SESAC, SoundExchange, SoundScan: Why Are Music Royalties So Confusing?

Many indie artists are confused about the difference between ASCAP, BMI, SESAC and SoundExchange, not to mention SoundScan, the Harry Fox Agency, and the role of their own publishing company and record label when it comes to collecting and paying money under the exploitation of their music.

The problem with not understanding these concepts is that you could get taken advantage of by unscrupulous players in the business or just simply lose out on valuable revenue.  A 2015 Berklee College of Music report found that anywhere from 20-50% of music payments do not make it to their rightful owners!

This post aims to provide independent songwriters and musicians some basic information to help them understand various music royalty issues.

Music Copyright Basics

To understand music royalties, it helps to understand the underlying legal framework behind music copyright in the U.S.

Under our Copyright Act, any musical work that has been reduced to a recording has two copyrights: (1) one for the sound recording embodying the performance, and (2) one for the underlying composition (musical arrangement and lyrics).

 

Happy Birthday Composition
Happy Birthday Sound Recording

A composition or sound recording copyright gives you the following bundle of rights:

  • The right to reproduce the work (make physical or digital copies)
  • The right to distribute the work (sell, share or give away for free)
  • The right to make derivative works (made other arrangements or cover versions)
  • The right to publicly perform the work (a “performance” can be live or a replay of the recording of the work)

Additionally, there is one more right specially provided in the law for only for sound recording copyrights:

  • The right to perform the copyrighted work publicly by means of a digital audio transmission.

A lot of the confusion regarding music royalties comes from the fact that each of these distinct rights may produce royalty money for the copyright holder or the performer (or both!).   Moreover, over the years, different organizations have taken charge of managing or administering these rights for songwriters and performers, and certain “rules” have been established not based on the law, but on industry practice.

One example: the industry divides composition copyrights into a 50% “publisher’s share” and a 50% “songwriters share”, even though there is nothing in the Copyright Act dividing legal rights in this way.

Another example: composition copyrights are often assigned to publishing companies, whereas sound recording copyrights are often owned by the record label who paid for the production and promotion of the recording.  Meanwhile, a number of special royalty-collecting organizations have sprung up to address the practical realities of monitoring the use and performance of music on a nation-wide scale.

The Public Performance Right (Traditional vs. Digital)

ASCAP (American Society of Composers, Authors, and Publishers), BMI (Broadcast Music, Inc.)[1] and SESAC (formerly, the Society of European Stage Authors and Composers) are U.S. public performance organizations (PROs) who help copyright holders collect performance royalties for the public performance of music compositions.

Radio stations, concert venues, sports arenas, bars, restaurants, malls – any place where the public is generally free to enter and music might be played – all pay fees to PROs.  In exchange, they get a blanket public performance license that gives them permission to play live or recorded music at their location.  The PROs pass these collected license fees on to the composition copyright owners.

Complicating the understanding of how PROs work is that they follow the 50% publishers share and 50% songwriters share scheme, so even if a composer or songwriter has assigned 100% of their composition copyright to a music publisher, the composer/songwriter will still get money directly from their PRO.  If a composition copyright owner does not have a publishing company, they will receive both halves from their PRO.[2]

Meanwhile, SoundExchange is a PRO that collects performance royalties under a different right under copyright law.  SoundExchange assist copyright owners of sound recordings (not compositions) under digital performances (not traditional performances) of those works.

While there is huge amount of music that is transmitted over the Internet and other digital formats, it is key to realize that SoundExchange only collects digital performance royalties on non-interactive streaming services where the listener cannot control what they hear (i.e., a DJ or an algorithm is selecting the songs).  Thus, music providers such as SiriusXM, Pandora and cable music stations pay licensing fees to SoundExchange.  SoundExchange splits up the royalties it collects into 50% for the record label, 45% for the “featured artist”, and 5% for the “non-featured artists” (i.e., sessions musicians, background vocalists, etc.).  Again, SoundExchange does not pay royalties to composition copyright owners.

SoundExchange does allow its royalty payments to expire if an artist does not register and collect them within a certain time frame, so if you are an artist who is in any way featured on recorded music, you should create an account with this PRO right away!

