Sony has re-branded its now huge publishing catalog with the original name, after giving it up 26 years ago, since the company established in 1995 a joint venture with Michael Jackson. That merger brought together Sony Music Publishing, an average catalog at that time, with the prestigious Jackson’s ATV that owned the Northern Songs catalog, including the majority of Lennon/McCartney songs written for The Beatles.
The process began in 2012 when Sony lead the purchase of EMI Music Publishing for $2.2 billion. The catalog shares were thus distributed: 30% to Sony, about 10% to Jackson’s Estate, and the other 60% shares among Blackstone Group’s GSO Capital Partners LP, Geffen, and Mubadala Development Co., which the Abu Dhabi government owns.
In 2014 the Sony hack leaked emails emerged and revealed that the company had some plan to sell off its music publishing division made up of Sony/ATV Music Publishing and EMI Music Publishing.
Confirming their content on October 8, 2015, The Financial Time, following by other newspapers, reported that Sony explored a potential sale of its 50 percent stake in Sony/ATV. A clause has been triggered in a contract between the two owners that cleared the way for them to buy each other out. It was still unclear if Sony would have sold its stake or seek to acquire the Michael Jackson Estate’s holding.
In the end, in March 2016, it was Sony that acquired from the Michael Jackson Estate’s 50% share of Sony/ATV, making it a wholly-owned Sony company.
Sony purchasing the Michael Jackson Estate 50% shares in Sony/ATV Catalog created great confusion among the MJ community, who was always convinced that Sony had a purchase option within Michael Jackson’s loans. The main question was: where did this clause come from?
As the vivid believer that education and knowledge are good combinations to form an objective opinion, I’ll give you the highlights that led to finalize the acquisition.
The difference between the Purchase Option And the “Trigger Notice.”
With the premise that the 1995 operating agreement covered everything, Sony’s purchase option, or Put Option, in short, was more an obligation than a right, only and exclusively within financial purposes and limited time. In jargon, it is called the baseball clause.
The put option was a sort of first auction price in case of an opening proceeding like bankruptcy or explicit request of one of the two-party – other rules had to be applied to get the asset’s real and commercial value, contemplated within the agreement. On top of all, the put option’s amount represented a collateral guarantee to the principal amount of Michael Jackson’s loan and not a pledge over his 25%, as media insistently reported.
The Trigger Clause – the one that allowed Sony to finally take the whole of Michael Jackson’s 50% share in Sony/ATV is part of the Exit Strategies of Article no 7, Section 8, Transfer and membership Interests, and describes the stages that – starting from ninety months after the company commenced to administer the ATV catalog (which happened in 1998, due to MJ’s previous agreement with EMI), or the tenth anniversary of the “operating agreement” date – either Sony Music Publishing Members or Michael Jackson (or MJ’s Estate in the case MJ’s early death) would have the right to notify the other Members that they desire to implement an exit strategy from the deal. It explains in detail all possible reasons to activate the clause. You can read the whole section here, starting from page 49:
Among the various rules Section 8 explore, I have extrapolated what appears to be the most pertinent reason for the activation of the clause and the relevant negotiations:
A First Trigger Notice may be given upon MJ’s earlier death and only if the company continue his activity and MJ own at least a 20 percent Membership Interest at the time of his death and had not taken any actions to nominate a successor – a reason that should cause his Estate to be unable to elect his successor validly. In his will, Michael Jackson did not name a suitable successor to be appointed as required in the operating agreement in the Sony ATV board. Mr. Branca is an executor, not an Estate heir. So, his nomination could never have happened.
Another flag to activate the clause is that it could jeopardize the Company’s status as a partnership for US Federal income tax purposes. Without an official successor, the Michael Jackson Estate could not be considered a suitable partner. Not to mention that still has fiscal problems regarding tax fines generated by the undervaluation connected to MJ’s likeness and assets when he died are still an open issue. So, I believe that the above were the main reasons why the clause had been called out. The company missed the other legal entity to operate the administrative and fiscal aspects, so technically, there was no more Joint Venture.
