Blog post submitted by: Vanessa Kaster, Esq., LL.M.
Music is one type of “original works of authorship” that copyright law protects. Copyright protection gives the authors or owners of copyrighted music the exclusive rights to do and to authorize others to do the following:
- TO REPRODUCE the copyrighted music;
- TO PREPARE DERIVATIVE WORKS based upon the copyrighted music;
- TO DISTRIBUTE COPIES of the copyrighted music to the public by SALE or OTHER TRANSFER of ownership, or by rental, lease, or lending;
- TO PERFORM the copyrighted music publicly;
- TO DISPLAY the copyrighted work publicly. (Display may be less applicable to music; although, in today’s digital age it could be possible and worth mentioning).
These exclusive rights in copyrighted works, including music, are outlined in Section 106 of the US Copyright Act. Violating any of the rights vested in the owner of copyrighted music is illegal. However, it is important to note that there are some exceptions and limitations to these rights. One major limitation is the doctrine of “fair use.”
While copyright exists in any piece of original music (and any original work) from the time the work is created in a fixed form, registering the music with the US Copyright Office has additional advantages including: 1) establishing a public record of the copyright; and 2) assisting with any infringement actions that may arise. Keep in mind that copyright registration is affordable and only costs $35.
BY: Vanessa Kaster, Esq., LL.M.
For personalized legal services you are welcome to contact me at firstname.lastname@example.org
See also, the US Copyright Act at http://www.copyright.gov/title17/92chap1.html; the US Copyright Circular 1 on Copyright basics at http://www.copyright.gov/circs/circ01.pdf; the US Copyright Office Website at www.copyright.gov; other blog posts on copyright registration of original works; @iplegalfreebies and www.kasterlegal.com.
By Jeff and Todd Brabec
A composition in the public domain is one that is unprotected by copyright, because its copyright has expired. As a brief overview of copyright duration under the United States Copyright Law (and there are more complexities depending on the composition involved so this is not dispositive in any respect other than to provide a general rule of thumb as a starting point), protection for a composition copyrighted prior to January 1, 1978 lasts for 95 years from the earlier of registration with The Copyright Office or publication. For compositions written on or after January 1, 1978, copyright protection lasts for the life of the author (or last surviving author if a joint work) plus 70 years. And if the composition was written as a work for hire, the copyright protection term is the earlier of 95 years from publication or 120 years from creation.
Granted, not much public domain material is recorded in comparison with original material, but if such a song becomes a hit or is on a successful album, the royalties can be substantial provided the writer/arranger (who is many times the recording artist or record producer) has copyrighted his or her version and registered it with the performance right society with which the writer is affiliated..
In the artist’s record contract or the producer agreement (if the writer is the producer) there is almost always a clause that deals with how mechanical royalties are paid if a public domain song is contained on the album or released as a single track.
Some record companies refuse to pay any writer or publisher mechanical royalties for public domain compositions. Others pay a reduced stated penny rate.
The most common approach (one accepted by most record companies), however, provides that the record company will pay the songwriter/arranger on the basis of the percentage that ASCAP, BMI or SESAC determine what they will pay the writer/arranger for performances of the copyrighted arrangement.
In this regard, ASCAP will treat an arranger as a writer and pay royalties according to the amount of new material that has been added to the original public domain composition. The percentages range from a low of 2% to a high of 100%.
Below is a summary of ASCAP’s guidelines in the crediting of public domain works for royalty purposes.
If the arrangement is separately published or separately copyrighted, there will be a 10% royalty crediting (i.e., the royalties payable for performances will be 10% of the royalties that would be earned by an original song). If it is included in a copyrighted collection (but does not qualify for 10%), then the royalty crediting is 2%.
If the composition contains public domain lyrics and new, original music, it may receive up to 50% crediting, depending on the extent and treatment of the lyrics within the context of the entire work.
If the copyrighted arrangement contains lyrics, it is deemed to be a vocal arrangement and can earn up to 100% depending on the extent to which it embodies changes in the underlying composition as follows: (a) new lyrics, up to 50%; or (b) changes in the music, up to 50% (in addition to any % received in (a) above).
If the work is primarily an instrumental, it can be accorded up to 100% of the % given to an original composition as follows: (a) a transference from one medium to another, up to 35%; or (b) a development of a composition, which exhibits creative treatment and contains original musical characteristics and is identifiable as a set piece apart from the source material, up to 100%
BMI, on the other hand, will pay the writer/music publisher 20% of what an original newly written song would earn. Unlike ASCAP where there is a review process if the writer requests such to increase the percentage from the initial 2% to 10% that is initially allocated, this is a flat rate determination which is applied to all copyrighted arrangements of public domain compositions across the board.
SESAC treats public domain works in a manner similar to BMI, as arrangements of songs that are in the public domain are paid at 15% of the otherwise applicable income that would have been earned by an original song.
To illustrate with an example as to how the procedure works in reality, let’s assume that a writer artist or writer producer is an ASCAP writer member who records a contemporary arrangement of a song that is in the public domain. In the artist’s record contract there is a provision that the artist will be paid the 9.1₵ United States statutory royalty for the sale of every composition that the artist writes and records. There is a 13x statutory cap on physical product but such does not apply due to the fact that the album does not exceed the cap (i.e., the album has only 13 songs on it).
In addition, there is a provision in the controlled composition clause of the artist and/or producer agreement that states that mechanical royalties on any arrangement of a public domain work will be calculated in proportion to the percentage given the writer’s copyrighted arrangement by ASCAP, BMI or SESAC.
The single is released, is successful, and sells 250,000 downloads. The album goes to #1 and sells 500,000 units in the United States.
The recording artist/writer (or writer/producer if applicable) submits the recording and a copy of the new arrangement to ASCAP, where the composition is analyzed in house and a % determination made. If the writer is not happy with this decision, he or she can appeal this classification decision to the Special Classification Committee For the sake of this example, ASCAP and its Special Classification Committee gives the composition a 50% royalty rating because of significant additional new material, creativity, etc. – in effect, making the new composition worth one-half of an original newly written song.