The Reproduction and Distribution Right

Songwriters and performers who want to sell their music to the public generally desire contracts with either a record label, record manufacturer or a distribution company (sometimes, a combination of these), in which they will license their rights under copyright to reproduce and distribute their works.  There are many ways to arrange these relationships and if you can, you should negotiate for an arrangement that works best for you.  Then, make sure you have a straightforward written agreement that correctly reflects the understanding you reached with the record label, manufacturer or distribution company.

Most record labels and manufacturers will collect all revenues from any exploitation of the copyrights, then pay royalty payments to the songwriter or artist on a predetermined percentage based on units sold.  A big negotiate point is also whether the label or manufacturer will “advance” money to the artist to produce, press or promote the music, and how they get to recoup those costs.

To keep track of units sold, much of the music industry uses SoundScan, a service that tracks sales of music products throughout the United States and Canada.  Record labels often rely on SoundScan to determine the royalties earned or due to one of its contracted artists.  SoundScan is also the data source for the Billboard music charts.

Mechanical Royalties are payments made for the rights to include a composition in a sound recording (under a copyright owner’s right to copy and distribute).  Under U.S. copyright law, once a song has been published, anyone can record it as long as the statutory mechanical license is obtained and the fee established by the Copyright Act is paid (the current statutory rate is 9.10¢ per copy for songs 5 minutes or less).  Many composition copyright owners (including publishing companies) authorize the Harry Fox Agency to issue mechanical rights licenses on their behalf, and the law treats these royalties for physical products (CDs, vinyl) and digital products the same.

Synchronization or “Sync Licensing” is when a composition copyright owner grants permission to use their work in an audiovisual setting, such as a movie, a TV show, a videogame or in a commercial.  There is no statutory or industry standard rate for this.  It is negotiated based on a number of factors.  Sync licensing is becoming an ever more important source of income for songwriters and publishers.

A “master license” is needed in conjunction with a sync license if someone wants to use the sound recording of the licensed composition as well.  It is possible to get a sync license and simply re-record your own version of the work if you do not want to pay for, or are unable to obtain, the master license for a certain song.

International Royalties

A discussion of the many different music laws, royalty schemes, PROs, and other supporting organizations located outside of the U.S. is beyond the scope of this post, but many international schemes are similar to ours, so if you understand the underlying copyright law and framework here, you will have a leg up as you begin to distribute and sell your music internationally.

If you have questions or corrections about any of this information, or needs assistance with a publishing contract or record contract, give our Arts & Entertainment team a call!

 

 

 

 

 

 

[1] Inside tip: If you’re an artist who constantly performs your own compositions in live concerts, but you’re not on the radio or TV, you can sometimes make special arrangements with BMI (but not ASCAP) to get paid.

[2] Another inside tip: If you sign up with ASCAP without a publishing company, you will need to register a “vanity publishing company” – make something up for ASCAP. If you don’t do this, you will only get half of your money.

Can I Embed Someone Else’s Tweet on my Website?

That Tweet that has been making the rounds, and maybe even gone viral, should be fair game, right? Everyone has been retweeting it, so embedding the original tweet into my website isn’t hurting anyone…riiiight?  Well, not so fast. The answer may depend on where the case is heard.

Katherine B. Forrest, a U.S. District Judge for the Southern District of New York, recently issued an interesting order on this issue. Seems that Breitbart News Network, Yahoo, and a number of other online news outlets failed in making the same argument.

It seems that they all embedded a tweet (which had gone viral) into their own online websites. The tweet included a photograph of Tom Brady taken by Justin Goldman, and originally posted by him to Snapchat.

The photograph caught fire and several users uploaded it to Twitter, and eventually landed on the news websites. Goldman argues that he never publicly released or licensed the photograph, so he’s suing for infringement of his exclusive copyrights in the image.

The news outlets claim that they never actually downloaded or copied the photograph because it technically remained housed on the Twitter servers, linked through the embedding code on their own websites.

In what some have labelled a “surprising” decision, Judge Forrest set aside the 9th Circuit’s “Server Test”, which would determine infringement based upon whether an image is hosted on the alleged infringer’s server. Rather, she granted partial summary judgment to Goldman, holding that the fact that the image was never stored on the news websites’ servers was not dispositive.

