Music Publishing 101, Part 4: Show me the money!

Section 106 of the Copyright Act gives the owner of a copyright a bundle of rights which includes the rights to 1) reproduce the work, 2) prepare derivative works, 3) distribute copies of the works, 4) publicly perform the work and 5) publicly display the work.  All of the music publisher's income flows from this basic bundle of rights.  It should be noted that the right to perform the work is sometimes segmented into two descriptions, one called the grand rights, or dramatic and theatrical performances of the work, and small rights, or all public performances other than theatrical, including live performances of the work and radio broadcasts.  Here is New York attorney, Peter Shukat discussing grand rights:

To exercise control over these rights, a music publisher issues licenses to authorize various uses falling into this bundle of rights.  For example, if a company wants to reproduce and distribute a copyright in a musical composition, the publisher will issue a mechanical license to a record label, for example.  Mechanical royalties are a primary source of income for music publishers.  In the United States, the U.S. Copyright Office sets the rate for mechanical royalties, which is currently 9.1 cents for songs that are 5 minutes or less, and 1.75 cents per minute for songs exceeding 5 minutes.  The current mechanical royalty and historical rates can be found at the Harry Fox Agency's website.  The Harry Fox Agency administers licenses for, and collects and distributes royalties to its member of the National Music Publishers Association, although a music publisher can, and often does, perform this task on its own  Since the rate is always subject to increase,  a music publisher should also request language in the license that provides that payment is made at the rate in effect at the time the product is distributed.

Another major source of income for music publishers is public performance royalties.  in the United States, these royalties are almost always collected by the three major performance rights organizations, ASCAP, BMI & SESAC.  Outside the U.S., each country has its own performances rights organizations.  See the "Resources" page on my blog for a list of and links to many of these.  As discussed in Part 2 of this series, music publishers, as well as songwriters, affiliate with (i.e., enter into an agreement with) the performance rights organization to enable them to track airplay and live performances, and collect and distribute the royalties.  Performance rights organizations issues "blanket" licenses to radio stations, television stations, large nightclubs, large restaurant chains, and retail source so that these entities can play the music of their affiliated songwriters and publishers.  In exchange, these venues pay the performance rights organizations fees based on the anticipated usage.  The societies then use varying formulas based on such factors as airplay and usage to issue payment to its affiliate songwriters and publishers.

The music publisher issues a synchronization license to the producers of  television shows, movies and commercial advertisements for reproduction and distribution of the work.  The "sync fee" is usually a one time payment, varying from the hundreds of dollars to hundreds of thousands, dependent upon numerous factors such as the length of the segment in which the song is used, the prominence of the song in the scene (whether it is prominently featured or in the background), and whether it is the primary focus of the scene (as, for example, BTO's old song Takin' Care of Business as used in the Office Depot commercials).  The publisher typically splits this type of revenue equally with the songwriter.

A less generous source of income, but still significant nonetheless, is revenue generated by printing sheet music and lyrics.  This is a type of public display, but can also fall into the category of reproduction and distribution.  Print licenses are most commonly issued to publishers of individual sheet music (sometimes called "piano copies") and so-called "folios" (a collection of sheet music by a particular artist) and sheet music collections.  Income is also generated when lyrics to musical compositions are reprinted in a publication, such as, for example, when a book is printed in connection with a movie.  How much of this income is given to the songwriter varies widely, as it is sometimes based on percentage basis, but also can be on a flat, cent rate, e.g, 15 cents per copy.  When a percentage basis is used, it is sometime based on wholesale, sometimes retail.  The general trend among publishers in past years, however, is to split everything equally on a 50/50 basis.

Of course, one rapidly growing area of revenue is in the arena of  technology, i.e., computer software, multimedia products, singing greeting cards, DVD's and particularly ringtones.  Though these usages also involve the reproduction and distribution rights, they generally require specialized licenses and the rates a very market driven. Again, it is customary for a music publishers to split these fees equally with the songwriter.

Finally, a very significant source of income for a music publisher is foreign sub-publishing.  Outside of the U.S., music publishers solicit foreign sub-publishers on a territory by territory basis.  The arrangement is generally exclusive, meaning that the foreign publisher has the rights to exploit the music publisher's entire catalogue of songs within that territory, including the entire bundle of rights, and issue mechanical, performance, synchronization and print licenses for the usage of the music.  Typically, the U.S. publisher will receive 75% of the income generated by the foreign sub-publisher, while the sub-publisher retains 25%.  The sub-publisher does not receive any ownership interest in the copyright and usually pays the U.S. publisher a significant advance on future royalties, dependent in large part on the amount of income the catalogue has generated in the U.S.  Foreign income is often the subject of intense negotiation in writer deals, but very often a songwriter will receive half of everything the U.S. publisher receives, or 37.5 cents of the 75 cents received by the publisher.

Technorati Tags: Music Publishing,Music Lawyer,Entertainment Lawyer,Public Performance Royalties,Sychronization Fees,Licenses,Mechanical Royalties,Performance Royalties,Print License,Grand Rights,Copyright,Copyright Law,Music Business

 

Music Publishing 101, Part 3: Pieces of the Publishing Pie

Once a music publisher begins to receive income from the exploitation of the copyrights it has acquired, it must begin to distribute the income to the appropriate writers.  Understanding the basic principles of copyright ownership and royalty splits is fundamental to performing the task of distribution of income.  One device that is often used to illustrate the concepts involved is a "pie" that represents the split of income as between the publisher and the songwriter (this diagram is borrowed from the Berklee School of Music).  To fully understand this illustration, however, it is necessary to overlay the ownership of copyright which, in a typical arrangement, belongs 100% to the music publisher.

