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Multiple Rights Deals in the Music Industry

By Jay Rosenthal
Edited by Julian Bentley, 2009
Published by the International Association of Entertainment Lawyers                                                                                                                                                                                                            

360 Deals and Music Publishing

 

By Jay Rosenthal, Esq.*

New concerns continue to arise as record labels try to expand the scope of the “360” deal to include what otherwise would be sacrosanct income streams of the artist.  Regarding music publishing, record labels have always focused on limiting their financial obligations to the artist/songwriter via the controlled composition clause.  However, as economic pressure pushes labels toward actually acquiring a financial or even equity share of the singer/songwriter’s overall publishing income, new issues emerge and unintended consequences will ultimately result.

The overall “360” concept seems to be a financial winner for the record labels, and ultimately a loser for artists and managers.  In fact, the Copyright Royalty Board in the United States has recently noticed this phenomenon in their recent Mechanical and Digital Phonorecord Delivery Rate Determination Proceeding (“The CRB Ruling”).  The CRB refused to accede to the RIAA’s request to decrease the mechanical penny rate or switch to a percentage of revenue formula, for a number of reasons, including the Publisher’s contention that the record labels improved their financial condition by adopting the “360” model.

One can understand why a record label would try to secure a publishing share from their singer/songwriter.  While mechanicals are down, public performance and third party licensing income is holding steady.  Publishing is one income stream that has a chance of actually realizing a sizeable return, even in this age of piracy.

As a preliminary matter, publishers would almost always protest or reject any attempt by a signed songwriter/artist to enter into a “360” deal assigning a significant songwriter publishing equity share to their record label.  But the dynamic changes if the artist has not signed a publishing agreement.  Without the protection of a publisher, a songwriter/artist faces a tough choice – give into what essentially is a contract of adhesion without excising the publishing grab or pass on perhaps a once in a lifetime opportunity.

So without a publisher involved, the artist attorney must address some fairly serious issues:

Cross-Collateralization:  Generally, if asked, a major label would not cross-collateralize mechanical royalties against other artist expenses in a traditional
Artist/label agreement.  In a “360” deal, however, the label will try to cross-collateralize the entire label share, as well as the full artist/songwriter mechanical share, if possible.  Artist attorneys should try to minimize the record label’s natural tendency to cross-collateralize everything.

• Controlled Composition Clauses:  Labels already force many singer/songwriters to accept the draconian limitations on the statutory royalty rate and the number of compositions paid on each album.  If the label will now control or own a significant portion of the composition, the impact of the reduced rates and other limitations seem particularly inappropriate.  Perhaps seeking a full repudiation of the controlled composition clause is a proper goal for the singer/songwriter forced into a “360” arrangement.

• Approval Rights:  If a label controls and/or owns a significant share of the musical composition, approval rights issues will ultimately arise.  For example, will a label have the right to enter into non-exclusive third party licensing arrangement without the authority of the co-owner, i.e., the singer/songwriter or their publisher?

• Late Fees:  The CRB Ruling established, for the first time, a 1.5% monthly late fee to be paid by the record labels if mechanical royalties are not paid to the publishers within the statutory time requirements, i.e., 20 days after the end of the month of distribution of the phonorecord.  Ironically, the record labels may now have more incentive to pay before the late fee accrues, since they now co-own or control the composition.  What should not happen is that the record labels somehow waive or attempt to waive the late fee.

These are just some of the problems and issues needing attention from the singer/songwriter attorney when faced with a grab of publishing rights in the ever expanding “360” deal world.  I am sure many more will arise as the “360” deal becomes the norm, instead of the exception.

 

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Music Publishing 101

COPYRIGHT LAW BASICS

Article 1, Section 8 of the Constitution of the United States

“Congress shall have the power to … To promote the Progress of Science and useful Arts, by securing for limited times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”

 

U.S. COPYRIGHT ACT

Grants Exclusive Rights to Copyright Authors or Owners

  • Right to Reproduce
  • Right to Make Derivative Works
  • Right to Distribute
  • Right to Perform
  • Right to Display

EVERY RECORDED SONG CONTAINS TWO COPYRIGHTS

   1) MUSICAL COMPOSITION
The notes and lyrics of the song

   2) SOUND RECORDING
The Recording Artist’s recorded version of the song

Even if the recording artist is the songwriter, two copyrights are created – one for the sound recording and one for the musical composition.