Judge Forrest did leave the issue open as to whether the news outlets had raised effective defenses against infringement—citing potential arguments under fair use, the Digital Millennium Copyright Act and innocent infringement theories.

In reaching her decision, Judge Forrest examined the exclusive right to display the photograph (as opposed to copy or make a derivative work) granted to Goldman under the Copyright Act of 1976. Her opinion delves into a history of the right to display and the fact the drafters of the Copyright Act wanted it to encompass “new, and not yet understood, technologies,” such as Twitter.

Her decision also references a 10th Circuit decision, out of the U.S. District Court for the District of Colorado, which came to a different result. In Colorado, the District Court has (at least for the time being) applied the “Server Test” to a similar case.

In the 2016 Grady v. Iacullo decision, the Court held that, when a website includes a hyperlink to a copyrighted work, a copy has been created and infringement may have occurred. “transferring a copyrighted work into a computer’s RAM can create a copy under the Copyright Act.” However, the court requested that additional information be provided to it by the parties and a final ruling has not been made.

While final rulings and appeals are yet to be announced, beware the shifting sands of technology…embedding another’s image in your website may be more trouble than it’s worth.

If you have questions about this or any other copyright or licensing issue, contact our Arts & Entertainment Team today.

Could AI Get a Copyright?

In 2016, a group of museums and researchers in the Netherlands unveiled a portrait entitled The Next Rembrandt.  This painting was actually generated by a computer, which had analyzed thousands of works by the 17th-century artist Rembrandt Harmenszoon van Rijn, and then used the data to create its own work in the same style.  In the same year, a Japanese computer program wrote a novel called The Day A Computer Writes A Novel, which remarkably passed several rounds of judging for a national literary prize.

Meanwhile, Google is developing an artificial intelligence program that it hopes will write news articles, and already owns an artificial intelligence company called Deep Mind that has created software that can generate music.

Other AI projects have been able to develop computers that can edit photographs, write poems,  and even compose complex musical works with no human involvement.

Creating copyrightable works using artificial intelligence (AI) will undoubtedly have very important implications for copyright law. Traditionally, determining the owner of a copyright in computer-generated works was not a problem because the computer or software was merely a tool that supported the creative process, analogous to a pen and paper or camera and film. Now, AI is now creating works free from any direction or assistance from humans!

Since the advent of mechanical ways to play music (think player piano rolls in the 1880s), new technologies have always exceeded the boundaries of the existing copyright law, meaning the courts and the lawyers have been forced to stretch existing doctrines in their attempts to encompass the novel and unprecedented scenarios presented by this new technology.

The next frontier in copyright law, and issue that will test the language in our current statutes, will involve works created directly by computers.  Right now though, these copyright implications are by no means clear. Should these original and creative works still be deemed to be made by a human author (i.e., the individual who designed or programmed the AI or initiated the “go” command) or independently by the AI alone? Would it be legally just to refuse to grant copyrights to music, novels, dramatic works and art created by AI?  Would this refusal harm the content creation industry?

Our Intellectual Property Team will certainly be following these efforts!

What Can I Copyright?

Copyright is a type of intellectual property that protects “original works of authorship.”

Literary works (poetry, novels, newspaper articles), musical works (songs and their lyrics, orchestral compositions, movie scores), dramatic works (films, plays) and visual arts (paintings, prints, comics, sculptures) easily come to mind when thinking of works that probably have copyright protection.

However, copyright can be a lot broader! U.S. law allows you to claim copyright in software, architecture, fictional characters (for example, Superman), pantomimes and even your business’s logo.  Online, the contents of a website or blog, including its text, graphics and videos, can also have copyright protection.

This broad nature of copyright is no accident.  The Copyright Act acknowledges that future technologies may create new kinds of content that can be protected.  When the founding fathers provided for copyright in the U.S. Constitution more than 200 years ago, they surely could not fathom billion-dollar superhero movie franchises or the Internet!

So, instead of providing an exhaustive list of things that can have copyright, the law simply establishes certain elements that must be met for a work to have copyright protection.

