0 ZQNBA NUslc I vBLlsHING XOMBA ENTERPRISES INC, (ASCAP) 'l37"139 WEST 28TH STREET) NEW YORK, NY 10001 EOMBA SONGS INC (BMI) TELEPHONE: 21 2"727-001 6 FAX: 21 2-229-0822 Testimony Of PAUL KATZ Senior Vice President Of Business Affairs ZOMBA MUSIC PUBLISHING ZOMBA RECORDING CORPORATION New York, New York Before the Copyright Arbitration Royalty Panel Washington, D.C. April 2001 +%DON OFFICEI XOMBA HOUSE) 'I 65 'I 67 HIGH ROAD) WILLESDEN) LONDON NW 10 250) ENGLAND) TELEPHONE: (44) 1814594899) FAX; (44) 181451-3900 EUROPEAN OFFICE: XOMBA MUSIC HOLDINGS 8 V.) HOEFLOO 24) 1251 EB LAREN (N H )) HOLLAND) TELEPHONE (3'I) 3553 'l 6314) FAX (31) 3553 16785 LOS ANGELES OFFICE: 9000 SUNSET BOULEVARD) SUITE 300) LOS ANGELES) CA 90069) TELEPHONE (310) 247"8300) FAX: (310) 247 8366 NASHVILLE OFFICEI 914-916 19TH AVENUE SOUTH, NASHVILLE) TN 37212, TELEPHONEI (615) 321-4850, Fax: (615) 321&616 A ZOMBA COMPANY TABLE OF CONTENTS Pave Background Discussion .. 1. Acquiring the Song.. 3 2. Pitching the Song 4 3. Administering the Song . 5 4. Licensing the Song. 6 5. Collecting and Distributing Royalties . 7 Table 1 U.S. Music Publishing Income — 1998 BACKGROUND I am the Senior Vice President of Business Affairs for Zomba Enterprises Inc. ("Zomba Music Publishing"), which owns and operates a music publishing company, and Zomba Recording Corporation ("Zomba Records"), which owns and operates an independent record company. Both Zomba Music Publishing and Zomba Records are part of the Zomba group of companies, which is privately-owned. Among the singer/songwriters represented by Zomba Music Publishing are Macy Gray, Links Park, R. Kelly, Fred Hammond, Korn and Limp Bizkit. We also represent several writers, such as Gary Baker and Robert "Mutt" Lange, whose songs have been recorded by a wide variety of artists on not only the Zomba Record labels but also on labels affiliated with other independents and the five major record companies. Zomba Records includes the labels Jive Records, Verity Records and Silvertone. Among the artists who record on our labels are Britney Spears, Backstreet Boys, NSYNC, R.Kelly, Joe, Buddy Guy, Fred Hammond and Jars of Clay. I have been employed by Zomba for the past eighteen years. Prior to joining Zomba, I spent two years with EMI Records. I am involved in the day- to-day management of both Zomba Records and Zomba Music Publishing, and I serve on the boards of several Zomba companies. My responsibilities on the record label side include business affairs oversight (either alone or with others) of the signing of artists, joint ventures, label deals, artist TV productions, acquisitions, and Internet-related matters. My responsibilities on the publishing side include business affairs oversight (either or alone or with others) of the signing of songwriters, catalogue acquisitions and sub-publishing. These responsibilities require that I be familiar with both the record business and the music publishing business. SUMMARY The purpose of my testimony is to describe the role of the music publisher in the United States. In doing so, I also compare, where applicable, the music publishing business with the record business. As I explain below, the two businesses are very dIfferent. DISCUSSION Music publishing is the business of acquiring, administering and then exploiting the rights in musical works (i.e., songs). Although the music publishing business has become increasingly concentrated, there are literally tens of thousands of music publishers that, collectively, hold the rights to millions of individual songs. Music publishers vary widely in terms of size. Generally, however, their staff and operations are smaller than those of record companies; that is because runrung a record company (which requires coordination of manufacturing, distribution, promotion, marketing and sales in addition to finding and developing talent and creating the sound and video recording) is a much more complicated and complex undertaking than rurUiing a music publishing company. Regardless of size, music publishers perform essentially the same functions: 1. Acquiring the Song. A principal objective of a music publisher is to develop a catalogue of songs that have commercial promise. The publisher may purchase a particular song or songs from a songwriter under a single songwriter agreement. It also may purchase an entire catalogue of existing songs from a songwriter or another publisher. Alternatively, the publisher may acquire all or part of the songs to be written by a particular songwriter during a specified period under a potential long-term contract. The songwriter may be a recording artist who records his or her own songs (~e, Macy Gray) or the songwriter mayhave his or her songs recorded by others (ee,, Zomba's writers have had songs recorded by acts such as Celine Dion, the Corrs, Michael Jackson, Shania Twain and the Backstreet Boys). The largest music publishers in the U.S. will have approximately 100 songwriters under contract at a given time. In contrast, each of the major U.S. record companies will