The Future of Music Royalty Rights – Internet and Performing Rights Organizations

Introduction

The face of music copyright law is changing rapidly. Through the Internet, users have access to literally billions of songs and playlists from around the world and throughout the ages. Similarly, musicians and singers can post their latest work on social networking websites like MySpace or YouTube. Many popular artists today started out being discovered on MySpace rather than through the traditional record company route.

So, in light of all this, how do we keep track of the copyrights of original works? How does the collection of royalties on the internet work? Traditionally, musicians and artists have protected their works by becoming members of organizations that mediate between the artist and broadcasters, such as radio or television stations.

These organizations are known as Performing Rights Organizations or PROs for short. In the United States there are three main PROs that have been in charge of collecting and distributing royalties for musicians. These are: the American Society of Composers, Authors, and Publishers (ASCAP), Broadcast Music Incorporated (BMI), and the Society of European Stage Composers and Authors (SESAC).

ASCAP, BMI and SESAC are the big three when it comes to collecting royalties for public performances. A newcomer on the scene is SoundExchange, which governs the collection of royalties specifically through the medium of digital streaming over the Internet. This article explores the interaction between traditional PROs and SoundExchange, and how royalties are now being collected for webcasts.

Traditional Royalties: Organization of Performing Rights

As you can tell from the name, performing rights organizations deal with performance, especially those that are made publicly. What they do is collect royalties from parties using copyrighted works and distribute them to the copyright holder (usually the songwriter). Royalties are small fees charged each time a copyrighted song is played or performed. For example, if a TV station wants to use a song in one of their ads, the PRO will collect the station’s royalty fee and distribute it to the copyright holder.

Artists who wish to collect royalties can sign up with a PRO, and can only sign up with one of the top three. This is a separate arrangement from the one made with a record company. The difference between a PRO and a label is that the PRO’s deal with audience use of songs, while record companies deal with private performing rights (ie CD sales, etc.).

Therefore, PRO only focuses on performances such as live shows, broadcasts, restaurant uses, anything where the copyrighted work is presented to the public for commercial use. Also note that the PROs do not provide the copyright to the composition; copyright is obtained from the US Copyright Office.

There are differences between ASCAP, BMI and SESAC, and artists can register with one according to their musical needs. For example, BMI tends to focus on popular and commercial artists. SESAC is a newer PRO, has fewer artists on its registry, and tends to focus on artists that are new to the scene, such as independent artists. However, the basic concept for all PROs is the same, which is copyright protection and royalty distribution.

How PROs Collect and Distribute Royalties: Using Tracking

In the past, PROs understandably had a hard time keeping track of all the instances where a song was used commercially for profit. Nowadays this has become easier due to digital technology. PROs track royalties through what is called “usage tracking.” Some PROs now assign each song a “fingerprint” that records each instance of commercial public use of a song with their database. This is crucial, especially with transmissions over the Internet.

PRO and webcasts

One of the main ways music copyright laws are changing is due to digital broadcasts. Two laws passed in the 1990s grant a performance right for sound recordings (not just live performances). These two laws are the “Digital Interpretation in Sound Recordings Act of 1995” and the “Millennium Copyright Act of 1998.” Together, these laws now require users of copyrighted sound recordings to pay the copyright owner for digital transmissions over the Internet. Digital broadcasts include media such as Internet radio and satellite radio.

There has been a lot of controversy over these acts, mainly because of the digital transmission fees they set. These royalty rates differ drastically from medium to medium. For example, Internet radio users would be charged 2.9 cents per hour per listener, while satellite radio users would be charged only 1.6 cents per hour. Users of traditional radio stations, also known as “terrestrial radio”, would not pay fees, as there is no digital transmission involved.

The important thing to remember about these two laws is this: they now classify sound recordings that are digitally recorded and transmitted as performance in themselves. That is, once a sound recording is broadcast digitally, it is considered a performance and royalties must be paid for the broadcast.

In effect, this creates two licenses: one for the musical composition itself and one for the recording that is transmitted digitally.