 

What is a Music Publisher

A music publisher works with songwriters to market and promote their songs, resulting in exposure of songs to the public and generating income. Music publishers “pitch” songs to record labels, movie and television producers and others who use music, then license the right to use the song and collect fees for the usage. Those fees are then split with the songwriter.

 

Music Publishers and Record Labels

Songwriters enter into publishing, co-publishing, or administration agreements with music publishers. In exchange for acquiring the copyright, a portion of the copyright, or a percentage of the revenue earned from the exploitation of the musical composition, the music publisher seeks opportunities to exploit the musical composition, collects revenue from the exploitation, and pays and accounts to the songwriter. The music publisher share is usually 50%.

Recording artists assign their copyrights to a record label in exchange for a negotiated royalty.

 

NMPA

The National Music Publishers’ Association (NMPA) was founded in 1917, NMPA is a trade association representing over 800 American music publishing companies in the United States. Its mission is to protect its members’ intellectual property rights on the legislative, litigation and regulatory fronts. The NMPA is the voice of both small and large music publishers and remains the most active and vocal proponent for the interest of music publishers and songwriters in the US and throughout the world. The NMPA also wholly owns and controls the Harry Fox Agency, the largest mechanical rights collecting society in the United States, with over 36,000 publishing members.

 

Types of Licenses Issued by Music Publishers

  • Reproduction (Mechanical) Licenses
    Music distributed in physical and digital form. The royalties are generally collected and paid by the Harry Fox Agency.
  • Public Performance
    Licenses Music broadcast on radio (terrestrial and satellite), in live venues, and other public places. The royalties are collected and paid by public performance societies (ASCAP, BMI, and SESAC). Each broadcaster receives a blanket license from each performing rights society, in exchange for a royalty fee.
  • Synchronization Licenses
    Music used in film, television, commercials, music videos, etc. Publishers enter into direct licenses with users.
  • Folio Licenses
    Music published in written form as lyrics and music notation either as bound music folios or online lyric and tablature websites. Publishers enter into direct licenses with users.

 

First Use of Musical Composition

Songwriters and recording artists generally have the right to approve first use of their work.

Recording artists (or their record labels) continue to have the right to approve subsequent uses of their sound recordings by third parties.

While songwriters (or their publishers) generally have the right to approve subsequent uses of their musical compositions, the songwriter does not have an absolute right to approve the reproduction of their musical composition in copies and phonorecords. Sec. 115 of the Copyright Act provides that a user may secure a compulsory license to make copies and phonorecords of the musical composition, without the authority of the songwriter.

 

Section 115 Compulsory License Requirements

  •   – The musical composition must be a non-dramatic musical work (not an opera or musical.)
  •   – The musical composition must be previously recorded.
  •   – The previous recording has been distributed publicly in the U.S.; and
  •   – The use of the recording will be in phonorecords only (audio only).

 

Compulsory License Rate Setting

The royalty rate paid to the songwriter under a compulsory license is set by an independent government tribunal called the Copyright Royalty Board (CRB). The fi rst rate for a mechanical compulsory license – 2 cents a song – was initially set by Congress in 1909. Eventually the rate setting job was delegated to Copyright Arbitra-tion Panels. Finally, in 2002, Congress created the CRB to bring autonomy and accountability to the rate setting process.

 

Recent Ruling of the Copyright Royalty Board (CRB)

OCTOBER, 2008

In a ground-breaking ruling, the CRB established the following rates:

  • Physical Product – 9.1 cents
  • Digital Product – (digital phonorecord delivery) – 9.1 cents
  • Interactive Streaming – (for subscription services) and ephemeral copies – the industry stakeholders entered into a settlement agreement providing a percentage of revenue royalty. For the first time, the parties acknowledged that a mechanical royalty is due for interactive streaming.
  • Ringtones – 24 cents
  • Late Fee – for the first time, the CRB established a late fee of 1.5% per month, to be paid to the publishers if royalties payments are late.

