According to materials provided by National Songwriters Association, a bill to reinstate the “five year amortization” of investment for publishers and songwriters will be introduced today (11/3) by Tennessee’s U.S. Congressman, Marsha Blackburn.
This bill encourages investment in song catalogs and songwriters because such investments can be written off, or amortized, over a short five years, instead of a longer time period.
The “Five Year Method” was authorized by Congress in 2005 for five years to begin in tax year 2006. It expired on Dec. 31, 2010 when it was grouped in with a number of measures during the tax extension reauthorization process. Business models have been underway, based on this legislation, for five years.
Previously music publishers utilized either a “straight-line” 15-yr amortization or the “income-forecast” method which resulted in 90% or more amortized over 2-5 years.
The 15-year amortization method allows a 6.6% annual straight-line amortization. Unfortunately this method does not encourage potential investors within the music industry or from outside the music industry to invest. (Investment is defined by the signing of songwriters to publishing agreements that involve song catalogs and the outright purchase of song catalogs.)
Income Forecast Method
The “income-forecast” method allowed for much quicker amortization…as much as 90% within two to five years but required projecting every song’s income for the tax year. Prior to the widespread digital distribution of music and all the micro royalties it produces this was relatively simple. Today it is not practical.
NSAI explains the need to re-enact this five year method saying:
Business models have been underway, based on this legislation, for five years. While we must maintain the value of America’s historic songs, we must likewise encourage the creation of the new songs that will mark the moments of our lives. The sale of a song catalog often serves as the retirement fund for a songwriter or composer. If the five-year amortization alternative is not reauthorized, the purchase of American song catalogs will practically stop and the actual value of song catalogs will likely decrease. Investors simply can find better alternatives if they cannot choose to amortize their investment quickly. Music delivery systems are changing and evolving every day. They are instant. This method also encourages investment on songwriters and composers. Music publishing deals for songwriters are often based, in part, on accompanying song catalogs. Such deals help publishers recoup their investment from the income the song catalog generates. A 15-year amortization schedule will serve as a disincentive on these types of songwriter-publisher contracts. A number of publishers have expressed alarm at this situation and stated that without reauthorization investments will make little business sense. Ideally the reauthorization would happen prior to December 31, 2011 for investment options to remain viable.
Click HERE to read the bill.