[GAS] Explains: Music Royalties for Dummies

By Casey Lynn
Contributing Writer, [GAS]

Considering how much “education” about music and copyright is out there (“downloading music is stealing!” ads and the like), most people have no idea how it actually works in terms of who owns what and who should get money from what kind of use. And lately, with issues like confusion over Pandora royalties, songwriters trying to collect royalties from blogs that post YouTube videos, and even arguments that video games may constitute a public performance of music, it’s just been getting increasingly complicated. What follows is a brief, (hopefully) understandable run-down of how music royalties work, particularly with respect to the Internet. Does this clear up the confusion of the above issues? Not a chance. Heck, if the Copyright Office can’t figure it out, we can’t be expected to. But this should at least shed some light on why the problems exist.

Note, of course, that this is a discussion of U.S. law. Things get even more complicated when we start talking about international copyright law, so that’s a discussion for another day.

1. TWO copyrights (not) for the price of one. Music is a little more complicated than other kinds of art in that there are two completely separate copyrights – the rights to the song and the rights to the sound recording. So when you hear, say, the song “Hurt” by Nine Inch Nails, there are two pieces of the pie to carve up: (1) ownership in the song (the composition) by Trent Reznor, because he wrote it; and (2) ownership in the sound recording most likely by A&M because they’re the record company (the copyright only reverts to the recording artist once they’ve “recouped” the cost of the recording – but that’s a longer explanation for another day). And then when you hear “Hurt” by Johnny Cash, there are still two pieces of the pie: (1) Trent Reznor still owns the composition; and (2) Universal Music Group owns the sound recording because they were Cash’s record label. What this means is that when you use a song, you have to clear BOTH of those rights, not just one.

2. How do the owners make money? The majority of revenue from owning part of a song comes from four places:

  1. Record sales (called “mechanical royalties”)
  2. Public performance
  3. Synchronization rights (when songs are used in movies or TV)
  4. Sales of sheet music.

The first two are obviously the biggest, and there are a couple of things you need to know about those.

Mechanical rights. All of the money from record sales doesn’t go straight to the label (and eventually to the artist); some of it goes to the songwriter as well. You can get what’s called a mechanical license for the right to record a song, and (a) there’s a statutory royalty rate, which is something like nine cents per song per copy sold, and (b) the license is compulsory, which means you don’t need to get permission from the songwriter to record the song. So once Nine Inch Nails recorded “Hurt,” Johnny Cash didn’t have to get their consent to cover it; he just had the pay them royalties (though I understand that Trent Reznor really, really liked the cover).

Public performance rights. The important thing to know about public performance rights is that it only applies to the composition copyright, not to sound recordings. Which means that any money that comes out of this right goes to the songwriter, not to the record label. The major examples of public performances are (a) concerts, (b) music playing in a public venue (like a bar), and (c) radio play. Also, (d) the Internet? This one’s tricky, so hold off for a second on thinking about that one. But one thing to know is that whenever you hear a song on the radio, the person singing it is only getting money for that radio play if they wrote the song. You know how you sometimes look at the liner notes and a recording artists is credited with co-writer credits on most of the songs? This is why. They may not have had anything to do with actually writing it, but getting a piece of that copyright can be part of negotiations.

3. So where do the RIAA and ASCAP come in? You probably know what the Recording Industry Association of America (RIAA) is – the group that represents all of the record labels and distributors and has gotten some bad press for suing individual file-sharers for very large amounts of money. So they’re concerned with getting the first piece of the copyright pie. For the other piece, we go somewhere else – or actually, three somewheres if you’re in the U.S. – the American Society of Composers, Authors, and Publishers (ASCAP), Broadcast Music, Inc. (BMI), and SESAC (which used to stand for something but doesn’t anymore). ASCAP is the most prominent, largely because it was first, and it came about because a bunch of composers in the early 20th century (like Irving Berlin and John Philip Sousa) noticed that their music was getting performed all over the place and they weren’t getting any money for it. It would be pretty much impossible for a songwriter to go around and collect royalties from every nightclub or hotel where someone’s performing his music, so the purpose of ASCAP is to negotiate and collect fees from these places (and, importantly, radio stations) and divvy it all up among the songwriters. This is usually the bulk of a songwriter’s income. (Also note that this doesn’t apply to “dramatic works” – i.e., performances of musicals or operas or the like – those are negotiated directly with the music publisher.)

4. And then the Internet started causing problems. So this system worked pretty well for a long time, until a few things happened. One is obviously file-sharing. Another is streaming music on the Internet. As everyone knows, the music industry has been struggling to keep its former glory for the last decade. And when there’s less of the pie to carve up, everyone wants a bigger piece.