 

The Harry Fox Agency

The compulsory license is issued by the Copyright Office. However, very few people secure compulsory licenses through the Copyright Office because of perceived onerous requirements like monthly accounting. Instead, most users secure a license through the Harry Fox Agency, which among other benefits, only requires quarterly accountings. More importantly, the Harry Fox license uses the CRB rate as a benchmark, so the CRB process is still very important.

 

Current Challenges

Controlled Compositions
Implementation of CRB Ruling – Late Fees
Collecting Performance Royalties in Audiovisual Downloads
Accelerating payments from record labels and other third-party users, like I-Tunes – flowthrough problem.
Piracy
Orphan works

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Talent Among Us

There is an inescapable smile that invades my face when I see Champ and Hammer, the members of T.A.U. (Talent Among Us). I have a feeling I’m not the only one they effect that way. Something about these guys is so radiant and contagious. When they’re in a room it fills with positive energy. Obviously this vibrancy transcends into their music. All I have to do is press play on one of their songs, and that familiar smile comes around again.

T.A.U. is a dynamic and energetic duo – Champ and Hammer play off of each other’s style so smoothly. After watching them perform there was no doubt in my mind that they have what it takes to make it. My opinion has been co-signed by several others.

Champ plays the role of charming crooner – appealing to the ladies in the crowd with his soulful and seductive vocals. In the next instance, he’s spitting out lines that the fellas can relate to. Then there’s Hammer who epitomizes calm, cool, and collected. The spitter of the two; Hammer owns a quiet confidence, and when united with his raspy tone attention is commanded.

The Mile High City can proudly claim T.A.U.. Born and bred in Denver, Champ and Hammer have been friends since middle school. As a result their flavors congeal on stage making for a seamless performance. T.A.U. has been brewing for years but evolved into a more serious effort when they decided to launch a joint project in 2011, aptly titled “Talent Among Us”.  The title’s undeniable ring morphed into the group’s name. Champ and Hammer found it depictive of their world, their fellow artists, and of course their collaboration. The track dedicated to their name, “T.A.U.” is a feel good banger. The lighthearted and carefree vibe transports me to breezy summer afternoons when there isn’t a worry in the world.

To make good music an artist must pour in a heavy dose of time, energy, and honesty. Sometimes the long hours and hard work don’t garner the recognition they deserve, which Champ and Hammer concur is the most frustrating aspect of making music. However, for T.A.U. the hindrances never outweigh the reward of knowing their product made even one person smile and reflect. As Hammer said, “I want my music to give people goose bumps. I want them to listen to a record and feel obligated to share it with a friend. As long as they are feeling any emotions, I know I am doing my job.”

As you listen to T.A.U it becomes apparent that music is much more than a job. Over Outkast’s “Prototype” beat, their song “Survival” is a proclamation of music being a reward within itself. ”Survival” personifies music as the ideal partner. Hammer flatters harmonies with romantic lyrics, and Champ caresses the melody with sensual vocals. With each of them taking their turn ravishing the song, the result is spell-binding music that leaves you craving more. That’s the mark of quality music – it turns us into addicts always looking for another hit.

Luckily for us, T.A.U. doesn’t have any shortage of supplies; keeping us from withdrawal.  Soundcloud hosts a collection of their product and you can find them under Talent Among Us. I encourage everyone to go get a sample. Then, because I know you’ll be itching for more, find them on Facebook under Talent Among Us and stay updated on their upcoming performances and new endeavors.  The duo will be making some appearances around the metro area soon, lend them your ear and you’ll find your face being invaded by an inescapable smile.

http://talentamongus.co/

https://www.facebook.com/TalentAmongUs

http://twitter.com/TalentAmongUs

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Politically Incorrect

They call you a hoe.