have several hundred recording artists under contract. The publisher may obtain copyright ownership of the songs involved, in whole or in part. If the publisher simply administers the songs, then no copyright ownership will be retained. The publisher agrees to split with the songwriter the revenues derived from exploitation of the songs. The publisher pays the songwriter an advance against those revenues. The amount of the advance varies from songwriter to songwriter depending upon a variety of factors. As a general matter, however, publishers pay smaller total advances to songwriters than record companies pay to recording artists of comparable stature. As a general matter, publishers also have a better chance of recovering those advances than record companies have of recovering their advances. 2. Pitching the Song. Generally, for a song to generate significant income, it must be recorded and the recording or recordings of that song must be commercially successful. A principal responsibility of the music publisher is to help persuade one or more record companies and artists to record that song. Once the record company and artist agree to do so, it is normally the responsibility of the record company to advance the significant costs of producing, manufacturing, marketing, promoting, distributing and licensing the recording.' Once a song has been created, it may be recorded by a myriad of artists with multiple interpretations, in different languages and across different musical genres. In contrast, a recording by a particular artist exists as only one interpretation of a song (of course, with a sound recording, there is an added dimension that goes beyond the song and that is the style and persona of the artist). If the record is released and fails to be a hit, then the record company has lost its investment. A song may have multiple opportunities to succeed. For songs that are written by songwriters who are not recording artists, the publisher "pitches" (i.e., presents) those songs to record labels, recording artists and artist managers in order to obtain recordings of those songs (preferably by well-known artists). "Pitching" is more prevalent in certain types of music, such as country, pop and R5'.B, where the artists often do not write their own music. In general, artists who record rock music write their own music. If the songwriter is also a recording artist, the publisher may assist in securing a recording contract for that songwriter/artist covering the songs in which the publisher has an interest. The publisher may underwrite the costs of "demo" recordings of certain songs that are being pitched or otherwise promoted to record companies. With the aid of current technology, the costs of a demo (which generally are recouped against songwriter royalties) typically may amount to only a few hundred or a few thousand dollars. In contrast, a track from an album released by a record company may cost tens or hundreds of thousands of dollars and may be followed by a video that costs hundreds of thousands or even millions of dollars. 3. Administering the Song. A publisher has certain administrative responsibilities for each of the songs in its catalogue. For example, the publisher must register the copyright in the song with the Copyright Office. It also must register the song with the applicable performing rights society (ASCAP, BMI or SESAC). And it must coordinate with "sub-publishers" who are responsible for achninistering, licensing and collecting royalties for the song in other countries. 4. Licensing the Song. Part of the function of a music publisher is to license the song in different ways. Primarily, the publisher licenses reproduction and distribution rights, either directly or through an intermediary (typically the Harry Fox Agency). The publisher grants "mechanical licenses" to record companies for use of the song in CDs, cassettes and other copies (at or below the statutory rate, currently 7.55 cents per copy of each sound recording under 5 minutes). The publisher grants "synch" (synchronization) licenses for use of the song in connection with visual images in movies, television shows, home videos, commercials and other audiovisual works (where the audio portion is synchronized with the visual portion). And the publisher grants licenses to distribute the song in printed form, such as sheet music. The publisher normally does not license the performance rights in a song. That responsibility generally falls upon the performing rights society with which the publisher is affiliated (ASCAP, BMI or SESAC in the United States). The performing rights society collects the performance royalties and then remits those royalties (minus administrative costs) to publishers and songwriters. The National Music Publishers Association (NM~A) conducts an annual survey to deterge music publishing income in the United States and other countries. The most recent U.S. survey (for 1998), which is on the NMPA website, shows the nature and amount of each source of publishing income: Table 1 U.S.