The Department of Justice (the "DOJ") has been considering modifying the Consent Decrees that govern the performing rights organizations ("PRO's") such as ASCAP, BMI, and SESAC. For example, the DOJ has been looking at the royalties being paid by streaming services. The newest area that the DOJ is looking at is how to deal with a song that is co-written by two or more songwriters, and the songwriters are affiliated with different PRO’s.
The PRO’s have been operating under Consent Decrees that were established in 1941. The Consent Decrees get updated from time-to-time with ASCAP’s last updated in 2001 and BMI’s in 1994. With the advancement of technology, the Consent Decrees are again being scrutinized.
As mentioned above, the new issue is how to deal with co-written songs and the songwriters are affiliated with different PRO’s. It has long been the rule that co-written songs were dealt with in a “fractional” model: “each PRO collects for and pays out for only the shares of musical works each represents in its respective repertoire.”  The new rules proposed by the DOJ would replace that model with a mandatory 100% licensing model. Under the new rules, “100% licensing would allow any one co-owner of a work to license 100% of the work without needing the permission of the other co-owners.” 
Essentially, one writing partner would have 100% control over the licensing of the co-written song, and the other songwriter would have no say. The only obligation of the first songwriter would be to account for any revenue to the other songwriter.
Why should BMI songwriters be more concerned than ASCAP songwriters? BMI pays a higher royalty rate! BMI lists some of the negative impacts of the 100% licensing model:
▪ ASCAP could license a co-written work at ASCAP’s own rate, not BMI’s.
▪ ASCAP could reduce payment by its own overhead rate even before it enters BMI’s distribution system.
▪ A BMI songwriter could be subject to ASCAP’s distribution methodology, not BMI’s.
▪ And distributions of royalties could be delayed by this process.
The result is that, as a songwriter, the decision on who to collaborate with would now come down to which PRO you belonged to - and not whether you want to work together because of artistic compatibility. Publishers are also affected since publishers make a decision on which PRO to affiliate with on the same basis as songwriters - who pays the biggest royalty.
Among the PRO’s, BMI has alerted its songwriters and is urging them to sign a petition that opposes the proposed rule change. For the music publishers, Martin Bandier, Chairman and CEO of Sony/ATV, also notified its songwriters of the proposed changes. He says: “This is a complicated subject but it basically means that if either of these PRO’s controls any part of a song, no matter how small, they would be required to license the entire song without the approval of those who control the remainder.”
So, all you songwriters out there, get familiar with this issue and understand how it affects your rights and the revenue streams regarding your music. Call our office at (480) 463-3055, if you would like to discuss this further.
 Help BMI Protect Your Royalties, http://www.bmi.com/advocacy/doj_letter, as of 11/15/2015.
 ASCAP - BMI Consent Decrees, Fact Sheet, Friday, October 3, 2014, https://futureofmusic.org/article/fact-sheet/ascap-bmi-consent-decrees.
 Help BMI Protect Your Royalties, http://www.bmi.com/advocacy/doj_letter, as of 11/15/2015.
 Nina Ulloah, Should One Co-Writer Have the Power to License a Collaborative Work?, Tuesday, September 8, 2015, http://www.digitalmusicnews.com/2015/09/08/the-doj-is-considering-making-the-licensing-process-a-lot-more-difficult-for-collaborators/Type your paragraph here.
BMI SONGWRITERS BEWARE - PROPOSED CHANGES IN
PRO's CONSENT DECREES WILL AFFECT YOUR ROYALTIES!
ATTENDED TWO WONDERFUL EVENTS
ATTENDED TWO WONDERFUL EVENTS THIS WEEKEND
This past weekend was highlighted by two (2) wonderful events that show the promise and potential of the Arizona filmn industry.
Scottsdale School of Film and Theatre Student Film Festival
The first event was the Student Film Festival featuring films from the students of the Scottsdale School of Film and Theatre at Scottsdale Community College. The Festival featured eleven (11) films and every single one of them was of the highest caliber in all facets of filmmaking: great stories, excellent production values, and compelling acting.
Hats off to the faculty and staff of the Scottsdale School of Film and Theatre especially Bill True and Amanda Embry, the Co-Chairs of the department, Prof. Terry Donnelly, and Administrative Assistant Evfa Cerises.
With such homegrown talent at hand, we all must come together to create an environment where the film industry is strong and vibrant enough to keep this talent here in Arizona!
Phoenix Screenwriter’s Association Presented Q&A with Lonnie Ramati
On Saturday day, the Phoenix Screenwriters Association presented a Q&A with prolific Hollywood producer, Lonnie Ramati, and facilitated by Joe Fortunato, Senior Lecturer at Arizona State University, School of Film, Dance and Theatre. A big thank you to Carlo Dall'Olmo, Tony Severe, and Roxanne Ruane from the Phoenix Screenwriters Association to organize this event!
