How Copyright Law Gets Musicians Paid:

Transcription

1 How Copyright Law Gets Musicians Paid: A Crash Course in Music Rights by Ian Gibson, Esq. Visit IanGibson.com for more resources tailored to musicians and other creative entrepreneurs.

2 HOW COPYRIGHT LAW GETS MUSICIANS PAID Most musicians don t realize that copyright law is the force behind many of their sources of income. As the author and copyright owner of your compositions and sound recordings, you are in control of most uses of your work. This control is a result of the following exclusive rights given to you under copyright law: the right of reproduction, to prepare derivative works, distribute the work, publicly perform the work, display the work, and transmit digital audio of the work. What Can I Do With These Rights? As a copyright owner, you can exchange some or all of these rights in a particular work to a third party for a fee or something else of value. Payments related to the usage of your music generally come in the form of licensing fees and royalties. Think of a license as express permission from an authority to do something controlled by that authority. Your driver s license is a clear example of permission to do something (drive a certain class of motor vehicle) given by an authority (your State s Department of Motor Vehicles). Royalties are payments for the usage of property. Here, the property is your copyrighted work and the usage relates to the exclusive rights given to copyright owners discussed earlier. Therefore, a music royalty would be a payment for the usage of one or more of the copyright owner s exclusive rights. The important take away here that licensing fees and royalties reference money copyright owners receive for the permission and use of their copyrighted work (your original music). 2

3 Licensing Fees When it comes to your music, you are the authority on who may use it and how they may use it, subject to some exceptions and limitations. For example, if a filmmaker is looking for a song to include in the soundtrack to the film, you can license certain rights to your music so the composition and sound recording may be used in the film in exchange for a fee. The filmmaker needs a synchronization license (a.k.a. sync license) to incorporate my music into the film. Fees are typically paid for sync licenses and the rates are negotiable. In addition to the sync license fee, you may receive royalties for certain uses of the film. (More on royalties below.) The good news is that music licensing opportunities are everywhere. A similar licensing arrangement could be made for use in a videogame, advertising campaign, smartphone app, multimedia website, children s toy, etc. It is also possible to sell rights to a big name artist who wants to be the first to commercially release your original song. The possibilities are virtually endless. In addition to dealing directly with the end user of the music (i.e. the licensee), copyright owners often strike deals with intermediaries to facilitate licensing opportunities. In other words, you could share a portion of your rights and income with a business in exchange for their efforts to sell or license your music to someone else. Music libraries are a common example of businesses that assist musicians with finding licensing opportunities in exchange for a portion of the profits associated with publishing. Music libraries are companies that hunt for licensing deals on behalf of musicians. As consideration for their efforts, typically the fees and royalty income for any licenses secured by the music library are shared 50/50 with the copyright owner (musician/composer). This figure, however, is negotiable and can vary. Many musicians cringe at the thought of sharing publishing rights but it can be an advantageous arrangement. When a music library company 3

4 makes money, they share the proceeds with the artist. In other words, their interests are inextricably aligned with the artist s because they only make money from this venture in the event the artist s song is licensed. This built-in financial incentive can be powerful and the connections and opportunities these entities often bring to the table are well worth the price of admission. Another important point about enlisting a publisher or music library to assist you is that you must be cognizant of whether the relationship is exclusive or nonexclusive. Under an exclusive arrangement, the publisher (and only that publisher) can shop your music around for licensing opportunities. If your publisher is ineffective, this could result in your music essentially being trapped under contract and collecting dust until the term of your agreement expires or you are able to terminate the deal. On the other hand, if your deal was nonexclusive, you may bring on multiple libraries to promote your music at the same time. However, nonexclusive libraries may represent a very large number of artists at once and, thus, your music would get less attention than if promoted by a boutique exclusive agent. Each form of relationship has its own costs and benefits and should be carefully considered before signing away your rights. These entities are not required to license your music but they often bring a lot of value to independent musicians. As you may know, it can be an uphill battle to rise above the noise and find licensing for your music without any help. Even if you found an interested prospective licensee, would you know how to negotiate and consummate the deal? I would rather have 50% of something than 100% of nothing. The important take away from this section is that ALL of these opportunities to make money from your music flow from your ownership of the exclusive rights that come under copyright law. 4