However, after reading the documents behind the final decision, the 2014 leaked emails take on a completely different meaning of an already merging of the MJ stake planed with Estate executors – making clear reference to the negotiations’ confidentiality. Listen to Joel Katz, one of the many attorneys of the Michael Jackson Estate, in this video during the Midem conference in Cannes in Junes, 2016
The video might suggest the MJ Estate’s executors actually tried to find suitable partners to purchase Sony 50%. Still, they did not succeed due to the company’s determination to own it wholly. The other option is that together orchestrated a Media PR sham to divert attention from the fact that this passage of ownership had been written since MJ passed away. Either way, things have opened, developed, and closed. So it doesn’t matter in which perspective can observe the whole business; the executors are always behind the motivations.
In January 2017, news of Paul McCartney suing Sony to get back the copyrights of 267 Beatles songs created another huge mess and disinformation among the audience.
The terms of copyright in the UNITED STATES – which do not represent the whole planet but just one of Earth’s countries – is the author’s life plus 70 years, unless the work is for hire. The work for hire describes copyright when a corporation hires someone to create a work within their employment scope, or if the work falls in one of nine categories of work types that could be considered a work for hire. If that happens, then the corporation, not the work’s creator, is considered the work author. And the corporation will own the work for 95 years.
Coming back to the current term of copyright for authors is life plus 70 years: if you have more than one author, that 70 year period doesn’t run until the last surviving author’s death. The 70 year period doesn’t start to run until after the last surviving author passes. So when he passes, that 70 year period will run, which means that his Estate, along with another author estate, would own the copyrights in all of those songs for additional 70 years after the death of the last one.
Copyright is one of the most valuable assets in the music industry, but each country has its own copyright law. In 1972, Congress created a new type of copyright, the Sound Recording, the SONY/ATV publishing Catalog’s specific business. The sound recording copyright has to be differentiated from the copyright in the composition, called the Performing Arts Registration, or a PA registration, which protects just the basic music and the lyrics of a song. The sound recording copyright protects the fixation of sounds that make up a recording of the composition. The fixation of sound, of course, is going to include all of the various instruments, all of the vocals, all of the mixing that’s done to create that specific recording. The Congress wanted to ensure that record companies and artists were protected from other people making exact duplicates of those actual recordings.
Publishers exploit the music, exploit the songs, and try to get the songs used to generate income in as many ways as possible. Usually, the owners of the rights in the composition are the songwriters and the publishers. Artists assign their rights and have rights in sound recordings because when they’re creating that work in the studio, the inflections in their voice represent the creative work, and the whole process is a creative work. The sound recording copyright also allows protecting not only the fixation of sounds on that particular recording, but it also enables protection of any artwork that’s on the CD or album, or any liner notes, the entire package.
Having cleared this concept, it will come immediately clear why Quincy Jones filed a lawsuit against Michael Jackson’s Estate over royalties of projects released after MJ’s death. Quincy Jones claimed that Michael’s work used in the This Is It film and soundtrack album, in the Michael Jackson Cirque du Soleil productions and the 25th-anniversary edition of the Bad album involved a breach of contract. Sony Music Entertainment was also involved in the claim, together with the parent company of Jackson’s label, Epic Records.
It will also become understandable why Sony had been sued for the same problems and products by The American Federation of Musicians. If you do not remember, I summarize the matter: AFM has sued Sony Music Entertainment for allegedly violating its contract in the Michael Jackson documentary This Is It. The suit alleged that the artists were misled to record work for This Is It understanding that they were working on a phonographic record instead of a film score. The suit also charged Sony with refusing to make new payments on Pitbull’s 2012 version of Michael Jackson’s “Bad” and sampling of Jackson songs like “Billie Jean” and “Man in the Mirror” in “This Is It.” The AFM is seeking breach of contract damages, including the payment of wages and benefits that should have given to musicians. “Musicians have joined together to create industry standards, and it is simply unacceptable for greedy corporations to violate those standards by denying residuals knowingly.”