In simple terms, when a songwriter signs an exclusive songwriting agreement with a music publisher, the songwriter is agreeing to give up one hundred percent of the copyright (represented by the yellow circle in my illustration), for which the publisher agrees to pay the songwriter an equal share, usually 50%, of the royalty income stream (the dividing line in the illustration) for the duration of the copyright.   So, for every dollar the publisher receives in net income from the exploitation of the copyright (the publisher will recoup certain expenses, such a demo costs, advances and administration fees -- all of course subject to negotiation), it pays the songwriter fifty cents.  The only exception to this concept is that performance royalties, paid by ASCAP, BMI & SESAC, are paid by these organizations directly to the songwriter and publisher respectively, so that this income stream does not get filtered through the publisher.  The portion of the royalty stream paid to the songwriter is often referred to in the music industry as the writer's share, while the portion the publisher keeps is called the publisher's share.

If a songwriter has enough clout to negotiate a partial participation in the publisher's share of income, he will attempt to negotiate what is called a "co-Publishing" deal.  In this type of deal, the songwriter actually owns half of the copyright (half of the yellow circle in the above-illustration), and is entitled to received 50% of the publisher's 50% share of the income, or an additional 25%.  This equates to 75 cents for every dollar of publishing income received (the songwriter's share of the royalty pie, plus half of the publisher's half  of the pie).

These principles begin to get even more convoluted when songs are co-written by myriads of songwriters, which happens all too often in Nashville.  Take, for example,  the song More than a Memory, recorded by Garth Brooks, currently climbing the Billboard Country charts.  That particular song has three (3) co-writers and six (6) publishers listed in the credits (incidentally, if you want to gain a good understanding of music publishing, buy yourself a recent copy of Billboard magazine and study the "Singles & Tracks Song Index" that details the publisher information).  So, assuming for illustration purposes that the three writers have participation deals with their publisher (this appears to be the case since there are six publishers), then each writer would own 16.666% of the copyright and would each be entitled to 25 cents of each dollar received.  Three of the six publishing companies likely belong to the songwriters themselves (and one-third of the income just described would be paid by the entity through which they self-publish), and the remaining three publishers would split the remaining 25 cents, entitling them to about 8.5 cents each.  To further complicate matters, any portion of the royalty stream can be sold and/or encumbered, as can the publishing interests.

In addition, both music publishers and songwriter are often the party to an administration deal in which an administrator issues licenses and collects royalties for the copyright owner in exchange for a percentage of the income, usually 10-15%.  So, to continue using the example in the previous paragraph, if one of the co-writers of More than a Memory has an administration deal in which she pays 10%, then her share of the $1.00 would be 22.5 cents, because she paid her administrator 2.5 cents. 

One thing is certain, the music publishing industry most often applies the converse of Occam's Razor, i.e., the principle that, all things being equal, the simplest solution is best! 

This article is not intended as legal advise.  Should you require advise regarding an music publishing issue, you should consult with a competent entertainment attorney.

Technorati Tags: Music Publishing , Songwriting , Nashville , Country Music , Music Industry , Entertainment industry , Music Law , Music Lawyer , Copyright , Entertainment Lawyer , Entertainment Law , Public Performance Royalties , Music Publisher

Music Publishing 101, Part 2: Forming a publishing company

From a legal perspective, the formation of a music publishing company is, in most respects, very similar the formation of any other type of company, except that the documentation is tailored specifically for the business of music publishing. 

The first step in the formation of any business, including a music publishing company, is to determine what type of business entity you desire to form.  There are four basic forms any business can take:

1. Sole Proprietorship
2. Partnership
3. Corporation
4. Limited Liability Company

With the exception of a sole proprietorship, these entities can take on several forms, such a a limited partnership as opposed to a general partnership, an S-Corporation as opposed to a C-Corp, and a member managed LLC as opposed to a manager managed LLC, just to illustrate a few of the iterations.  You are strongly advised to seek the counsel of a qualified entertainment attorney and a music business accountant prior to establishing your company.

The decision as to which type of entity to create impacts the liability to which the individual members of the entity can be exposed.  In a partnership, for example, each individual member of the partnership is liable for the actions of the other partner or partners.  Of course, a sole proprietor is liable for his or her own actions as well.  Only corporations and limited liability companies shield the indivudal members from liability impacting their personal assets.  For this reason, when forming a music publishing company, it is most frequently advised that one of those two entities be used, as publishers are often the subject of copyright infringement actions, among other things.

The choice between a corporation and a limited liability company is frequently a personal one.  The corporation is a more formal structure than the the LLC, involving the selection of a board of directors, a president, sometimes a vice president, and a secretary and treasurer.  The limited liability company, on the other hand, can take many forms.  It can be member managed, similar to the management style of partnership or it can be manager managed, either in simple arrangement where one person acts as a manager, on in a configuration more like the corporation, where there are individuals serving in the various roles of president, vice president, secretary and treasurer.  It is this greater flexibility of management that spawns the popularity of the limited liability companies in today's culture.  One should not be so quick to decide, however, without the input of a good tax consultant and/or attorney.

Once a decision is reached as to the type of business entity the music publishing company will take, it will be necessary to determine a name for the publishing company.  This is where forming a music publishing company differs somewhat from other businesses, because of a music publishing company's interaction with the major performing rights organizations (PRO's), primarily ASCAP, BMI and SESAC.  Whereas a songwriter can only affiliate with one PRO at a time, a music publisher affiliates with all three if it intends to conduct significant business.  In order to submit an application, each PRO requires, among other things, that a music publisher give three choices for names in order of priority.  So, when choosing a name for your music publishing company, bear in mind that you will need at least nine variations in order to submit applications to the PRO's.

