Week 5 -Digital Royalties for Music Publishers

5TH CLASS NOTES - DIGITAL ROYALTIES FOR MUSIC PUBLISHERS

Royalties for Digital Streaming Over The Internet or Digital Cable and Satellite  – Interactive and Non-Interactive

ASCAP, BMI, and SESAC have agreements in place with commercial users for the performances of their member's publishing catalogues over the internet for non-interactive use (i.e pure streaming such as done by internet radio stations), and interactive use (on-demand streaming of songs). Soundexchange issues licenses for non-interactive digital performances in the US of all commercially released master recordings. 

The legal history of this area is quite complex and there are several good articles available for students who wish to go into more detail please ask me about them.

Since different uses of music over the internet trigger different licensing requirements, let us look at some examples to illustrate how digital music licenses are issued and obtained to cover a variety of commercial circumstances:

1. Music is streamed (played) by a webcaster in an unpredictable pattern controlled by the station; (i.e. Internet Radio stations or Webcasters such as Pandora)

Type of Rights required from Publisher and Master Copyright Owner (Record Label):

Non-interactive Public Performance License

License to Make Ephemeral Copy to be used for transmission

Publisher's Performing Rights License Provided by:

Publisher Performing Rights Organizations: ASCAP, BMI, and SESAC; Rates set vary based on various factors

Payments: Made equally to Publisher and Songwriter by PRO

Master Sound Recording Public Performance License Provided by:

Soundexchange: Rates vary but set under authority of Copyright Act

Payments: Made equally to Copyright Owner (usually Label) and Artists
 

2. Music is streamed (played) by a webcaster in customer-controlled, interactive manner which does not qualify for non-interactive compulsory license (i.e subscription, on-demand streaming and conditional download sites such as Rhapsody which give the customer the ability to chose what songs they want to hear)

Type of Rights required from Publisher:

Interactive Public Performance License

License to Make Ephemeral Copy to be used for transmission

Mechanical Rights (Interactive Mechanical Rights)

Publisher's Public Performance Rights License Provided by:

ASCAP, BMI, and SESAC; Rates set vary based on various factors and are higher for this use than non-interactive

Payments: Made equally to Publisher and Songwriter by PRO

Publisher’s Mechanical License rights Provided by:

Either Harry Fox Agency in New York or directly from Publisher. Often Music Resources Inc., a private company, is hired to act on behalf of webcasters to clear and pay royalties for mechanical rights needed for interactive use under a compulsory license.

Types of Rights required from Master Copyright Owner (Record Label)

Interactive Streaming License Provided by:

Record Companies or Digital Distributors on their behalf

3. Music is played over a website in a video, movie, advertisement, videogame, television show or otherwise in a timed relation to a visual image.

Type of Rights required from Publisher:

Synchronization License that permits internet usage which is obtained prior to public release of visual work; Public  Performance License which is administered by ASCAP, BMI, and SESAC and given to those media outlets (websites, tv and radio)  who perform the audiovisual works.

Publisher's Synchronization License Provided by:

Direct negotiation with Publisher and payment to Publisher (amount is usually same as received by record label)

Payments; Directly made to Publisher who shares with songwriter

Types of Rights required from Master Copyright Owner (Record Label)

Master License as a result of direct negotiation with Record Company for license to use material in audio-visual work (amount is usually same as received by Publisher)

Master License Payments: Made directly to Record company who shares net proceeds with Artist

Master Public Performance License for Digital Perfomances: Issued through SoundExchange, unless rights were already acquired within the Master License  

4. Songs are sold on a download basis at an online retail website

Types of Rights or Licenses required from Master Copyright Owner (Record Label):

Distribution and Reproduction Right:

Provided by:

Either Digital Distributor of Record Company or Record Company directly

Type of Rights or Licenses required from Publisher

Mechanical License (reproduction of composition digitally)

Performance License (either Interactive or Non-Interactive) if music is also streamed at the site

Mechanical License Provided by:

Either Direct from Publisher or Harry Fox Association (if publisher is represented by Harry Fox)

Mechanical Payments:

In United States, payments are made by Record Label from directly to either Publisher or Harry Fox as the Publisher's representative. In Europe, payment is made by the online Digital Retail outlet to Mechanical Rights Collection society who in turn pays Publishers.

Public Performance License Provided by:

Publisher’s Performing Rights Organization (ASCAP, BMI, or SESAC )

Payments: Made by Performing Rights directly to Publisher and Songwriter in equal amounts.

To summarize, with regard to the exploitation of Masters and Compositions over the internet, there are potentially 3 separate rights that are involved which require consent of the copyright owners of the master and composition: Distribution, Reproduction, and Public Performance. Cases involving unlicensed distribution or file sharing of MP3’s have uniformly held such activities to be in violation of US Copyright laws. Remember, practically all internet distribution of recorded music involves the distribution and reproduction and performance rights of the copyright owners of the master and the composition. (pure downloading of an MP3 does not involve public performance) Therefore, legal distribution and downloading of musical works over the internet can only take place if one of two circumstances exists: (1) either the copyright owners (or their representative) of the master and composition has authorized such distribution and copying activities or; (2) The US Copyright act grants the distributor a compulsory license to distribute the work, and the distributor complies with the statutory requirements and makes the necessary payments or (3) the copyrighted works being exploited have fallen into the "public domain" and are no longer enforceable

Collection of Foreign Royalties by Music Publishers for Internet-based Royalties Earned in Europe and Other Countries

Importance of Foreign Music Publishing Income

We live in an increasingly inter-connected world where music created today in the United States can be heard tomorrow halfway around the world. Most of the developed countries have systems in place for the orderly collection of music publishing income just which are similar to those that exist in the United States. However, it takes knowledge and effective representation abroad to insure that as a publisher, you are able to access your rightful share of those international revenues. This is important as it appears that at least 60% of the music publishing income “pie” is earned outside of the United States and Canada.

