Music Licensing (Chapter 7)
“There should be a single Art Exchange in the world to which the artist would simply send his works and be given in return as much as he needs. As it is, one has to be half a merchant on top of everything else, and how badly one goes about it!” –Ludwig van Beethoven
Music Rights: Overview
Under U.S. copyright law, protected music generally can be used only after permission is obtained from the copyright owner. This consent is customarily given by the granting of a license, which usually involves the payment of a fee.
The path from creation of copyright to a collection of cash is the heartbeat of the business of music, and the music licensing system is a critical-and occasionally complex-part of the process.
It is also common: If you have listened to a song on the radio, hummed along to a familiar tune hawking a car on TV, called up some favorite tunes on your subscription music service, tried to avoid humming along to a classic rock instrumental pumped into an elevator, tried to tune out a fellow diner whose blaring cell phone is repeating the melody of last week’s chart–topper, melted to the strains of a favorite love song during a romantic movie scene, or ponied up a 20 for the film’s CD soundtrack at the mall, you have brushed up against just a few of the many fruits of music licensing.
In some way, a songwriter, music publisher, and/or recording artist is probably making money from the music that surrounds you every day and everywhere, often even when you don’t pay directly for the music you hear.
This is the highly lucrative world of music licensing, a system of permissions and payments keyed to copyrighted material. There are small exceptions and on limited exemption to copyright’s airtight hold on music that is fair use, which permits very limited appropriation of small portions of copyrighted content for public comment (like music critics) or some educational purposes.
But for the most part, music is licensed. What permissions are required, how large those payments will be, with whom the licenses must be negotiated, and to who the license fees will be paid vary widely depending on how the music will be used and how eager the licensee is to obtain it, among other factors.
Some licensing deals are done for a one time flat fee, whereas others require this payment of royalties to be ongoing, depending on usage or sales.
The everyday examples cited above, for instance, involve a host of different license requirements, including the big three: performance, synchronization, and mechanical-and various combinations thereof.
See Table 7.1 (p.119) Music Licenses: Types Required for Different Uses
There are 2 types of music copyright a music licensee might seek permission to use: the composition copyright, owned by the songwriter and/or music publisher, and the sound recording copyright, usually owned by the recording label.
Composition Copyright is the copyright in the song itself, encompassing the words and music; it’s the © a songwriter affixes to the composition.
Sound Recording Copyright is designated by ℗ and was established only in 1972 under federal law to encompass the actual recording of the song-the artist singing, the musicians playing, the entire production as put down on a CD or other recorded format aka Master Use License.
Rules governing licensing of pre-1972 recordings are murky and covered by a patchwork of state laws, triggering a raft of lawsuits pitting music talent, music labels, and their licensing intermediaries against music-playing platforms. [article]
The label-owned recording copyright is reflected in a master use license, because it represents the licensee’s right to use the recorded master, not just the underlying song.
This typically means the hit version of a song from the artist who made it famous, not less popular cover versions. Depending on the usage, this can take various forms, such as a master sample license or a master ringtone (“mastertone”) license.
Summary: A song used in a movie:
Publisher issues Synch License (permission for composition to be used in synch with visual images), Label issues Master Use License (permission for sound recording to be synced in the same manner).
An understanding of this distinction and its implications is crucial, because it determines the type(s) of licenses needed for various purposes. A master use license would come into play with the use of the hit a song recording used in a movie.
For the soundtrack album containing that previously released love song, the record company releasing it needs to go to the record label that own the original recording copyright to obtain a master use license (if this was not negotiated as part of the original film license).
It also needs to compensate the music publisher of the song via a mechanical license, giving the soundtrack label the right to reproduce the song in a CD or permanent digital download and sell it.
No one has the right to use copyright music in movie/commercial without express permission of the copyright holder (different than a mechanical/compulsory license to make a cover of the song).
Digital Media creates another issue involving pay to creators, Record labels sometimes extract significant financial benefits from large music licensing deals, and talent doesn’t always share in the bounty.
For example, the big three record conglomerates received equity stakes in online streamer Spotify as part of the music licensing deals; those combined stakes were soon worth hundreds of millions dollars:The artists’ share: zero.
Performing Rights Organization
One of the most important rights granted to authors under U.S. copyright law is the right to control the performance of music creators’ compositions in public.