Both lawsuits show how the industry has cheated Michael Jackson and the original artists who contributed to the original fixation of the songs’ sound realized and played in the above records. Precisely, what needs to be understood is that the above tricky actions of Sony deprived Michael Catalog MJJAC of a congruous amount of money directly involving revenues and returns profits of his sound recording copyright, leaving the company only with royalties from the Performing Arts Registration Copyright (PA).
In 1976, Congress amended the Copyright Act to include a brand new right that would benefit songwriters and artists. This right gave authors of works created after 1978 the rights to recapture the transfer and assignments of those copyright entries 35 years after the original assignment.
In today’s market, most publishers offer songwriters the called co-publishing and administration deals. The publishers take care of all of the administrative aspects of exploiting the composition on behalf of the songwriters by receiving 25% of the income. Record companies usually pay royalties of 13% to 16% for the sale of the recordings and usually 50% for any other use of the recordings. At the beginning of 2013, several songwriters and artists reclaimed and recaptured the copyright interests they transferred back in 1978. As a result, now they can receive 100% of the income.
Paul McCartney filed a termination notice of 32 songs with the US Copyright Office. He filed termination notices for his songs issued on Beatles records from 1962-1964, including the 1969 and 1970 songs and seven other songs on the Abbey Road album and others. Most of the songs carry a termination date in 2025. That means that Sony will continue to take his percentage of the sound recording copyright on those songs up to that date. McCartney always had full copyright revenue from the Performing Arts Registration (PA).
To be precise, the Act applies only to the McCartney half of the Lennon/McCartney songs as eligible for termination and only for the US. Sony still owns those Beatles songs in the rest of the world. Moreover, Sony’s 2009 deal cut before the reversion dates with Lennon widow Yoko Ono enabled them to retain its publisher’s share for the life of the copyright, which lasted for 70 years after the author’s death co-writers, the countdown begins after the last author dies.
Originally ATV Catalog contained about 250 Beatles songs. Even if Sir Paul McCartney filed to terminate US publishing rights to 170 Beatles songs in total, Sony, being the largest structured music publisher in the world, which managed at that time a library of over 2 million songs and constantly in search of new acquisitions, surely had already budgeted years before and absorbed without negative effects the loss of these songs rights in the US market only. To confirm the uselessness of his effort in June of the same year, McCartney requested the dismissal of the lawsuit and reached a confidential settlement of his lawsuit against Sony/ATV Music Publishing LLC.
In May 2018, news of Sony purchasing a further 60% of EMI stakes, and in July, the balance of 10% from The Estate of Michael Jackson closed the circle. EMI was wholly owned and inglobated into Sony/ATV package.
To conclude, it must be remembered that while the put option clause was inserted in the Sony ATV Operation Agreement and added into Section 7 as 7.9 in 1998, Section 8 containing the trigger clause has always been there and part of the original agreement and has never undergone amendments or additions. It was written and agreed from the beginning that after ten years, the company could be purchased or dissolved by both parties.
Actually, there was a fandom insurrection between those who claimed the Estate made the right choice to sell Michael’s 50% stake, corroborated by Mr. Branca’s saying Sony’s request came as a shotgun and others genuinely outraged by the news, clinging on Jackson words not to sell his 50% in Sony/ATV.
It can be confirmed that surely the Trigger clause was not a shotgun but a contractual procedure clause contemplated since 1995 that Mr. Branca should have known very well since he was the one suggesting to Michael Jackson to join his ATV Catalog with Sony Publishing Catalog. Mr. Branca simply took advantage of the lack of contractual information to avoid furthers complaints of MJ fandom on him.
Still, he perpetuates his white lie in 2019 during a seminar, blaming fairly explicitly other MJ advisors and boldly claiming he was not aware of such trigger clause, probably inserted after their splitting. Listen at 1:19:51
As he said: “You do what you gotta do.”