, his music publisher, Warner Bros. Music, begins selling printed “sheet” music of the song through music stores, splitting the profits with Hupfeld at a contractually agreed-upon rate.

2. In 1943, Warner Bros. Pictures pays the publisher a fee to license the song in the movie “Casablanca.” Warner Music splits the fee with Hupfeld.

3. Spurred by the popularity of the movie, “As Time Goes By” is recorded by hundreds of artists over the years, most recently by Willie Nelson for his 1983 album “Without a Song.” Each artist’s record company licenses the song from Warner at the applicable statutory rate--2 cents or 4.5 cents per record sold, depending on when the recording was made. These “mechanical” royalties are paid to Warner, which then splits with the estate of Hupfeld, who died in 1951.

4. “As Time Goes By” is performed in night clubs and concert halls all across the country and the various recorded versions are played thousands of times on thousands of radio stations. ASCAP monitors the number of times the song is played, collects “performance income” and distributes it to the publisher and Hupfeld’s estate.

5. “Casablanca” is broadcast constantly on network and independent TV stations, which have licensed ASCAP’s entire repertoire for an annual blanket fee. ASCAP monitors the number of times “Casablanca” is broadcast and pays the publisher a proportionate amount of the total collected. The publisher splits with Hupfeld.

6. Every time a videocassette of “Casablanca” is sold, Warner Bros. Pictures pays a royalty to Warner Music and Hupfeld’s estate.

7. This year, AT&T; pays a fee to license the song for use in a TV commercial for its line of home computers. Warner splits the fee with Hupfeld’s estate.