In practice, this means that most any venue or broadcaster that exploits a copyrighted composition must obtain permission from the copyright holder in the form of a license and must generally pay a fee.
The largest source of income for many composers and publishers is from such licensed public performances of their music, including live concerts; broadcast over radio, TV, and the Internet; and other means of transmission.
The creators-composers, lyricists, and musicians-typically contract with performing rights organizations (PRO’s), which collect money from music platforms on behalf of their client music originators.
The Big 3
- The big three U.S. PRO’s for compositions are ASCAP, BMI, SEASAC, each with histories stretching back decades
- Recently, industry trailblazer Irving Azoff started a competitor, Global Music Rights, promising to pass more money collected to music creators.
- Other smaller competitors have popped up using Internet-based technology to collect and distribute, also claiming to pay a higher cut to music creators.
- However, smallish outfits lack the reach to tag nonpayers and may lack the deep pockets to pursue litigation.
- In the US, recording artists historically have not received performance royalties for most public performances of their recorded works, such as on radio broadcasts.
- But attitudes toward this historical precedent have shifted somewhat over the past couple decades.
The limitation on sound performance rights first changed in the digital domain, where a limited public performance rights for masters-such as under the webcast licenses mentioned earlier-was carved out.
For writers and publishers-as distinct from labels and performers-the performing right has long been a bedrock of licensing income from a wide variety of sources.
Webcasting struggled economically in its early years in part because of the unique burden of a sound recording royalty obligation, and pressure built up on key industry players to find a win-win solution.
The problem: traditional broadcasters who operated separate digital outlets had to pay what they considered exorbitant recording royalties (a fixed amount per play) even if their bidding digital services were losing money.
Labels and artists were hurting because as recorded music sales tanked, they were stuck with not a penny in royalties from the biggest outlet for their creative works-terrestrial broadcast radio.
In 2012, group broadcaster, iHeart Media (formerly Clear Channel) stuck a groundbreaking direct deal with indie label Big Machine. Under the pact, iHeart agreed to pay a percentage of ad revenue to the label for plays on both digital and terrestrial radio-the first such deal in the United States.
Big Machine (representing Taylor Swift, Tim McGraw, and Rascal Flatts) in turn would pay its artists their share of the newfound revenue stream. The deal was notable in that it bypassed the role of any PRO, the historical intermediary for distributing royalties.
Such individualized deals can be an option between record labels that control music rights and users such as these radio groups.
The reason for that intermediary role Is obvious. From the beginning, it was impractical for thousands of licenses to send separate payments to thousands of copyright holders.
Not surprisingly then, several performing rights organizations were created with the express purpose of issuing performing rights licenses and then collecting and distributing royalties to writers and publishers they represent.
In the US, the performance rights for most copyrighted compositions are handled by either the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music Inc. (BMI); or SEASAC, Inc.
Sound Exchange collects and distributes performance royalties on noninteractive digital radio (again, excluding terrestrial broadcast performances) from statutory licenses on behalf of recording artists and sound recording copyright holders.
These organizations also lobby Congress on music copyright concerns, promote music scholarship, enforce their members’ rights through infringement litigation, and host awards events. They DO NOT publish music, and they rarely promote individual copyrights. (CF)
The Big 3 collect and distribute more than 2 billion dollars a year from all sources.
Some entertainment companies that use only a small portion of the catalog or have a limited need for music performances may bypass them, seeking licenses at the source (through the program provider) or directly (from the copyright owner). (Go straight to writer/publisher; no PRO).
For example, film of TV producers may get source and direct licenses by negotiating a single fee for performance and synchronization rights in the same transaction.
In 1993, a lower federal court ruled that ASCAP must offer commercial television stations per-program licenses with surcharges for processing that approximate the cost of pro rata blanket licenses. Per-program licenses or low-cost-blanke licenses to radio stations that use little music are typical.
The Nuts and Bolts
- 10-15% of PRO income is generated by nonbroadcast sources (clubs, hotels, arenas, airlines, colleges, restaurants, taverns, concert promoters, skating rinks, circuses).
- Censuses or sample surveys of performances: review of cue sheets/program logs for movies/TV, reviews of radio logs, etc.
They increasingly rely on electronic audio recognition software that logs music on an automated basis; the recognition software can identify songs without cooperation of media outlets.
