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The $25billion question…What is music copyright?

When a song is written, and then recorded, there are two copyrights involved.  The owners of these copyrights get control over the works and the right to monetise them or license them to someone else to monetise.
Will Page (Spotify’s director of economics) recently put a figure on the value of music copyright for the entire industry. $25 billion, $25.28bn to be exact, but what does that mean in real terms?
Understanding these copyrights is key to understanding the music industry because these copyrights form the foundations of the two most important aspects of the music industry. Publishing (composition) and recording.
Music Publishing
The main copyright in the music business is the composition, sometimes referred to as “the song” or “the music”, without compositions there can be no performance and no recording. Even improvised, or “freestyle”, performances are considered to be compositions, it’s just that the composition and the performance happen simultaneously. The composition is owned, at first, by the composers/authors. In countries that recognise the Berne Convention copyright is established automatically when the song is written down or recorded.
The duration of the composition copyright varies from country to country but is generally 70 years after the death of the composers.
Traditionally, the composition was considered to be the lyrics and the melody. Only these parts of the song were protected by copyright, chord progressions and drum patterns were not protected. Nowadays, if the sound recording was used to establish copyright of the composition then any of the elements in the recording can be protected. Although, as the judgement in the recent Taylor Swift case proved if it is not original enough then it will not be protected by copyright.
The exploitation, and monetisation, of the composition, is known as “music publishing”, music publishing deals are usually one of two types (although there are variations).
So, what’s the deal?
The author can maintain ownership of the song and enlist a publisher to manage the collection of the revenue generated by the song. This is known as an “Administration Deal”, the publisher receives an “administration fee” usually about 10% to 15% of the gross income earned during the term of the agreement. The advantage of this type of deal is that it doesn’t transfer any rights to the publisher, and you can ask to be consulted on any use of your songs.
These days you can get a publishing administration deal from digital distributors such as Tunecore and CDBaby. There are also companies like Sentric and Songtrust that offer publishing admin services.
The other option is an “Exclusive Publishing Deal”, this involves transferring the exclusive rights to the songs for a fixed term. The revenue from the songs is split in half, one half (50%) is referred to as the “writer’s share” and the other is the “publisher’s share”. In most cases, the publishing deal will only relate to the publishing share and the writer’s share will remain with the writer. This can be confusing as if a publishing deal is for 50% of the publishing share then this is actually only 25% of the overall revenue from the song as the writer retained all of the writer’s share.
If you sign the publishers share to a publisher they will register your songs with the relevant PRO/CMO, they will register both the publisher’s share and the writer’s share. They will collect the publisher’s share directly, and then distribute to the writer(s) according to the terms of the publishing agreement. The writer’s share is paid directly to the writers.
If you decide not to sign your songs to a publisher then you will be responsible for registering your songs with the relevant society. Not doing this within the given deadlines can result in lost revenue.
Where does the money come from?
The song earns money when it is used publicly or commercially, through one of two licenses. Either a “blanket” or “compulsory” license, these are issued by “Collective Management Organisations” (CMO) also known as “Performing Rights Organisations” (PRO), or through a “synchronization license” also referred to as a “sync license” or simply a “sync”.
The global music publishing industry has an estimated annual value of $11.34bn, below you can see how that breaks down across the different revenue streams.
Music Publishing Revenue
Blanket Licenses & Performing Rights Revenue
In most countries all broadcasters and businesses are required, by law, to obtain permission (either directly with the rightsholders, or through a CMO) to use copyright music in their business. This includes any business where music can be heard by the staff and/or the customers.
This includes everything from a live performance in a concert hall to a radio playing in the background in a waiting room. Public performances (both live and recorded music) and broadcasts are covered by the “blanket” licenses issued by CMOs. EG. TV, Radio, Shops, Gyms, Offices, Live Music Venues, Clubs, Bars etc…
That syncing feeling…
For uses not covered by the blanket licenses issued by CMOs an agreement must be made directly with the owners of the music, or someone acting on their behalf such as a publisher. When a piece of music is combined with some kind of visual media output (film, television shows, advertisements, video games etc) this is called “synchronisation”, in order for this to happen a deal must be agreed, this is known as a “sync license”.
Sync licenses can be a one-off up-front fee, royalties or a combination of an up-front fee and royalties. There is no standard agreement, it is entirely negotiable.
Although Sync licenses only make up around 16% of the overall publishing pie, they are still a high priority for publishers as they can be very lucrative with bigger brands often willing to pay 6 digit fees to secure the use of a song. Also, the added exposure of being included in a popular TV show or associated with a well-known brand can be valuable in itself, especially now listeners can use apps like Shazam to find out what they’re hearing.
Mechanical, and other Licenses
When physical copies of a composition are made a “mechanical license” is required, these are also issued by a CMO, and the rate is fixed (8.5% of the “dealer price” in the UK and 9.1c per song, per copy, in the USA*). Record labels must purchase a mechanical license for all the releases they manufacture physical copies of.
If you are a self-releasing artist (and therefore your own record label) and write all your own songs then you do not need to obtain a mechanical license as you will be paying this money to yourself via a CMO (who will take a commision). Instead, you can issue yourself an exclusion.
In many countries, there is also a levy added to blank media, such as recordable compact discs and hard drives, which is then paid to the creators and owners of musical works including the composers. This is known as the “private copying levy” and was introduced in the 1960’s to offset the lost revenue that many feared would be caused by the newly available cassette recorders.
The most positive thing to remember about the publishing industry, from the perspective of an independent artist, is that the publishing industry isn’t quite as stacked in favour of the majors in the way the recording industry is. Around 77% of the entire recorded music revenue goes to the 3 major labels, Sony, Universal and Warner. Leaving just 23% for the other smaller labels and independent artists. The 3 biggest publishing companies (which is also Sony, Universal and Warner) have a smaller 65% share of the overall income, leaving more for the indies.
music publishing revenue share
Recording Rights
When a recording of a song is made another copyright, separate from the composition, is created. The composers have no inherent rights over the sound recordings of their composition. The owner of the sound recording is the person, or entity, that financed and/or commisioned the recording. This is usually a record company, but if you are a self-releasing artist then you own your sound recordings.
The duration of the copyright of the sound recording is 70 years from the date it was recorded. Remasters count as new recordings and a new copyright is established.
The copyright in the sound recording is also referred to as “neighbouring rights”, or “master rights”. These rights can be acquired through various types of recording agreements, the most common kind of recording agreement is made before the recordings are completed but you can also agree to license existing recordings to a label or simply sign a distribution deal with the record company or directly with a distributor.
By owning the sound recording you have the right to the revenue generated by it, this includes selling the recording (physical copies, downloads and streaming) and the revenue derived from licenses. With the exception of live performance (as there is no recording involved), in most countries, the recording rightsholder receives money for the same uses as the owners of the composition. These royalties are collected and distributed by CMOs, if you own the recording you are entitled to this revenue, even if you are also the composer and already receiving those royalties too.
Split Decision
Recording rights revenue is split into two shares, the “rightsholder’s share” (or “label share”) and the “performer’s share” (or “artist’s share”). When it comes to the revenue from sales the split is decided by the record label, the revenue from CMOs is decided by the CMO. Major labels deals are based on “gross profit” and can be as low as just 5% of the “published price to dealer” (PPD), the wholesale cost of each unit, for the artist’s share and are rarely over 25%, the average is about 15%.

