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Understanding How to Profit from the Digital Performance Royalty

Introduction
As discussed in previous articles when an author creates an original work, and then “fixes” that work in a tangible medium (writes it down or records it), the author has created a copyright, and is granted six exclusive rights . Each right is important for different reasons, and each ties directly to potential revenue streams that are crucial for artists to understand in order to build sustainable business models around their creative output.

This article highlights an anomaly with respect to United States copyright law as it relates to the exclusive right to publicly perform copyrighted material (in particular, when your music is “publicly performed” – i.e.played - by AM and/or FM radio). The goals of this article are: 1. To increase awareness of the rules around this public performance royalty; 2. To provide suggestions on how artists can best focus their energies in the ever-evolving landscape.

The Exclusive Right to Publicly Perform a Copyrighted Work
When you compose a song and record it or write it down, it automatically gets protection under U.S. copyright laws. One of these laws states the no one else can “publicly perform” your song without paying you. As one example, the exclusive right to publicly perform a copyrighted work means that only the copyright holder of the song (the songwriter) may, for instance, play the song in a club. Additionally, it means that in order for a radio station to broadcast that artist’s copyrighted song, the radio station must have an agreement in place with the artist. Same deal if, for instance, a TV station airs a show in which a copyrighted song by the artist plays during, for example, the opening credits or in the background of a show.

AM/FM radio stations get the right to pay and publicly perform a song by paying a Public Performance Organization.

The Public Performance Organizations (PROs): ASCAP, BMI, SESAC
In order for the above to take place, clearinghouse agencies were created – that is, a place an entity can go that represents a whole lot of songwriters. In the United States, these agencies are known as Performance Rights Organizations (PROs). There are three dominant ones in the United States: ASCAP, BMI, and SESAC. Each do the same thing: they act on behalf of the songwriters who have affiliated with them, and issue licenses to those who wish to broadcast (i.e. publicly perform) these artists’ copyrighted songs. Further, these PROs distribute the money they collect in license fees from these broadcasters to their affiliated writers whose copyrighted songs are publicly performed.

For instance, club owners pay the PROs a flat annual license fee that allows artists to perform copyrighted music in their club. This is how any artist is able to stand up on any stage (assuming the owner of that stage has paid the PROs their license fee) and sing a Bob Dylan song. The PROs use a variety of methods (including visiting clubs) to determine which songs are being publicly performed.

In a similar fashion, the PROs monitor radio play (via playlists submitted by the radio stations) and music played on TV (via “cue sheets” submitted by the networks) in order to determine which of the writers who have affiliated with them (i.e. the PRO) is having their copyrighted works publicly performed.

The United States’ Inconsistent Stance on Performance Royalties
Hopefully, to this point, this all seems (relatively) clear and logical. There is a wrinkle. Recall that for each song, there are two copyright holders – the songwriter is one, The second is the entity that controls the right to the actual recording of the song (traditionally a record label).

For all of the above, only one copyright holder gets paid: The Songwriter. This means, for instance, that every time Frank Sinatra’s version of Paul Anka’s song “My Way”* is played on radio, broadcast on TV (for instance, if it’s playing in a scene on a TV show), or (when he was still alive) performed by Sinatra in concert it is Paul Anka (and, assuming he has one, his publisher) who receives the public performance royalties from the PRO, and not Frank Sinatra.

It’s important to be clear here: Frank Sinatra, obviously, got paid a fortune when he performed in concert. However, in order for the venue where these copyrighted songs were publicly performed to not infringe upon the songwriters’ exclusive right to publicly perform their copyrighted works, they (the venues) have to pay a license fee to the PROs who represent the songwriters. Similarly, when Frank Sinatra’s records are played on the radio, it may increase sales, which results in Frank Sinatra’s estate earning royalties from the record label. However, Frank Sinatra (or his estate) don’t see a dime from the public performance of “My Way”; Paul Anka — via the PRO with whom he is affiliated, and who collects fees from the radio stations and pays out to its affiliated writers — makes money every time the song is played on terrestrial radio.

The disquieting detail is that every industrialized country except the United States has a public performance right that is paid to the Sound Recording Copyright Owner (typically, the label). This means that not only the writer, but also the label/performer gets paid when a song is broadcast on terrestrial radio or analog TV.

Further unsettling is the fact that when American-made music is played overseas, other countries collect royalties for it, but don’t pay American artists, because we don’t collect for artists here (only writers).

In the example above, if Paul Anka’s song “My Way” is recorded by Frank Sinatra, and the song is played on the radio in France, money is paid to a French PRO for BOTH the songwriter and the label/performer. The French collection agency then gives the U.S. PRO the money for the songwriter NOT for the label/performer. The U.S. PRO then gives a % of the money it collected to the songwriter.

Reforming the Performance Royalty
As you would expect, there are initiatives afoot to normalize the United States’ stance on public performance; most specifically, bill S. 379, the “Performance Rights Act.” Here [link: http://www.scribd.com/doc/29299229/Commerce-Department-Letter-on-Performance-Rights-Act] is a letter from Senator Leahy supporting granting copyright owners and performers a public performance right when their sound recordings are transmitted by over-the-air-broadcast stations.

The debate — as all are — is complicated, and opponents to the bill argue that such legislation would essentially put those terrestrial radio stations who are still playing music out of business or push them towards talk radio.

The important distinction is that it is only AM/FM terrestrial (i.e. non-digital) broadcasters who are exempt from paying a public performance royalty to copyright owners and featured performers of sound recordings. If music is played on Pandora, satellite radio, via a net simulcast etc, both the songwriter and the label/performer get paid.

The Digital Performance Right in Sound Recording
The Digital Performance Right in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998 (DMCA) granted a performance right in sound recordings for certain digital and satellite transmissions. This means, generally, that whenever a song is streamed (in a non-interactive manner — i.e. without the listener’s ability to rewind, etc.) online, not only must the writer of the song be paid, but also the Sound Recording Copyright Owners (SRCO) and the performer.

The PROs we’ve already discussed (ASCAP, BMI, SESAC) continue to collect fees from these web broadcasters on behalf of their affiliated writers when a song is streamed online, but now another organization, SoundExchange [link] collects on behalf of Sound Recording Copyright Owners (SCROs) and featured and non-featured artists.

When viewed in the appropriate light of inexorable technological trends and innovation, what all of this means is that, irrespective of what happens with the Performance Rights Act, an increasing amount of music is being streamed online and over digital TV (i.e. cable, Satelite), while a decreasing amount of music is broadcast over terrestrial radio/analog TV.

Strategy for Artists
As artists, it is therefore imperative that you both understand the rules governing the public performance of your music, but also take the necessary steps to ensure you are paid when your exclusive copyrights are used in this fashion.

These specific steps are to affiliate with the PRO of your choice (ASCAP, BMI, or SESAC), and to register with SoundExchange (free).

My hope is that, in so doing, you will receive the maximum amount possible each time your music is used. In order for this to occur you must be the writer, the performer, and your own label. So, get out there, start your own label, and get your music — the music you made, and control — used, and make some money so you can make more music!


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Published: 01/13/2011

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