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Music Publishing 101, Part 2: Forming a publishing company

From a legal perspective, the formation of a music publishing company is, in most respects, very similar the formation of any other type of company, except that the documentation is tailored specifically for the business of music publishing. 

The first step in the formation of any business, including a music publishing company, is to determine what type of business entity you desire to form.  There are four basic forms any business can take:

  1. Sole Proprietorship
  2. Partnership
  3. Corporation
  4. Limited Liability Company

With the exception of a sole proprietorship, these entities can take on several forms, such a a limited partnership as opposed to a general partnership, an S-Corporation as opposed to a C-Corp, and a member managed LLC as opposed to a manager managed LLC, just to illustrate a few of the iterations.  You are strongly advised to seek the counsel of a qualified entertainment attorney and a music business accountant prior to establishing your company.

The decision as to which type of entity to create impacts the liability to which the individual members of the entity can be exposed.  In a partnership, for example, each individual member of the partnership is liable for the actions 331466_pianoof the other partner or partners.  Of course, a sole proprietor is liable for his or her own actions as well.  Only corporations and limited liability companies shield the indivudal members from liability impacting their personal assets.  For this reason, when forming a music publishing company, it is most frequently advised that one of those two entities be used, as publishers are often the subject of copyright infringement actions, among other things.

The choice between a corporation and a limited liability company is frequently a personal one.  The corporation is a more formal structure than the the LLC, involving the selection of a board of directors, a president, sometimes a vice president, and a secretary and treasurer.  The limited liability company, on the other hand, can take many forms.  It can be member managed, similar to the management style of partnership or it can be manager managed, either in simple arrangement where one person acts as a manager, on in a configuration more like the corporation, where there are individuals serving in the various roles of president, vice president, secretary and treasurer.  It is this greater flexibility of management that spawns the popularity of the limited liability companies in today’s culture.  One should not be so quick to decide, however, without the input of a good tax consultant and/or attorney.

Once a decision is reached as to the type of business entity the music publishing company will take, it will be necessary to determine a name for the publishing company.  This is where forming a music publishing company differs somewhat from other businesses, because of a music publishing company’s interaction with the major performing rights organizations (PRO’s), primarily ASCAP, BMI and SESAC.  Whereas a songwriter can only affiliate with one PRO at a time, a music publisher affiliates with all three if it intends to conduct significant business.  In order to submit an application, each PRO requires, among other things, that a music publisher give three choices for names in order of priority.  So, when choosing a name for your music publishing company, bear in mind that you will need at least nine variations in order to submit applications to the PRO’s.

To illustrate this point, consider the various entities used by Sony ATV Music Publishing Nashville, a major player in the Nashville music publishing arena since its purchases of Tree Publishing and Acuff Rose Music merged two of the giants in the history of the Nashville music industry.  One recently charted song by Taylor Swift, Our Song, is owned in part by Sony ATV’s BMI publisher affiliate, Sony/ATV Tree, BMI.  Another song on Billboard’s country single chart this week is Rascal Flatt’s Take Me, which owned in part by Sony ATV’s ASCAP affiliate, Sony ATV Tunes, ASCAP.  Finally, Sony ATV also has a SESAC affiliate, which goes by the name Sony ATV Sounds, SESAC.  A closer examination reveals that each of these entities are separate entities, probably owned in whole or in part by the parent conglomerate.  As a side note, Sony ATV Music Publishing Nashville was recently name country music publisher of the year 2007 by all three PRO’s, ASCAP, BMI and SESAC, making it the first publisher in history to do so.  Read about it here.

You’ll note that Sony ATV uses a different, creative variation of the name for each PRO affiliate, a pattern often followed by other publishing houses, such as Warner Chappel Music, which has variations such as WBM Music SESAC, WB Music ASCAP, Warner-Tamerlane Publishing, BMI, and Warner Chappel SOCAN (a Canadian PRO).

Smaller publishers may not wish to follow the course of Sony ATV by maintaining separate limited liability companies for each publisher affiliate and parent LLC, as this can lead to greater expense in the formation of the company.  Rather, one option would be that one entity can be used for the parent company, and operate subsidiaries under assumed names for each of the publishing affiliates.