The Future of Royalties: Digital Streaming Royalties and SoundExchange

In response to the new category created by the two laws, a new form of PRO has been created that specifically collects and distributes royalties for digital broadcasts. This PRO is called SoundExchange.

SoundExchange was created in 2000 and operates as a non-profit PRO. Its activity is designated by the United States copyright office itself. In its early stages, SoundExchange also came in for a lot of criticism, again for the different rates between internet rates and normal radio.

SoundExchange works in the same format as a traditional PRO, but is different in several ways. First, the Company collects and distributes royalties for all Artists under statutory laws, even if the Artists are not members (“Featured Artists”) of the Company. That is, they monitor and collect royalties via internet transmission. firstand then contact the artist to distribute royalties to them, whether they are featured or non-featured artists.

SoundExchange’s form of “usage tracking” consists of a log which is basically a list of how many times a song has been streamed over the Internet. Musicians can look up the “works” list on the company’s website to find out if they are owed royalties. Also note that once a musician is contacted by SoundExchange, they must register with them to collect royalties.

Second, as mentioned above, SoundExchange deals with a different copyright license than the three PROs (ASCAP, BMI, and SESAC). The three PROs cover the composition of the song – this mainly affects singer-songwriters and composers. SoundExchange covers the recording itself, and this primarily affects performers and artists.

So, for example, when Mariah Carey’s version of Journey Song “Open Arms” is played on regular terrestrial radio, songwriter Steve Perry gets royalties from his PRO while performer Mariah Carey gets nothing. However, when “Open Arms” is played via webcast or satellite radio, Perry still gets royalties from him, but Mariah Carey will also get royalties from SoundExchange, because it’s her recording that is reproduced on the Internet.

As you can see, in theory this is supposed to benefit both the composer and the artist. In fact, artists are encouraged to join both a traditional PRO and SoundExchange, in order to have full royalty coverage for their songs. However, one can see how this setup could lead to confusion and disputes over royalties in the future.

Copyright Law: What Constitutes Infringement?

Traditionally, copyright infringement consisted of unauthorized actions spent Prayed reproduction of a protected work, especially for commercial purposes. Usually this meant the unauthorized reproduction and sale of CDs, unauthorized sampling of music in a different song, or an unauthorized public performance of a copyrighted work.

However, since digital transmission laws now protect the recording itself, the infringement also includes the unauthorized downloading, sharing, and transmission of protected music over the Internet. This includes mp3s and continues even after the demise of Napster and other music file sharing websites.

Other webcasts: SoundExchange partnership with MySpace

The next logical question in this discussion is whether other types of Internet transmissions are covered by digital transmission laws. Most music uploaded today is done on a social networking site like MySpace or YouTube. In particular, the largest social networking type website for musicians is MySpace, which maintains a “MySpace Music” feature specifically for musicians who post their music online.

As of January 2010, SoundExchange partners with MySpace. Specifically, the association’s primary goal is to collect “lost” royalties from some 25,000 major, independent, and unsigned artists who posted their music on MySpace. In fact, SoundExchange has placed more than $14 million in escrow for royalties, which will be held while the company seeks out and contacts artists who are owed royalties.

Previously, MySpace did not work with SoundExchange, and the new partnership represents an unprecedented and challenging project in the field of music copyright law. The partnership was announced at the MIDEM festival held in January 2010 in Cannes, France. MIDEM (Marché International du Disque et de l’Edition Musicale) is the largest trade fair for the music industry and is held annually.

Conclusion: How do I protect my works?

If you’re a songwriter or artist, or both, it’s good to double check what your rights are under each type of PRO. In addition, you should understand what the different types of webcasts are and how they affect your royalty rights. More information on how to sign up with one of the top three PROs or with SoundExchange can be found on their individual websites. Finally, if you’ve registered your musical compositions on MySpace Music, be sure to check for overdue copyright through SoundExchange.

If you have questions about your copyright and royalties, contact an attorney who can explain your options. Using LegalMatch.com can help you find a lawyer for free.

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