Typically paid quarterly
While specifics vary depending on the rights organization, a member’s or affiliate’s share of the total royalties collected is determined broadly by the number and kind of performances of his or her music in the marketplace, as tracked via above techniques.
Some songs have more than one writer and/or more than one publisher. If they do not all belong to the same PRO, the parties can earn different amounts from their respective representatives, because the three organizations use their own particular methods to determine royalty payments.
Foreign collection adds significantly to total earnings as foreign markets open to Western music.
The foreign subpublisher remains the dominant source of foreign collections.
For those publishers who cannot depend on subpublishers to collect performance fees, the big 3 perform this service through reciprocal agreements with the major music licensing organizations abroad (in excess of 90 territories).
The most lucrative foreign sources of income at this time are Japan, the UK, Germany, France, Canada, Italy, Spain and the Netherlands.
ASCAP & BMI: nonprofit (retain under 20% of gross receipts for overhead)
SESAC: For-profit! (Privately owned: doesn’t publish expenses/collections)
ASCAP (American Society of Composers, Authors, & Pubs)
- America’s 1st PRO.
- Open to all writers w/ at least one published/distributed song or one commercially recorded song or otherwise likely to be performed.
- Collects/distributes most royalties (1 Billion in 2014).
- No annual dues.
- Distinct-governed by its board of directors (12 writers members/12 pubs members).
- Workshops & awards.
BMI (Broadcast Music Inc.)
- Open to all writers w/ at least one published/distributed song or one commercially recorded song or otherwise likely to be performed.
- Has no members instead, it has writer and publisher affiliates.
- Does not charge its affiliated writers an application fee or dues.
- BMI publisher affiliates pay a onetime applications fee.
- Conducts overall negotiations w/ established trade organizations (i.e. the American Hotel & Motel Ass.
- Avoids separate dealings w/ 1000s of music users).
- Workshops and awards.
SESAC (originally Society of European Stage Authors & Composers)
- 1960s-present, just SESAC): 1st to embrace state-of-the-art tracking systems (Nielsen Broadcast Data Systems (Nielsen BDS)
- Workshops & awards.
The larger the stations’ fees, venue caps, etc., the higher the royalty payments to writer/pubs.
Independent, nonprofit PRO setup by RIAA.
The Copyright Royalty Board has designated SoundExchange as the sole entity in the United States to collect and distribute the digital performance royalties on behalf of featured artists, owners of master rights such as record labels, and independent artists who record and own their masters.
- Collects statutory royalties from Internet radio, cable TV music channels, webcasters, satellite services (ie Sirius XM Radio), & other streaming platforms.
- Splits performance royalty distribution equally between the artist and the sound recording copyright owner.
- For the artist portion, most goes to the featured artists and a small slice to a fund for non-featured artists (session musicians, background singers, etc.).
- The featured artists’ slice of the pie has become so lucrative that some labels now try to negotiate taking part of that piece, defying the more even split decreed by Congress.
- NOT for “on demand” services (those in which you choose the song to play), digital downloads, or radio/TV performances.
- No membership fee.
- A second source of licensing income for writers and publishers are mechanical royalties that encompass copies in physical media such as CDs and also digital copies that are retained by consumers such as digital downloads of ringtones and songs.
- A century ago, the term mechanical applied to songs performed automatically from mechanical piano rolls. Times changed; the name remains.
- Recording Companies are required to obtain a mechanical license to manufacture and distribute phonorecords to the public.
- This type of license is limited to those who intend to make these recordings available for private use – the kind of recordings people buy and take home or, in the age of digital distribution, purchase and download.
- The copyright law sets forth procedures and fees for record companies to obtain a compulsory mechanical license (set by a court).
- The notion that music is “a business of pennies” likely has its roots in the statutory rate for mechanical licenses.
- The first change in that rate since 1909 occurred in 1978, when Congress implemented an increase from 2 cents to 2.75 cents for each work embodied in a phonorecords or one-half cent per minute of playing time or fraction thereof, whichever amount is larger.
- In actual practice, however, most licenses of physical recording (phonorecords) for home use are negotiated mechanical licenses.
- Publishers and record companies generally bypass the compulsory licensing route (rate set by court) and work out their own terms, although the prevailing statutory rate is often used as a benchmark (a ceiling) in negotiating lower rates.
