Royalties in the Age of the Internet

Royalties in the Age of the Internet 

By

Todd Brabec

Jeff Brabec

 

 

      The online/digital world has dramatically changed the way music is licensed in all media in addition to affecting the songwriter, composer and music publisher fees and backend royalties associated with any project. Many new opportunities have arisen for the exploitation of copyrights but with those opportunities have come increasingly complex contracts, new royalty structures and rates, expansions of the "grant of rights" notion and increased requests for new types of licensing models some of which challenge long-standing practices of compensation and rights.

 

This article explains many of the areas you need to be aware of and the concepts involved in this "new world of traditional/online/digital media and distribution".

 

Television

 

Because of the myriad of distribution platforms and ancillary uses, television continues to be an extremely valuable media for the use of music…whether it be score, theme music, newly written songs or pre-existing compositions.

 

In this world of multi-media platforms, the licensing of existing material (e.g., contemporary hit songs, standards, newly released records, etc.) can take on many variations depending on the program, how the music is used, the rights being requested, the budget of the production, the expectations of the audience, and the marketability and commercial exploitation avenues available.

 

There are many variations depending on whether the show is a new series, established hit, drama, comedy or music centric contestant based format (e.g., American Idol, The Voice, Dancing With The Stars, America’s Got Talent, etc.).

 

For example, many successful series license music via an “all media life of copyright” synchronization agreement which ensures that for a one-time payment, the producer can distribute the program via all existing and future media platforms including home/personal use video.  In most cases, theatrical distribution is excluded from this license arrangement as is out-of-context promotional use.  Depending on the series, there may be additional fee options included for the use in promo spots for a limited period of time (including downloads from digital services such as iTunes), a negotiation as to mechanical rates for soundtrack album or single sales and, in some cases, even a “hold back” period for a short period of time after the initial broadcast as to previously unexploited songs.

 

Other major types of licensing arrangements are an “all television with home video option” and an “all television and home video license”; both usually providing for the show’s producer to turn the license into an “all media” one for a separate fee if the original license was for less than such media and to “life of copyright” if there was a shorter duration.

 

As opposed to scripted series, the music centric and dance programs (The Voice, Dancing With The Stars, etc.) are licensed in a much different manner usually on a shorter term and multi-option basis.  For example, the original territory for the license sometimes may be for the U.S. and Canada (rather than the world) and the term might be for 1 to 5 years rather than life of copyright.  Fees are also many times based on the timing of the composition and whether it is used in recaps or is repeated in future episodes.  There are usually separate fee options for use on websites, streaming, audio downloads, ringtones, ringbacks, apps, electronic sell through and out-of-context advertising.  “So You Think You Can Dance” even has an option to use a clip using a composition on the large screen on stage during the live tour which occurs after the season ends each year.

 

          Television scoring contracts are usually work for hire agreements and the grant of rights normally covers all media and distribution platforms now or hereafter known.

 

Album and Single Sales (Mechanical Royalties)

 

At one time, albums and singles sold well.  With the proliferation of illegal file sharing, piracy and a single song download preference, mechanical royalties (the amount paid to a music publisher and songwriter by a record company for the sale of one song) have dropped significantly.  Regardless, this area can be an important source of income for some songwriters and music publishers.

 

In 2008, the Copyright Royalty Board (CRB) set mechanical rates for the period 2008-2012 for the sale of physical recordings, permanent digital downloads, limited downloads, on-demand streams and master tones.  The primary rate was 9.1¢ per song sold on a physical recording or digital download with a rate of 1.75¢ per minute if the recording was over 5 minutes.  For limited downloads and interactive streams, rates were based on a percent of the online music service’s revenue (10.5%) with minimums and reduced by whatever fees were being paid to ASCAP, BMI and SESAC.  The rate for master tones was 24¢ per download.

 

In early 2012, NMPA, RIAA and DIMA entered into an industry-wide agreement which would cover the years 2013 to 2017.  Under these regulations, the 2008 rates and configurations would be continued with 5 new subscription and non-subscription services at new rates added to the mix.

The new royalty bearing categories for music publishers, songwriters, composers and lyricists are:

 

Paid Locker Services – Subscription based locker providing on demand streaming and downloads.

Purchased Content Lockers – a free locker provided to a purchaser of a permanent digital download, ringtone or CD where the music provider and locker have an agreement.

Limited Offerings – Subscription based service offering limited genres of music or specialized playlists.

Mixed Service Bundles – A music service combined with a non-music product such as a mobile phone

Music Bundles – music products such as CDs, ringtones and digital downloads being bundled together.

 

The rates for the new categories involve the greater of a percentage of service revenue, total content costs (payments to record companies for sound recording rights) and, in the case of limited offerings, a per subscriber figure.

The Copyright Royalty Board is currently in the process of determining the rates for all configurations for the 5 year period commencing January 1, 2018. A decision will be announced in December of 2017.

 

As to the actual royalties generated, physical and download sales are relatively easy to calculate.  For example, 100,000 download single track sales will generate $9,100 in writer and music publisher income (9.1¢ x 100,000). Controlled composition clauses may reduce that amount with respect to physical sales, but in most cases, not for digital sales.

 

For all the other configurations, the payments to date have been small.  For example, approximately 832,000 quarterly plays on one bundled subscription service might generate $438 in total writer and publisher royalties with a per play rate of $0.000527.  The figures for a stand-alone portable subscription service for approximately 330,000 plays might currently generate approximately  $240 with a per play rate of $0.000725.  These royalties are arrived at after 25 different line item calculations which include service revenue, number of subscribers, label payments and performance royalties, among other factors…a not uncomplicated exercise.  It is anticipated, however, that as subscription services become more successful and more prevalent, the payments will increase.

 

ASCAP/BMI/SESAC

 

The Performance Right- the world of ASCAP, BMI, SESAC and foreign societies- represents the most valuable composer and songwriter continuing source of income.  Though traditional media (television, radio, etc.) has had its share of recent challenges, the area still remains strong as to overall license fees  and songwriter, composer and music publisher royalties-particularly if a work is part of a successful television show or a hit song on radio. The Internet and digital media area, on the other hand, has not produced as of yet license fees or distributions of any significant nature.

 

To put this area into perspective, total ASCAP, BMI and SESAC annual receipts are in the area of 2.3  billion dollars (2015 showed ASCAP and BMI receipts at slightly over 1 billion dollars each with SESAC estimated in the area of 200 million dollars). Of that amount, television (network, local and cable) represents approximately 700 million dollars, radio 375 million, general licensing (concert performances, bars and grills, hotels, etc.) 300 million, royalties from foreign societies 700 million(most of it being writer money as most music publishers collect directly from foreign collection societies through sub-publishers) and new media in the area of 240 million dollars. Global Music Rights (GMR), the newest U.S. PRO founded in 2013, has only recently started to license music users and does not report revenues.  ASCAP and BMI are non-profit entities with SESAC and GMR for-profit corporations.

 

The majority of license fees in the online/new media area are the result of Rate Court decisions as well as settlements negotiated as a result of those decisions.   Under the ASCAP and BMI Consent Decrees with the Government (in effect since 1941), if a music user( radio, television stations, streaming services, etc.)and ASCAP or BMI cannot come to an agreement as to what reasonable license fees should be, either party can go to court (Southern District Federal Court in New York) where a trial is held with a judge making the decision as to what interim as well as final performance license fees should be as well as what is actually licensable.  Rate court cases as well as settlements in the new media area have involved AOL, Real Networks, Yahoo, Netflix, Hulu, YouTube, AT&T, MobiTV, Verizon, Spotify, Ericsson, Rhapsody and Pandora, among many others.

 

Regardless of the size of the license fees in this area (many deals in this area are confidential and the fees relatively small compared to traditional media deals), major services and sites are being surveyed by the PROs and royalties are being distributed to songwriters, composers and music publishers based upon the streaming of television shows, films, records and songs.

           As to payments, total license fees from a service and the accumulation of streams are two of the primary factors considered. The type of use distinctions between theme, score and feature continue to apply in new media ASCAP, BMI and SESAC distributions when dealing with the streaming of audio visual works(feature films, television episodes, etc.) Other aspects of their television distribution systems though do not apply including Nielsen ratings, audience measurement, time of day factors and theme bonuses, among others. In the audio only streaming area, bonuses are attached to compositions which reach certain levels of performances.

 

Finally, practically every current PRO traditional media license fee re-negotiation or negotiation (radio, local television, cable, etc.)now covers within the license online/digital items such as streaming, mobile wireless platforms, website uses, webcasting, mobile apps and multicasts, among others.

 

Video Games

 

 

As to pre-existing songs, most video games pay a one-time synch license fee to the music publisher to put the song into the game with no additional royalties.  The term of the license is usually short (5-7 years instead of life of copyright which is the norm for a feature film). The Master Use sound recording license is normally on a Most Favored Nations (MFN) basis with the song.

 

Other types of games though (e.g. Dance Central, Guitar Hero, Rock Band, etc.) negotiate per unit royalties, per unit royalties with escalators, sales plateau increases as well as royalties based on a composition being downloaded by a consumer into a game(the  latter many times on a percentage of revenues  versus a set penny per composition rate).