Sex Pistols Contract Signing 1977
The Sex Pistols signing their recording contract outside Buckingham Palace in 1977

Independent record labels tend to offer “net profit” deals, usually 50/50 or favouring the artist. Once all costs are recouped the profits are split equally between the label and the artist. Any performers, producers and contributors that are contracted to receive royalties will be paid from the artist’s share.
The recording rights revenue received from blanket and compulsory licenses issued by societies such as PPL and SoundExchange are also split between the labels (referred to as rightsholders in this context) and performers. This is also split 50/50, the performer’s half is then subdivided between the “featured artists” (the main artists and guest performers) and “non-featured artists” (session players and eligible studio personnel**).
The way the performer’s share is split is determined by the society distributing the revenue. In the UK, PPL allocates 65% of the performer’s share (32.5% of the overall income) to the featured performers and 35% is shared between the non-featured performers (with a maximum allocation of 7% per performer). SoundExchange in the USA allocates 90% of the performer’s share (45% of the overall income) and just 10% to the non-featured performers.
In countries that joined the Rome Convention, the performers have an inalienable right to receive “equitable remuneration” (ER) for their contributions to sound recordings. In those countries, this right cannot be bought, sold or negotiated away, the only circumstances in which it is not paid to the performer are death and bankruptcy. The right to receive the royalties can be passed on after death to heirs and beneficiaries and continues for the full duration of the copyright.
Recording Revenue
As you can see from the graph above, nieghbouring rights revenue makes up about 1/6 of the revenue earned by the sound recording, some labels report this revenue can make up as much as 40% of their overall revenue. So it’s quite surprising that a recent Musician’s Union survey found that as many as 51% of professional musicians do not have the correct memberships to claim their share of this revenue.
About half of the revenue (51%) come from digital (downloads and streaming) and just 35% from physical formats, and despite the recent resurgence of sales, it’s worth pointing out that just 2% of that is from vinyl.
So what now? Well, the first thing to do is to identify what copyrights you own. Did you write the songs yourself, did you finance the recordings? If you own either or both of these copyrights then make sure you are registering your works, or someone else is on your behalf.
If you are unsure about what you own and/or what rights you have then get some advice from a professional or someone with plenty of experience.
You can ask me, by email or in the comments, I’m happy to help.