To illustrate this point, consider the various entities used by Sony ATV Music Publishing Nashville, a major player in the Nashville music publishing arena since its purchases of Tree Publishing and Acuff Rose Music merged two of the giants in the history of the Nashville music industry.  One recently charted song by Taylor Swift, Our Song, is owned in part by Sony ATV's BMI publisher affiliate, Sony/ATV Tree, BMI.  Another song on Billboard's country single chart this week is Rascal Flatt's Take Me, which owned in part by Sony ATV's ASCAP affiliate, Sony ATV Tunes, ASCAP.  Finally, Sony ATV also has a SESAC affiliate, which goes by the name Sony ATV Sounds, SESAC.  A closer examination reveals that each of these entities are separate entities, probably owned in whole or in part by the parent conglomerate.  As a side note, Sony ATV Music Publishing Nashville was recently name country music publisher of the year 2007 by all three PRO's, ASCAP, BMI and SESAC, making it the first publisher in history to do so.  Read about it here.

You'll note that Sony ATV uses a different, creative variation of the name for each PRO affiliate, a pattern often followed by other publishing houses, such as Warner Chappel Music, which has variations such as WBM Music SESAC, WB Music ASCAP, Warner-Tamerlane Publishing, BMI, and Warner Chappel SOCAN (a Canadian PRO).

Smaller publishers may not wish to follow the course of Sony ATV by maintaining separate limited liability companies for each publisher affiliate and parent LLC, as this can lead to greater expense in the formation of the company.  Rather, one option would be that one entity can be used for the parent company, and operate subsidiaries under assumed names for each of the publishing affiliates.

Once you've determined the names to be used and the types and numbers of entities you'll be using, the next step is to prepare and file the appropriate documentation with the secretary of state in the state you'll be operating your business.  Information about formation of a business entity in Tennessee is available from Tennessee's Secretary of State.  Then, in Tennessee, you must register the entity in the Register of Deeds office for the county in which your principle place of business resides.  Next, you'll need to obtain a Taxpayer Identification Number from the IRS by filing Form SS-4.  Finally, you'll need to apply as an affiliate at each of the following PRO's:  ASCAP, BMI & SESAC, assuming, of course, that you intend to contract with writers from each of these affiliates.  You'll note that SESAC has a different process than ASCAP or BMI in that the process is more selective and requires that you initiate contact with their Publishers Relation Staff prior to being reviewed for affiliation.

You might also want to explore joining an organization such as the National Music Publisher's Association, which owns and operates the Harry Fox Agency, an organization that serves as the clearinghouse for the collection and distribution of mechanical and digital license fees.

After this, you need to begin the process of developing agreements that will be used to sign songwriters to your various affiliate companies.  Work with a good entertainment attorney to customize and draft exclusive songwriting agreements and single songwriting agreements as an basic first step in this process.  Then, you're ready to start scouting talent!

This article is intended as a basic outline of the steps required to form a music publishing company.  It is not intended as, and should not be substituted for, the advise of a good entertainment attorney, which should definitely be retained and consulted prior to starting this entire process.  Expect to spend somewhere in the range of $5,000-10,000 in various legal fees to complete the entire process.

Technorati Tags: Music Publishing , Music Industry , Performance Rights Organizations , Nashville , Songwriting , Entertainment Industry , Entertainment Lawyer , Music Lawyer , Music Law , Corporation , Business Formation , Music Business , Harry Fox Agency

Music Publishing 101, Part 1: A brief history

This blog series will explore music publishing, giving a little bit of history and outlining the basic steps necessary to form a music  publishing company.  Part 1 looks at a brief history and background of music publishing.

Modern music publishing in the United States can trace its roots to "Tin Pan Alley," the name given to a group of sheet music publishers who collected on West 28th Street in New York City in the late 19th, early 20th Century, when names like Irvin Berlin and John Philip Sousa were the leading composers.  This coincides roughly with the invention of introduction of Thomas Edison's Gramophone and the phonograph cylinder.    Tin Pan Alley publishers were concerned mainly with selling sheet music and piano rolls.  The most dramatic shift in popularity from printed music to recorded music did not occur until the development of the "talkie," when The Jazz Singer was released in 1927.

In 1914, ASCAP was formed to protect the copyrighted music compositions of its members.  The organization expanded with the introduction of the new invention called radio in the 1920's.  Because owners of radio stations did not like paying what they considered exorbitant license fees to ASCAP for the performances of musical compositions, the broadcasters formed their own organization, BMI (Broadcast Musicians Inc.) in an effort to drive the license fees down.

Modern music publishers are in the business of engaging composers, i.e., songwriters, and obtaining ownership of their copyrights.   In exchange for the copyright, the music publisher agrees to exploit the composition to potential licensees (a process generally referred to as "song plugging"), administer the copyright, collect the mechanical royalties and license fees, and distribute a portion of the collected monies to the composer.

Most music publishers will offer promising composers what is called an "exclusive songwriter agreement" in which the composer is obligated to provide the publisher with a minimum number of commercial musical compositions within a certain period.  The composer generally receives a "salary," which is fully recoupable from future royalties.   Again, the publisher gives up the copyright in the musical composition in this type of deal. 

Another, less common deal type, which is reserved for songwriters who have some clout in the industry, is called a "co-publishing deal"   This arrangement is usually very similar to the exclusive songwriting arrangement discussed above, except that the songwriter only gives up half of the copyright in the musical composition and retains the remaining half. 

