Ringtone Catalog Distribution Licenses:  A Primer
By Les Watkins

Generally speaking, companies distributing ringtones on an ongoing basis, enter into “catalog” licenses with many music publishers.  These catalog licenses purportedly provide the ringtone distributor with all of the rights necessary to sell ringtones embodying all of the musical works owned or controlled by the music publisher concerned during the term of the license.

Other license terms, specifically those that are related to royalty accounting, may be highly problematic for ringtone distributors.  Even so, ringtone distributors oftentimes enter into these licenses without negotiating the terms of them, because they lack bargaining power, and because they are racing other ringtone distributors to market. As a result, the executed licenses include a number of pitfalls[MSOffice1] <#_msocom_1>  , which could become apparent in the context of a dispute with the licensor publisher, or a royalty compliance audit.

Careful consideration should be given to a number of specific provisions in ringtone catalog licenses, including the following provisions:

Works Covered By The License

Most catalog licenses provide the ringtone distributor with the right to sell a number of works that are “pre-approved” by the publisher for distribution as ringtones.  Typically, the works that are pre-approved are back-catalog titles, and not recently released titles by current artists, which are the most attractive ones to the consumer.  Ideally, the scope of any catalog license should extend to all of the musical works owned or controlled by the music publisher concerned during the term of the license.  But at a minimum, the ringtone distributor should have the contractual right to “update” the pre-approved list with a recently released title by means of some administrative procedure that is not overly burdensome (for example, an email exchange with a designated publisher employee).  The distributor should not be required to wait on the music publisher to update its approved list on its own initiative because many publishers do not proactively do so, and because there is no guarantee that publisher updates will include the specific titles that the distributor wants to add to its catalog.

The ringtone distributor should also conduct some “due diligence” before entering into a catalog license with a music publisher to ensure that works written by the most popular songwriters on the music publisher roster are generally licensable for ringtone distribution.  This is especially important if the distributor pays the publisher an advance recoupable from royalties upon signature of the catalog license.

Although it is customary for publishers to license only that share of a work that they own or control to any licensee, the ringtone distributor should pursue a license that applies to 100% of the works that are owned or controlled, in whole or in part, by the music publisher.  Otherwise, the distributor will be required to pursue licenses with each of the co-publishers of any work owned or controlled by the publisher before bringing the ringtone embodying that work to market; a time-consuming and difficult exercise.  Co-publishers will not be in a position to complain about the fact that the distributor does not license each share of a work from each co-publisher, if the ringtone distributor agrees with the licensing publisher to accrue royalties for the co-publishers and pay them, once the co-publishers are identified and located.

The ringtone distributor should ask the publisher to provide a spreadsheet listing all of the pre-approved catalog titles, including the percentage share of each title that is owned or controlled by the music publisher, so that the distributor can properly pay royalties to the publisher and its co-publishers.  However, a surprising number of publishers do not maintain such spreadsheets, so the ringtone distributor may be forced to manually research the publishing interests of ringtone titles that it seeks to distribute, so as to confirm that those interests fall under existing catalog licenses.
Because it is not uncommon for co-publishers to disagree over their respective interests in any musical work, the catalog license should include a representation and warranty from the music publisher that any percentage interest information provide to the distributor is accurate.  Otherwise, the ringtone distributor may find, subsequently, that it has paid royalties to the wrong party, or that it has not licensed rights from the proper party, without recourse against the publisher licensor.

Royalty Accounting Provisions

Typically, catalog licenses require a ringtone distribute to account on a quarterly basis, no later than 45 days after the close of a quarter, for all sales that have occurred during the preceding quarter. Problematically, however, ringtone aggregators, who act as “middlemen” between publishers and wireless carriers, cannot count on timely receipt of sales reports or royalties from the various wireless carriers selling ringtones in advance of the publisher royalty accounting deadlines.  Therefore, ringtone aggregators often account in arrears, and the royalty reporting deadlines of any catalog license should be adjusted to account for the lag-time, which is inherent in carrier-to-aggregator reporting. This is especially important because many catalog licenses allow the music publisher to charge interest on late royalty payments.

Some music publishers have the facility to accept electronic royalty reporting, and their form catalog licenses typically require ringtone distributors to account on an electronic basis.  Other music publishers require paper royalty reporting.  Regardless, the ringtone distributor should pay careful attention to the information that the publisher requires the distributor to report and tailor its royalty reports accordingly, from the outset of the term of the catalog license.  Although the specific requirements vary, the required information “fields” for music publisher reporting typically include: (i) the title of the work sold; (ii) the writer/composer of the work sold; (iii) the number of each title sold during the accounting period concerned; (iv) the retail price of each title sold; (v) the wireless carrier or website from which the ringtone is sold; (vi) the publisher’s unique song code for each title sold; and (vii) the total amount of royalties owed.  While some of this information may be readily available to the distributor, other information, such as the writer/composer of each title, may not be available.  Therefore, the distributor should carefully negotiate realistic royalty reporting requirements with any music publisher before entering into the catalog license, so as to avoid problems with the music publisher later on.

This entry was posted on Thursday, July 16th, 2009 at 11:39 am and is filed under Mobile Licensing, Music Licensing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.