Radio royalties. With CD sales dwindling since Napster came on the scene, the RIAA has been fighting for years in hopes of securing some kind of revenue for digital transmissions; they’ve been trying to get a public performance right in sound recordings. In other words, record labels wanted a piece whenever a song is played on the radio (including Internet radio). Neither broadcasters nor ASCAP like this idea with respect to radio because it will mean one of two things: (1) the pie will get bigger (bad for radio stations), or (2) the pieces will get smaller (bad for songwriters). One note on international law: the U.S. is basically the only country without public performance rights in sound recordings, and the rule is that since international owners of recordings don’t get performance royalties from radio play in the U.S., other countries can withhold royalties from U.S. copyright owners – so if the RIAA wins this battle, they’ll be getting more income from other countries as well.

Internet radio. Meanwhile, webcasters are another group that this could seriously affect. The DMCA gives webcasters (i.e., Internet radio) the right to use whatever recorded music they want in exchange for paying set royalty rates, and this is controlled by SoundExchange, an organization that works sort of like ASCAP for these fees – though they pay the artists directly rather than the record labels, which is good for the artists. As you may have heard, webcasters recently dodged a bullet with respect to hiking up royalty rates, but they still don’t think it’s fair that they have to pay for sound recordings and regular radio stations don’t. In fact, it may be that Internet radio may actually team up with record labels to lobby for everyone paying across the board – after all, if broadcast radio starts paying as well, the labels might not push so hard against webcasters.

Public performance on the Internet. One of the major problems that the Internet has caused is the question of what exactly constitutes a public performance. For example, a few years ago there was a legal battle as to whether public performance licenses might be required for downloads of music even though there’s no sound during the download. Whereas it seems intuitive that downloading a song is the same as buying a record (and thus no performance), some say that downloading involves a transmission “to the public.” ASCAP went after AOL and a few other online music distributors a couple of years ago, and a federal court decided that (a) a download in itself is not a public performance, (b) streaming is, but (c) a download where there is also streaming might be. In other words, if you can listen to it while you’re downloading it, there might be a problem. And recently there have been other, similar issues. ASCAP says that now that video games are often streamed over the Internet (for example, Xbox live), this constitutes a public performance and the services should be paying for an ASCAP license. And of course, the most recent controversy is that ASCAP has been sending bills to blogs for the use of YouTube videos – including [Geeks are Sexy] – even though YouTube itself is paying $1.6 million to ASCAP.

So what do you think? If we embed a YouTube video with a song in the background, should we be paying the person who wrote the song? Does it matter that YouTube might already be paying them? I point out that ASCAP and the RIAA are two different groups largely because I see a lot of “they keep trying to take our money!” but the issue is that the money is going to two different places. If the RIAA sues file-sharers into oblivion, songwriters won’t see that money, but if ASCAP gets money from bloggers, it doesn’t go to the record labels. I also think that there’s a group intuition of record labels as evil money-grubbers whereas songwriters are more warm and fuzzy. But I don’t think that there are necessarily villains in this situation – it really is hard to figure out what’s fair when technology doesn’t jive with the law that’s on the books.  What I do know is that we all want the music industry to stay in business, so everyone needs to get some of the pie – and hopefully we can figure out how big the pieces should be (and make sure that there is a pie to carve up).

There is a lot more that I could say about this subject, and a lot of things that I obviously didn’t touch on – but I hope that maybe this cleared up some of it. And of course, even if you just read all of this, it doesn’t cover all of the confusion about music, technology, and royalties. Don’t even get me started on ringtones. Though if you want to find out more, there’s a great book called The Future of the Music Business that was recently updated and covers all of this stuff in detail.

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14 Responses to [GAS] Explains: Music Royalties for Dummies

  1. Some really interesting stuff in there! Thanks.

    The youtube thing seems a bit ott. Surely they should be charging either youtube or the bloggers that use the vids, and not both. If any of the charge is based on play numbers then it's going to be doubled up by charging both parties.

    Anyway, if they have to charge someone, and Googles willing to pay up then why are they coming after the people that embed videos that link back to youtube? Eventually people will probably end up using CC music like they do with CC photography and then no one will get exposure OR money. Viral campaigns will be a thing of the past already.

  2. Some really interesting stuff in there! Thanks.

    The youtube thing seems a bit ott. Surely they should be charging either youtube or the bloggers that use the vids, and not both. If any of the charge is based on play numbers then it’s going to be doubled up by charging both parties.

    Anyway, if they have to charge someone, and Googles willing to pay up then why are they coming after the people that embed videos that link back to youtube? Eventually people will probably end up using CC music like they do with CC photography and then no one will get exposure OR money. Viral campaigns will be a thing of the past already.

  3. The way copyright laws are being used to sue individuals who are simply sharing music is ridiculous. Even more ridiculous is this blogs-with-youtube-videos-that-contain-copyrighted-music thing. Look at it, it even sounds stupid when you say it.

    Also, I think internet radio should be held to the same standard as normal radio.