Less often, music publishers offer "single song agreements" to composers who may have one or two compositions that interest the publisher, but not enough that it feels warrants a longer term commitment.  Most major publishing houses do not offer these type of agreements.  They are generally the purview of independent and upstart music publishers.

There are myriad gradations of these deals, and the terms in any one agreement can be as varied as an artist's palette of colors, so if you are interested in music publishing agreements, please contact a reputable music attorney prior to obligating yourself or giving up a copyright.

Tomorrow's installment of Music Publishing 101 will discuss the basics of forming a music publishing company.

Technorati Tags: Music Publishing , Copyright , Songwriting , Music Industry , Record Labels , ASCAP , BMI , SESAC , Performance Rights Organizations , Exclusive Songwriting Agreement , Single Song Agreement

Happy Thanksgiving

I want to wish all of the readers of Law on the Row a very happy and safe Thanksgiving.  As a result of the holidays, this has been a slow posting week for me.  Rest assured that I will back with something to say next week.  Thanks for supporting my blog.

Brittany Wells vying to appear on cover of Indie Islands emagazine

Indie Islands emagazine, a country music fan magazine, is allowing its visitors to ca st votes for their favorite artist, who will be featured in their December issue in order of appearance.  The winner will also be featured on the cover.  Currently, my client Brittany Wells is leading with almost 50% of the vote, ahead of Sony recording artist, Tammy Cochran, who is in second place with 29% of the vote.  Brittany's singles Somebody's Somebody and Too Long on the independent label, Spindletop Records, charted back to back on R&R's Indicator Charts in 2005.  Show your support for Brittany by casting your vote at www.indieislands.com.

Technorati Tags: Country Music , Independent Labels , Music , Brittany Wells , R&R , Nashville , Music Row

Return fire by the music industry - artists to testify before Senate

The Senate Judiciary Committee is holding a high-profile hearing  today on the subject of imposing additional performance royalties on so-called "over-the-air" or "terrestrial" radio stations (I'll just call them OTA's in this article).  Investigative hearings such as these are usually precursors to legislation being introduced on the subject.  Grammy winner, Lyle Lovett and Chicago-based singer-songwriter Alice Peacock testified before the Committee this morning at 9:30 ET.  Their testimony was broadcast live at C-SPAN.

So, what is the issue.  OTA's and the music industry are currently engaged in one of the biggest industry and lobbying battles to hit Washington in quite some time.  The OTA's fired a recent shot when a concurrent resolution was passed by Congress.  Now, the music industry is firing back. 

One of my recent blog entitled New concurrent resolution, H.Con.Res 244, introduced to combat performance royalties for record labels gives some background on the issue, which is basically this:  Currently, OTA's pay performance royalties to ASCAP, BMI and SESAC in the U.S. for airplay performances of the musical composition copyright.  They do not, however, pay a performance royalty to the owners of the sound recording copyright for over the air performances of the copyright.  The sound recording copyright is distinct from the musical composition copyright.

This is because when Congress introduced new legislation in the mid-90's to grant sound recording copyright owners a right to performance royalties, it specifically excluded OTA's from the legislation on the basis that the artists and record labels who owned the sound recording copyrights benefited from the publicity of over the air performances, which offset the need for payment of a performance royalty.    Keep in mind, again, that this does not apply to the performance royalties paid to songwriters and music publishers.

The effect of the Digital Performance Royalty in Sound Recordings Act of 1995 is that only digital performances of the sound recording copyrights are entitled to compensation.  This applies only to Internet webcasters, Cable Radio and Satellite radio stations.  These types of services -- Pandora, Sirius, XM Radio, Last.fm, for example -- pay performance royalties to both the owners of the musical composition copyright and the sound recording copyright.  Many industry groups are rallying to rectify what is viewed as an unfair advantage for OTA's.

One such group is musicFIRST, which stands for "fairness in radio starting today."  This organization is made up of a large and impressive group of recording industry groups and well-known artists.  Unfortunately, the RIAA's involvement in this organization has diminished its reputation on many blogs, such as this article entitled Lovett goes to bat for radio royalties, the credibility of which is call into doubt by the fact that the writer is ostensibly unaware of Lyle Lovett's reputation and notoriety.  But don't make the mistake of slanting your opinion against musicFIRST based on that organization's involvement.  Check out the website and seriously consider the issues and you'll probably understand their perspective.

There is tremendous validity to the argument that radio broadcasts no longer hold the same sway over consumers that they did in 1995.  One research study conducted by Dr. Stan Leibowitz, an economics professor at the University of Texas, compared record sales and music radio listening habits in nearly 100 cities across the United States and found that exposure for a song on the radio was a substitute for purchasing the music and, therefore, actually had a negative impact on sales of music.  Critics point out that the study was funded, at least in part, by the musicFIRST coalition and say that there are studies which indicate the opposite, that is that radio airplay stimulates interests in new music and therefore encourages sales.  Think about your own habits - when was the last time you heard a song on the car radio and rushed to buy it?

Another argument propounded by the OTA's in opposition to payment of royalties to the owners of sound recording copyrights is that it would put them out of business.  They simply can't afford to pay more royalties for the music they use.  Of course, Internet webcasters and Satellite and Cable radio providers are saying "talk to the hand . . . call waiting!"   But the truth is that OTA's get the bulk of their revenue from advertisers and their revenue increases if they attract larger audience by playing the latest music.  Furthermore, stock analysts are predicting that advertising revenues, in general, are on the increase for the foreseeable future.  One researcher, George Williams, reportedly found that the annual growth of radio advertising rates from 1996 to March 2007 was 10% a year, outpacing the Consumer Price Index by more than three times its 3% a year rate.  It is very doubtful that OTA's revenues would be seriously altered by this legislation, in fact, the OTA's would more than likely simply pass the additional costs on to advertisers.