Elements of Copyright

To be copyrightable, a work must:

  • Contain a minimal degree of creativity
  • Be created by a human author

The recent case of Naruto v. Slater[1] confirmed animals are not afforded rights under U.S. copyright law.  This ruling meant “Naruto”, a crested macaque monkey who took a charming and commercially-viable selfie, could not sue to own the copyright of the photograph.

  • And be fixed in a tangible medium

The work has to be captured in a way to that it can be perceived, reproduced, or communicated for more than a short time.

Copyright protection in the U.S. exists automatically from the moment the original work of authorship is fixed.  You do not have to register the copyright, print a copyright notice on the item, or publish the work to have copyright protection!

(But read more about why you should register your copyrights in our blog post here.)

Exceptions to Copyright

Copyright does not protect ideas, procedures, systems or methods of operation.

Copyright also does not protect facts and mechanical, clerical content (for example, a phone book).

Copyright does not protect simple, short phrases.  If you wrote a pop song with only one lyric – “Baby, I really love you…” – you probably wouldn’t be able to copyright this phrase and prevent other songwriters from authoring similar sentiments.

Copyright also does not protect content authored by the U.S. Government.  Thus, you can freely quote federal governmental reports, publications, websites and laws.  Be careful though!  This exception is not true for other governments, such as the U.K.

If you have questions about copyright law, how to register your works with the U.S. Copyright Office, or what to do if you think someone is violating your copyrights, contact our Intellectual Property team today.

[1] 15-CV-04324-WHO (N.D. Cal. Jan. 28, 2016).

Photo Credit: Kelli Tungay on Unsplash

Your Website: Tips to Stay Out of Legal Trouble – Part 1 (Copyright)

A good website for your business can be an invaluable marketing tool.  However, if you’re not careful, you could get into trouble for using images, photos, videos and other content in violation of copyright law.

Rights Granted under Copyright

Under the U.S. Copyright Act, the owner of a creative work is granted certain rights, including the right to prevent others from reproducing or copying their work, publicly displaying their work, or distributing their work.

Posting copyrighted material, say, a photograph, on your website arguably violates all these rights!  Moreover, your Internet service provider (ISP) can also be found liable for copyright infringement, even if they played no part in designing or maintaining your website.

All small business owners must therefore be extremely careful about what goes on their website!

Even big companies with sophisticated marketing campaigns get into trouble.  In May 2017, world-renowned luxury brand Tiffany & Co. was sued by photojournalist Peter Gould for using his photograph in an ad campaign for a line of jewelry designed by Elsa Peretti.  The photo at issue was a shot of Ms. Peretti back in the day.  The case was quickly settled and dismissed in July 2017, presumably because Tiffany’s agreed to write a nice fat check to Gould.

Tiffany certainly had the deep pockets to quickly deal with the lawsuit and settle, but your small business may not have these kinds of resources.

Get Permission

As a general rule, we tell our clients to assume any content they may want to use for their website, brochure, promotional video or other project is protected by either copyright or trademark law unless they can confirm otherwise.  A work is not in the public domain simply because you found it up on the Internet already (a common misconception) or because it lacks a copyright notice (another misconception).  Just because you are a local small business with not a lot of revenue and not a great understanding of copyright law does not mean you can claim “fair use” for the content either.  There are no safe harbors in the Copyright Act if you just made a mistake or misunderstood.

Finally, be aware:  If you do see an image or video is affixed with a copyright notice (or “copyright management information“) and choose to remove the info and use it anyway, this makes you liable for additional statutory damages under copyright laws.

Statutory damages range from a few hundred dollars to $25,000 per violation, meaning a mistaken infringement on your website can cost you a lot.

Investigate Infringement Claims Promptly

If someone complains about an unauthorized use on your website, remove the offending material at once and begin to investigate the claim immediately.   If necessary, consult with an attorney on how to handle the investigation and how to respond to the claimant appropriately.

You may find after your research that your use is perfectly legal.  However, you should remove the material while you investigate in order to limit your possible damages should the claimant file a lawsuit.  Continuing to use the infringing material after receiving notice will increase the chances of you being found liable and increase the amount of damages you may have to pay.

Removal of infringing material is also an element of the Digital Millennium Copyright Act (DMCA), a 1998 law establishing that an ISP can avoid liability by following certain rules, including speedy removal of infringing material.  Thus, if you don’t stay on top of copyright infringement complaints about your website, your ISP may get dragged into your mess as well.

