Streaming Funds Pension, Residuals in New Label Deal

March 3, 2017

Ray Hair  -  AFM International President

I am pleased to report that agreement has been reached with the recording industry for a successor Sound Recording Labor Agreement (SRLA). When ratified, the agreement will extend three years, from February 1, 2017 to January 31, 2020.

Besides significant gains in upfront payments—including yearly 3% wage increases, and improvements in pension contributions, health & welfare payments, and cartage payments—the agreement provides for significant additional payments to the Sound Recording Special Payments Fund (SPF), the Music Performance Trust Fund (MPTF), and AFM & Employers’ Pension Fund (AFM-EPF) driven by the companies’ digital streaming revenue.

We expect new funding from the companies’ streaming revenue will more than replace the decline in physical product and digital download royalties, which were the only sources of SPF and MPTF income. Physical product and download royalties have been rapidly drying up as consumers move toward streaming services like Spotify and Apple Music. The new contract also guarantees AFM-EPF
$17 million in contributions from the companies’ interactive streaming receipts over the next three years.

In addition to traditional and streaming royalty obligations, the labels will make additional, supplemental payments to MPTF, SPF, and to our pension fund from revenue derived from consumer product and consumer sync-licensing (JibJab and Flickr), podcast and webisode licenses (excluding made-for-Internet TV), mobile applications, life-cycle videos (weddings, bar/bat mitzvahs, etc.), foreign uses, and from low-fee traditional licensing.

The labels’ commitment to tie new and growing revenue sources from digital distribution—particularly streaming revenue—to SPF, MPTF, and AFM-EPF ensures that our musicians, locals, pension fund, and residual funds will benefit from the transition in media consumption away from physical and digital downloads toward interactive streaming.   

These negotiations were hard-fought, our deliberations were hard-thought, and our results were hard-won. They began in September 2015 and continued through six rounds of discussions until the conclusion January 13, 2017, occurring against a backdrop of legal action initiated against the record labels by both the Federation and AFM-EPF for various SRLA violations and for failing to properly report and pay pension contributions.

If you’ve worked under or administered agreements with record labels, you know that labels’ contract compliance has never been a virtue. I had reached my limit with the companies’ refusal to abide and pay what they owed our musicians and our pension fund. So we sued them, for the first time ever, and it made a difference. It sent a powerful message that resonated at the bargaining table: AFM would enforce the terms of our agreements in the courts, if necessary.

Eventually, all ongoing litigation was settled favorably as negotiations were concluded. But I can tell you that during many years of negotiating union collective bargaining agreements, I’ve never experienced a more complicated or complex path to an agreement.

Our goal for these negotiations was to reinvigorate our residual funds and pension fund, while negotiating progressive improvements to session wages and working conditions. We saw the dramatic decline of physical product and digital download sales threatening the continued existence of MPTF and SPF. We also knew that new money for those funds, and for the pension fund, could be realized if we could capitalize on the quickening shift in media consumption away from old sales channels toward interactive streaming. We knew that any new contract should provide a pathway for improving labels’ compliance with our agreements.

When the labels reported that year-over-year streaming revenue growth had skyrocketed to 57% in the first half of 2016, it was clear that streaming was the obvious place to negotiate new residual and benefit obligations that would attach to a thriving new business and consumer model.

While the road to agreement was exceedingly difficult, we followed the same negotiating approach that has been characteristic of my administration from the get-go—teamwork and solidarity, information and analysis, and tenacious determination and resolve.

We drew upon the solidarity that was so effective during the 2011 SRLA negotiations and during my first round of every Federation negotiation. All of your international officers, local officers, player conference and rank-and-file representatives, Federation staff, and attorneys worked together seamlessly to get the ball across the goal line.

We maintained an analytical approach. We demanded and obtained relevant and necessary business information that allowed us to see and follow the money. Our examination put streaming dollars square at the center of negotiations, necessary for the protection of MPTF, SPF, and AFM-EPF.

We demonstrated our resolve that the provisions of our agreements must be enforceable and that we will proceed into court to enforce them. In AFM’s decades-old relationship with the record industry, we are often left without receiving the benefit of the bargain because industry either fails or refuses to fully comply with its obligations. This time I believe the labels will comply, because it’ll be lawsuit city if they don’t.

I’d like to thank our entire team for their contributions:

International Vice President Bruce Fife; International Officers John Acosta of Local 47 (Los Angeles, CA), Tino Gagliardi of Local 802 (New York City), and Dave Pomeroy of Local 257 (Nashville, TN); rank-and-file representative Neil Stubenhaus of Local 47; Recording Musicians Association (RMA) President Marc Sazer, Second Vice President Roger Blanc, Los Angeles representatives Tom Rizzo and Don Foster of Local 47, and Nashville representative Tom Wild of Local 257; Local 9-535 (Boston, MA) President Pat Hollenbeck; Local 10-208 (Chicago, IL) President Garry Matts; Chicago Electronic Media Director Dean Rolando; Local 149 (Toronto, ON) Executive Director Michael Murray; Megan Thomas of Local 149; Local 802 Recording Vice President Andy Schwartz, Supervisor of Electronic Media Steve Dannenberg, and Assistant Supervisor John Painting; Local 47 Vice President Rick Baptist; AFM Counsel Patricia Polach, Abigail Carter, Jennifer Garner, and Russ Naymark; AFM Electronic Media Services Division Director Pat Varriale; Director of Symphonic Electronic Media Deborah Newmark; and rank-and-file musicians Chris Parker of Local 802 and Gail Kruvand of Locals 802 and 47.

Next, we continue negotiations with the TV networks for a successor Live TV Agreement. I will keep you informed of our progress as we move forward in those discussions.

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