 

Some examples of these writer/publisher deals are:

  1. 0-500,000 units sold = 1 cent per unit; 500,000- 1,000,000 = 1.3 cents; 1,000,001 plus = 1.5 cents per unit.
  2. $10,000 to put the composition into the game; an additional $4,000 at 350,000 units sold; plus $5,000 for every additional 250,000 units sold
  3. Downloadable Content (DLC): 15-20% of net Revenues as defined less third party distribution fees.  Bundled compositions (2 or more compositions sold in a package) share pro-rata to revenue.

 

Motion Pictures

 

In the case of pre-existing songs being used in a movie, new language is being inserted into synch agreements to cover the online world.  For example, a media clause in current synchronization licenses might read “distribute in any and all Media and by any and all means, now or hereafter known, including, without limitation all forms of television, all “on demand” services, all online, digital and wireless technologies and other transmissions capable of being experienced by means of any interactive devices or any future storage delivery and/or retrieved devices or systems.” An additional clause stipulates that the “viewer is not invited to manipulate the composition in any manner which is not possible using traditional analog home entertainment equipment”.

 

            The amount of the synchronization fee depends on a number of factors including how the song is used, the overall film budget, the timing of the use, whether there are multiple uses, whether uses are thematic or used over the opening or closing credits, the term and territory as well as any guarantee of inclusion on a soundtrack album.

 

              Another valuable area is the licensing of existing compositions and master recordings and the additional fees for the out-of-context use in film trailers. The media can be all forms of television, videos, radio, online, digital and wireless, linear audio web streaming, etc. There may also be additional fees for its use in the “making of “programs and featurettes as well as home/personal entertainment media menus.

 

 

 

Advertising Commercials

 

For certain compositions (hit songs, television theme songs, etc.), the advertising market can be profitable depending on, among other things, whether it is a radio, television or internet commercial, a nationwide or limited territory campaign, whether there are options for other media and delivery systems as well as other countries of the world, whether lyrics are being changed or added and whether all advertising rather than only product category exclusivity is being requested.

 

As to some of the new types of agreement clauses brought on by the digital online world, the following example should help:

 

Agreement lists composition title and product name with a term of one (1) year with an option to renew for an additional year at a 15% increase.  Territory is the United States and Canada with the world as it pertains to the Internet.  Media includes all TV including network, syndication, cable and satellite use with Internet included but not limited to client, agency and 3rd party websites.  Included is a New Media App for iPad and industrial use.

 

         As some commercials are being used in motion picture home videos, in motion picture theatres during previews and on mobile phones, rights for home video, theater promos and mobile phones may also be negotiated.  Internet use should be non-exclusive and should be limited to streaming/non-downloadable use of the spot and subject to websites having a valid U.S. performance rights license and subject to the fees, rules and regulations of any foreign performance rights society.

 

Synch fees for well-known compositions in major campaigns can be substantial.

In addition, performance monies will also be generated by ASCAP, BMI and SESAC though the rates are on the low end of their payment schedules.

 

 

 

Apps

 

This new area of exploitation can be very valuable depending on the success of the individual app since the licensing formulae are usually based on a percentage of net receipts after the deduction of the distribution fee (30% in the case of iTunes) and, in some cases, the developer fee.

 

Musical compositions are licensed at either 25% or 50% of the net revenue with the primary question being the definition of net revenue (e.g., is a distributor fee being taken off the top or is there a distributor and developer fee being deducted).  If a master recording is also involved, the fees are usually conditioned on a most favored nations (MFN) basis with the fee paid for the recording.

 

The platforms usually include all digital media such as the iPhone, Android, iPad, other mobile and handheld devices as well as internet and social networks and are from 3 to 5 years in duration but can be longer.  Accounting is usually on a quarterly basis.  Some agreements have the suggested retail price of the app actually in the contract (e.g., 99¢ for a 2 song bundle, etc.) so that you know what the actual royalty calculation will be when a song is downloaded in the app. Others only specify the formula being used.

 

The following example should give some perspective as to a representative licensing formula in this area.

 

 99¢ Retail Price

            - 30¢ Distributor Fee (30%)

69¢ Gross

            - 35¢ Developer Fee (50%)

            34¢ Net

           X 50% Publishing License

17¢ Royalty

 

 

Interactive Dolls and Toys

 

Many of these types of uses involve children’s products (Hasbro tooth tunes, pre-programmed instruments, animated pets, etc.)  As to the rights granted, the license will specify how the composition will be used (“as part of a digital/voice music chip embedded in your product”, etc.), indicate the territory and term of the license (U.S. and Canada, the world, 3 years with a sell off period, etc.) and a maximum duration of use (e.g. 2:00).

 

Writer and publisher royalties are usually either a negotiated per unit penny rate (e.g. 10-25 cents per unit but can be more) or a percentage of the wholesale or retail price.  The licensee will be prohibited from changing the basic melody, altering the fundamental character of the music, changing or adding lyrics or using the title as the name of the product. 

 

 

 

e- cards

 

Electronic cards represent an ever-increasing number of sales in the 5 billion unit greeting card business.  The all format song licenses in this area define both the “physical everyday and seasonal card” and the electronic card that is “perceived via an electronic device and may be delivered via electronic transmission (e.g. via the Internet, mobile phone, cable television or other electronic delivery media not yet in existence”).  Further, the song clip may only be distributed by either secure streaming or other secure file format intended to restrict further distribution or playback.

 

The territory for these deals is usually the world with a term of 3-5 years plus a sell off period with a maximum sound duration specified (60 seconds) and a royalty of a % of sales (e.g. 5%) or a per unit royalty (e.g.  15¢ per card).  Many times consumers are given permission to sample the song on an online website to see if they want to purchase it.  Masters are normally licensed on a MFN basis.

 

 

Ringtones/Ringbacks

 

Pursuant to the Copyright Royalty Board, ringtones generate a writer/publisher combined royalty rate of 24¢ per download.  This rate is good until 12/31/12 but an extension to December 31, 2017 is expected to be enacted. Based on ASCAP rate court decisions involving AOL, Real Networks ,Yahoo, and Verizon, no performance right  exists in the download of a ringtone. Previews of ringtones on a company’s website though are licensable by ASCAP, BMI and SESAC(ASCAP rate court decision involving AT&T).

 

Ringbacks on the other hand, are normally licensed by the music publisher as a % of the actual retail selling price to the consumer with a minimum royalty specified (e.g. 10% of the price to the consumer with a floor of 12.5 ¢).  All licenses have a sound duration specified and the territory is either the U.S., the U.S. and Canada or the World.

Performances of ringbacks are licensed by the U.S. PROs.

 

 

Direct Licensing

 

Performance Right Organizations (PROs) utilize various types of negotiated or court set license agreements with the users of music including the blanket license, the per program license, per segment license and “through to the audience” license.  Regardless of these licenses, the contracts that writers and publishers sign with ASCAP, BMI and SESAC are non-exclusive and give them the right to direct or source license a work, thereby bypassing the PRO license entirely

 

Direct licensing has been around since at least 1950 and many television and film scoring and song contracts contain language covering situations as to what happens when a broadcaster does not have a current PRO license or when the PRO is prevented by law from issuing such a license. Various contractual solutions are set forth including a negotiation “in good faith” to arrive at a fee, or an arbitration, or a reference to current PRO fees or no additional fee(a buyout).

 

The direct license issue has recently been in the spotlight again due to the 2011 notification to ASCAP by EMI Music of their intent to withdraw from ASCAP the licensing of their online digital music rights with a similar 2012 notification to ASCAP and BMI from Sony/ATV as well as the 2010 ASCAP and BMI rate court case decisions with background music supplier DMX where judges approved a blanket license adjusted by the amount of music directly licensed by the user.

 

In response to EMI Music's notification to ASCAP that they wished to withdraw the digital licensing of a major portion of their catalogue(with ASCAP continuing to license EMI compositions for all traditional media), the ASCAP Board of Directors passed a resolution which set forth the considerations and procedures involved for the removal of works for defined categories of online music users. Subsequent to EMI's   withdrawal request, EMI was acquired by Sony/ATV Music  who notified ASCAP and BMI that they too were removing their works for online licensing. Other major music publishers soon followed and direct publisher negotiations with online music services commenced. The reasons expressed by these major publishers for the withdrawing of their online rights from the PROs was that they felt they could negotiate better deals than the ones that resulted from the recent ASCAP and BMI Rate Court decisions in this area.

 

A major complicating factor regarding EMI/Sony ATV's right to withdraw their digital licensing rights from ASCAP(or any publisher for that matter) occurred in September of 2013 as part of the ASCAP/ Pandora Federal Rate Court proceeding to determine reasonable rates. Pandora had signed a webcasting license agreement with ASCAP in 2005 which they terminated effective 12/31/10. A Rate proceeding was commenced with Pandora requesting an " adjustable fee blanket license" as they had made direct licensing deals with EMI and Sony/ATV, as well as other publishers, all of whom had withdrawn their digital rights from ASCAP. 

 

In a Summary Judgement decision prior to trial, the federal judge ruled that "licensing was all or nothing" with ASCAP and that an ACAP  publisher member could not partially remove its works for a specific media- when a publisher removes works it has to be for all purposes and media. Further, all the works in the ASCAP repertory at the time of applying for a license were to be  included in any final license agreement decided upon by the Court. The short term seeming effect of this ruling was that  all of the direct licensing deals that Pandora had made with EMI, Sony ATV and other major publishers were voided. A trial date was set for December of 2013.