The record company is sent a copy of the ASCAP determination ( the same would occur with BMI and SESAC with their flat fee rates) which then gives the song a 50% mechanical royalty payout rate. In other words, the song will receive 50% of the “original song” 9.1₵ statutory rate per composition mechanical royalty. Certain agreements have a time limit on when the determination and supporting evidence has to be received by the record company but this article is not intended to concentrate on whether such type of provision is enforceable or not. One should, however, be aware of such.
The mechanical royalty calculations for sales in the United States would be:
Single 9.1₵ x 50% = 4.55₵ x 250,000 = $11,375
Album 9.1₵ x 50% = 4.55₵ x 500,000 = $22,750
Such a clause may not seem important to most recording artists and producers who write their own material, but a good recording or producer contract should anticipate and provide for all contingencies. It may not seem likely that the artist will be recording any public domain compositions. But if it happens, the artist (or writer/producer) should be guaranteed some type of fair formula for payment.
It should be emphasized that songwriter and music publisher performance royalties will be based on that same percentage so if a public domain song becomes a radio or Internet hit, the % allocation received from ASCAP, BMI and SESAC can really have an effect on the amount of money that can be earned. For example, if a song is a major radio hit, earnings in the area of $300,000. to $700,000. in songwriter earnings are not unusual in performance royalty income for an original song during the period of chart activity. One just has to do the math to see the monies at stake depending on the % given by the writer’s performance right organization for the public domain work arrangement. For example, an ASCAP 50% public domain crediting would generate $150,000.-$350,000. in writer earnings if one were to use the above original song payments. A BMI 20 % crediting would generate total songwriter figures in the area of $60,000.-$140,000. A SESAC 15% crediting would generate $45,000.-$105,000.
And since the music publisher is paid at the same rate as the writer/arranger, this is not only a songwriter issue but a publisher issue as well.
This article is not going to get into the ins and outs of the actual registration processes with ASCAP, BMI, and SESAC. It should be noted that some of the forms and inquiry boxes to be checked [e.g. (a) original music, (b) public domain music, (c) pre-existing copyrighted music written by someone else, used with permission, but not in collaboration, (d) original lyrics (words), (e) public domain lyrics (words), (f) pre-existing copyrighted lyrics (words) written by someone else, used with permission but not in collaboration, (g) the work is concert music (e.g. symphonic, chamber, recital, etc. with qualifiers concerning whether the work is complete in one movement, part of a multi-movement work such as a symphony, concerto, or song cycle, or part of a larger work, etc.)] are somewhat different from the normal registration process. So knowledge of registration procedures (as mundane as this may sound) is vital to ensure rights and proper crediting, monitoring, and payment of royalties.
Determining whether a song is in the public domain is always the first inquiry. Once this has been established, the next inquiry is how to receive income for its use. To receive any royalties or license fees, you have to copyright your particular arrangement of the pd work and notify your PRO. Without that step, the income flow will be 0 dollars. Once copyrighted, you will receive between 2% and 100% of the royalties that would have been generated had the song not been a pd work.
Performing Rights Licensing in the United States: A World of Multiple Choices, Considerations, and Results
By Todd Brabec and Jeff Brabec
Today’s world of music licensing is undergoing major changes in practically all areas. In the U.S. performance area, the traditional music licensing entities are ASCAP (1914), BMI (1939), and SESAC (1930). Their counterparts in other countries of the world include PRS for Music in the United Kingdom, SOCAN in Canada, and SACEM in France. Existing alongside them is the ability to direct or source license music thereby bypassing the performing rights organization (PRO) structures altogether either on an individual transaction basis (e.g., a particular television show) or for an entire medium (e.g., the Internet).
To make intelligent decisions in this field, you need to know the traditional licensing structures of the PROs with their long history of negotiations, license fees, litigation, and royalty payments, as well as the possible ramifications of a direct or source license as to terms, payments, and other contractual obligations and considerations both in the United States and worldwide. This information is essential regardless of whether you are happy with past and current PRO licensing or are in a situation where you are contemplating a direct or source license or have been asked to consider one or are being forced to enter into one.
The Performing Right
The exclusive right to publicly perform a work is a right of copyright that is set forth in the U.S. Copyright Law, as well as the laws of most countries, and that applies to the payment of license fees by music users when those users perform the copyrighted musical compositions of writers and publishers. This right recognizes that a writer’s creation is a property right and its use requires permission as well as compensation.
Performances can be songs heard on the radio, a website, or a digital jukebox; or the score in a television series or feature film; or music performed live or on tape at a Las Vegas show, an amusement park, a sporting event, a major concert venue, a local rock and roll, country, or jazz club, or a symphonic concert hall. Performances can be music channels on an airplane, music at a convention, or music on hold on a telephone. Music users (those that pay the license fees) include the major television networks, U.S. local television and radio stations, pay cable services (HBO, Showtime), basic cable (USA Network, MTV, VH-1, A&E), online streaming services, concert halls, websites, the hotel industry, colleges and universities, nightclubs, bar and grills, theme parks, and many others. In short, in most situations where music is being performed (with the exception of the home), a user is paying a license fee, an organization is collecting those fees, and writers and music publishers are being paid royalties for the performances of their copyrighted works.
In the United States, this right’s primary recognition came as part of the 1909 Copyright Act, with further definition under the 1976 Copyright Revision Act. The right covers the non-dramatic performance of copyrighted musical works. It does not involve dramatic rights, also known as grand rights, where performances of a composition are licensed directly by the copyright owner. Dramatic, or grand, rights include works being performed in musicals (the live theatre), operas, ballets, and so on. Compositions, though considered dramatic in the context of their original theater or opera setting, are generally under the non-dramatic right when performed individually on radio or television.
In the United States, three organizations negotiate license fee agreements with the users of music and distribute those fees back to the writers and publishers whose music and lyrics are being performed. The organizations are the American Society of Composers, Authors, and Publishers (ASCAP); Broadcast Music, Inc. (BMI); and SESAC.
