*MUSIC, THE LAW AND MONEY STREAMS

By Paul Sanderson

Concerning this topic, three main questions arise:

I. What is music?

II. What is the law relevant to music?

III. What are the monetary streams not grant/loans from music?

Note: This is the situation that applies in Canada. The issues discussed herein can and do vary in other countries.

I What is music?

Three main copyrights arise when a sound recording of music is produced, namely musical copyrights, sound recording copyrights, neighbouring rights, including the maker and the performer’s share for their performances embodied in sound recording. These rights, the law and the money streams in relation thereto are primarily what I will speak about today.

For our purposes “music” means:

(a) musical compositions;

(b) recorded music, i.e. sound recordings;

Note: that this discussion focused on music and the law is a narrower discussion than addressing the question: What is the revenue derived from the music business and the laws in relation thereto?

By way of comparison, there are four main sources of income in the music business, namely from recordings (audio and audio visual recordings); musical copyrights (music publishing); live performance (and personal appearances); merchandising. The first two sources of revenue primarily involve music rights and in order to stay on topic and answer the three questions posed. This article does not address the money that can be had from loans and grants from government sources such as FACTOR or Arts Council funding.

*Adapted from lecture on February 21, 2016 at JAZZ.FM 91 conference.

II What Is The Law Relevant to Music?

In essence the rights acquired by music are copyrights granted under the Copyright Act. To understand these rights, you must know at least the basics of copyright law and understand how the copyright administration system operates. Administration for our purposes means controlling third party copyright licensing and the monetary flow from licensing.

First, what are the rights?

1. Music Rights

a. Musical Copyrights

There are five main rights:

(i) mechanical – the right to reproduce music in a recording;

(ii) public performing – the right to perform music in public;

(iii) synchronization – the right to synchronize music with visual images, such as in film, TV;

(iv) print rights – the right to reproduce music in print form;

(v) subsidiary rights –these are the other rights from which economic value from music accrues, such as the rights to alter and translate a work.

b. Recordings:

(i) a sound recording copyright which allows the record label to sell, license and distribute copies of the recordings;

(ii) the maker’s share of neighbouring rights and the right to be paid blank tape levies;

(iii) performers rights in their performances embodied in sound recordings which are copyrights and part of neighbouring rights regime granted in the Copyright Act.

2. How Does The Copyright System Work?

In practice, the economic value that accrues from music and copyrights is conveyed by contracts, primarily copyright assignments and licenses of copyright. Assignments are transfers of ownership of copyright; Copyright licenses grant the right to use copyright from a rights holder. By far the most prevalent transactions in the system are licenses.

3. Who Are The Main Players?

(a) Copyright Collectives

(i) What are they?

A collecting society is defined in the Copyright Act as an organization engaged by or for those who by assignment, license or agency are authorized to act on their behalf.

(ii) What do they do?

A collecting society must fulfill two main functions:

1. operate a licensing scheme; 2. collect and distribute royalties.

(iii) What are the main copyright collectives relevant to music?:

a) Reproduction rights organizations such as CMRRA, SODRAC and CSI for digital licensing;

b) Public performing rights societies such as SOCAN;

c) Re: Sound, a neighbouring rights collective;

d) Connect Music Licensing for licensing audio and audio –visual recordings;

e) CPCC - which administers blank tape levies;

(b) Music Publishers and Record Companies/Record Production Companies

Are also key players in the administration of musical copyrights system as we have defined music, but they are not copyright collectives. Music licensing, i.e. exploiting music and deriving revenue therefrom is the main activity of music publishers and the licensing and sale or recorded music is the main activity of record companies and record production companies.

Is one other highly relevant player in the system. It is a quasi judicial tribunal which is subject to federal court review. It has a statutory mandate under the Copyright Act to set tariffs that copyright collectives can charge. It oversees 62 tariffs that amount to almost ½ billion dollars annually.

III The Money Streams

“The good news – more money streams. The bad news – less money is paid out.”

1. Musical Copyrights

For musicians primarily involved in composition and song writing musical copyrights exploited through music publishing is the most important revenue source of all.

a. What is paid?

(i) Mechanicals – Physical mechanical licenses governed under the MLA, the industry negotiated standard rate is 8.3 cents (less CMRRA’s 6% or SODRAC’s 10% if they administer) for songs under 5 minutes in duration. The main users are record companies.

Digital - online mechanical licenses are granted.

(ii) Public performing rights - these are licensed by SOCAN, Canada’s only performing rights society. Main users include TV, film, radio, concerts, bars, etc. If you write and perform your own compositions, a source of revenue that can accrue from live performances which is often over looked, is the fact that if you are SOCAN member, for performances in bars with a cover charge of six dollars and over, SOCAN pays performing rights revenue. There are 42 Tariff items - Payments depend on use.