The bottom line, in my view, is that the legislation, when it is finally proposed, will create a level playing field for the broadcasting industry, providing that both digital and OTA's are required to pay the same royalties.  This just seems fair, doesn't it?  Now, whether the powerful OTA lobby will prevent the passage of such legislation is a blog for another day. 

Technorati Tags: Radio , Performance Royalties , ASCAP , BMI , SESAC , musicFIRST , Radio Broadcasters , Record Labels , Music Law , Entertainment Law , Copyright

Nashville's Blue Bird Cafe is a songwriting legacy

Amy Kurland's Blue Bird Cafe on Hillsboro Road in Nashville is the kind of stuff of which fairy tales are made.  Now, Kurland has left the legacy in the hands of Nashville's best songwriting organization, NSAI (Nashville Songwriters Association International) -- a fitting end a dynasty.

The legend of Blue Bird Cafe, which first opened in 1982,  is widespread. Among others, Garth Brooks and Kathy Mattea both got their record deals after playing at the Bluebird.  It was prominently featured in River Phoenix's last film, The Thing Called Love, and it also has been featured on television so often it is difficult to enumerate.  It has been the subject of books, both fiction and non-fiction.  Ask any songwriter in Nashville -- and for that matter in most parts of the country if not the world -- what venue they'd most like to play at, and the most likely answer is the Bluebird.

Although the terms of the deal are confidential, the basic deal points are that Kurland will continue to own the real estate and lease it to NSAI, and NSAI purchased the business at a price rumored to be in the low six figures.

"I couldn't think of anybody else other than [NSAI] that would have the same mission, the same love in their heart for songwriters," Kurland told the Associated Press.

The official announcement of the transfer was made before a performance by Kris Kristofferson.  The transition takes place January 1.

Technorati Tags: Nashvile , Songwriting , Songwriters , NSAI , Nashville Songwriters Association International , Music City , Music Row , Music Lawyer

Copyright: it's the end of the world as we know it.

Abraham Maslow’s famous “hierarchy of needs” places self-actualization as the pinnacle of human behavior.  To illustrate what the phrase "self-actualization" meant , Maslow said:

“a musician must make music, an artist must paint, a poet must write, if they are to be ultimately at peace with themselves.” 

Of course, the thing that is important to note about Maslow’s hierarchy is that  physiological needs are at it’s base, i.e., a person’s basic needs must be met before that person can reach self-actualization.  In other words, “a guy’s gotta eat”!

Maslow’s theories shed some light on the ongoing social debate on the Internet regarding whether musicians would continue to produce quality music if copyright as we know it were to be abolished.  A different argument, though very related, is whether money motivates one to be creative. 

One movement advocate such ideas is the "Free Culture Movement."  Less extremist, perhaps, is Stanford professor, Lawrence Lessig's "Creative Commons" group, which advocates modified forms of traditional license agreements as a social compromise to "reconcile creative freedom with marketplace competition."  For other research regarding this debate, see also this interesting discussion on the site Against Monopoly and watch Stanford professor Lawrence Lessig's video on TED entitled "How creativity is being strangled by the law."

The underlying assumption of some of these parties involved in the debate, which is ostensibly grounded in the record and movie industry's recent campaigns against infringers, is that all intellectual property should be free for the public to use without payment and that the antiquated copyright laws should be modified or abolished.   In my opinion, this extremism  ignores the foundation principle of Maslow's hierarchy of needs, that in order to achieve self-actualization, an artist's or musician's base needs must be satisfied.

Proponents of the free culture movement observe that creativity and survived many years without the structural form which copyright superimposed upon it.  Indeed,  it is often observed that the great works of Mozart were created without the existence of copyright laws.  Let us not forget, however, that Mozart wrote many of his works while being employed by benefactors such as the Prince Archbishop of Salzburg, Heironymus Colloredo  and Emperor Joseph II of Vienna, names that are certainly not as prominent as Mozart's.   In fact, where would the world of the arts be without the billions of dollars that have been donated by benefactors such as J.P. Morgan, James Smithson, Bill & Melinda Gates, Andrew Carnegie, Henry Ford, John D. Rockefellar, just to name a select, if not elite, few.  So, while it is true that "a musician must create music," it is also true that a musician has to eat. 

Long before the existence of copyright laws, there was a strong relationship between money and the creation of arts and music, and it will be that way until we abolish our system of currency as we now know it.   Walk around any great city and witness the existence of hundreds of pieces of commissioned artwork.  Listen to the commissioned works of Mozart, Beethoven and other great composers, who existed at the hand of benefactors.  Walk through the Museum of Modern Art and look at the works of art generously donated by J. P. Morgan and other benefactors.  Whether it be a king or a record label, money benefits art.  Creativity, like it or not, is often inspired by the almighty dollar, whether that is represented by paper currency or some other bartered for compensation which meets our base needs as human beings.  

That's not to say that people would not continue to make music or art if they were not compensated for it - they would.  That is an entirely different question in my mind.  People's hobbies and past time activities are in a slightly different class than, say, Don Henley.  If great singer-songwriters such as Henley could not make a living at playing music and writing songs, I would venture to bet that most of us would never had heard of The Eagles.  Again, even a musician has to eat.  If the musician cannot meet his base needs doing what he loves to do, a musician will meet those needs some other way and, therefore, there would be less time to do what he loves to do.

The only legitimate question remaining, then, is how should a musician get paid for the music he or she creates?  How should the songwriter get paid for the songs he or she writes?  The answer, in the United States, is by virtue of the rights created in the Constitution, Article 1, Section 8, Clause 8, which gives Congress the right:

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Investors the exclusive Right to their respective Writings and Discoveries.