ASCAP, BMI, and SESAC Income
The starting point for how much an ASCAP, BMI, or SESAC performance is worth is the total revenue that comes into each organization. In 2011, ASCAP’s total receipts were $985 million with BMI at $931 million. Combined distributions to songwriters, composers, and music publishers were in excess of $1.6 billion. SESAC, a smaller private for-profit corporation, does not issue financial information, but reliable estimates place it in the area of $100 million in annual revenue.
It is important to keep in mind that approximately $650 million of the $2 billion annual ASCAP, BMI, and SESAC total represents monies forwarded by foreign performing right collection societies for U.S. songwriter and composer works performed in foreign territories. Most music publishers collect their foreign monies directly at the source via their contractual arrangements with sub-publishers, but some receive their publisher royalties directly via foreign societies that remit the royalties to ASCAP, BMI, or SESAC (whichever is applicable), which then send the monies to the U.S. publisher. The foreign area is important as payments could very well be affected by the language, structure, and scope of any direct or source license agreement.
The next PRO inquiry relates to how much an individual performance is worth in any given medium, as this figure at least provides some form of comparative compensation framework in which to work. Considering that ASCAP, BMI, and SESAC have completely different payment schedules for every type of use (score, visual vocal, theme song, jingle, etc.) in every type of medium (broadcast television, cable, radio, the Internet, etc.), this second inquiry can be extensive depending on the medium and type of performance you are dealing with.
Types of License Agreements
The most common type of license agreement signed by users with ASCAP, BMI, and SESAC is the “blanket license.” This license allows a user (a radio or television station, for instance) to perform any works in the ASCAP, BMI, or SESAC repertory during the term of the license for a specific negotiated or court set fee. This unlimited access to repertory includes all of the past works of writer and publisher members or affiliates, as well as the works written by such members or affiliates during the entire term of the license agreement. The license also covers the works of writers who are members of foreign societies (PRS, SOCAN, APRA, GEMA, IMRO, JASRAC, BUMA, etc.). The blanket license allows a user to perform the copyrighted works of writers and publishers without worrying about infringement litigation (performing copyrighted works without permission), the administrative record keeping of what is being performed, or the identity of the correct parties to be paid and what the payment is to be.
Blanket licenses are normally negotiated agreements in which the license fee paid by the user can be, among others, a flat dollar fee, a per-subscriber or gross revenue fee, a fee based on net receipts from sponsors, a fee based on intensity of music usage, or a fee based on such other objective factors as the number of full-time students for universities, the seating capacity and the types of equipment used in nightclubs, and live entertainment expenditures for hotels. As part of the ASCAP and BMI Consent Decrees with the government, a federal rate court determination of a reasonable license fee also is available. License agreements have a maximum term of five years.
A per-program license is where a station pays a license fee only for each program using ASCAP or BMI music that is not otherwise licensed directly or at the source. The fee is dependent on the advertising revenues the program has generated for the station. The station also pays an incidental music fee for music uses not contained in specific programs and ambient uses in local news programs. The core provisions of this license were set by the court decision in United States v. ASCAP (In re Application of Buffalo Broadcasting Co.), No. 13-95 (WCC), 1993 WL 60687 (S.D.N.Y. Mar. 1, 1993). Additional PRO licenses include a “Per-segment license” and a “Through- to- the Audience license”.
Two other forms of license involve the writer and publisher (the copyright owner) making an agreement directly with a user or directly with a program producer (a film or television producer, who then grants the license to a user). These latter two forms of license are permitted under the ASCAP, BMI, and SESAC writer and publisher agreements, as those agreements are nonexclusive and enable a writer to license his or her works directly even though he or she is a member of ASCAP or an affiliate of BMI or SESAC.
Writer and Publisher Contracts and Termination Dates
One of the most important provisions of any contract is the termination provision—the clause and rules that govern how you can leave an organization in order to join another. In the performing rights area, these provisions not only control whether a writer or publisher can leave but also whether one can remove his or her works from one organization and place them with another.
Over the years, there have been many major writer and publisher switches—some due to advances, guarantees, and other financial incentives; some due to significant out payments by one organization over another for the same type of use; some due to an organization’s rules and regulations, which significantly affected earnings; some because of the difference in payments between writers and publishers; some because the staff and services are better elsewhere; some based on personal relationships; some based on philosophy; some based on the inability to correct a problem, understand a problem, or solve a problem; some based on inadequate surveys of performances, which determine payment; and some just to make a change.
Regardless of the reason, it is essential you know each organization’s termination/resignation provisions as well as the rules, regulations, and policies affecting continued payment and the ability to remove works.
When a writer or publisher joins ASCAP or affiliates with BMI or SESAC, he or she fills out an application and signs a contract, which is a legally binding agreement that sets forth the specific contractual obligations, duties, and remedies of all parties. Contracts have changed over time, so always be aware of the PRO contract that governs your situation.
The ASCAP agreement is the same for both writers and publishers and gives the society the right to license the non-dramatic public performances of the member’s works. The agreement also grants ASCAP the right to enforce and protect the rights of public performance, to prevent infringement of such works by litigation, and to have all of the rights and remedies for enforcing the copyrights as well as the right to sue under such copyrights. The agreement is subject to the provisions of ASCAP’s 1950, 1960, and 2001 Consent Decrees with the government, as well as the society’s articles of association and any resolutions of the ASCAP board of directors. The agreement also states that the board of directors must consist of an equal number of writers and publishers, and that the royalties distributed must be divided into two equal sums for division to writer and publisher members.
The ASCAP agreement is a continuing year-to-year agreement that gives a writer or publisher the right to resign from the society any year. A specific form needs to be completed and signed, and notice provisions, based on a writer or publisher’s date of election to ASCAP, must be adhered to. For instance, writers and publishers elected to ASCAP membership in January, February, or March of any year must give notice between July 1 and October 1 of the prior year for the resignation to be effective on April 1. The resignation notice dates for April, May, and June ASCAP elections of any year would require notice between October 1 and January 1 of the prior year for an effective resignation on July 1. And so forth.
The contracts that most writers and publishers sign with BMI are the same, but provisions can be negotiated provided the writer or publisher makes such a request and has the bargaining power to effect a change. Although most initial affiliation agreements are not negotiated, many successful writers and publishers renegotiate the provisions prior to any extension of the contract.