 

In response to the Pandora Summary Judgement, major publishers requested a motion to intervene as they claimed that under the Copyright Law they had the right to grant some or all of their rights to either licensees or agents and that nothing required them to grant all of their public performance rights to ASCAP. They also claimed that their rights were not adequately represented in the Summary Judgement proceeding.

 

 

The DMX rate court cases involved a request by DMX, a leading background and foreground music service provider, for a "through to the audience" blanket license adjusted to reflect the number of direct licenses they obtained from publishers. Prior to litigation, DMX had a program in place where they did acquire direct music licenses from a number of music publishers including one major. In the BMI case, the judge entered a final rate for the blanket license subject to adjustment for performances that were directly licensed. In the ASCAP case, the Court required ASCAP to issue to DMX a blanket license with carve-outs for direct licensing. Both decisions were appealed by ASCAP and BMI to the 2nd Circuit Court of Appeals which denied the appeals. This new type of license is referred to as a "carve out blanket license" or "adjustable fee blanket license".

 

 

To make intelligent decisions in the field, you need to know the traditional licensing structures of the PROs with their long history of negotiations, license fees, litigation and actual royalty payments, as well as the possible ramifications of a direct or source license as to the terms, payments, and other contractual obligations and considerations both in the United States and worldwide.  Also important are whether the license provides for continuing royalty payments (i.e. “licensee shall have no further responsibility with respect to U.S. performing right royalties”) whether it affects additional media and areas of exploitation and how does it affect any writers, co-writers, publishers or co-copyright owners.  What rights are actually being delivered and does one have the right to grant those rights is also an important consideration.

 

This information is essential regardless of whether you are happy with past or current PRO licensing or are in a situation where you are contemplating a direct or source license or have been asked to consider one or are being forced to enter into one.

 

Summary

 

The online/digital world has changed how music is licensed, how contracts and deals are negotiated and structured and how songwriter, composer and music publisher compensation is arrived at. This article has gone through many of the changes in the traditional world of music as well as showing new opportunities for music use created by the digital/online environment as well as challenges. It is our hope that a better understanding of all of these new types of deals that are being negotiated and the considerations for those deals as well as the environment that they are being made in, will help in fostering a spirit of negotiated agreements rather than ones arrived at via litigation.

 

 

 Copyright 2016, Todd Brabec, Jeff Brabec, All Rights Reserved

 

Todd Brabec, Esq., former ASCAP Executive Vice President, and Jeff Brabec, Esq., Vice President Business Affairs BMG Chrysalis Music, are the co-authors of Music, Money and Success: the Insider’s Guide to Making Money in the Music Business”(7th edition, Schirmer Books/ Music Sales).

 

 

 

      

 

 

 

 

 

 

 

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Television

 

Because of the myriad of distribution platforms and ancillary uses, television continues to be an extremely valuable media for the use of music…whether it be score, theme music, newly written songs or pre-existing compositions.

 

In this world of multi-media platforms, the licensing of existing material (e.g., contemporary hit songs, standards, newly released records, etc.) can take on many variations depending on the program, how the music is used, the rights being requested, the budget of the production, the expectations of the audience, and the marketability and commercial exploitation avenues available.

 

There are many variations depending on whether the show is a new series, established hit, drama, comedy or music centric contestant based format (e.g., American Idol, The Voice, Dancing With The Stars, America’s Got Talent, etc.).

 

For example, many successful series license music via an “all media life of copyright” synchronization agreement which ensures that for a one-time payment, the producer can distribute the program via all existing and future media platforms including home/personal use video.  In most cases, theatrical distribution is excluded from this license arrangement as is out-of-context promotional use.  Depending on the series, there may be additional fee options included for the use in promo spots for a limited period of time (including downloads from digital services such as iTunes), a negotiation as to mechanical rates for soundtrack album or single sales and, in some cases, even a “hold back” period for a short period of time after the initial broadcast as to previously unexploited songs.

 

Other major types of licensing arrangements are an “all television with home video option” and an “all television and home video license”; both usually providing for the show’s producer to turn the license into an “all media” one for a separate fee if the original license was for less than such media and to “life of copyright” if there was a shorter duration.

 

As opposed to scripted series, the music centric and dance programs (The Voice, Dancing With The Stars, etc.) are licensed in a much different manner usually on a shorter term and multi-option basis.  For example, the original territory for the license sometimes may be for the U.S. and Canada (rather than the world) and the term might be for 1 to 5 years rather than life of copyright.  Fees are also many times based on the timing of the composition and whether it is used in recaps or is repeated in future episodes.  There are usually separate fee options for use on websites, streaming, audio downloads, ringtones, ringbacks, apps, electronic sell through and out-of-context advertising.  “So You Think You Can Dance” even has an option to use a clip using a composition on the large screen on stage during the live tour which occurs after the season ends each year.

 

          Television scoring contracts are usually work for hire agreements and the grant of rights normally covers all media and distribution platforms now or hereafter known.

 

Album and Single Sales (Mechanical Royalties)

 

At one time, albums and singles sold well.  With the proliferation of illegal file sharing, piracy and a single song download preference, mechanical royalties (the amount paid to a music publisher and songwriter by a record company for the sale of one song) have dropped significantly.  Regardless, this area can be an important source of income for some songwriters and music publishers.

 

In 2008, the Copyright Royalty Board (CRB) set mechanical rates for the period 2008-2012 for the sale of physical recordings, permanent digital downloads, limited downloads, on-demand streams and master tones.  The primary rate was 9.1¢ per song sold on a physical recording or digital download with a rate of 1.75¢ per minute if the recording was over 5 minutes.  For limited downloads and interactive streams, rates were based on a percent of the online music service’s revenue (10.5%) with minimums and reduced by whatever fees were being paid to ASCAP, BMI and SESAC.  The rate for master tones was 24¢ per download.

 

In early 2012, NMPA, RIAA and DIMA entered into an industry-wide agreement which would cover the years 2013 to 2017.  The draft of regulations has been submitted to the Copyright Royalty Judges for approval.  Under these regulations, the 2008 rates and configurations would be continued with 5 new subscription and non-subscription services at new rates added to the mix.

The new royalty bearing categories for music publishers, songwriters, composers and lyricists are:

 

Paid Locker Services – Subscription based locker providing on demand streaming and downloads.

Purchased Content Lockers – a free locker provided to a purchaser of a permanent digital download, ringtone or CD where the music provider and locker have an agreement.

Limited Offerings – Subscription based service offering limited genres of music or specialized playlists.

Mixed Service Bundles – A music service combined with a non-music product such as a mobile phone

Music Bundles – music products such as CDs, ringtones and digital downloads being bundled together.

 

The rates for the new categories involve the greater of a percentage of service revenue, total content costs (payments to record companies for sound recording rights) and, in the case of limited offerings, a per subscriber figure.

 

As to the actual royalties generated, physical and download sales are relatively easy to calculate.  For example, 100,000 download single track sales will generate $9,100 in writer and music publisher income (9.1¢ x 100,000). Controlled composition clauses may reduce that amount with respect to physical sales, but in most cases, not for digital sales.

 

For all the other configurations, the payments to date have been small.  For example, approximately 832,000 quarterly plays on one bundled subscription service might generate $438 in total writer and publisher royalties with a per play rate of $0.000527.  The figures for a stand-alone portable subscription service for approximately 330,000 plays might currently generate approximately  $240 with a per play rate of $0.000725.  These royalties are arrived at after 25 different line item calculations which include service revenue, number of subscribers, label payments and performance royalties, among other factors…a not uncomplicated exercise.  It is anticipated, however, that as subscription services become more successful and more prevalent, the payments will increase.

 

ASCAP/BMI/SESAC

 

The Performance Right- the world of ASCAP, BMI, SESAC and foreign societies- represents the most valuable composer and songwriter continuing source of income.  Though traditional media (television, radio, etc.) has had its share of recent challenges, the area still remains strong as to overall license fees  and songwriter, composer and music publisher royalties-particularly if a work is part of a successful television show or a hit song on radio. The Internet and digital media area, on the other hand, has not produced as of yet license fees or distributions of any significant nature.

 

To put this area into perspective, total ASCAP, BMI and SESAC annual receipts are in the area of 2 billion dollars(2012 showed ASCAP at 941 million, BMI at 899 million and SESAC estimated in the area of 100 million plus). Of that amount, television (network, local and cable) represents approximately 650 million dollars, radio 400 million, general licensing(concert performances, bars and grills, hotels, etc.)200 million, royalties from foreign societies 700 million(most of it being writer money as many music publishers collect directly from foreign collection societies through sub-publishers) and new media in the area of 70 million dollars. 

 

The majority of license fees in the online/new media area are the result of Rate Court decisions as well as settlements negotiated as a result of those decisions.   Under the ASCAP and BMI Consent Decrees with the Government(in effect since 1941), if a music user( radio, television stations, streaming services, etc.)and ASCAP or BMI cannot come to an agreement as to what reasonable license fees should be, either party can go to court (Southern District federal court in New York) where a trial is held with a judge making the decision as to what interim as well as final performance license fees should be as well as what is actually licensable.  Rate court cases as well as settlements in the new media area have involved AOL, Real Networks, Yahoo, Netflix, Hulu, YouTube, AT&T, MobiTV, Verizon, Spotify, Ericsson, Rhapsody and Pandora among many others.