5 Mailbox Money One of the great benefits of being a professional composer/songwriter and copyright owner is that some uses of your music continue to generate passive income for years and years. A slang term for the checks received for passive income some musicians use is mailbox money. I still receive periodic payments for works I authored and licensed over ten years ago. Few musicians could live solely off of these payments to be totally honest and transparent, some of mine are very small but passive income is an incredible way to supplement your earnings from other sources. For those working in most other industries, when they clock out, the earning potential stops. Musicians have an incredible opportunity to make money for years to come off of the continue use of their work. You can thank copyright law for this benefit. Mailbox money comes from the requirement that certain uses of musical works and sound recordings require the payment of royalties. Three common kinds of royalties we will explore further are mechanical royalties, performance royalties, and digital transmission royalties. Mechanical Royalties Mechanical royalties must be paid to the copyright owner (i.e., songwriters and publishers) each time a composition is reproduced. The reproduction of a song could occur through the duplication of CDs, digital downloads (a la itunes), or on interactive Internet music streaming services (like Spotify, Rdio, etc.). Mechanical royalties come into play when an artist or label wishes to distribute sound recordings of a composition written/owned by someone else and not in the public domain. In fact, record labels have to pay mechanical royalties to their artists. This is usually governed by 5

6 what is called the controlled composition clause in a record deal. In short, labels must pay the composition owner for each reproduction made/sold of any song or album. Compulsory License and Mechanicals Unlike any other copyrightable subject matter, composition copyright owners are subject to a compulsory license under current law. The term compulsory license means a license you are required to give by law under certain circumstances. This compulsory license obligation dictates that, after a musical work has been recorded and publicly distributed by its owner, anyone who wants to record and release a cover of that composition may do so under a compulsory mechanical license. It is precisely because of this compulsory license framework that anyone can commercially release a cover version of a popular song. Only composition copyright owners (as opposed to sound recording owners) receive mechanical royalties. Why? Because the very nature of recording a cover of a preexisting work requires making a new sound recording. Being that only the original composition (not the original sound recording) are used in the cover version, only the owners of that composition are compensated (i.e., the songwriter and publisher). The dominant agency that handles mechanical licenses and mechanical royalty administration for both physical and digital distribution formats in the US is the Harry Fox Agency. HFA issues mechanical licenses, collects mechanical royalties and distributes mechanical royalty payments to copyright owners of musical compositions. That said, it is also possible (and sometimes preferred) to get a direct license from the music publisher. At the time of this writing, the standard mechanical royalty rates in the US are as follows: 6

7 CATEGORY Physical Phonorecords Permanent Downloads Ringtones Limited Downloads and Interactive Streaming RATE 9.1 cents or 1.75 cents per minute of playing time or faction thereof, whichever is larger, for physical phonorecord deliveries and permanent digital 9.1 cents or 1.75 cents per minute of playing time or faction thereof, whichever is larger, for physical phonorecord deliveries and permanent digital 24 cents per ringtone Rates vary and can be complicated to calculate. Generally, rates are determined by (1) calculating the all-in royalty for the service, (2) subtracting applicable performance royalties, (3) determining the payable royalty pool, and (4) calculating the per-work royalty allocation. The process is detailed in 37 C.R.V through To better understand mechanical royalties, let s look at how this plays out in real life. If I wanted to press 5,000 CDs of my 2:42 long cover version of Folsom Prison Blues, the mechanical license I would have to pay is as follows a formula: Statutory Rate X Number of Phonorecords = Royalty Due In my example, the formula would be: 9.1 cents X 5,000 CDs = $ Before reproducing any copies of my cover version, I would need to contact the Harry Fox Agency or the publisher directly to issue this mechanical license. 7