Most BMI writer agreements are for a period of two years and continue thereafter for additional terms of two years each, unless they are terminated by either party by registered or certified mail not more than six months or less than three months prior to the end of a term. For example, if a writer signed a BMI contract on June 30, 2010, the contract would run until June 30, 2012, and continue to renew for additional two-year periods (June 30, 2014; June 30, 2016; June 30, 2018) unless terminated. A writer could terminate by giving registered or certified notice to BMI no sooner than six months prior to June 30, 2012, or any two-year term after that, and no later than three months prior to June 30, 2012, or any two-year term after that.
Most BMI publisher agreements are for a period of five years from the date of signing and continue for additional periods of five years each, unless terminated by either party by registered or certified mail not more than six months or less than three months prior to the end of a term. If a publisher misses the termination date, the contract extends for an additional five-year period. For example, if a publisher signed a contract on June 30, 2007, and wished to terminate the contract sometime afterward, notice would have to be given no sooner than six months prior to June 30, 2012, and no later than three months prior to June 30, 2012. If these termination dates are missed, the contract will extend to June 30, 2017.
SESAC does have a standard writer and publisher agreement, which can be modified through negotiation. The writer and publisher contracts grant to SESAC on a nonexclusive basis the “right to perform publicly and to license to others to perform publicly, the writer’s and publisher’s works throughout the world.” The term of the agreement is three years, with automatic renewals for three-year periods on the same terms and conditions as the original agreement if not timely terminated. Writers and publishers can terminate these agreements by giving written notice by certified mail, return receipt requested, at least three months but not more than six months prior to the expiration of the current period of the term. SESAC contracts prior to the late 1990s were five-year publisher and three-year writer agreements automatically renewable.
Removal of Works
ASCAP, BMI, and SESAC have specific rules as to the removal of works by a writer or publisher for future licensing. With ASCAP, one of the primary provisions relates to whether there are any license agreements still in effect as of the time of the effective date of the resignation. Works remain with ASCAP at least until the specific license in effect expires. At BMI, a primary contract provision allows works to be removed at the end of the writer affiliation contract (normally every two years) and at the end of the publisher affiliation contract (normally every five years), assuming valid termination notices have been sent. Some contracts also have licenses in effect clauses. With SESAC, works can be removed from their repertory at the end of the writer and/or publisher contract (normally every three years), assuming an effective termination notice has been sent.
Specific licensing issues arise (i.e., the ability to legally license) if only a portion of a work is removed from one organization and placed with another PRO. Further, the rules in this area do change based on the introduction of new contract language into agreements, changes in the governing documents of a PRO, litigation, and PRO internal policy decisions.
If you are not a member or affiliate of ASCAP, BMI, SESAC, or a foreign country PRO, you can directly license any or all of your works as there is no contractual agreement with any PRO as to licensing. You have to be careful though if a composition you are attempting to directly license has co-writers or co-publishers who are members or affiliates of a PRO.
PROs and Direct Licenses
As previously mentioned, the agreements that writers and publishers sign with ASCAP, BMI, and SESAC are nonexclusive, and the PROs cannot interfere in any way with the right of any member or affiliate to issue a license to a user—specifically, a writer (or publisher) grants to the PRO the nonexclusive right to license the non-dramatic public performance of that writer’s musical compositions. If a direct license is entered into, there is an obligation on the part of the writer and publisher to notify the PRO of any such direct license including the title, names of writers and publishers, licensee information, territory, medium, venue, and duration of the license.
The direct license issue, around since at least the 1950 ASCAP Amended Consent Decree, has recently come into the spotlight again due to separate ASCAP and BMI 2010 Southern District of New York Rate Court decisions involving the background/foreground music service supplier DMX, as well as a 2011 decision by EMI Music, one of the largest publishing companies in the world, to withdraw certain online licensing rights from ASCAP.
In the BMI/DMX case, the court entered a final rate for a through to the audience blanket license subject to adjustment for the amount of BMI music directly licensed-a blanket license with a carve-out. In the ASCAP case, the court ruled that ASCAP was required to issue a blanket license with carve outs for directly licensed works. Both ASCAP and BMI appealed their respective decisions to the United States Court of Appeals for the Second Circuit which in June of 2012 affirmed the judgements of the district court
In response to EMI Music’s notification to ASCAP that it wished to withdraw from ASCAP the digital licensing of a major portion of its catalogue (with ASCAP continuing to license EMI compositions for all traditional media), the ASCAP board of directors passed a resolution that set forth the procedures and considerations involved for the removal of works for defined categories of online music users. The resolution is set forth in section 1.12 (1.12.1–.9) of the Compendium of ASCAP Rules and Regulations.
The resolution states that
any ASCAP Member may modify the grant of rights made to ASCAP under such Member’s Membership Agreement by withdrawing from ASCAP the right to license the right of public performance of certain “New Media Transmissions” (defined in [section 1.12.9]) of works (to the extent of such ASCAP Member’s rights in such works) in which the Member has an interest and any corresponding interests of Writer Member(s) and/or other Publisher Member(s) in such works that such ASCAP Member has the right to withdraw . . . pursuant to a publishing and/or administration agreement between the withdrawing Member and the Corresponding Member-in-Interest, subject to the terms and conditions set forth herein. Such rights are referred to herein as “New Media Transmission Licensing Rights.
The member has to submit a specific modification notice pursuant to the provisions of the resignation clause (section 1.11) that complies with all aspects of the resolution and is subject to “licenses in effect.” Any member may terminate its Membership Modification at any time upon written notice to ASCAP, and thereby grant back to ASCAP the rights previously withdrawn. The resolution is quite complex and specific in its application and must be read very carefully for a full understanding.
The following represent some of the considerations that are normally taken into account when contemplating a direct performance license:
• What are the past and current PRO payments in a particular area for a particular type of use?
• What does the future look like for PRO licensing in this area?
• Does one have the right to license the writer’s share?
• Does one have the right to license the shares of co-writers and co-publishers?
• Is the license worldwide or only for the United States or the United States and Canada?
• Will the license be honored by foreign societies?
• Is the transaction a complete buyout with no continuing royalties, or are there provisions for additional payments?