  4. The way copyright laws are being used to sue individuals who are simply sharing music is ridiculous. Even more ridiculous is this blogs-with-youtube-videos-that-contain-copyrighted-music thing. Look at it, it even sounds stupid when you say it.

    Also, I think internet radio should be held to the same standard as normal radio.

  5. i quit downloading music a long time ago when all this fuss started. i also quit buying music almost entirely at the same time.. Radio is free to listen to (for now) So as long as Riaa and others prosecute, i wont buy CDs unless there from independent artists.

  6. i quit downloading music a long time ago when all this fuss started. i also quit buying music almost entirely at the same time.. Radio is free to listen to (for now) So as long as Riaa and others prosecute, i wont buy CDs unless there from independent artists.

  7. great info, thanks for putting it all in one place. I know it's a bit more complicated than that, but I appreciate it.

  8. great info, thanks for putting it all in one place. I know it’s a bit more complicated than that, but I appreciate it.

  9. That youtube thing is pretty obvious, no one should pay double for the same material..

    As a former recording artist and presently as a studio engineer i have a mixed view of the situation. As an artist i would like to get more from the pie but as an engineer both sides provide me with a job. Longer commitments come from the recording companies, more interesting deals come from the artists. The former means more money in the long run and the latter doesn't necessarily pay as much but are more fun.

    Anyway the situation has changed in the last 10 years and more and more i see the artists involvement rise. More income comes now from the live shows and as a music consumer that is a good thing. I do shamelessly download music and that is because if i don't, i definately won't pay for that album (or can't even purchase it anywhere in most cases ie small labels, obscure artists, geographical locations etc..) and thus won't be listening to it. For the individual people in the business the internet hasn't cause jobloss, quite the contrary. Those with knowledge and talent have even more opportunities than before. Back then the artists used studios only for demos and the labels contracted only a handful of studios to do the expensive stuff. Now it' is more diversified and i think that the overall quality hasn't dropped much (there are numoerous examples even in the mainstream to note the contrary thou..) and the volume of recordings have skyrocketted.

    As an artist, i won't mind sharing my music if someone really wants to listen it in Japan and more people listen, the more likely you're getting gigs, labels will back you up and so on..

  10. That youtube thing is pretty obvious, no one should pay double for the same material..

    As a former recording artist and presently as a studio engineer i have a mixed view of the situation. As an artist i would like to get more from the pie but as an engineer both sides provide me with a job. Longer commitments come from the recording companies, more interesting deals come from the artists. The former means more money in the long run and the latter doesn’t necessarily pay as much but are more fun.

    Anyway the situation has changed in the last 10 years and more and more i see the artists involvement rise. More income comes now from the live shows and as a music consumer that is a good thing. I do shamelessly download music and that is because if i don’t, i definately won’t pay for that album (or can’t even purchase it anywhere in most cases ie small labels, obscure artists, geographical locations etc..) and thus won’t be listening to it. For the individual people in the business the internet hasn’t cause jobloss, quite the contrary. Those with knowledge and talent have even more opportunities than before. Back then the artists used studios only for demos and the labels contracted only a handful of studios to do the expensive stuff. Now it’ is more diversified and i think that the overall quality hasn’t dropped much (there are numoerous examples even in the mainstream to note the contrary thou..) and the volume of recordings have skyrocketted.

    As an artist, i won’t mind sharing my music if someone really wants to listen it in Japan and more people listen, the more likely you’re getting gigs, labels will back you up and so on..

  11. Interesting article. Meanwhile, millions of copyrighted songs, videos and movies are downloaded and streamed every day with no royalties paid. Restaurant staffs sing "happy birthday" without paying royalties. The list goes on…

    The system is broken, and there will always be a way to obtain media without paying for it. The industry must adapt itself to this reality. As a consumer and a very savvy 'net user, I am going to do what pleases me, record labels & studios be darned. Deal with it.

  12. (the copyright only reverts to the recording artist once they’ve “recouped” the cost of the recording – but that’s a longer explanation for another day) – If this were true, maybe more artists would have not hated their labels. But this isn't true in most cases. You are confusing copyright and royalties. They get ROYALTIES after they've recouped the costs. How's that for scary? This often includes marketing, and whatever else the label decides to include. 
    Also, the record company often owns the artist in an all-in sort of deal, and their exclusivity, often paying for their tour and making money off their radio play. If they didn't, they wouldn't care about internet streaming. They aren't concerned about the artist, trust me. If it is the recording that is playing, you can bet they will get a piece of the pie. If it is an artist they are marketing, you can bet they want more than one slice. Ascap wants a bigger slice too, because they make money based on percentage. Sure, the artist might get more, but more importantly, to them, it gets ASCAP more. 

    The music industry is a complicated and annoying, which is why so many artists are breaking free and trying to simplify things.