Katy Perry’s Left Shark – Copyright

In the last blog post, we discussed Katy Perry’s attempts to secure a trademark in “Left Shark” and a design image of a shark. That discussion focused on trademark, which protects phrases and images that identify and distinguish a source of goods or services.  Copyright, on the other hand, protects works of authorship, such as drawings, songs, musical recordings, or books.

Cease and Desist Letter

Florida-based artist Fernando Sosa markets himself as “Political Sculptor,” [http://politicalsculptor.com/] and creates irreverent 3D-printed figurines inspired by current events and world politics. Immediately after Katy’s halftime show, Fernando began selling Left Shark figurines.  On February 3 (the Super Bowl took place on February 1), Katy’s legal team sent Fernando a Cease and Desist letter asserting that he was violating Katy’s rights under U.S. copyright law.  They also sent a takedown notice to Shapeways, the website selling Fernando’s figurines, and Left Shark was promptly removed from the site. Fernando decided to make the fight public, explaining on his blog: “Usually when it comes to small business owners, when the lawyers come after you the outcome is usually pretty predictable.  I decided to finally take a stand and break the usual cycle of rolling over or giving into legal threats.”   He engaged the services of a prominent intellectual property attorney, NYU Law Professor Christopher Sprigman, to respond to Katy’s lawyers.  Fernando also shared the electronic files online so that anyone with a 3D printer would be able to create their very own Left Shark sculptures.

Cease and Desist Responses

Professor Sprigman’s response letters brought up two points of copyright law.  First, under U.S. copyright law, costumes and clothes are generally not copyrightable.  He asked Katy’s lawyers to explain why the Left Shark costume should be treated any differently. He also questioned whether Katy Perry actually was the author of any Left Shark works of authorship, citing to Katy’s interview in Elle magazine where she explained: In my show, I am boss daddy.  I am boss mommy.  They call me Boss.  Everything goes through my eyes; I call all the shots, 100 percent of it.  With the NFL, I have to be accountable to several levels of red tape.  There are many committees I have to go through for my costumes, the budgets of my show, every interview – everything, I have to report to somebody.  So I am no longer the boss; I have to relinquish that control.” The Copyright Act requires all transfers of copyright ownership to be in writing.  [https://www.law.cornell.edu/uscode/text/17/204]  Thus, Professor Sprigman brought up a cogent point that the Left Shark design may belong to another individual or the NFL. Katy’s lawyers answered Professor Sprigman’s first point by explaining that Katy’s team created multiple shark drawings in the process of designing the costumes, and those were copyrightable.  They also explained that “multiple elements” within the costume itself were copyrightable, though did not explain specifically which elements these were. Katy’s lawyers also quickly asserted that Katy did, “pursuant to the terms of multiple agreements,” own all relevant copyrights to her dancing sharks.

Unfair Competition

After receiving Professor Sprigman’s first letter, Katy’s legal team asserted in addition to copyright infringement claims, they would also bring claims under unfair competition law, because “it is clear that any commercial value that your client’s sculptures have derives solely from the public’s association of them with Ms. Perry.” Unfair competition is a set tort claims that can be brought against a party that causes an economic injury to a business through a deceptive or wrongful business practice.  In the intellectual property context, unfair competition often is an accompanying claim to trademark infringement and the attempt to use an already-established name, logo, or other identifying characteristic to deceive consumers into thinking that they are buying the product of a competitor.  

“Left Shark Belongs to Us All”

In the last exchange between Professor Sprigman and the Katy’s lawyers, the professor made a salient point about the collective capabilities of the Internet: “No one knew that one of the sharks dancing next to Katy Perry during the Super Bowl halftime show was Left Shark until the Internet told us so.  The Internet decided that Left Shark’s flubbed dance moves were hilarious.  [The Internet] gave Left Shark his name, and then made him into a meme.  Left Shark isn’t really about Katy Perry.” In April 2015, Fernando retained a new attorney in Florida to continue work on his instinctual property infringement/unfair competition case with Katy Perry but, as of the date of this writing, any new developments between the two have yet to be publicly shared.

Photo taken by ShoreShot Photography