• How (and when) is the direct license fee and/or royalties to be shared with the songwriter or composer?
• Is the license for all media, selective media, or a single medium?
• What is the duration of the license?
• What benefits are you giving up by not licensing through the PROs, and what benefits are you gaining?
• Is there a long-term company-wide or industry-wide effect that may necessitate reexamination of any short-term benefits?
• Is there a guarantee that all other musical works are being licensed directly?
• Has the user indicated that a direct license is essential for the composition to be used in the project?
• Are royalties provided for exploitation areas outside the scope of the license?
Some Final Thoughts
Over the many decades that we have been involved in the licensing area, there are very few types of agreements that we have not seen or dealt with. The U.S. performance area particularly—as it is governed by Consent Decrees, rate courts, and competition among three separate PROs as to payments, policies, procedures, and contracts—is one that still remains a mystery to many despite the fact it is a primary source of income for songwriters, composers, and music publishers.
Direct licensing has been an option in the performance area since at least 1950 and has been evidenced in many different forms of agreements. In our experience, based on many individual situations, some have worked whereas others have proven to be a mistake. Our advice: have a thorough knowledge of all the possibilities; have a thorough knowledge of all the parties to the transaction as well as all the different entities in the licensing field; think globally if there is a foreign element; and be aware of what you are gaining and what you are losing both on a short-term and long-term as well as precedential and nonprecedential basis. Your past experience with PRO licensing in all media, not just the area specific to the agreement you are dealing with, should also be taken into account.
Simple advice but really not that simple in a world of separate traditional and new media licensing models, ever increasing royalty and/or fee proposals from potential users, and combined multi-right/multi-platform licensing schemes—many of which have not established a meaningful track record for one to determine whether or not the royalty and compensation framework you are negotiating or agreeing to will produce a fair and equitable return for copyright owners.
Copyright Todd Brabec, Jeffrey Brabec 2012. All Rights Reserved.
Blog post submitted by: Vanessa Kaster, Esq., LL.M.
Have you read that the American Pop Artist Robert Indiana (famous for his “LOVE” with a tilted O) will be featured in a new exhibition at the Whitney Museum in NYC? Have you also read that he missed out on controlling all the rights to his famous “LOVE” work because he didn’t copyright it properly?
In a recent NY Times article, Mr Indiana spoke about being brokenhearted over not properly copyrighting his work:
…because ‘LOVE’ – with its tilted O – wasn’t properly copyrighted, it spread to all sorts of places and products [I] didn’t want. And that broke [my] heart. ‘Rip-offs have done a great harm to my own reputation.’
This is an important reminder to artists and creative folks to copyright your work! For a work to be eligible for copyright registration it must be original and “fixed in a tangible form.” This can include any original work, fixed in virtually any tangible form. For example, original copyrightable works can include: sculptures, drawings, photographs, artwork, music, poetry, graffiti, jewelry designs, motion pictures, video clips, translations, texts, manuscripts, recordings…. etc. And the requirement that the work be “fixed in a tangible form” can include traditional mediums such as paper, canvas, clay, DVDs, CDs… and less traditional mediums such as a napkin… scrap of paper… and probably even peanut butter.
Please take Mr. Indiana’s words to heart and copyright your work. For more information on how to copyright your work see my earlier post titled: “Copyright Protection Only Costs $35.”
BY: Vanessa Kaster, Esq., LL.M.
For personalized legal services you are welcome to contact me at email@example.com.
See, The US Copyright Office Website at: www.copyright.gov; for more information on the upcoming exhibit of Robert Indiana’s work in NYC www.whitney.org/Exhibitions/RobertIndiana, @iplegalfreebies and www.kasterlegal.com.
As a post script, I mentioned peanut butter above as a possible medium for fixing an original copyrightable work, because, there is a contemporary Double Mona Lisa work made out of PB&J – www.artnet.com/usernet/awc/awc_workdetail.
The online/digital world has dramatically changed the way music is licensed in all media in addition to affecting the songwriter, composer and music publisher fees and backend royalties associated with any project. Many new opportunities have arisen for the exploitation of copyrights but with those opportunities have come increasingly complex contracts, new royalty structures and rates, expansions of the “grant of rights” notion and increased requests for new types of licensing models some of which challenge long-standing practices of compensation and rights.
This article explains many of the areas you need to be aware of and the concepts involved in this “new world of traditional/online/digital media and distribution”.
Because of the myriad of distribution platforms and ancillary uses, television continues to be an extremely valuable media for the use of music…whether it be score, theme music, newly written songs or pre-existing compositions.
In this world of multi-media platforms, the licensing of existing material (e.g., contemporary hit songs, standards, newly released records, etc.) can take on many variations depending on the program, how the music is used, the rights being requested, the budget of the production, the expectations of the audience, and the marketability and commercial exploitation avenues available.
There are many variations depending on whether the show is a new series, established hit, drama, comedy or music centric contestant based format (e.g., American Idol, The Voice, Dancing With The Stars, America’s Got Talent, etc.).
For example, many successful series license music via an “all media life of copyright” synchronization agreement which ensures that for a one-time payment, the producer can distribute the program via all existing and future media platforms including home/personal use video. In most cases, theatrical distribution is excluded from this license arrangement as is out-of-context promotional use. Depending on the series, there may be additional fee options included for the use in promo spots for a limited period of time (including downloads from digital services such as iTunes), a negotiation as to mechanical rates for soundtrack album or single sales and, in some cases, even a “hold back” period for a short period of time after the initial broadcast as to previously unexploited songs
Other major types of licensing arrangements are an “all television with home video option” and an “all television and home video license”; both usually providing for the show’s producer to turn the license into an “all media” one for a separate fee if the original license was for less than such media and to “life of copyright” if there was a shorter duration.