Once you’ve determined the names to be used and the types and numbers of entities you’ll be using, the next step is to prepare and file the appropriate documentation with the secretary of state in the state you’ll be operating your business.  Information about formation of a business entity in Tennessee is available from Tennessee’s Secretary of State.  Then, in Tennessee, you must register the entity in the Register of Deeds office for the county in which your principle place of business resides.  Next, you’ll need to obtain a Taxpayer Identification Number from the IRS by filing Form SS-4.  Finally, you’ll need to apply as an affiliate at each of the following PRO’s:  ASCAP, BMI & SESAC, assuming, of course, that you intend to contract with writers from each of these affiliates.  You’ll note that SESAC has a different process than ASCAP or BMI in that the process is more selective and requires that you initiate contact with their Publishers Relation Staff prior to being reviewed for affiliation.

You might also want to explore joining an organization such as the National Music Publisher’s Association, which owns and operates the Harry Fox Agency, an organization that serves as the clearinghouse for the collection and distribution of mechanical and digital license fees.

After this, you need to begin the process of developing agreements that will be used to sign songwriters to your various affiliate companies.  Work with a good entertainment attorney to customize and draft exclusive songwriting agreements and single songwriting agreements as an basic first step in this process.  Then, you’re ready to start scouting talent!

This article is intended as a basic outline of the steps required to form a music publishing company.  It is not intended as, and should not be substituted for, the advise of a good entertainment attorney, which should definitely be retained and consulted prior to starting this entire process.  Expect to spend somewhere in the range of $5,000-10,000 in various legal fees to complete the entire process.

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Music Publishing 101, Part 1: A brief history

This blog series will explore music publishing, giving a little bit of history and outlining the basic steps necessary to form a music  publishing company.  Part 1 looks at a brief history and background of music publishing.

Modern music publishing in the United States can trace its roots to “Tin Pan Alley,” the name given to a grou116962_come_play_my_songp of sheet music publishers who collected on West 28th Street in New York City in the late 19th, early 20th Century, when names like Irvin Berlin and John Philip Sousa were the leading composers.  This coincides roughly with the invention of introduction of Thomas Edison’s Gramophone and the phonograph cylinder.    Tin Pan Alley publishers were concerned mainly with selling sheet music and piano rolls.  The most dramatic shift in popularity from printed music to recorded music did not occur until the development of the “talkie,” when The Jazz Singer was released in 1927.

In 1914, ASCAP was formed to protect the copyrighted music compositions of its members.  The organization expanded with the introduction of the new invention called radio in the 1920’s.  Because owners of radio stations did not like paying what they considered exorbitant license fees to ASCAP for the performances of musical compositions, the broadcasters formed their own organization, BMI (Broadcast Musicians Inc.) in an effort to drive the license fees down.

Modern music publishers are in the business of engaging composers, i.e., songwriters, and obtaining ownership of their copyrights.   In exchange for the copyright, the music publisher agrees to exploit the composition to potential licensees (a process generally referred to as “song plugging”), administer the copyright, collect the mechanical royalties and license fees, and distribute a portion of the collected monies to the composer.

Most music publishers will offer promising composers what is called an “exclusive songwriter agreement” in which the composer is obligated to provide the publisher with a minimum number of commercial musical compositions within a certain period.  The composer generally receives a “salary,” which is fully recoupable from future royalties.   Again, the publisher gives up the copyright in the musical composition in this type of deal. 

Another, less common deal type, which is reserved for songwriters who have some clout in the industry, is called a “co-publishing deal”   This arrangement is usually very similar to the exclusive songwriting arrangement discussed above, except that the songwriter only gives up half of the copyright in the musical composition and retains the remaining half. 

Less often, music publishers offer “single song agreements” to composers who may have one or two compositions that interest the publisher, but not enough that it feels warrants a longer term commitment.  Most major publishing houses do not offer these type of agreements.  They are generally the purview of independent and upstart music publishers.

There are myriad gradations of these deals, and the terms in any one agreement can be as varied as an artist’s palette of colors, so if you are interested in music publishing agreements, please contact a reputable music attorney prior to obligating yourself or giving up a copyright.