The portion of this Clause dealing with the arts is further codified in the various Copyright Acts and amendments thereto.  In a nutshell, the Copyright Act creates a legal fiction, intellectual property rights, which gives creators certain exclusive rights in their works, including the rights to produce copies, create derivative works, perform or display the work, and to sell and assign the works, among other things.

The laws in the U.S. are based loosely on English concepts and laws that date back to the 17th and 18th century and are a direct result of the invention of the printing press.  The first actual copyright law was the Statute of Anne, or the Copyright Act 1709.  The concept of a copyright is a three hundred year old concept that has survived the evolution from printing press to piano rolls to digital media, and I have little doubt that it will survive the technological age, despite the rumblings of these groups. 

As the law often does, though, albeit ever so slowly in most instances, it must evolve to encompass these new technologies and the debate that is ongoing will help us formulate new and improved amendments to the laws that will hopefully address the perceived dichotomy between the rights of free speech and free culture and those of the creators and owners of intellectual properties to receive just compensation for their efforts and investments.

In the end, this blog is the my response to viewing Larry Lessig's video, recently posted on the TED website, entitled How creativity is being strangled by the law (See the link above).  In it, Lessig harkens back to the days of Sousa when children sat on the porch and sang songs, and used the analogy of Sousa decrying the advent of the phonorecord as the demise of creativity.   He points out that in our current state, copyrights should be "democratized" because the new generation uses copyrights to create something different, as "tools of creativity" and "tools of speech."  And since every such usage requires a copy, he continues, every such usage is presumably an infringement of someone's copyright.  His solution is that the artist can simply license the use of their creation for free in the instance of "non-commercial" usages, and still retain the rights to exploit it commercially.  He refers to this as the "Sousa Revival."

But my question to Professor Lessig is why does the fact that an entire generation of Internet users are using copyrighted material to create derivative works mean that the rights of copyright holders have to be abolished?  Why do the creative urges of those who utilize other people's copyrights to create different works supercede those of the people who created the original works?  Why should they? 

Second, it is important to note that people would generally not pay money to hear most children sitting on the porch singing their songs, unless that child happens to be a Don Henley.  That is the difference between most of the music on, say MySpace for example, and the music found on iTunes.  There is a tremendous difference in the value of the spontaneous, albeit creative, songs of a child and the intricate lyrics and melodies which are the product of a genius the likes of Don Henley.

Let me illustrate the principles with an example for the world of physical property.  Person A has a piece of property populated with a lot of trees.  Person B, owns the lot next door, which is flat and has a nice stream of water running around its perimeter.  Person C comes along, see this situation and, overwhelmed with creativity, cuts down Person A's trees and builds himself a house on Person B's lot and claims it as his own.  When Persons A and B confront him, stating that the law says he cannot do what he did, Person C responds that his creativity is being strangled by the law and, therefore, the law should be abolished.  Is this a good argument?  This is the argument of the Free Culture Movement and the Creative Commons.

Just as the law creates real property rights so that a person owns in a plot of real estate, the law creates intellectual property rights so that person can own an intellectual creation.  Abolishing the one makes no more sense than abolishing the other.

Now, imagine that Person A's lot was full of reeds and twigs and Person B's lot was full of ravines, rocks and arid soil.  Person C would never stop to take a second look!  The argument of these movements misses the concept of intrinsic value.

What I do like about Lawrence Lessig's movement, Creative Commons, is that it is based on the Copyright Act.  It is essentially using existing copyright laws to create a unique license which strikes a balance between fair use and full copyright reservation.  In the end, however, the license are based on the rights already granted in The Copyright Act, proving that the current laws allow for the very thing that these groups seek.  I can agree with him in that respect.

Technorati Tags: Copyright Law , Digital Downloads , Free Culture Movement , Creative Commons , Lawrence Lessig , Mozart , Beethoven , Maslow

del.icio.us Tags: Copyright law , Digital Downloads , Free Culture Movement , Creative Commons , Lawrence Lessig , Mozart , Beethoven , Maslow , Record Labels

The long tail wags the dog! An independent artist succeeds using the Internet

I have often advised my clients in the past that the new direction for independent artists is what I refer to as "guerilla" marketing, meaning finding alternative means of marketing your product.  One of the most explosive methods of doing that over the past few years has been the Internet.  One of the problems with marketing yourself on the Internet, however, is how do you get people to come to you?  The void of the Internet is so vast, that finding an artist whose sound is something that matches your musical taste is even more difficult than finding a needle in a haystack! 

So, it is a beautiful thing to see an artist actually breaking into the Billboard charts catapulted in large part by her success on the Internet, particularly her MySpace page.  Her success story gives hope to every artist whose desire is to put out a record, throw it up on the Internet, and have people flock to listen.

Enter Indianapolis, Indiana singer-songwriter Sally Anthony whose  "eTeam" of over 125,000 fans, including over 40,000 friends on MySpace, helped propel Anthony to stardom.  Thanks in large part to that online community, Anthony's first album, Vent, released in 2004, sold over 175,000 physical and digital copies.  Two releases from that album spent months on the R&R pop chart.

Her new album, Goodbye, released October 23rd, has already sold 14,000 digital copies.  It has already reached the top of the pop charts at walmart.com, FYE Digital and iTunes and on November 7th landed at No. 9 on the Billboard Heatseekers Chart.  The album is being distributed by her company, Gracie Productions, through Imperial Records/EMI.