As opposed to scripted series, the music centric and dance programs (The Voice, Dancing With The Stars, etc.) are licensed in a much different manner usually on a shorter term and multi-option basis. For example, the original territory for the license sometimes may be for the U.S. and Canada (rather than the world) and the term might be for 1 to 5 years rather than life of copyright. Fees are also many times based on the timing of the composition and whether it is used in recaps or is repeated in future episodes. There are usually separate fee options for use on websites, streaming, audio downloads, ringtones, ringbacks, apps, electronic sell through and out-of-context advertising. “So You Think You Can Dance” even has an option to use a clip using a composition on the large screen on stage during the live tour which occurs after the season ends each year
Television scoring contracts are usually work for hire agreements and the grant of rights normally covers all media and distribution platforms now or hereafter known.
Album and Single Sales (Mechanical Royalties)
At one time, albums and singles sold well. With the proliferation of illegal file sharing, piracy and a single song download preference, mechanical royalties (the amount paid to a music publisher and songwriter by a record company for the sale of one song) have dropped significantly. Regardless, this area can be an important source of income for some songwriters and music publishers.
In 2008, the Copyright Royalty Board (CRB) set mechanical rates for the period 2008-2012 for the sale of physical recordings, permanent digital downloads, limited downloads, on-demand streams and master tones. The primary rate was 9.1¢ per song sold on a physical recording or digital download with a rate of 1.75¢ per minute if the recording was over 5 minutes. For limited downloads and interactive streams, rates were based on a percent of the online music service’s revenue (10.5%) with minimums and reduced by whatever fees were being paid to ASCAP, BMI and SESAC. The rate for master tones was 24¢ per download.
In early 2012, NMPA, RIAA and DIMA entered into an industry-wide agreement which would cover the years 2013 to 2017. The draft of regulations has been submitted to the Copyright Royalty Judges for approval. Under these regulations, the 2008 rates and configurations would be continued with 5 new subscription and non-subscription services at new rates added to the mix.
The new royalty bearing categories for music publishers, songwriters, composers and lyricists are:
Paid Locker Services – Subscription based locker providing on demand streaming and downloads.
Purchased Content Lockers – a free locker provided to a purchaser of a permanent digital download, ringtone or CD where the music provider and locker have an agreement.
Limited Offerings – Subscription based service offering limited genres of music or specialized playlists.
Mixed Service Bundles – A music service combined with a non-music product such as a mobile phone
Music Bundles – music products such as CDs, ringtones and digital downloads being bundled together.
The rates for the new categories involve the greater of a percentage of service revenue, total content costs (payments to record companies for sound recording rights) and, in the case of limited offerings, a per subscriber figure
As to the actual royalties generated, physical and download sales are relatively easy to calculate. For example, 100,000 download single track sales will generate $9,100 in writer and music publisher income (9.1¢ x 100,000). Controlled composition clauses may reduce that amount with respect to physical sales, but in most cases, not for digital sales
For all the other configurations, the payments to date have been small. For example, approximately 832,000 quarterly plays on one bundled subscription service might generate $438 in total writer and publisher royalties with a per play rate of $0.000527. The figures for a stand-alone portable subscription service for approximately 330,000 plays might currently generate approximately $240 with a per play rate of $0.000725. These royalties are arrived at after 25 different line item calculations which include service revenue, number of subscribers, label payments and performance royalties, among other factors…a not uncomplicated exercise. It is anticipated, however, that as subscription services become more successful and more prevalent, the payments will increase.
The Performance Right- the world of ASCAP, BMI, SESAC and foreign societies- represents the most valuable composer and songwriter continuing source of income. Though traditional media (television, radio, etc.) has had its share of recent challenges, the area still remains strong as to overall license fees and songwriter, composer and music publisher royalties-particularly if a work is part of a successful television show or a hit song on radio. The Internet and digital media area, on the other hand, has not produced as of yet license fees or distributions of any significant nature.
To put this area into perspective, total ASCAP, BMI and SESAC annual receipts are in the area of 2 billion dollars(2012 showed ASCAP at 941 million, BMI at 899 million and SESAC estimated in the area of 100 million plus). Of that amount, television (network, local and cable) represents approximately 650 million dollars, radio 400 million, general licensing(concert performances, bars and grills, hotels, etc.)200 million, royalties from foreign societies 700 million(most of it being writer money as many music publishers collect directly from foreign collection societies through sub-publishers) and new media in the area of 70 million dollars.
The majority of license fees in the online/new media area are the result of Rate Court decisions as well as settlements negotiated as a result of those decisions. Under the ASCAP and BMI Consent Decrees with the Government(in effect since 1941), if a music user( radio, television stations, streaming services, etc.)and ASCAP or BMI cannot come to an agreement as to what reasonable license fees should be, either party can go to court (Southern District federal court in New York) where a trial is held with a judge making the decision as to what interim as well as final performance license fees should be as well as what is actually licensable. Rate court cases as well as settlements in the new media area have involved AOL, Real Networks, Yahoo, Netflix, Hulu, YouTube, AT&T, MobiTV, Verizon, Spotify, Ericsson, Rhapsody and Pandora among many others.
Regardless of the size of the license fees (most deals in this area are confidential and the fees relatively small), major services and sites are being surveyed by the PROs and royalties are being distributed to songwriters, composers and music publishers based upon the streaming of television shows, films, records and songs.
As to payments, total license fees from a service and the accumulation of streams are two of the primary factors considered. The type of use distinctions between theme, score and feature continue to apply in new media ASCAP, BMI and SESAC distributions when dealing with the streaming of audio visual works(feature films, television episodes, etc.) Other aspects of their television distribution systems though do not apply including Nielsen ratings, audience measurement, time of day factors and theme bonuses, among others.
Further, practically every current PRO traditional media license fee re-negotiation or negotiation(radio, local television, cable, etc.)now covers within the license online/digital items such as streaming, mobile wireless platforms, website uses, webcasting, mobile apps and multicasts, among others.
As to pre-existing songs, most video games pay a one-time synch license fee to the music publisher to put the song into the game with no additional royalties. The term of the license is usually short (5-7 years instead of life of copyright which is the norm for a feature film). The Master Use sound recording license is normally on a Most Favored Nations (MFN) basis with the song.
Other types of games though (e.g. Dance Central, Guitar Hero, etc.) negotiate per unit royalties, per unit royalties with escalators, sales plateau increases as well as royalties based on a composition being downloaded by a consumer into a game(the latter many times on a percentage of revenues versus a set penny per composition rate).