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The Music Industry is dead, or is it? 

A bar centering on the glasses

Over the last few years, time and time again, we have seen and heard stories proclaiming the death of the music industry. Record companies are reporting plummeting sales and artists are lamenting lost earnings.#

So, how true is that? Is the music industry dead?
It’s true that CD sales are down and the format that many expected to replace it, downloads, is also suffering.

However, that fact alone doesn’t mean the industry is dying. The music business is more than selling music to listeners.
The basic principle of any business is supply and demand. If there is a demand, and you can provide the supply at a price that is both profitable and affordable then you have a viable business. The demand for music has not fallen, quite the opposite.

The main issue faced by the music industry was that the revenue from new formats, such as downloads and streaming, did not rise at the same rate that the revenue from traditional formats declined.

Over the last few years the picture is changing . The revenue from these new formats is rising and the decline of the other formats is slowing down. Some formats, such as vinyl, are enjoying a renaissance.

Globally the music industry grew by 5.9% last year (2016), the biggest growth since 2011.

The music industry in the UK contributes around £4 billion a year to the economy, again this is a figure that is rising, not falling.
In fact, it’s outperforming the UK economy itself in terms of growth. Between 2012 and 2015 the UK GDP grew by 10%. The music industry’s contribution to the GDP grew by 17% in the same period.

The money generated by streaming is also sharply rising, jumping from £168m in 2014 to £251m in 2015, in the UK alone.

As Spotify’s business model is currently to pay out a percentage of the revenue received, rather than a flat per play rate as many people think, increased subscriber revenue means better rates for the rightsholders and artists.

Does that sound like an industry that’s dead or in decline?

So why do we keep hearing and seeing stories saying it is declining?
Well, I think we have to look at who is saying this and where they are.
Most, if not all, of the stories I read come from high profile established acts. They are usually signed to a major label and have been around for quite a few years.

What they are saying is that their own profits from music are falling. They’re comparing what they used to make to what they earn now, they’re not looking at or commenting on the industry on the whole.
They also tend to be US citizens who record in USA. Copyright law in USA differs from much of the rest of the world and this affects things such as neighbouring rights.

Neighbouring Rights

In the UK any business, or broadcaster, using music commercially or publicly is required by law to purchase licenses for both the composition and the sound recording elements of recorded music.

In USA they are not required to purchase a license for the sound recording. The collection of fees for usage of sound recordings is limited to just online radio and some streaming services.

This type of revenue makes up less than 10% of the overall earnings from neighbouring rights in the UK. So, even though neighbouring rights in USA is worth $1billion per year it could be over $10billion if USA changed their laws to match those in UK and the EU.

Slow recovery

Also, the music industry in USA hasn’t performed as well as some other couthtires in recent times. Although it is growing again, it still hasn’t recovered from the sharp decrease in the late 90’s. Total revenue from U.S. music sales and licensing plunged to $6.3 billion in 2009, according to Forrester Research. In 1999, that revenue figure topped $14.6 billion. It took until 2012 for the growth of digital music to outpace the decline of physical.

Now just 44% of U.S. Internet users and 64% of Americans who buy digital music think that that music is worth paying for, according to Forrester.

In the UK 48% of internet users purchase music in some format. 82% of people who use streaming services also purchase downloads and physical formats.

So not only is the growth of digital outpacing the decline in other formats in the UK, the consumers seem more than happy to continue buying music even when they have streaming subscriptions.

The other factor to consider is market share. Throughout the 80’s and 90’s the charts were dominated by artists from USA.  8 of the 10 top selling albums of the 1980’s were by American artists. 7 of the top 10 selling albums of the 1990’s were by American artists.

Only 4 of the top ten selling artists of 2016 were from USA. So it seems that American artists no longer dominate global music sales. Perhaps it is this fact, more so than the rise of digital music, that is causing so many high profile artists from USA to proclaim the death of the music industry, at least as they know it anyway.