 

Regardless of the size of the license fees (most deals in this area are confidential and the fees relatively small), major services and sites are being surveyed by the PROs and royalties are being distributed to songwriters, composers and music publishers based upon the streaming of television shows, films, records and songs.

           As to payments, total license fees from a service and the accumulation of streams are two of the primary factors considered. The type of use distinctions between theme, score and feature continue to apply in new media ASCAP, BMI and SESAC distributions when dealing with the streaming of audio visual works(feature films, television episodes, etc.) Other aspects of their television distribution systems though do not apply including Nielsen ratings, audience measurement, time of day factors and theme bonuses, among others.

 

Further, practically every current PRO traditional media license fee re-negotiation or negotiation(radio, local television, cable, etc.)now covers within the license online/digital items such as streaming, mobile wireless platforms, website uses, webcasting, mobile apps and multicasts, among others.

 

Video Games

 

 

As to pre-existing songs, most video games pay a one-time synch license fee to the music publisher to put the song into the game with no additional royalties.  The term of the license is usually short (5-7 years instead of life of copyright which is the norm for a feature film). The Master Use sound recording license is normally on a Most Favored Nations (MFN) basis with the song.

 

Other types of games though (e.g. Dance Central, Guitar Hero, etc.) negotiate per unit royalties, per unit royalties with escalators, sales plateau increases as well as royalties based on a composition being downloaded by a consumer into a game(the  latter many times on a percentage of revenues  versus a set penny per composition rate).

 

Some examples of these writer/publisher deals are:

  1. 0-500,000 units sold = 1 cent per unit; 500,000- 1,000,000 = 1.3 cents; 1,000,001 plus = 1.5 cents per unit.
  2. $10,000 to put the composition into the game; an additional $4,000 at 350,000 units sold; plus $5,000 for every additional 250,000 units sold
  3. Downloadable Content (DLC): 15-20% of net Revenues as defined less third party distribution fees.  Bundled compositions (2 or more compositions sold in a package) share pro-rata to revenue.

 

Motion Pictures

 

In the case of pre-existing songs being used in a movie, new language is being inserted into synch agreements to cover the online world.  For example, a media clause in current synchronization licenses might read “distribute in any and all Media and by any and all means, now or hereafter known, including, without limitation all forms of television, all “on demand” services, all online, digital and wireless technologies and other transmissions capable of being experienced by means of any interactive devices or any future storage delivery and/or retrieved devices or systems.” An additional clause stipulates that the “viewer is not invited to manipulate the composition in any manner which is not possible using traditional analog home entertainment equipment”.

 

            The amount of the synchronization fee depends on a number of factors including how the song is used, the overall film budget, the timing of the use, whether there are multiple uses, whether uses are thematic or used over the opening or closing credits, the term and territory as well as any guarantee of inclusion on a soundtrack album.

 

              Another valuable area is the licensing of existing compositions and master recordings and the additional fees for the out-of-context use in film trailers. The media can be all forms of television, videos, radio, online, digital and wireless, linear audio web streaming, etc. There may also be additional fees for its use in the “making of “programs and featurettes as well as home/personal entertainment media menus.

 

 

 

Advertising Commercials

 

For certain compositions (hit songs, television theme songs, etc.), the advertising market can be profitable depending on, among other things, whether it is a radio, television or internet commercial, a nationwide or limited territory campaign, whether there are options for other media and delivery systems as well as other countries of the world, whether lyrics are being changed or added and whether all advertising rather than only product category exclusivity is being requested.

 

As to some of the new types of agreement clauses brought on by the digital online world, the following example should help:

 

Agreement lists composition title and product name with a term of one (1) year with an option to renew for an additional year at a 15% increase.  Territory is the United States and Canada with the world as it pertains to the Internet.  Media includes all TV including network, syndication, cable and satellite use with Internet included but not limited to client, agency and 3rd party websites.  Included is a New Media App for iPad and industrial use.

 

         As some commercials are being used in motion picture home videos, in motion picture theatres during previews and on mobile phones, rights for home video, theater promos and mobile phones may also be negotiated.  Internet use should be non-exclusive and should be limited to streaming/non-downloadable use of the spot and subject to websites having a valid U.S. performance rights license and subject to the fees, rules and regulations of any foreign performance rights society.

 

Synch fees for well-known compositions in major campaigns can be substantial.

In addition, performance monies will also be generated by ASCAP, BMI and SESAC though the rates are on the low end of their payment schedules.

 

 

 

Apps

 

This new area of exploitation can be very valuable depending on the success of the individual app since the licensing formulae are usually based on a percentage of net receipts after the deduction of the distribution fee (30% in the case of iTunes) and, in some cases, the developer fee.

 

Musical compositions are licensed at either 25% or 50% of the net revenue with the primary question being the definition of net revenue (e.g., is a distributor fee being taken off the top or is there a distributor and developer fee being deducted).  If a master recording is also involved, the fees are usually conditioned on a most favored nations (MFN) basis with the fee paid for the recording.

 

The platforms usually include all digital media such as the iPhone, Android, iPad, other mobile and handheld devices as well as internet and social networks and are from 3 to 5 years in duration but can be longer.  Accounting is usually on a quarterly basis.  Some agreements have the suggested retail price of the app actually in the contract (e.g., 99¢ for a 2 song bundle, etc.) so that you know what the actual royalty calculation will be when a song is downloaded in the app. Others only specify the formula being used.

 

The following example should give some perspective as to a representative licensing formula in this area.

 

 99¢ Retail Price

            - 30¢ Distributor Fee (30%)

69¢ Gross

            - 35¢ Developer Fee (50%)

            34¢ Net

           X 50% Publishing License

17¢ Royalty

 

 

Interactive Dolls and Toys

 

Many of these types of uses involve children’s products (Hasbro tooth tunes, pre-programmed instruments, animated pets, etc.)  As to the rights granted, the license will specify how the composition will be used (“as part of a digital/voice music chip embedded in your product”, etc.), indicate the territory and term of the license (U.S. and Canada, the world, 3 years with a sell off period, etc.) and a maximum duration of use (e.g. 2:00).

 

Writer and publisher royalties are usually either a negotiated per unit penny rate (e.g. 10-25 cents per unit but can be more) or a percentage of the wholesale or retail price.  The licensee will be prohibited from changing the basic melody, altering the fundamental character of the music, changing or adding lyrics or using the title as the name of the product. 

 

 

 

e- cards

 

Electronic cards represent an ever-increasing number of sales in the 5 billion unit greeting card business.  The all format song licenses in this area define both the “physical everyday and seasonal card” and the electronic card that is “perceived via an electronic device and may be delivered via electronic transmission (e.g. via the Internet, mobile phone, cable television or other electronic delivery media not yet in existence”).  Further, the song clip may only be distributed by either secure streaming or other secure file format intended to restrict further distribution or playback.

 

The territory for these deals is usually the world with a term of 3-5 years plus a sell off period with a maximum sound duration specified (60 seconds) and a royalty of a % of sales (e.g. 5%) or a per unit royalty (e.g.  15¢ per card).  Many times consumers are given permission to sample the song on an online website to see if they want to purchase it.  Masters are normally licensed on a MFN basis.

 

 

Ringtones/Ringbacks

 

Pursuant to the Copyright Royalty Board, ringtones generate a writer/publisher combined royalty rate of 24¢ per download.  This rate is good until 12/31/12 but an extension to December 31, 2017 is expected to be enacted. Based on ASCAP rate court decisions involving AOL, Real Networks ,Yahoo, and Verizon, no performance right  exists in the download of a ringtone. Previews of ringtones on a company’s website though are licensable by ASCAP, BMI and SESAC(ASCAP rate court decision involving AT&T).

 

Ringbacks on the other hand, are normally licensed by the music publisher as a % of the actual retail selling price to the consumer with a minimum royalty specified (e.g. 10% of the price to the consumer with a floor of 12.5 ¢).  All licenses have a sound duration specified and the territory is either the U.S., the U.S. and Canada or the World.

Performances of ringbacks are licensed by the U.S. PROs.

 

 

Direct Licensing

 

Performance Right Organizations (PROs) utilize various types of negotiated or court set license agreements with the users of music including the blanket license, the per program license, per segment license and “through to the audience” license.  Regardless of these licenses, the contracts that writers and publishers sign with ASCAP, BMI and SESAC are non-exclusive and give them the right to direct or source license a work, thereby bypassing the PRO license entirely

 

Direct licensing has been around since at least 1950 and many television and film scoring and song contracts contain language covering situations as to what happens when a broadcaster does not have a current PRO license or when the PRO is prevented by law from issuing such a license. Various contractual solutions are set forth including a negotiation “in good faith” to arrive at a fee, or an arbitration, or a reference to current PRO fees or no additional fee(a buyout).

 

The direct license issue has recently been in the spotlight again due to the 2011 notification to ASCAP by EMI Music of their intent to withdraw from ASCAP the licensing of their online digital music rights with a similar 2012 notification to ASCAP and BMI from Sony/ATV as well as the 2010 ASCAP and BMI rate court case decisions with background music supplier DMX where judges approved a blanket license adjusted by the amount of music directly licensed by the user.