Some examples of these writer/publisher deals are:
1. 0-500,000 units sold = 1 cent per unit; 500,000- 1,000,000 = 1.3 cents; 1,000,001 plus = 1.5 cents per unit.
2. $10,000 to put the composition into the game; an additional $4,000 at 350,000 units sold; plus $5,000 for every additional 250,000 units sold
3. Downloadable Content (DLC): 15-20% of net Revenues as defined less third party distribution fees. Bundled compositions (2 or more compositions sold in a package) share pro-rata to revenue.
In the case of pre-existing songs being used in a movie, new language is being inserted into synch agreements to cover the online world. For example, a media clause in current synchronization licenses might read “distribute in any and all Media and by any and all means, now or hereafter known, including, without limitation all forms of television, all “on demand” services, all online, digital and wireless technologies and other transmissions capable of being experienced by means of any interactive devices or any future storage delivery and/or retrieved devices or systems.” An additional clause stipulates that the “viewer is not invited to manipulate the composition in any manner which is not possible using traditional analog home entertainment equipment”.
The amount of the synchronization fee depends on a number of factors including how the song is used, the overall film budget, the timing of the use, whether there are multiple uses, whether uses are thematic or used over the opening or closing credits, the term and territory as well as any guarantee of inclusion on a soundtrack album.
Another valuable area is the licensing of existing compositions and master recordings and the additional fees for the out-of-context use in film trailers. The media can be all forms of television, videos, radio, online, digital and wireless, linear audio web streaming, etc. There may also be additional fees for its use in the “making of “programs and featurettes as well as home/personal entertainment media menus.
For certain compositions (hit songs, television theme songs, etc.), the advertising market can be profitable depending on, among other things, whether it is a radio, television or internet commercial, a nationwide or limited territory campaign, whether there are options for other media and delivery systems as well as other countries of the world, whether lyrics are being changed or added and whether all advertising rather than only product category exclusivity is being requested.
As to some of the new types of agreement clauses brought on by the digital online world, the following example should help:
Agreement lists composition title and product name with a term of one (1) year with an option to renew for an additional year at a 15% increase. Territory is the United States and Canada with the world as it pertains to the Internet. Media includes all TV including network, syndication, cable and satellite use with Internet included but not limited to client, agency and 3rd party websites. Included is a New Media App for iPad and industrial use.
As some commercials are being used in motion picture home videos, in motion picture theatres during previews and on mobile phones, rights for home video, theater promos and mobile phones may also be negotiated. Internet use should be non-exclusive and should be limited to streaming/non-downloadable use of the spot and subject to websites having a valid U.S. performance rights license and subject to the fees, rules and regulations of any foreign performance rights society.
Synch fees for well-known compositions in major campaigns can be substantial.
In addition, performance monies will also be generated by ASCAP, BMI and SESAC though the rates are on the low end of their payment schedules.
This new area of exploitation can be very valuable depending on the success of the individual app since the licensing formulae are usually based on a percentage of net receipts after the deduction of the distribution fee (30% in the case of iTunes) and, in some cases, the developer fee.
Musical compositions are licensed at either 25% or 50% of the net revenue with the primary question being the definition of net revenue (e.g., is a distributor fee being taken off the top or is there a distributor and developer fee being deducted). If a master recording is also involved, the fees are usually conditioned on a most favored nations (MFN) basis with the fee paid for the recording.
The platforms usually include all digital media such as the iPhone, Android, iPad, other mobile and handheld devices as well as internet and social networks and are from 3 to 5 years in duration but can be longer. Accounting is usually on a quarterly basis. Some agreements have the suggested retail price of the app actually in the contract (e.g., 99¢ for a 2 song bundle, etc.) so that you know what the actual royalty calculation will be when a song is downloaded in the app. Others only specify the formula being used.
The following example should give some perspective as to a representative licensing formula in this area.
99¢ Retail Price
- 30¢ Distributor Fee (30%)
- 35¢ Developer Fee (50%)
X 50% Publishing License
Interactive Dolls and Toys
Many of these types of uses involve children’s products (Hasbro tooth tunes, pre-programmed instruments, animated pets, etc.) As to the rights granted, the license will specify how the composition will be used (“as part of a digital/voice music chip embedded in your product”, etc.), indicate the territory and term of the license (U.S. and Canada, the world, 3 years with a sell off period, etc.) and a maximum duration of use (e.g. 2:00).
Writer and publisher royalties are usually either a negotiated per unit penny rate (e.g. 10-25 cents per unit but can be more) or a percentage of the wholesale or retail price. The licensee will be prohibited from changing the basic melody, altering the fundamental character of the music, changing or adding lyrics or using the title as the name of the product.
Electronic cards represent an ever-increasing number of sales in the 5 billion unit greeting card business. The all format song licenses in this area define both the “physical everyday and seasonal card” and the electronic card that is “perceived via an electronic device and may be delivered via electronic transmission (e.g. via the Internet, mobile phone, cable television or other electronic delivery media not yet in existence”). Further, the song clip may only be distributed by either secure streaming or other secure file format intended to restrict further distribution or playback.
The territory for these deals is usually the world with a term of 3-5 years plus a sell off period with a maximum sound duration specified (60 seconds) and a royalty of a % of sales (e.g. 5%) or a per unit royalty (e.g. 15¢ per card). Many times consumers are given permission to sample the song on an online website to see if they want to purchase it. Masters are normally licensed on a MFN basis.
Pursuant to the Copyright Royalty Board, ringtones generate a writer/publisher combined royalty rate of 24¢ per download. This rate is good until 12/31/12 but an extension to December 31, 2017 is expected to be enacted. Based on ASCAP rate court decisions involving AOL, Real Networks ,Yahoo, and Verizon, no performance right exists in the download of a ringtone. Previews of ringtones on a company’s website though are licensable by ASCAP, BMI and SESAC(ASCAP rate court decision involving AT&T).
Ringbacks on the other hand, are normally licensed by the music publisher as a % of the actual retail selling price to the consumer with a minimum royalty specified (e.g. 10% of the price to the consumer with a floor of 12.5 ¢). All licenses have a sound duration specified and the territory is either the U.S., the U.S. and Canada or the World.