Anthony is succeeding because she is treating the music industry as broader than just the radio promoted, hit-driven, plastic disc business the major labels seem stuck in.  She is viewing the music industry as an entire package, generating buzz wherever she can, from the ground up rather than from the top down.

I predict that we will start to see more and more of these types  of breakthrough artist as the popularity of YouTube, Facebook, MySpace and other online communities grow in popularity and as the pioneers of the Internet find more creative ways to index diverse product, match it to the tastes and purchasing patterns of Internet users, and make recommendations - sites such as  LivePlasma, Pandora, Audiobaba, Last.fm, MyStrands and, of course, Amazon,

As radio fades into the annals of history alongside the monolithic corporate conglomerates that are record labels, these innovative types of indexing sites will help those artists in the deep dark recesses of the "long tail"  find an audience for their music.  By the way, if you haven't read Chris Anderson's treatise on this subject, The Long Tail, buy a copy and dissect it now.   The long tail consists of that product that is not in the mainstream -- not on the shelves of Wal-mart -- but product that is still sought after and purchased by people.  Maybe it's only ten people per month, but people still want and buy it.  It is the millions of artist that fly below the radar of the "hit-driven majors."  These are the artists who can benefit from the exposure the Internet can provide.

Technorati Tags: Digital Downloads , Long Tail , Music Industry , Record Labels , Independent Labels , Music Lawyer , Entertainment Industry , Entertainment Lawyer

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New concurrent resolution, H.Con.Res. 244 introduced to combat performance fees for record labels

For years now, a huge battle has been brewing between proponents of performance royalties for the owners of sound recording copyrights to be paid by terrestrial radio stations (those broadcasting through the air) and it has been gathering steam in the last several months.

The battle is being waged between the giants of industry,  the RIAA, representing the four major record labels, and organizations like the National Association of Broadcasters and the Free Radio Alliance, representing the broadcast radio industry.  The latest round of fire was shot on Oct ober 31, 2007 on behalf of the broadcasters when two Texas lawmakers, Michael Conaway, a Republican, and Gene Green, a Democrat, co-sponsored concurrent resolution H. Con. Res 244, the "Local Radio Free Act."

 A concurrent resolution is a legislative measure passed by both the House and the Senate generally used to address the sentiments of both chambers with regard to certain matters.  Since they do not have the force of law, concurrent resolutions are generally used to provide for adjournments, recess, use of the Rotunda, and other such matters.  The "Local Radio Free Act" is essentially a policy statement supporting free local broadcast radio and opposing any new performance fees, taxes or royalties for the public performance of sound recordings over the airways.  Ever wonder what is behind all of this noise?

When a company wants to use a sound recording of a musical composition, there are two copyright owners with whom it must deal:  the owner of the musical composition copyright and the owner of the sound recording copyright.  For example, Dolly Parton (or her publishing company) owns the copyright to I will always love you, but two different record companies own the copyright in the sound recordings performed independently by Dolly Parton and, later, by Whitney Houston.  And, of course, one of the rights granted by the Copyright Act to the owner of a copyright is the right to publicly perform the work.

For years, ASCAP, BMI and SESAC have collected the performance royalties on behalf of the composers and writers of the music compositions.  All radio stations, whether terrestrial or digital (over the Internet or Satellite), pay performance royalties for the musical compositions they play over their broadcasts -- to the tune of around 500 million dollars per year.  It wasn't until 1995 and the passage of The Digital Performance Right in Sound Recordings Acts that the public performance right was created in the sound recording of a musical composition.  At that point in time, the digital broadcasters of music, including Satellite and Internet stations, were required to start paying a performance fee to the owners of the sound recording copyright, i.e., the record labels and artists who perform the song.  The Act specifically exempts, however, the local radio stations that broadcast the music over the airways, ostensibly on the grounds that the recording artists and labels were receiving free publicity from the broadcast radio stations in exchange for the use of their sound recording.

Now, with the demise of the CD and the rise of illicit downloading, the record industry is pressing Congress hard to extend the Digital Performance royalty to the local broadcasters and, of course, those broadcasters, with their extremely old and strong political ties, are fighting hard against it. 

The RIAA, for its part, is sending CEO Mitch Bainwol on the interview circuit.  Bainwol is consistently hailed by many Washington publications as one of the most powerful and influential lobbyist in Washington.  In an L.A. Times article in which he discussed the performance fee, Bainwol is quoted as saying that "the creation of music is suffering because of declining sales."  This group has the formidable support of the U.S. Copyright Office, which has support the removal of the exemption for terrestrial stations for many years, and the chair of the House subcommittee on intellectual property, California representative Howard Berman, who is actively pursuing legislation to remove the exemption.

The National Broadcast Association is fighting the RIAA with a barrage of print ads and radio ads in support of their position.  They use the word "tax" as an emotive term to sway people to their side.  The NBA stress that it is the major label conglomerates that would get the bulk of any new performance fees.  The radio broadcasters are a formidable force themselves with corporate entities such as Cox Radio, Citadel, Cumulus, Clear Channel, just to name a few, in opposition to the expansion of the digital performance fee. This new legislation is a result of this group's hard fought efforts against any new measures, claiming that with profit margins already in the single digits in some instances, a performance tax would obliterate their business.  

In the grand scheme of events, the concurrent resolution is probably a non-event.  It is the efforts of one group's successful lobbying finding a materialization.  Don't expect this to be the last word on the subject, however.

Technorati Tags: Public Performance Royalties , Performance Rights Organizations , Music Lawyer , Music Law , RIAA , RIAA Litigation , Digital Downloads , Major Labels , Music Industry , Legislation , Lobbyists , Mitch Bainwol , Clear Channel , Cox Radio , Citadel , Cumulus , National Broadcasters Association

 

Last Man Standing - collaborating with other songwriters

See Jane. 