Public Performance Income

Public Performance Societies in Europe and other countries operate much like BMI, ASCAP and SECAC do in this country. They collect money from Broadcasters, Webcasters, Satellite, Cable, and Venues for the performance of their catalogues. American compositions which are performed abroad are entitled to share in the royalty collection in the same way that foreign compositions are entitled to participate in the monies collected by the US Societies.

The collection of foreign performance royalties is simplified due to the existence of reciprocal agreements between the American and foreign societies. Under these agreements, monies earned by American publishers abroad are paid to the foreign performance rights society of the country where the performances occur. In due course those foreign societies will pay those royalties to ASCAP, BMI, or SESAC depending on who controls the US performing rights, and those societies in turn pay the publisher and writer. Correspondingly, the American societies collect and remit performance income earned in the United States by foreign compositions to the foreign performance rights organizations for their foreign compositions.

There is no additional paperwork or registration required by the US copyright owners to receive their performance royalties. The foreign royalties appear on a separate area of the US PRO statement. Due to the time required to collect and remit the foreign royalties from one society to another, and then finally to the publisher and songwriter here in the United States , foreign payments generally lag six months or more behind the original earnings period. But the lack of any additional steps to take by the publishers makes the collection process much easier.

For more detailed information on Foreign Collection Societies visit: www.bemuso.com/musicbiz/collectionsocieties.html

Digital Mechanical Income Collection Procedures in Europe and the US

Despite the uniform operation of Itunes and other internet retailers around the world, there are significant differences between how mechanical income owed to the publishers of downloaded songs is collected from digital downloads are paid in the United States and Europe.

To begin with, it is important to understand that the law and procedures of the country in which the purchase is made controls the manner in which the mechanicals due on download sales will be paid.

United States:

In the United States, retailers such as Itunes remit the income from the sale of the download, after deduction of their fee, directly to the digital distributor (or major label directly) who in turn deducts their distribution fee, and remits the balance to the label. For a download of 99 cents, Itunes will deduct 20 cents, leaving 79 cents to go to the distributor/aggregator, who in turn may deduct 15% or 12 cents, leaving 67 cents that is paid to the Label.

Accordingly, it is the label’s responsibility to pay the publisher from their 67 cents for their mechanical income payment. Under the US Digital Millennium Copyright Act, the Label is required to pay the full 9.1 cents on digital sales, despite any controlled composition clause. The only remedy for the publisher who is not paid is to bring a collection action against the label for unpaid mechanical income. As you might guess, there are many small labels who are selling downloads from their own websites and online retailers around the globe who are failing to account to publishers and songwriters for these internets sales. Collection efforts are expensive and therefore only justifiable when significant unpaid dollars are at stake.

In the US, the Harry Fox Agency represents a large percentage of the copyrighted works for mechanical and digital licensing. An American publisher who is represented by Harry Fox will have their assistance in collecting from and auditing Record labels to insure proper payment of mechanicals for their sales both domestically and abroad.

Europe:

In Europe (and many other countries) each country (or collection of countries, if small) has its own publishing society which is similar to ASCAP, BMI, and SESAC here in the United States. The chief difference is that the European societies not only collect for the public performance of their members compositions, they also collect for the mechanical income as well. In some countries the performance rights and mechanical rights are collected by the same society, and some countries they are collected by different societies. However, the important thing to understand is that either way, you have a uniform system for collecting mechanicals directly from the retailers on the internet, which is a vast improvement over the American system.

Since the European societies receive payment directly from the retailers like Itunes for mechanical income on digital sales made by those retailers, much of the collection uncertainty of the US system is removed. The US labels share of their download sales over the internet through online retailers in Europe are reduced by the mechanical payments that are made on their behalf to the European collection societies. Initially, payments had to be made in each country in Europe where the sales were made. To simplify matters, the European Commission, agreed that publishers/rights owners could pick just one of the European societies and that society (called their Pan European Online Licensor) in turn could collect mechanical income from sales in any country in the EU, much the same way that a publisher in the United States can pick one performing rights society here such as ASCAP, BMI, or SESAC who in turn can collect for performances in all 50 states.

For major international publishers such as Sony, who have subsidiaries in all the European countries, it is a simple matter for them to have their local subsidiaries designate their collection society and receive payments. If an American publisher is represented by the Harry Fox Agency, Fox will usually collect on their behalf from European societies such as BIEM ( Bureau International des Societes Gerant les Droits d’Engristrement et de Reproduction Mecanicque ). In exchange, Harry Fox Agency will usually represent the European members’ works in the US for mechanical licensing purposes.

Other Alternatives for Small American Publishers to Collect Digital Mechanical Royalties Collected and Held in Europe by Mechanical Societies

For small independent publishers who are not members of Harry Fox Agency, whose works are frequently selling via downloads in Europe, they will be unable to collect their withheld European mechanicals until they arrange properly affiliate with one of the Pan European Online Societies. If they have a sub-publisher in Europe, collection from the European society will be the job of their sub-publisher.