Performances of ringbacks are licensed by the U.S. PROs.
Performance Right Organizations (PROs) utilize various types of negotiated or court set license agreements with the users of music including the blanket license, the per program license, per segment license and “through to the audience” license. Regardless of these licenses, the contracts that writers and publishers sign with ASCAP, BMI and SESAC are non-exclusive and give them the right to direct or source license a work, thereby bypassing the PRO license entirely
Direct licensing has been around since at least 1950 and many television and film scoring and song contracts contain language covering situations as to what happens when a broadcaster does not have a current PRO license or when the PRO is prevented by law from issuing such a license. Various contractual solutions are set forth including a negotiation “in good faith” to arrive at a fee, or an arbitration, or a reference to current PRO fees or no additional fee(a buyout).
The direct license issue has recently been in the spotlight again due to the 2011 notification to ASCAP by EMI Music of their intent to withdraw from ASCAP the licensing of their online digital music rights with a similar 2012 notification to ASCAP and BMI from Sony/ATV as well as the 2010 ASCAP and BMI rate court case decisions with background music supplier DMX where judges approved a blanket license adjusted by the amount of music directly licensed by the user.
In response to EMI Music’s notification to ASCAP that they wished to withdraw the digital licensing of a major portion of their catalogue(with ASCAP continuing to license EMI compositions for all traditional media), the ASCAP Board of Directors passed a resolution which set forth the considerations and procedures involved for the removal of works for defined categories of online music users. Subsequent to EMI’s withdrawal request, EMI was acquired by Sony/ATV Music who notified ASCAP and BMI that they too were removing their works for online licensing. Other major music publishers soon followed and direct publisher negotiations with online music services commenced. The reasons expressed by these major publishers for the withdrawing of their online rights from the PROs was that they felt they could negotiate better deals than the ones that resulted from the recent ASCAP and BMI Rate Court decisions in this area.
The DMX rate court cases involved a request by DMX, a leading background and foreground music service provider, for a “through to the audience” blanket license adjusted to reflect the number of direct licenses they obtained from publishers. Prior to litigation, DMX had a program in place where they did acquire direct music licenses from a number of music publishers including one major. In the BMI case, the judge entered a final rate for the blanket license subject to adjustment for performances that were directly licensed. In the ASCAP case, the Court required ASCAP to issue to DMX a blanket license with carve-outs for direct licensing. Both decisions were appealed by ASCAP and BMI to the 2nd Circuit Court of Appeals which denied the appeals. This new type of license is referred to as a “carve out blanket license” or “adjustable blanket license”.
To make intelligent decisions in the field, you need to know the traditional licensing structures of the PROs with their long history of negotiations, license fees, litigation and actual royalty payments, as well as the possible ramifications of a direct or source license as to the terms, payments, and other contractual obligations and considerations both in the United States and worldwide. Also important are whether the license provides for continuing royalty payments (i.e. “licensee shall have no further responsibility with respect to U.S. performing right royalties”) whether it affects additional media and areas of exploitation and how does it affect any writers, co-writers, publishers or co-copyright owners. What rights are actually being delivered and does one have the right to grant those rights is also an important consideration.
This information is essential regardless of whether you are happy with past or current PRO licensing or are in a situation where you are contemplating a direct or source license or have been asked to consider one or are being forced to enter into one.
The online/digital world has changed how music is licensed, how contracts and deals are negotiated and structured and how songwriter, composer and music publisher compensation is arrived at. This article has gone through many of the changes in the traditional world of music as well as showing new opportunities for music use created by the digital/online environment as well as challenges. It is our hope that a better understanding of all of these new types of deals that are being negotiated and the considerations for those deals as well as the environment that they are being made in, will help in fostering a spirit of negotiated agreements rather than ones arrived at via litigation.
Copyright 2013 Todd Brabec, Jeff Brabec, All Rights Reserved
Todd Brabec, Esq., former ASCAP Executive Vice President, and Jeff Brabec, Esq., Vice President Business Affairs BMG Chrysalis Music, are the co-authors of Music, Money and Success: the Insider’s Guide to Making Money in the Music Business”(7th edition, Schirmer Books/ Music Sales) and are Adjunct Associate Professors at USC.
Blog post submitted by: Vanessa Kaster, Esq., LL.M.
Getting paid for creating wildly successful stuff can take many forms and is an important part of the creative process. Often stuff that becomes wildly successful (like the Superman comic and the game Twister) start out as humble creative endeavors created by two co-creators. For example:
- SUPERMAN was created by Seigel and Schuster who created a comic book out of four weeks worth of comic strips that they couldn’t sell. They sold the comic book along with their rights to the creation for $130. (long-running litigation has ensued regarding the existence, validity and scope of an agreement transferring the rights to Superman).
- TWISTER was created by Foley (a game designer) and Rabens (an artist) who were awarded a US Patent (No. 3,454,279) for their invention of an “apparatus for playing a game wherein the players constitute the game pieces.” Evidently Foley did not receive royalties for the game; however, he did negotiate a buyout and sold his rights. (According to a Mr. Foley’s obituary this past week, he accepted about $27,000 in a negotiated buyout).
It’s interesting to compare these deals. Did the creators have any idea that their creations would become iconic? Probably not. At least not in the case of Superman. If Superman’s co-creators had known how famous their creation would become, they probably would have negotiated a higher price, residual rights, royalties and possibly reserved merchandising rights.
Personally, I am a big fan of both Superman and Twister! I am in awe of the creative minds who created these gems… and I encourage folks to negotiate creative deals to maximize revenue from their creations. You never know…. your creation could become a cultural icon.
BY: Vanessa Kaster, Esq., LL.M.
For more information on the ongoing Superman litigation, see also, http://dockets.justia.com/docket/california/cacdce/2:2004cv08400/166317/; http://robot6.comicbookresources.com/2013/03/superman-legal-battle-isnt-over-yet-siegels-try-a-new-strategy/; http://www.businessweek.com/articles/2013-06-13/marc-toberoff-supermans-lawyer; and www.kasterlegal.com.
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