See Jane write lyrics. 

See Dick. 

See Dick write melodies.  

See Dick meet Jane.

See Dick and Jane combine their efforts and collaborate together to write a song. 

This is one frequent story among Nashville's songwriting community.  On any given afternoon in Nashville, there will be innumerable co-writing sessions occurring at any given moment.  Those collaborative efforts certainly produce most of the top hits on the country charts.  The odds are, however, that at least 9 out of 10 of those songwriters will not know the implications of collaborating with another songwriter on the creation of a copyright. 

Rarely do songwriters consult an attorney or enter into any form of collaboration agreement prior to co-writing.  Rarer still is the songwriter that fully understands the important consequences that flow from co-writing with another songwriter. 

If a songwriter does happen to consult about this issue, the first thing I tell them is that it is very much like entering into a marriage relationship.  When two songwriters get together and collaborate on the creation of musical composition, each songwriter is a co-owner of and equal and undivided interest in the whole copyright, i.e. each songwriter co-owns 100% of the copyright - regardless of the relative extent of their respective contributions.   Ownership is not equally divided, as is commonly thought -- i.e. split 50/50 (that confusion comes from the fact that the royalties derived from the copyright are usually divided equally). 

In the Dick and Jane analogy above, for example, Jane does not separately own the lyrics and Dick separately own the melodies.  Dick effectively owns 100% of the song, including both the lyrics and music and Jane effectively owns 100% of the song, including both the lyrics and the music.  The concept is very similar to the legal principle of tenancy in common.  Unless they agree to the contrary in writing, each songwriter has the right to administer the entire copyright without consulting with the other songwriter, i.e., each songwriter may issue nonexclusive licenses to the entire copyright or issue first use licenses.  The only obligation each co-owner has to the other is to account for any profits earned by the exploitation.  A co-owner may not, however, without the permission of the other co-owner, transfer exclusive rights to use the work or transfer the entire copyright to a third party.  

To be absolutely clear, the Copyright Act does not really define "joint authors," but rather defines a "joint work" as a "work prepared by tow or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole."  17 U.S.C. 101.   The key here is intention -- i.e., the parties must intend that their work be integrated or merged to form a united whole at the time the work is created.  The legislative history that accompanied the act specifically states that a work is "joint" if the authors collaborated on its creation.  See H.R. Rep. No. 1476, 94th Cong., 2d Sess. 120 (1976); S. Rep. No. 473, 94th Cong., 1st Sess. 103-104 (1975).

Take for example the circumstance that arises when a person creates a poem, which is registered as a copyright.  Then, later on, a second person takes the poem and modifies the words, adding music to create a song.  The situation described is different from the collaborative effort in that there was no intent, at the time the poem was created, to merge it with the second creative effort.  The second work, the song, is a derivative work, and its writer needs permission from the creator of the poem to create the derivative work.

While we're on the subject of derivative works, each co-owner of a joint work may create derivative works independently of each other and without the permission of the other, and, without any obligation to share the royalties derived from the exploitation of the derivative work.

Now, not to further confuse the issue but, in the eyes of the law, there is a difference between co-ownership in the copyright and split of the royalties.  To get back to the Dick and Jane analysis, the typical understanding is that Dick and Jane would split any royalties received from the exploitation of the copyright on a 50/50 basis.  It is important to understand once again, however, that this understanding can be modified with a written agreement between the co-writers.  A songwriter whose reputation is strong enough can certainly request that he or she receive a greater percentage from the royalties, and even ask for a greater percentage ownership interest in the copyright.  These types of exceptions, however, must be expressed in writing between the parties in order to be enforceable. 

Another complication arises in circumstances where a party merely contributes an "idea" to the collaborative effort.  Is that person entitled to be a co-owner?   I've had this issue arise in litigation.  Two parties are collaborating on a song and have most of the song written.  In walks a friend who is also a songwriter.  He listens to the song and contributes an idea that is incorporated into one line of the song.  He leaves, the song is finished, and becomes a hit.  Does the third songwriter have an interest in the song?  The answer to the question is inevitably determined by the particular facts and hinges on whether the third party merely contributed an idea, or actually contributed the expression of an idea. 

As a final observation, let's overlay the life of the copyright over the co-ownership of a collaborative work to give our brains a final flash fry if you will.  Assuming the work to have been created after January 1, 1976, the life of the copyright is life of the author plus 70 years.  In the event of a joint work, however, it is the life of the surviving author plus 70 years.    What this means in realty is that one of the co-writers in a successful hit song, i.e., the last man standing, will eventually become co-owners with the heirs of the deceased songwriter, either in the form of a wife or a child. 

Most songwriters, of course, are not thinking this far down the road when they make their daily co-writing appointments.  But that's the real thrust of this article.  If you're a songwriter, you should consider the possibility of a collaboration agreement.  Most songwriters, I admit, do not think about this sort of thing because it cramps the creative vibe that needs to be created in a collaborative effort.  This, in my opinion, is not a wise idea.  At the very least -- and this is not my recommendation -- the writers should have some conversation about the consequences of their efforts.  Considering the consequences, the best course of action would be to consult with qualified legal counsel and get a collaborative agreement drawn up and signed -- or at least have a written statement of intent signed by both writers  -- at some agreeable point before the co-writing session begins, so as not to interfere with the creative efforts. 

Technorati Tags: Songwriting , Music Lawyer , Music Row , Collaboration , Nashville , Music City , Copyright Law , Copyright Act of 1976 , Music Law , Entertainment Law , Entertainment Lawyer