 

In response to EMI Music's notification to ASCAP that they wished to withdraw the digital licensing of a major portion of their catalogue(with ASCAP continuing to license EMI compositions for all traditional media), the ASCAP Board of Directors passed a resolution which set forth the considerations and procedures involved for the removal of works for defined categories of online music users. Subsequent to EMI's   withdrawal request, EMI was acquired by Sony/ATV Music  who notified ASCAP and BMI that they too were removing their works for online licensing. Other major music publishers soon followed and direct publisher negotiations with online music services commenced. The reasons expressed by these major publishers for the withdrawing of their online rights from the PROs was that they felt they could negotiate better deals than the ones that resulted from the recent ASCAP and BMI Rate Court decisions in this area.

 

A major complicating factor regarding EMI/Sony ATV's right to withdraw their digital licensing rights from ASCAP(or any publisher for that matter) occurred in September of 2013 as part of the ASCAP/ Pandora Federal Rate Court proceeding to determine reasonable rates. Pandora had signed a webcasting license agreement with ASCAP in 2005 which they terminated effective 12/31/10. A Rate proceeding was commenced with Pandora requesting an " adjustable fee blanket license" as they had made direct licensing deals with EMI and Sony/ATV, as well as other publishers, all of whom had withdrawn their digital rights from ASCAP. 

 

In a Summary Judgement decision prior to trial, the federal judge ruled that "licensing was all or nothing" with ASCAP and that an ACAP  publisher member could not partially remove its works for a specific media- when a publisher removes works it has to be for all purposes and media. Further, all the works in the ASCAP repertory at the time of applying for a license were to be  included in any final license agreement decided upon by the Court. The short term seeming effect of this ruling was that  all of the direct licensing deals that Pandora had made with EMI, Sony ATV and other major publishers were voided. A trial date was set for December of 2013.

 

In response to the Pandora Summary Judgement, major publishers requested a motion to intervene as they claimed that under the Copyright Law they had the right to grant some or all of their rights to either licensees or agents and that nothing required them to grant all of their public performance rights to ASCAP. They also claimed that their rights were not adequately represented in the Summary Judgement proceeding.

 

 

The DMX rate court cases involved a request by DMX, a leading background and foreground music service provider, for a "through to the audience" blanket license adjusted to reflect the number of direct licenses they obtained from publishers. Prior to litigation, DMX had a program in place where they did acquire direct music licenses from a number of music publishers including one major. In the BMI case, the judge entered a final rate for the blanket license subject to adjustment for performances that were directly licensed. In the ASCAP case, the Court required ASCAP to issue to DMX a blanket license with carve-outs for direct licensing. Both decisions were appealed by ASCAP and BMI to the 2nd Circuit Court of Appeals which denied the appeals. This new type of license is referred to as a "carve out blanket license" or "adjustable fee blanket license".

 

 

To make intelligent decisions in the field, you need to know the traditional licensing structures of the PROs with their long history of negotiations, license fees, litigation and actual royalty payments, as well as the possible ramifications of a direct or source license as to the terms, payments, and other contractual obligations and considerations both in the United States and worldwide.  Also important are whether the license provides for continuing royalty payments (i.e. “licensee shall have no further responsibility with respect to U.S. performing right royalties”) whether it affects additional media and areas of exploitation and how does it affect any writers, co-writers, publishers or co-copyright owners.  What rights are actually being delivered and does one have the right to grant those rights is also an important consideration.

 

This information is essential regardless of whether you are happy with past or current PRO licensing or are in a situation where you are contemplating a direct or source license or have been asked to consider one or are being forced to enter into one.

 

Summary

 

The online/digital world has changed how music is licensed, how contracts and deals are negotiated and structured and how songwriter, composer and music publisher compensation is arrived at. This article has gone through many of the changes in the traditional world of music as well as showing new opportunities for music use created by the digital/online environment as well as challenges. It is our hope that a better understanding of all of these new types of deals that are being negotiated and the considerations for those deals as well as the environment that they are being made in, will help in fostering a spirit of negotiated agreements rather than ones arrived at via litigation.

 

 

 Copyright 2013 Todd Brabec, Jeff Brabec, All Rights Reserved

 

Todd Brabec, Esq., former ASCAP Executive Vice President, and Jeff Brabec, Esq., Vice President Business Affairs BMG Chrysalis Music, are the co-authors of Music, Money and Success: the Insider’s Guide to Making Money in the Music Business”(7th edition, Schirmer Books/ Music Sales)Royalties in the Age of the Internet / 2016

By

Todd Brabec

Jeff Brabec

 

 

      The online/digital world has dramatically changed the way music is licensed in all media in addition to affecting the songwriter, composer and music publisher fees and backend royalties associated with any project. Many new opportunities have arisen for the exploitation of copyrights but with those opportunities have come increasingly complex contracts, new royalty structures and rates, expansions of the "grant of rights" notion and increased requests for new types of licensing models some of which challenge long-standing practices of compensation and rights.

 

This article explains many of the areas you need to be aware of and the concepts involved in this "new world of traditional/online/digital media and distribution".

 

Television

 

Because of the myriad of distribution platforms and ancillary uses, television continues to be an extremely valuable media for the use of music…whether it be score, theme music, newly written songs or pre-existing compositions.

 

In this world of multi-media platforms, the licensing of existing material (e.g., contemporary hit songs, standards, newly released records, etc.) can take on many variations depending on the program, how the music is used, the rights being requested, the budget of the production, the expectations of the audience, and the marketability and commercial exploitation avenues available.

 

There are many variations depending on whether the show is a new series, established hit, drama, comedy or music centric contestant based format (e.g., American Idol, The Voice, Dancing With The Stars, America’s Got Talent, etc.).

 

For example, many successful series license music via an “all media life of copyright” synchronization agreement which ensures that for a one-time payment, the producer can distribute the program via all existing and future media platforms including home/personal use video.  In most cases, theatrical distribution is excluded from this license arrangement as is out-of-context promotional use.  Depending on the series, there may be additional fee options included for the use in promo spots for a limited period of time (including downloads from digital services such as iTunes), a negotiation as to mechanical rates for soundtrack album or single sales and, in some cases, even a “hold back” period for a short period of time after the initial broadcast as to previously unexploited songs.

 

Other major types of licensing arrangements are an “all television with home video option” and an “all television and home video license”; both usually providing for the show’s producer to turn the license into an “all media” one for a separate fee if the original license was for less than such media and to “life of copyright” if there was a shorter duration.

 

As opposed to scripted series, the music centric and dance programs (The Voice, Dancing With The Stars, etc.) are licensed in a much different manner usually on a shorter term and multi-option basis.  For example, the original territory for the license sometimes may be for the U.S. and Canada (rather than the world) and the term might be for 1 to 5 years rather than life of copyright.  Fees are also many times based on the timing of the composition and whether it is used in recaps or is repeated in future episodes.  There are usually separate fee options for use on websites, streaming, audio downloads, ringtones, ringbacks, apps, electronic sell through and out-of-context advertising.  “So You Think You Can Dance” even has an option to use a clip using a composition on the large screen on stage during the live tour which occurs after the season ends each year.

 

          Television scoring contracts are usually work for hire agreements and the grant of rights normally covers all media and distribution platforms now or hereafter known.

 

Album and Single Sales (Mechanical Royalties)

 

At one time, albums and singles sold well.  With the proliferation of illegal file sharing, piracy and a single song download preference, mechanical royalties (the amount paid to a music publisher and songwriter by a record company for the sale of one song) have dropped significantly.  Regardless, this area can be an important source of income for some songwriters and music publishers.

 

In 2008, the Copyright Royalty Board (CRB) set mechanical rates for the period 2008-2012 for the sale of physical recordings, permanent digital downloads, limited downloads, on-demand streams and master tones.  The primary rate was 9.1¢ per song sold on a physical recording or digital download with a rate of 1.75¢ per minute if the recording was over 5 minutes.  For limited downloads and interactive streams, rates were based on a percent of the online music service’s revenue (10.5%) with minimums and reduced by whatever fees were being paid to ASCAP, BMI and SESAC.  The rate for master tones was 24¢ per download.

 

In early 2012, NMPA, RIAA and DIMA entered into an industry-wide agreement which would cover the years 2013 to 2017.  The draft of regulations has been submitted to the Copyright Royalty Judges for approval.  Under these regulations, the 2008 rates and configurations would be continued with 5 new subscription and non-subscription services at new rates added to the mix.

The new royalty bearing categories for music publishers, songwriters, composers and lyricists are:

 

Paid Locker Services – Subscription based locker providing on demand streaming and downloads.

Purchased Content Lockers – a free locker provided to a purchaser of a permanent digital download, ringtone or CD where the music provider and locker have an agreement.

Limited Offerings – Subscription based service offering limited genres of music or specialized playlists.

Mixed Service Bundles – A music service combined with a non-music product such as a mobile phone

Music Bundles – music products such as CDs, ringtones and digital downloads being bundled together.

 

The rates for the new categories involve the greater of a percentage of service revenue, total content costs (payments to record companies for sound recording rights) and, in the case of limited offerings, a per subscriber figure.

 

As to the actual royalties generated, physical and download sales are relatively easy to calculate.  For example, 100,000 download single track sales will generate $9,100 in writer and music publisher income (9.1¢ x 100,000). Controlled composition clauses may reduce that amount with respect to physical sales, but in most cases, not for digital sales.