8 On the other hand, if the reproduction was by my own label of my music, the statutory rate would likely not be used. Discounted rate can be negotiated and are often set at a fraction of the statutory rate in the controlled composition clause mentioned earlier. Practice Tip: Please be advised, releasing a cover song not in the public domain without a mechanical license may constitute copyright infringement for the unlicensed reproduction and distribution of a copyrighted musical work. This could result in significant liability and is something you can and should avoid. Covering vs. Sampling When contemplating the use of someone else s music, it is important to understand the difference between a preexisting composition and a preexisting sound recording. Mechanical licenses cover compositions. If you wish to use a preexisting sound recording, commonly referred to as sampling, a different form of license is required and sometimes you will need both a license for the sound recording and the composition embodied in that recording. To sample a sound recording, you need a Master Use license issued by the copyright owner of the sound recording. The owner of the sound recording is typically the label/publisher. To figure out who the owner of a particular record is, look at the fine print on the CD or details in an online marketplace like Amazon.com. To continue with my Folsom Prison Blues hypothetical, if I intended on sampling the original recording for use in my work, I would need permission from the owner of the sound recording and the owner of the composition. A recent edition of the sound recording was released by Sony Legacy/Song Music Entertainment. I would contact their licensing 8

9 department directly to discuss the applicable rates for a master use license for my samples of their sound recording. The licensing department of a label should also be able to provide contact information for the administrator of the composition at issue. Performance Royalties Another source of royalty income flows from the right to public performance. In the US, licensing fees for live performances, radio and television broadcasts of a composition are collected by Performing Rights Organizations (PROs). The largest PROs in the US are ASCAP, BMI, and SESAC. These PROs typically have blanket licensing deals in place with venues, radio stations and television networks that set licensing rates for certain types of uses of copyrighted musical works. The PROs monitor music usage, collect fees from the broadcasters and venues, and distribute these performance licensing fees to the owner(s) of the copyright to the composition (i.e., songwriters and publishers) who have affiliated with that PRO. In other words, if your music is being broadcast on radio or television, you must affiliate with a PRO to receive the performance royalty money you are due. ASCAP s formula for calculating royalties is as follows: 9

10 Use Weight X Licensee Weight X "Follow the Dollar" Factor + X Time of Day Weight Radio Feature Premium Credits (if any) + TV Premium Credits (if any) = Credits X General Licensing Allocation After calculating the total Credits, use the following formula to determine the royalty payment due: Credits X Share X Credit Value = Royalty Payment The terms used in by ASCAP in these formulas may not be familiar to everyone. Here is a list of definitions: Use Weight refers to the value given to each performance type (e.g., theme music, background instrumental, etc.) Licensee Weight reflects the license fee paid by a certain station or bundle of stations. For example, if a major network is broadcast by a large number of stations, it will have a greater weight and pay a larger fee. Follow The Dollar Factor is used to fairly administer payments according to their medium. In other words, payments received from a television network are paid out for copyright uses on television and not some other medium, such as radio. 10

11 Time of Day Weight is used to determine the appropriate rate for usage at difference times in the day (e.g., prime time, etc.) in certain mediums. For example, television usage rates in the early morning hours are typically much less than rates for usage during prime time. General Licensing Allocation is used to account for proxy distribution of fees associated with non-broadcast, non-surveyed uses like bars, hotels, and restaurants. These payments are distributed by proxy through television performances and broadcast feature performances on radio. Radio Feature Premium Credits give songs in heavy rotation that exceed set threshold numbers of radio feature credits in any given quarter additional credits, which results in larger royalties earned. TV Premium Credits work much like Radio Feature Premium Credits in that certain programs and networks that are highly rated earn additional credits for theme music, underscore and feature performances and, thus, earn larger royalty payments. Once the total credits associated with a performance are calculated, then multiply that figure by the applicable Share and Credit Value to determine the royalty payment due (i.e., Credits X Share X Credit Value = Royalty Payment Due). Factoring in a Share value is a way to fairly account for multiple writers on one composition. For example, if you co-write a song with one other person and agree to split everything down the middle, each of you will receive a 50% share of the royalties. The Credit Value is a figure that changes each year depending on (1) the estimated total number of ASCAP credits for writers and publishers and (2) the total number of dollars available for distribution to ASCAP affiliates. Royalty payments are distributed quarterly. 11