See Table 7.2 (page 132) US Statutory Mechanical Rates Chart
Negotiated Mechanical Licenses may differ from statutory compulsory license in 3 ways:
- The royalty rate may be lower.
- Royalty accountings usually quarterly, rather than monthly required with a statutory license.
- Statutory requirement of “notice of intent” to record the copyrighted material is waived.
- Most publishers use the Harry Fox Agency to issue mechanical licenses.
- Publishers instruct HFA on royalty to charge, HFA implements license, collects royalties, takes out service fee of 8.5%, and forwards balance to publisher.
- Publishers who don’t go through HFA can arrange their own license, or use the American Mechanical Rights Agency (AMRA).
Synch Licenses are the right to use music that is timed to synchronize w/, or relate to, the action on the screen.
- Film Producers who want new music composed for a film engage composer on a work-made-for-hire basis (makes Producer author of work-doesn’t need a license)
- If not a W-M-F-H basis, Producer may engage Composer as independent contractor, pay a fee, & negotiate pub rights to the music.
- If Composer retains ALL pub rights, Prod must obtain synch license from composer.
- Synch license fees vary (determined by if music is performed on camera vs. underscored, whether it’s to be sung, nature of scene, duration).
- Labels/Pubs also weigh promotional upside of being ft. in a given motion picture (beg. artist vs. est. artist).
- Very imp for film prod to obtain broadest possible synch license: Ex: A movie that was originally planned for theatrical exhibition in US, may later be used in foreign theaters, TV broadcasts here & abroad, cable TV, & home video.
- Pub may try to grant limited license to maximize profits later when film is used in different media.
Cable TV Licenses: Cable operators are required to operate under a compulsory license.
- Rates are periodically reevaluated by the Copyright Royalty Board (CRB).
- Separate licensing arrangements made w/ individual program NETWORKS (MTV, HBO, Showtime, etc.).
- Not required to operate under compulsory license.
Video Licenses: With music videos, initially no industry standards were set. The failure of 1976 Copyright Act further complicated the situation. Over the years, entertainment attorneys and industry leaders have gradually formed a consensus. Here are their views:
- All videos, clips or albums, must be defined under copyright law as audiovisual works (like a small movie and producers must acquire synch licenses).
- Video prods/manufacturers must pay publisher for right to reproduce videos as cassettes or discs for home use.
- Can either be a one-time flat fee or a per-unit fee based on sales.
Transcription Licenses: Encompasses music used by syndicated programs, large music companies (Muzak), in-flight ent, & music library services.
- Requires a mechanical license & performance license.
Special Use Permits: Include broadcast commercials, video games, & merchandise tie-ins (posters, apparel, greeting cards).
- Either a one-time fee or royalty based on sales.
Broadcast Commercials: Highest earnings generated for publishers (ad agencies or sponsors often pay thousands).
- Licenses often include right to alter words/music to suit needs of advertisers.
Video Games: Guitar Hero, Rock Band, any games that use music – game companies pay a per unit royalty.
- Licenses based on duration of music, manufacturing run, & projected earnings of game.
Jukebox Licenses: Since 1978, jukebox owners required to obtain public performance licenses for “nondramatic music.”
- Jukebox License Office (JLO) Created by ASCAP, BMI, SESAC, and the Amusement and Music Operators Association (AMOA), which offers operators a blanket license (Covering use of music from all 3 PROs).
Dramatic Music Rights: “Dramatic Music” refers to compositions used in the context of a wider piece or in the telling of a larger story-including, for example, operas, musical shows, and revues, in whole or in part.
The term may also include music that did not originate in a theatrical production, but was written as part of a TV or radio show where the music was integral to the plot and where it contributed to carrying the drama forward.
- Performing rights in dramatic music are referred to as Grand Rights.
- Grand rights must be negotiated with copyright owners separately from nondramatic rights, which are sometimes termed small rights.
- Grand rights are necessary to stage complete live musicals such as operas and Broadway musicals with multiple songs, as opposed to licenses for individual tunes.
- Grand Rights must be licensed when a dramatic musical work is performed as a whole (or a substantial portion).
- When Bway musical becomes a hit, writers enjoy income long after Bway run (regional theater)