You’re known as the round-about chick, the community a$$, the easy lay. A movie and dinner is all it takes, sometimes less, at least that’s what some say. So a young man hears the rumors, “I’m next” is what he tells all his boys; how big of a playa he is, the girls he pulls and all that bullshit noise. He doesn’t even know your name, but knows you’re where to go for a good time…so when he approaches, he’s taken back learning you were raped at age 9. His smile wipes and eyes widen as his mouth drops. You haven’t had sex since it happened, but he does nothing to help the rumors stop. Boys always have to save face so he tells his guys the whole night you were on top of him….a week later, his stomach drops learning you’re now in a coffin. You couldn’t take the image they’ve all made, so you reached for the pills. You smile as your eyes become heavy, your heart beats slow as you think of the rumors finally growing still.

You’re the starting QB….

Everyone knows your name. You’re only in highschool, but you already have TMZ type fame. And your letterman jacket allows you to have the most popular of friends. Then one day they ask what you’ve dreaded and tried to avoid: why you don’t have a girlfriend. You play it off, claiming your focused on the football game and class. Little do your boys know, it’s not only girls that check they ass when they pass. You’ve held this secret since you were 12, and growing up gay was rough. You told your dad about it, and he put you in football thinking you’re just not tough enough. Everytime you set behind center, you have a dilemna, and you don’t know what to do anymore. You wish it didn’t have to be a touchdown with your wide receiver for you to score. No one will ever know your secret, so you just continue doing what you do. But while you’re worried about getting caught, you missed the wink the halfback sent to you…

Bully, A**hole, Jerk…

Just a few of the names people say. But they won’t say it to your face, they tremble seeing you walking down the hallway. You’ll steal lunch money, shoes, if they have dreams, you want those too. When people ask why you do it, you smirk “That’s just life, boo.” On your way home, with your bad ass, stealing candy from the store. You come home, and see nail scratches on the door. You open it slow, and see your mother on the floor. One of your…”uncles”…on top of her screaming. You think you’re sleeping or dreaming seeing her blood streaming. He sees you, bolts out of the house without a bye. She grabs sunglasses off the counter to hide her black eye. You begin to cry in her arms, and ask her “Why do you allow this to happen to you?” She shows you the stack of cash, and says, “That’s just life, boo.”

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I Was Just Wondering

I wonder if when we’re on the phone, about to sleep with it on, instead of falling asleep you stay awake as well and quietly thank God for the person on the other end. I mean, just listening to your harmoniously rhythmical breathing is enough to remind me of more things to thank God for.

I wonder if your exes are blind or have mental handicaps. They must, to allow someone like you go. An angel, created by God, crested by the moon in it’s envious attempts to mimic the light you produce, and the sun whimpers into hiding, because the beam of hope you emit burns brighter than any star could ever fathom.

I wonder if after we fight, you also wish the fight never occurred, and that we can be on the phone laughing, and elaborating on our future together. I wonder if thje day after a fight, you notice the weather seems depressing with thunder clouds seeming to angrily illuminate their frustrations that you and I aren’t together. I wonder if you realize the weather is brighter when you smile, or maybe just my world is. Could be.

I wonder if you’ve come to realize the people you suffered with, the ones that caused heartbreak, and the ones who are no longer there all left to strengthen you. Once pressure is applied to coal, diamonds are the results, and I wonder if you also realize the hottest flames make for the brightest diamond. I wonder if you believe like I do that the reason all of these things happened was so I can be a strong enough companion for you. That God made us partners before we knew, and everything we’ve gone through, was just so I can get to you. I wonder if you find this to be true.

I wonder if you wonder about me, and are able to simply say my name to smile. I wonder if whenever my ringtone plays, your heart skips a mile. I wonder if you laugh out loud about a joke you remember I said three days ago, and you’ll laugh about it no matter the season. I wonder if your day is also made when you get a text saying “I love you” for no particular reason.

I wonder if you realize when I say I got you, that it means more than you’ll ever know. And those three words along with these three words (I love you) should be things I don’t just say, but I also show. I’m sorry for my flaws, and that the length of the day limits the time we spend. I hope you don’t take this the wrong way when I say I could never just be your friend, for if this love was to end, you’ve cursed me to forever settle for someone worse who will never deserve my time to spend.

I wonder these things because I love to wonder about us. I might be alone…but I might not be.

I wonder.