12 For example, survey year 2011 s credit value was $7.10. If a writer earned 500 performance credits in a given quarter through TV and radio play and retained 50% share of the copyright in that musical work, that writer s royalty payment would be: $7.10 X 500 X 50% = $1, Luckily, the PROs handle the math for us. Payments and detailed statements are generally sent on a quarterly basis. Statements detail each composition s performance(s), including where in the world that performance took place. I always get a kick out of reviewing this portion of my royalty statements. Knowing that music I wrote several years ago is currently being enjoyed halfway around the globe always puts a smile on my face (and a couple bucks in my pocket). Digital Transmission Royalties Similar to the way performance royalties come from a copyright owner s right to public performance, the right to transmit digital audio of a sound recording creates its own royalty stream. As with performance royalties, payments are required for the use of a copyrighted work here, the non-interactive digital transmission of a sound recording through Internet and satellite radio. The main difference between the royalties paid under a performance right and the digital transmission right are who receives them. Rather than only the songwriter/owner of the copyright in the composition being paid, digital transmission requires the songwriter, performer and label all get paid. To receive these royalties, you should register with SoundExchange, a non-profit performance rights organization that collects and distributes payments for digital transmissions to sound recording copyright owners. 12

13 Royalties Are Your Friend Royalties are common area of confusion for many musicians. Whether or not you re a math whiz and fully grasp the inner workings of these formulas, royalties serve an essential function: they help musicians get paid for their work so they can keep strumming, singing, and stage diving. To illustrate how these various forms of royalties work in real life, here is an example. Let s assume I am the songwriter and copyright owner of a composition called Show Me The Money and that the sound recording of that song is owned by my record label, Greedy Records. For each CD Greedy Records presses of my song, the label must pay me a mechanical royalty. Sometimes this payment is limited to CDs the label actually distributes (i.e., sells) other times it is due for every reproduction (i.e., copies made but not necessarily sold). If another artist wanted to release a cover of Show Me The Money, I would receive mechanical royalties from the Harry Fox Agency for each phonorecord made by that cover artist. In addition, I would receive mechanical royalty payments for the number of downloads of the song on itunes, and the number of plays my song received on interactive Internet music services like Spotify and Rdio. If Show Me The Money was licensed for use in an episode of Mad Men, the network that broadcasts the show, AMC, would pay a licensing fee to ASCAP (my hypothetical PRO) each time the episode that included my song aired around the world. 13

14 ABOUT THE AUTHOR I have dedicated my career to helping musicians and other creative entrepreneurs protect their businesses and thrive. I am a copyright, trademark, and entertainment attorney licensed in California and practicing in the greater Los Angeles area. In my legal practice, I have represented a broad variety of clients including musicians, internationally known photographers, illustrators, film production companies, and technology firms. I also frequently lecture on issues in copyright, trademark and entertainment law for organizations such as the renowned Musicians Institute in Hollywood, California. Why Focus on Serving Musicians and Creative Entrepreneurs? Because I was one of you. Prior to practicing law, I was a successful session musician and composer. I performed on a multitude of highprofile projects including Emmy award-winning soundtracks, internationally broadcasted live performances seen by tens of millions, and film and television productions under the direction of industry juggernauts such as Steven Spielberg and Jerry Bruckheimer. My performance credits also include award-winning video game titles and new media projects for renowned technology luminaries such as Apple. My years of experience in the entertainment business extend well beyond the studio and stage. In 2007 I launched a boutique music library company, LA Studio Tracks, LLC, representing over fifty composers from seven different countries in an array of music licensing deals for major network, cable, and new media productions. 14

15 My continued passion for the arts is evidenced by my involvement with ISM: A Community Project as a founding member of the Board of Directors. ISM is a non-profit organization dedicated to the artistic enrichment of our community through publishing an internationally distributed magazine, hosting creative installations and lectures, and through its interactive web presence. During my tenure with ISM, I have advised the organization in both fine art and digital media licensing and publishing matters. *Ian Gibson, Esq. is an attorney licensed to practice in the state of California. This article is for informational purposes only and is not intended to constitute legal advice. Reading this article or visiting iangibson.com does not create an attorney-client relationship. This material may be considered advertising under applicable state laws. 15