 

For all the other configurations, the payments to date have been small.  For example, approximately 832,000 quarterly plays on one bundled subscription service might generate $438 in total writer and publisher royalties with a per play rate of $0.000527.  The figures for a stand-alone portable subscription service for approximately 330,000 plays might currently generate approximately  $240 with a per play rate of $0.000725.  These royalties are arrived at after 25 different line item calculations which include service revenue, number of subscribers, label payments and performance royalties, among other factors…a not uncomplicated exercise.  It is anticipated, however, that as subscription services become more successful and more prevalent, the payments will increase.

 

ASCAP/BMI/SESAC

 

The Performance Right- the world of ASCAP, BMI, SESAC and foreign societies- represents the most valuable composer and songwriter continuing source of income.  Though traditional media (television, radio, etc.) has had its share of recent challenges, the area still remains strong as to overall license fees  and songwriter, composer and music publisher royalties-particularly if a work is part of a successful television show or a hit song on radio. The Internet and digital media area, on the other hand, has not produced as of yet license fees or distributions of any significant nature.

 

To put this area into perspective, total ASCAP, BMI and SESAC annual receipts are in the area of 2 billion dollars(2012 showed ASCAP at 941 million, BMI at 899 million and SESAC estimated in the area of 100 million plus). Of that amount, television (network, local and cable) represents approximately 650 million dollars, radio 400 million, general licensing(concert performances, bars and grills, hotels, etc.)200 million, royalties from foreign societies 700 million(most of it being writer money as many music publishers collect directly from foreign collection societies through sub-publishers) and new media in the area of 70 million dollars. 

 

The majority of license fees in the online/new media area are the result of Rate Court decisions as well as settlements negotiated as a result of those decisions.   Under the ASCAP and BMI Consent Decrees with the Government(in effect since 1941), if a music user( radio, television stations, streaming services, etc.)and ASCAP or BMI cannot come to an agreement as to what reasonable license fees should be, either party can go to court (Southern District federal court in New York) where a trial is held with a judge making the decision as to what interim as well as final performance license fees should be as well as what is actually licensable.  Rate court cases as well as settlements in the new media area have involved AOL, Real Networks, Yahoo, Netflix, Hulu, YouTube, AT&T, MobiTV, Verizon, Spotify, Ericsson, Rhapsody and Pandora among many others.

 

Regardless of the size of the license fees (most deals in this area are confidential and the fees relatively small), major services and sites are being surveyed by the PROs and royalties are being distributed to songwriters, composers and music publishers based upon the streaming of television shows, films, records and songs.

           As to payments, total license fees from a service and the accumulation of streams are two of the primary factors considered. The type of use distinctions between theme, score and feature continue to apply in new media ASCAP, BMI and SESAC distributions when dealing with the streaming of audio visual works(feature films, television episodes, etc.) Other aspects of their television distribution systems though do not apply including Nielsen ratings, audience measurement, time of day factors and theme bonuses, among others.

 

Further, practically every current PRO traditional media license fee re-negotiation or negotiation(radio, local television, cable, etc.)now covers within the license online/digital items such as streaming, mobile wireless platforms, website uses, webcasting, mobile apps and multicasts, among others.

 

Video Games

 

 

As to pre-existing songs, most video games pay a one-time synch license fee to the music publisher to put the song into the game with no additional royalties.  The term of the license is usually short (5-7 years instead of life of copyright which is the norm for a feature film). The Master Use sound recording license is normally on a Most Favored Nations (MFN) basis with the song.

 

Other types of games though (e.g. Dance Central, Guitar Hero, etc.) negotiate per unit royalties, per unit royalties with escalators, sales plateau increases as well as royalties based on a composition being downloaded by a consumer into a game(the  latter many times on a percentage of revenues  versus a set penny per composition rate).

 

Some examples of these writer/publisher deals are:

  1. 0-500,000 units sold = 1 cent per unit; 500,000- 1,000,000 = 1.3 cents; 1,000,001 plus = 1.5 cents per unit.
  2. $10,000 to put the composition into the game; an additional $4,000 at 350,000 units sold; plus $5,000 for every additional 250,000 units sold
  3. Downloadable Content (DLC): 15-20% of net Revenues as defined less third party distribution fees.  Bundled compositions (2 or more compositions sold in a package) share pro-rata to revenue.

 

Motion Pictures

 

In the case of pre-existing songs being used in a movie, new language is being inserted into synch agreements to cover the online world.  For example, a media clause in current synchronization licenses might read “distribute in any and all Media and by any and all means, now or hereafter known, including, without limitation all forms of television, all “on demand” services, all online, digital and wireless technologies and other transmissions capable of being experienced by means of any interactive devices or any future storage delivery and/or retrieved devices or systems.” An additional clause stipulates that the “viewer is not invited to manipulate the composition in any manner which is not possible using traditional analog home entertainment equipment”.

 

            The amount of the synchronization fee depends on a number of factors including how the song is used, the overall film budget, the timing of the use, whether there are multiple uses, whether uses are thematic or used over the opening or closing credits, the term and territory as well as any guarantee of inclusion on a soundtrack album.

 

              Another valuable area is the licensing of existing compositions and master recordings and the additional fees for the out-of-context use in film trailers. The media can be all forms of television, videos, radio, online, digital and wireless, linear audio web streaming, etc. There may also be additional fees for its use in the “making of “programs and featurettes as well as home/personal entertainment media menus.

 

 

 

Advertising Commercials

 

For certain compositions (hit songs, television theme songs, etc.), the advertising market can be profitable depending on, among other things, whether it is a radio, television or internet commercial, a nationwide or limited territory campaign, whether there are options for other media and delivery systems as well as other countries of the world, whether lyrics are being changed or added and whether all advertising rather than only product category exclusivity is being requested.

 

As to some of the new types of agreement clauses brought on by the digital online world, the following example should help:

 

Agreement lists composition title and product name with a term of one (1) year with an option to renew for an additional year at a 15% increase.  Territory is the United States and Canada with the world as it pertains to the Internet.  Media includes all TV including network, syndication, cable and satellite use with Internet included but not limited to client, agency and 3rd party websites.  Included is a New Media App for iPad and industrial use.

 

         As some commercials are being used in motion picture home videos, in motion picture theatres during previews and on mobile phones, rights for home video, theater promos and mobile phones may also be negotiated.  Internet use should be non-exclusive and should be limited to streaming/non-downloadable use of the spot and subject to websites having a valid U.S. performance rights license and subject to the fees, rules and regulations of any foreign performance rights society.

 

Synch fees for well-known compositions in major campaigns can be substantial.

In addition, performance monies will also be generated by ASCAP, BMI and SESAC though the rates are on the low end of their payment schedules.

 

 

 

Apps

 

This new area of exploitation can be very valuable depending on the success of the individual app since the licensing formulae are usually based on a percentage of net receipts after the deduction of the distribution fee (30% in the case of iTunes) and, in some cases, the developer fee.

 

Musical compositions are licensed at either 25% or 50% of the net revenue with the primary question being the definition of net revenue (e.g., is a distributor fee being taken off the top or is there a distributor and developer fee being deducted).  If a master recording is also involved, the fees are usually conditioned on a most favored nations (MFN) basis with the fee paid for the recording.

 

The platforms usually include all digital media such as the iPhone, Android, iPad, other mobile and handheld devices as well as internet and social networks and are from 3 to 5 years in duration but can be longer.  Accounting is usually on a quarterly basis.  Some agreements have the suggested retail price of the app actually in the contract (e.g., 99¢ for a 2 song bundle, etc.) so that you know what the actual royalty calculation will be when a song is downloaded in the app. Others only specify the formula being used.

 

The following example should give some perspective as to a representative licensing formula in this area.

 

 99¢ Retail Price

            - 30¢ Distributor Fee (30%)

69¢ Gross

            - 35¢ Developer Fee (50%)

            34¢ Net

           X 50% Publishing License

17¢ Royalty

 

 

Interactive Dolls and Toys

 

Many of these types of uses involve children’s products (Hasbro tooth tunes, pre-programmed instruments, animated pets, etc.)  As to the rights granted, the license will specify how the composition will be used (“as part of a digital/voice music chip embedded in your product”, etc.), indicate the territory and term of the license (U.S. and Canada, the world, 3 years with a sell off period, etc.) and a maximum duration of use (e.g. 2:00).

 

Writer and publisher royalties are usually either a negotiated per unit penny rate (e.g. 10-25 cents per unit but can be more) or a percentage of the wholesale or retail price.  The licensee will be prohibited from changing the basic melody, altering the fundamental character of the music, changing or adding lyrics or using the title as the name of the product. 

 

 

 

e- cards

 

Electronic cards represent an ever-increasing number of sales in the 5 billion unit greeting card business.  The all format song licenses in this area define both the “physical everyday and seasonal card” and the electronic card that is “perceived via an electronic device and may be delivered via electronic transmission (e.g. via the Internet, mobile phone, cable television or other electronic delivery media not yet in existence”).  Further, the song clip may only be distributed by either secure streaming or other secure file format intended to restrict further distribution or playback.

 

The territory for these deals is usually the world with a term of 3-5 years plus a sell off period with a maximum sound duration specified (60 seconds) and a royalty of a % of sales (e.g. 5%) or a per unit royalty (e.g.  15¢ per card).  Many times consumers are given permission to sample the song on an online website to see if they want to purchase it.  Masters are normally licensed on a MFN basis.

