The Future of Music Royalty Rights – Performance Rights Organizations and the Internet

Introduction

The face of music copyright law is quickly changing. Through the internet, users have access to literally billions of songs and playlists from all around the world and from every time period. Similarly, musicians and singers can post their latest works on social network websites such as MySpace or YouTube. Many popular artists today got their start by being discovered on MySpace rather than through the traditional record company route.

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

These organizations are known as Performance Rights Organizations or PRO’s for short. In America there are three main PRO’s that have been responsible for 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 Authors and Composers (SESAC).

ASCAP, BMI, and SESAC are the big three when it comes to royalty collection for public performances. A newcomer to the scene is SoundExchange, which governs royalty collection specifically through the medium of internet digital transmission. This article explores the interaction between traditional PRO’s and SoundExchange, and how royalties are now being collected for internet broadcasts.

Traditional Royalties: Performance Rights Organization

As you can tell from the name, Performance Rights Organizations deal with performances, especially those being done publicly. What they do is collect royalties from the parties that use copyrighted works, and distribute them to the copyright holder (usually the songwriter). Royalties are small fees charged every time a copyrighted song is played or performed. For example, if a television station wishes to use a song in one of their advertisements, the PRO will collect the royalty fee from the station and distribute it to the copyright holder.

Artists who wish to collect royalty fees can register with a PRO, and they can only register with one of the main three. This is a separate arrangement than one made with a record label company. The difference between a PRO and record company is that PRO’s deal with public use of songs, while record companies deal with private performance rights (i.e., the sale of CD’s, etc.).

Thus, PRO’s only focus on performances such as live shows, broadcasts, uses in restaurants- anything where the copyrighted work is presented to the public for commercial use. Also note that PRO’s do not provide the copyright for the composition; the copyright is obtained from the U.S. 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 in its registry and tends to focus on artists who are new to the scene such as indie artists. The basic concept for all the PRO’s is the same though, which is the protection of copyrights and distribution of royalties.

How PRO’s Collect and Distribute Royalties: Use Tracking

In the past, PRO’s understandably had difficulty keeping track of every instance in which a song was used commercially for profit. Currently this has become easier due to digital technology. PRO’s keep track of royalties through what is called “use tracking”. Some PRO’s now assign every song a “digital fingerprint” that registers every instance of commercial public use of a song with their database. This is crucial especially with transmissions over the internet.

PRO’s and Internet Broadcasts

One of the major ways in which music copyright laws is changing has to due with digital transmissions. Two Acts passed in the 1990’s grant a performance right for sound recordings (not just live performances). These two acts are the “Digital Performance in Sound Recordings Act of 1995” and the “Millennium Copyright Act of 1998”. Together these laws now require that users of copyrighted sound recordings pay the copyright owner for digital transmissions over the internet. Digital transmissions include such mediums as internet radio and satellite radio.

There has been much controversy over these acts, mainly because of the rates for digital transmission fees that they set. These royalty fee rates differ drastically from medium to medium. For example, Internet radio users would be charged 2.9 cents/hour per listener, while satellite radio users would be charged only 1.6 cents/hour. Traditional radio station users, also known as “terrestrial radio”, would be charged no fees, since there is no digital transmission involved.

The important thing to remember with regards to these two laws is this- they now categorize sound recordings which are digitally recorded and transmitted as performances in themselves. That is, once a sound recording is transmitted digitally, this is considered to be a performance, and royalties must be paid for the transmission.

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

The Future of Royalties: Digital Transmissions Royalties and SoundExchange

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

SoundExchange was created in 2000 and operates as a non-profit PRO. Its activity is designated by the U.S. Copyright office itself. In its beginning stages SoundExchange was also subject to much criticism, again for the differing rates between fees over the internet versus regular radio.

SoundExchange operates 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 the statutory laws, even if the artists are not members (“featured artists”) of the company. That is, they monitor and collect royalties via internet transmission first, and then contact the artist in order to distribute the royalties to them, whether featured or non-featured artists.

SoundExchange’s form of “use tracking” consists of a log which is basically a list of the times that a song is transmitted via the internet. Musicians can look up the list of “plays” on the company’s website in order to find out if they are owed royalties. Note also, once the musician is contacted by SoundExchange, they must register with them in order to collect the royalties

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

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

As you can see, in theory this is supposed to benefit both the songwriter 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 might potentially lead to confusion and dispute over royalties in the future.

Copyright Law: What Constitutes Infringement?

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

However, since the digital transmissions laws now protect the recording itself, infringement also includes unauthorized downloading, sharing, and transmission of protected music over the internet. This includes mp3’s and holds true even after the demise of Napster and other music file sharing websites.

Other Internet Transmissions: SoundExchange Partnership with MySpace

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

In January of 2010, SoundExchange is partnering with MySpace. Specifically, the partnership’s main goal is to collect “lost” royalty fees for some 25,000 major, independent and unsigned artists who posted their music on MySpace. In fact, SoundExchange has placed over $14 million in escrow for royalties, to be held while the company searches for and contacts the artists who are owed royalties.

Previously MySpace did not work with SoundExchange, and the new partnership represents a challenging and unprecedented 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 music industry trade fair and is held annually.

Conclusion: How Do I Get My Works Protected?

If you are a songwriter or artist, or both, it is good to double check what your rights are under each type of PRO. Also, you need to understand what the various types of internet transmissions are and how they affect your royalty rights. More information on registering with one the three main PRO’s or with SoundExchange can be found on their individual websites. Finally, if you have registered your musical compositions on MySpace Music, be sure to check if you have back royalties owed to you through SoundExchange.

If you are in doubt as to your copyright and royalty rights, contact a lawyer who can explain to you your options. Using LegalMatch.com can help you find an attorney free of charge.