(iii) Synchronization rights – Placements of music (and record masters- master licensing) used in film, TV, commercials, video games contexts, for example, are an important source of income from music. The monetary value varies depending on the type, duration of use and the context. Typically, flat fees are negotiated by and paid to rights holders and depending on bargaining power, perhaps a % of sales of DVD, etc.

(iv) Print rights - 10-12.5% of sales - if a publishing agreement is in place.

(v) Subsidiary rights – negotiable - based on use

If a music publishing agreement is entered into, the music publisher administers the copyright and shares the revenue with the songwriter based on the terms of the agreement, typically from 50% to average of 75 % most commonly of net income goes to the songwriter.

2. Recordings:

Revenue from recordings is derived from sales, licensing and distribution of audio and audio-visual recordings, in both physical and digital formats and relevant copyright royalties, namely neighbouring rights and blank tape levies.

The value of the revenue varies depending whether one is signed to an agreement, for example, a record label or unsigned.

Under a recording agreement and a licensing agreement audio visual recordings are treated as and paid as a record.

Don’t forget CFM union payments that apply if you are a union member.

Note also for each exploitation of a recording there is often also a fee paid for use of the music and performance embodied in the recording.

a. What is paid?

(i) Sales - Typical royalty rates are: licensing-up to 20% of PPD; Distribution $ paid based on pricing of the recording less 20-30% distribution fee- and subject to aggregators % - typically 9% if digital. If the artist is under a recording agreement, typically royalties are 15-18% of PPD, or if under a record production agreement – typically artist is entitled to 50% of net receipts

Royalty rates also vary based on formats. Physical formats include - CD, vinyl, cassettes. The revenue also depends of whether the sale is at retail or live, territory, pricing (top line, mid price, budget etc.) and configurations i.e. singles, EP, LP. Physical recordings are no package deductions – subject to packaging deductions if sales discounts and reserves- subject to customary escalations based on sales plateaus achieved

(ii) A. Master use licenses - for film, TV, commercials, video games for example- if signed 50/50 split with label - if not, 100% goes to artist- typically flat fees are negotiated- factors-indie vs. major types of TV uses, commercials, video games - territory, time.

B.Licenced Samples - Flat fee vs, royalties.

(iii) A percentage of ad revenue paid based on whether the ad is skippable, non-skippable, overlay, display ads – not on views, but on per advertisement basis - You Tube – 45% - 55% Artist.

(iv) Digital - Main Types -Electronic transmissions via Internet, satellite, cellphone.

Welcome to micro-transactions and meta data accounting age. Meta data-like CD booklet liner notices increasingly important to track data and make payments. For example, ISRC code for recordings.

(a) Downloads - Itunes type model - 99 cents – less 30% = 70 cents If under a record agreement- artist’s royalty % applies. Ringtones and ringbacks, 50% of retail price to customers. Artist’s royalty rate applies if signed.

(b) Streaming –.000225 cents- You Tube vs .000515 cents Spotify per stream- paid vs. free - ad based. If signed, artist royalty applies x net revenue received by record company.- subject to types - non-interactive streaming- satellite radio-interactive streaming- video streaming, streaming on demand, podcasting and bundled services. (portion of fees collected by the digital distributor) - mobile streaming- satellite radio-podcasting, fee or ad based revenue.

(v) Neighbouring rights Under the Copyright Act - 50% goes to makers- 50% to performers for their performances in the sound recording -tariffs set by Copyright Board- collected and paid by Re: Sound. To be entitled to these a performer must join through an aggregator such as RACS, MROC or Artisti and record labels must join Connect Music Licensing to be paid the maker’s share- artists can be both types of rights holders

In U.S. - Sound Exchange – Pay 50% to record label, 45% to featured artists, 5% AFM applies to digital only – non Interactive.

(vi) Blank tape levies - These are not a tax. A percentage from every blank audio recording medium goes to CPCC as follows: shared with record label, music publishers, song writers, recording artists -58.2% artist / publisher 23.8% / performer 18% / record company must join through an aggregator such as SOCAN, CMRRA, SODRAC etc.

Conclusions

This is a very complicated area of law, rights and practices. Rights and revenue streams are ever evolving in the music industry which itself is also undergoing rapid transition.

You are well advised to “Know Your Rights" because such rights form the legal basis for the sources of revenue that allows one to earn income in the music business.

The above does not constitute legal advice and in any given situation skilled legal advice should be sought.

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Music, the Law and Money Streams