 

 

Ringtones/Ringbacks

 

Pursuant to the Copyright Royalty Board, ringtones generate a writer/publisher combined royalty rate of 24¢ per download.  This rate is good until 12/31/12 but an extension to December 31, 2017 is expected to be enacted. Based on ASCAP rate court decisions involving AOL, Real Networks ,Yahoo, and Verizon, no performance right  exists in the download of a ringtone. Previews of ringtones on a company’s website though are licensable by ASCAP, BMI and SESAC(ASCAP rate court decision involving AT&T).

 

Ringbacks on the other hand, are normally licensed by the music publisher as a % of the actual retail selling price to the consumer with a minimum royalty specified (e.g. 10% of the price to the consumer with a floor of 12.5 ¢).  All licenses have a sound duration specified and the territory is either the U.S., the U.S. and Canada or the World.

Performances of ringbacks are licensed by the U.S. PROs.

 

 

Direct Licensing

 

Performance Right Organizations (PROs) utilize various types of negotiated or court set license agreements with the users of music including the blanket license, the per program license, per segment license and “through to the audience” license.  Regardless of these licenses, the contracts that writers and publishers sign with ASCAP, BMI and SESAC are non-exclusive and give them the right to direct or source license a work, thereby bypassing the PRO license entirely

 

Direct licensing has been around since at least 1950 and many television and film scoring and song contracts contain language covering situations as to what happens when a broadcaster does not have a current PRO license or when the PRO is prevented by law from issuing such a license. Various contractual solutions are set forth including a negotiation “in good faith” to arrive at a fee, or an arbitration, or a reference to current PRO fees or no additional fee(a buyout).

 

The direct license issue has recently been in the spotlight again due to the 2011 notification to ASCAP by EMI Music of their intent to withdraw from ASCAP the licensing of their online digital music rights with a similar 2012 notification to ASCAP and BMI from Sony/ATV as well as the 2010 ASCAP and BMI rate court case decisions with background music supplier DMX where judges approved a blanket license adjusted by the amount of music directly licensed by the user.

 

In response to EMI Music's notification to ASCAP that they wished to withdraw the digital licensing of a major portion of their catalogue(with ASCAP continuing to license EMI compositions for all traditional media), the ASCAP Board of Directors passed a resolution which set forth the considerations and procedures involved for the removal of works for defined categories of online music users. Subsequent to EMI's   withdrawal request, EMI was acquired by Sony/ATV Music  who notified ASCAP and BMI that they too were removing their works for online licensing. Other major music publishers soon followed and direct publisher negotiations with online music services commenced. The reasons expressed by these major publishers for the withdrawing of their online rights from the PROs was that they felt they could negotiate better deals than the ones that resulted from the recent ASCAP and BMI Rate Court decisions in this area.

 

A major complicating factor regarding EMI/Sony ATV's right to withdraw their digital licensing rights from ASCAP(or any publisher for that matter) occurred in September of 2013 as part of the ASCAP/ Pandora Federal Rate Court proceeding to determine reasonable rates. Pandora had signed a webcasting license agreement with ASCAP in 2005 which they terminated effective 12/31/10. A Rate proceeding was commenced with Pandora requesting an " adjustable fee blanket license" as they had made direct licensing deals with EMI and Sony/ATV, as well as other publishers, all of whom had withdrawn their digital rights from ASCAP. 

 

In a Summary Judgement decision prior to trial, the federal judge ruled that "licensing was all or nothing" with ASCAP and that an ACAP  publisher member could not partially remove its works for a specific media- when a publisher removes works it has to be for all purposes and media. Further, all the works in the ASCAP repertory at the time of applying for a license were to be  included in any final license agreement decided upon by the Court. The short term seeming effect of this ruling was that  all of the direct licensing deals that Pandora had made with EMI, Sony ATV and other major publishers were voided. A trial date was set for December of 2013.

 

In response to the Pandora Summary Judgement, major publishers requested a motion to intervene as they claimed that under the Copyright Law they had the right to grant some or all of their rights to either licensees or agents and that nothing required them to grant all of their public performance rights to ASCAP. They also claimed that their rights were not adequately represented in the Summary Judgement proceeding.

 

 

The DMX rate court cases involved a request by DMX, a leading background and foreground music service provider, for a "through to the audience" blanket license adjusted to reflect the number of direct licenses they obtained from publishers. Prior to litigation, DMX had a program in place where they did acquire direct music licenses from a number of music publishers including one major. In the BMI case, the judge entered a final rate for the blanket license subject to adjustment for performances that were directly licensed. In the ASCAP case, the Court required ASCAP to issue to DMX a blanket license with carve-outs for direct licensing. Both decisions were appealed by ASCAP and BMI to the 2nd Circuit Court of Appeals which denied the appeals. This new type of license is referred to as a "carve out blanket license" or "adjustable fee blanket license".

 

 

To make intelligent decisions in the field, you need to know the traditional licensing structures of the PROs with their long history of negotiations, license fees, litigation and actual royalty payments, as well as the possible ramifications of a direct or source license as to the terms, payments, and other contractual obligations and considerations both in the United States and worldwide.  Also important are whether the license provides for continuing royalty payments (i.e. “licensee shall have no further responsibility with respect to U.S. performing right royalties”) whether it affects additional media and areas of exploitation and how does it affect any writers, co-writers, publishers or co-copyright owners.  What rights are actually being delivered and does one have the right to grant those rights is also an important consideration.

 

This information is essential regardless of whether you are happy with past or current PRO licensing or are in a situation where you are contemplating a direct or source license or have been asked to consider one or are being forced to enter into one.

 

Summary

 

The online/digital world has changed how music is licensed, how contracts and deals are negotiated and structured and how songwriter, composer and music publisher compensation is arrived at. This article has gone through many of the changes in the traditional world of music as well as showing new opportunities for music use created by the digital/online environment as well as challenges. It is our hope that a better understanding of all of these new types of deals that are being negotiated and the considerations for those deals as well as the environment that they are being made in, will help in fostering a spirit of negotiated agreements rather than ones arrived at via litigation.

 

 

 Copyright 2013 Todd Brabec, Jeff Brabec, All Rights Reserved

 

Todd Brabec, Esq., former ASCAP Executive Vice President, and Jeff Brabec, Esq., Vice President Business Affairs BMG Chrysalis Music, are the co-authors of Music, Money and Success: the Insider’s Guide to Making Money in the Music Business”(7th edition, Schirmer Books/ Music Sales)Royalties in the Age of the Internet / 2016

By

Todd Brabec

Jeff Brabec

 

 

      The online/digital world has dramatically changed the way music is licensed in all media in addition to affecting the songwriter, composer and music publisher fees and backend royalties associated with any project. Many new opportunities have arisen for the exploitation of copyrights but with those opportunities have come increasingly complex contracts, new royalty structures and rates, expansions of the "grant of rights" notion and increased requests for new types of licensing models some of which challenge long-standing practices of compensation and rights.

 

This article explains many of the areas you need to be aware of and the concepts involved in this "new world of traditional/online/digital media and distribution".

 

Television

 

Because of the myriad of distribution platforms and ancillary uses, television continues to be an extremely valuable media for the use of music…whether it be score, theme music, newly written songs or pre-existing compositions.

 

In this world of multi-media platforms, the licensing of existing material (e.g., contemporary hit songs, standards, newly released records, etc.) can take on many variations depending on the program, how the music is used, the rights being requested, the budget of the production, the expectations of the audience, and the marketability and commercial exploitation avenues available.

 

There are many variations depending on whether the show is a new series, established hit, drama, comedy or music centric contestant based format (e.g., American Idol, The Voice, Dancing With The Stars, America’s Got Talent, etc.).

 

For example, many successful series license music via an “all media life of copyright” synchronization agreement which ensures that for a one-time payment, the producer can distribute the program via all existing and future media platforms including home/personal use video.  In most cases, theatrical distribution is excluded from this license arrangement as is out-of-context promotional use.  Depending on the series, there may be additional fee options included for the use in promo spots for a limited period of time (including downloads from digital services such as iTunes), a negotiation as to mechanical rates for soundtrack album or single sales and, in some cases, even a “hold back” period for a short period of time after the initial broadcast as to previously unexploited songs.

 

Other major types of licensing arrangements are an “all television with home video option” and an “all television and home video license”; both usually providing for the show’s producer to turn the license into an “all media” one for a separate fee if the original license was for less than such media and to “life of copyright” if there was a shorter duration.

 

As opposed to scripted series, the music centric and dance programs (The Voice, Dancing With The Stars, etc.) are licensed in a much different manner usually on a shorter term and multi-option basis.  For example, the original territory for the license sometimes may be for the U.S. and Canada (rather than the world) and the term might be for 1 to 5 years rather than life of copyright.  Fees are also many times based on the timing of the composition and whether it is used in recaps or is repeated in future episodes.  There are usually separate fee options for use on websites, streaming, audio downloads, ringtones, ringbacks, apps, electronic sell through and out-of-context advertising.  “So You Think You Can Dance” even has an option to use a clip using a composition on the large screen on stage during the live tour which occurs after the season ends each year.

 

          Television scoring contracts are usually work for hire agreements and the grant of rights normally covers all media and distribution platforms now or hereafter known.

 

Album and Single Sales (Mechanical Royalties)

 

At one time, albums and singles sold well.  With the proliferation of illegal file sharing, piracy and a single song download preference, mechanical royalties (the amount paid to a music publisher and songwriter by a record company for the sale of one song) have dropped significantly.  Regardless, this area can be an important source of income for some songwriters and music publishers.