Tomorrow’s installment of Music Publishing 101 will discuss the basics of forming a music publishing company.

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Taming the “Big Bad Record Company”

What songwriters can do to improve their negotiating strength in an entertainment deal

A very common theme among my songwriter and artist clients is the subject of how they were “ripped off” by their record label and/or music publisher (for purposes of this general publication, I’ll refrain from using the actual, more vivid terms often used to describe the process!). They often feel as if they have not received the benefit of the bargain.

As an attorney who negotiates deals for these types of clients on a routine basis, however, I am frequently placed in the precarious position of walking a tightrope between trying to obtain as many concessions as possible from the opposing party while not pushing so hard as to, in my clients’ words, “blow the deal.” My clients want the best deal possible, but are very rarely willing to walk away from a deal if the terms and concessions are not good. As any good negotiator can tell you, your deal is only as good as your best alternative to the negotiated deal.

In some ways, this willingness to settle for less in order to salvage the deal feeds the very beasts songwriters and artists need to tame, i.e., the record companies and music publishers. Artist think that record companies have the ability to give them instant stardom – in fact, that is the dream of almost every struggling songwriter and entertainer. On the opposite end of the spectrum, however, record companies most certainly know that many artists are willing to “sell their soul” in order to obtain a deal.

The infamous controlled composition clause is the perfect example of how far an artist is willing to go for “the deal.” The United States government requires that a copyright owner be paid a minimum statutory rate for the mechanical reproduction of their creative work. The record label, however, turns to the artist and says, “Despite the government minimum, will you consent to accept only seventy-five percent of that to which we’re required to pay in order to get a deal?” “Furthermore,” the record label says, “we’ll only pay you seventy-five percent of statutory rate on ten compositions, no more, o.k.?” As incredulous as those questions might sound, the majority of artists throughout the history of the controlled composition clause have answered “yes” to those questions. From the record companies’ perspective, this negotiation process is just good business.

This disregard for the government’s requirements does not often occur in other industries outside of the music industry. If a company interviewing a potential employee suggested that the employee agree to an hourly rate that is less that the minimum wage, the employee would balk, and most likely the company would be reported and fined. The difference, of course, is that the employee in this scenario has a multitude of alternatives, as there are numerous companies to which he or she can apply that will pay minimum wage. That is not the case, of course, with entertainers. It has been said one’s odds of getting struck by lightning are greater than the odds of getting a record deal! Most entertainers are desperate for “the deal.”

So, the question then becomes “What is the deal worth to the songwriter or the artist?” Is it worth giving up possession of your songs without the possibility of reversion in order to receive a monthly draw in order to get that publishing deal? Is it worth giving up twenty-five cents on every mechanical dollar earned in order to receive a cash advance and the remote possibility of future royalties from a major label in order to get that record deal? If the songwriter or artist has no alternatives, then the answer to those questions may very well be yes. Or, it may be that no deal is worth giving up such concessions. The answers to these questions are as diverse and individual as the artists and their particular situations.

In order to better understand their own position, then, songwriters and artists should carefully consider their “sacred cows”– i.e., the points on which there is no negotiation – prior to entering negotiations. The difference I have witnessed between fresh young songwriters and experienced writers who have been around the Row for a while is the wisdom to know what is important to them and what is not. If a songwriter has a young child, she is likely to be more willing to walk away from a deal without a reversion clause than is a single songwriter with no family obligations. The recording artist who has a track record of selling more records the first time out than any other artist is in a better position to walk away from a deal that includes a controlled composition clause. The potential recording artist who has offers from three major labels is in a better position to obtain a higher royalty rate than the artist who has been offered a development deal.

The point is, the songwriter and the artist should think about what is important to them in terms of a deal and carefully consider their “bottom line,” the point at which they are willing to say “”no deal.” These issues should be discussed with an experienced entertainment attorney. Develop two lists with your attorney: (1) a wish list of provisions for improving the deal and (2) a “drop dead” list of items which must be included in the agreement or the deal is off, which hopefully includes a good alternative to the negotiated deal. Remember, the more alternatives a person has to the deal in hand, the better his or her negotiating strength.

This article originally appeared in the print edition of Law on the Row, Volume 2, Issue 1, on March 21, 2001.

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