Mr. Fortunato steered the presentation brilliantly, with penetrating questions and wonderful follow-up. Mr. Ramati answered with great insight and a tremendous sense of humor. One of the most important points that Mr. Ramati stressed was that the Arizona film community must band together since the legislature is so weak on supporting the industry. Don’t immediately plan to run to Hollywood - it is tremendously competitive and success is a long shot. Instead, as the movie says, “Build it here and they will come.”
I made the analogy to baseball. In this day and age, if you are in Dubuque, Iowa but can throw a 100 mph fastball, major league baseball will find you. And the same is for Hollywood - make some films, get them distributed in any and all ways, and build a record. If you are throwing 100 mph, Hollywood will find you!
So, to whatever extent you can, try to help build a cohesive and supportive film industry. “If we don’t hang together, we will all hang separately.”
IRS SECTION 181 TAKES ON ADDED IMPORTANCE
IN LIGHT OF CONTINUAL DENIAL FOR TAX INCENTIVE FOR ARIZONA
For still another year, a Film Tax Incentive has failed to pass the Arizona state legislature. In the meantime, many of those contrails you see in the skies over Arizona come from airplanes bypassing Arizona and carrying film production money to surrounding states, especially New Mexico.
One tax credit that is available to Arizona filmmakers is a Federal tax deduction found in Section 181 of the United States Tax Code. Section 181 was initially established in the American Jobs Creation Act of 2004.1 The impetus for the implementation of Section 181 was the phenomena termed “Runaway Production.”2 “Hollywood, like many American industries, had grown tired of the high cost of labor and taxes in the United States.” 3
The Consolidated Appropriations Act, 2016 (H.R. 2029), signed into law on December 18, 2015, amends Internal Revenue Code § 181 for the fifth time since its 2004 enactment. A key point is the effective period: it was extended retroactively for films that were in production in 2015 and those commencing production in 2016.4
Some key provisions of Section 181 include:
(a) Election to treat costs as expenses
(1) In general
A taxpayer may elect to treat the cost of any qualified film or television production as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction. §181(a)(1);
(2) Dollar limitation
(A) In general
Paragraph (1) shall not apply to so much of the aggregate cost of any qualified film or television production as exceeds $15,000,000.
BUT NOTE - the limitation can raised to $20 million if you shoot in low-income or distressed community.
(B) Higher dollar limitation for productions in certain areas.
In the case of any qualified film or television production the aggregate cost of which is significantly incurred in an area eligible for designation as—
(i) a low-income community under section 45D; or
(ii) a distressed county or isolated area of distress by the Delta Regional Authority established under section 2009aa–1 of title 7, United States Code.5
Other key considerations include:
A. 100% of the motion picture costs are deductible in the same year of investment.
B. 75% of the motion picture must be shot in the US to qualify for Section 181.
C. TV pilots, TV episodes (up to 44), short films, music videos and feature films all qualify for Section 181.
D. It can be applied to active income or passive income.
E. Investors can be either individuals or businesses.
F. There is no expectation for film distribution or film completion.5
Below is an informative flow chart that gives an idea how the tax incentives, credits or subsidies (whatever nomenclature is used) in the financing of a film or television production.6
It is imperative to get legal counsel on the nuances of, specifically, Section 181, but also securities laws in general. As I have mentioned elsewhere, when it comes to investment, heed the warning of medieval sailors - “Be careful, here be monsters.” Call the firm at (480) 215-6305 to schedule an appointment to discuss the nuances of Section 181 and securities law.
1. Investors Section 181 U.S. Tax Code 100% Tax Deduction, New Equity Films, http://besttaxbreak.net/.
4. SECTION 181 EXTENDED, http://www.gigiarnold.com/section-181-film-incentive-extended-through-2016/
5. (a)1), 26 U.S. Code § 181 - Treatment of certain qualified film and television productions, https://www.law.cornell.edu/uscode/text/26/181.
6. Investors Section 181 U.S. Tax Code 100% Tax Deduction, New Equity Films, http://besttaxbreak.net/.
PRESENTATION ON COPYRIGHT AT JEROME INDIE FILM & MUSIC FESTIVAL!
I will be giving a presentation on Copyright at The Jerome Indie Film & Music Festival this weekend. The presentation will be on Friday, June 10, 2016 from 2:00 p.m. to 3:00 p.m. It will be located at the Old Town Center for the Arts, located at 633 N. 5th Street in Cottonwood.
The Festival runs through June 12, 2016. Although the Festival was originally confined to Jerome, it has now expanded down the hill into venues in the unique and historic hamlets of Clarkdale and Old Town Cottonwood.
The Festival is described as "a defiantly raw and independent destination festival that takes place in one of the most beautiful regions of Arizona. Recognized by Aud News as one of the top 15 Film & Music Festivals in the world and voted one of the top 52 weekend adventures by Phoenix Magazine, the Festival encourages guests to step out of their comfort zone and dive into adventure mode."
Put this on your schedule! It is a wonderful time with excellent films, rocking music, and the natural beauty of Jerome and the surrounding wine country!
SEE YOU THERE!