 

In 2008, the Copyright Royalty Board (CRB) set mechanical rates for the period 2008-2012 for the sale of physical recordings, permanent digital downloads, limited downloads, on-demand streams and master tones.  The primary rate was 9.1¢ per song sold on a physical recording or digital download with a rate of 1.75¢ per minute if the recording was over 5 minutes.  For limited downloads and interactive streams, rates were based on a percent of the online music service’s revenue (10.5%) with minimums and reduced by whatever fees were being paid to ASCAP, BMI and SESAC.  The rate for master tones was 24¢ per download.

 

In early 2012, NMPA, RIAA and DIMA entered into an industry-wide agreement which would cover the years 2013 to 2017.  The draft of regulations has been submitted to the Copyright Royalty Judges for approval.  Under these regulations, the 2008 rates and configurations would be continued with 5 new subscription and non-subscription services at new rates added to the mix.

The new royalty bearing categories for music publishers, songwriters, composers and lyricists are:

 

Paid Locker Services – Subscription based locker providing on demand streaming and downloads.

Purchased Content Lockers – a free locker provided to a purchaser of a permanent digital download, ringtone or CD where the music provider and locker have an agreement.

Limited Offerings – Subscription based service offering limited genres of music or specialized playlists.

Mixed Service Bundles – A music service combined with a non-music product such as a mobile phone

Music Bundles – music products such as CDs, ringtones and digital downloads being bundled together.

 

The rates for the new categories involve the greater of a percentage of service revenue, total content costs (payments to record companies for sound recording rights) and, in the case of limited offerings, a per subscriber figure.

 

As to the actual royalties generated, physical and download sales are relatively easy to calculate.  For example, 100,000 download single track sales will generate $9,100 in writer and music publisher income (9.1¢ x 100,000). Controlled composition clauses may reduce that amount with respect to physical sales, but in most cases, not for digital sales.

 

For all the other configurations, the payments to date have been small.  For example, approximately 832,000 quarterly plays on one bundled subscription service might generate $438 in total writer and publisher royalties with a per play rate of $0.000527.  The figures for a stand-alone portable subscription service for approximately 330,000 plays might currently generate approximately  $240 with a per play rate of $0.000725.  These royalties are arrived at after 25 different line item calculations which include service revenue, number of subscribers, label payments and performance royalties, among other factors…a not uncomplicated exercise.  It is anticipated, however, that as subscription services become more successful and more prevalent, the payments will increase.

 

ASCAP/BMI/SESAC

 

The Performance Right- the world of ASCAP, BMI, SESAC and foreign societies- represents the most valuable composer and songwriter continuing source of income.  Though traditional media (television, radio, etc.) has had its share of recent challenges, the area still remains strong as to overall license fees  and songwriter, composer and music publisher royalties-particularly if a work is part of a successful television show or a hit song on radio. The Internet and digital media area, on the other hand, has not produced as of yet license fees or distributions of any significant nature.

 

To put this area into perspective, total ASCAP, BMI and SESAC annual receipts are in the area of 2 billion dollars(2012 showed ASCAP at 941 million, BMI at 899 million and SESAC estimated in the area of 100 million plus). Of that amount, television (network, local and cable) represents approximately 650 million dollars, radio 400 million, general licensing(concert performances, bars and grills, hotels, etc.)200 million, royalties from foreign societies 700 million(most of it being writer money as many music publishers collect directly from foreign collection societies through sub-publishers) and new media in the area of 70 million dollars. 

 

The majority of license fees in the online/new media area are the result of Rate Court decisions as well as settlements negotiated as a result of those decisions.   Under the ASCAP and BMI Consent Decrees with the Government(in effect since 1941), if a music user( radio, television stations, streaming services, etc.)and ASCAP or BMI cannot come to an agreement as to what reasonable license fees should be, either party can go to court (Southern District federal court in New York) where a trial is held with a judge making the decision as to what interim as well as final performance license fees should be as well as what is actually licensable.  Rate court cases as well as settlements in the new media area have involved AOL, Real Networks, Yahoo, Netflix, Hulu, YouTube, AT&T, MobiTV, Verizon, Spotify, Ericsson, Rhapsody and Pandora among many others.

 

Regardless of the size of the license fees (most deals in this area are confidential and the fees relatively small), major services and sites are being surveyed by the PROs and royalties are being distributed to songwriters, composers and music publishers based upon the streaming of television shows, films, records and songs.

           As to payments, total license fees from a service and the accumulation of streams are two of the primary factors considered. The type of use distinctions between theme, score and feature continue to apply in new media ASCAP, BMI and SESAC distributions when dealing with the streaming of audio visual works(feature films, television episodes, etc.) Other aspects of their television distribution systems though do not apply including Nielsen ratings, audience measurement, time of day factors and theme bonuses, among others.

 

Further, practically every current PRO traditional media license fee re-negotiation or negotiation(radio, local television, cable, etc.)now covers within the license online/digital items such as streaming, mobile wireless platforms, website uses, webcasting, mobile apps and multicasts, among others.

 

Video Games

 

 

As to pre-existing songs, most video games pay a one-time synch license fee to the music publisher to put the song into the game with no additional royalties.  The term of the license is usually short (5-7 years instead of life of copyright which is the norm for a feature film). The Master Use sound recording license is normally on a Most Favored Nations (MFN) basis with the song.

 

Other types of games though (e.g. Dance Central, Guitar Hero, etc.) negotiate per unit royalties, per unit royalties with escalators, sales plateau increases as well as royalties based on a composition being downloaded by a consumer into a game(the  latter many times on a percentage of revenues  versus a set penny per composition rate).

 

Some examples of these writer/publisher deals are:

  1. 0-500,000 units sold = 1 cent per unit; 500,000- 1,000,000 = 1.3 cents; 1,000,001 plus = 1.5 cents per unit.
  2. $10,000 to put the composition into the game; an additional $4,000 at 350,000 units sold; plus $5,000 for every additional 250,000 units sold
  3. Downloadable Content (DLC): 15-20% of net Revenues as defined less third party distribution fees.  Bundled compositions (2 or more compositions sold in a package) share pro-rata to revenue.

 

Motion Pictures

 

In the case of pre-existing songs being used in a movie, new language is being inserted into synch agreements to cover the online world.  For example, a media clause in current synchronization licenses might read “distribute in any and all Media and by any and all means, now or hereafter known, including, without limitation all forms of television, all “on demand” services, all online, digital and wireless technologies and other transmissions capable of being experienced by means of any interactive devices or any future storage delivery and/or retrieved devices or systems.” An additional clause stipulates that the “viewer is not invited to manipulate the composition in any manner which is not possible using traditional analog home entertainment equipment”.

 

            The amount of the synchronization fee depends on a number of factors including how the song is used, the overall film budget, the timing of the use, whether there are multiple uses, whether uses are thematic or used over the opening or closing credits, the term and territory as well as any guarantee of inclusion on a soundtrack album.

 

              Another valuable area is the licensing of existing compositions and master recordings and the additional fees for the out-of-context use in film trailers. The media can be all forms of television, videos, radio, online, digital and wireless, linear audio web streaming, etc. There may also be additional fees for its use in the “making of “programs and featurettes as well as home/personal entertainment media menus.

 

 

 

Advertising Commercials

 

For certain compositions (hit songs, television theme songs, etc.), the advertising market can be profitable depending on, among other things, whether it is a radio, television or internet commercial, a nationwide or limited territory campaign, whether there are options for other media and delivery systems as well as other countries of the world, whether lyrics are being changed or added and whether all advertising rather than only product category exclusivity is being requested.

 

As to some of the new types of agreement clauses brought on by the digital online world, the following example should help:

 

Agreement lists composition title and product name with a term of one (1) year with an option to renew for an additional year at a 15% increase.  Territory is the United States and Canada with the world as it pertains to the Internet.  Media includes all TV including network, syndication, cable and satellite use with Internet included but not limited to client, agency and 3rd party websites.  Included is a New Media App for iPad and industrial use.

 

         As some commercials are being used in motion picture home videos, in motion picture theatres during previews and on mobile phones, rights for home video, theater promos and mobile phones may also be negotiated.  Internet use should be non-exclusive and should be limited to streaming/non-downloadable use of the spot and subject to websites having a valid U.S. performance rights license and subject to the fees, rules and regulations of any foreign performance rights society.

 

Synch fees for well-known compositions in major campaigns can be substantial.

In addition, performance monies will also be generated by ASCAP, BMI and SESAC though the rates are on the low end of their payment schedules.

 

 

 

Apps

 

This new area of exploitation can be very valuable depending on the success of the individual app since the licensing formulae are usually based on a percentage of net receipts after the deduction of the distribution fee (30% in the case of iTunes) and, in some cases, the developer fee.

 

Musical compositions are licensed at either 25% or 50% of the net revenue with the primary question being the definition of net revenue (e.g., is a distributor fee being taken off the top or is there a distributor and developer fee being deducted).  If a master recording is also involved, the fees are usually conditioned on a most favored nations (MFN) basis with the fee paid for the recording.

 

The platforms usually include all digital media such as the iPhone, Android, iPad, other mobile and handheld devices as well as internet and social networks and are from 3 to 5 years in duration but can be longer.  Accounting is usually on a quarterly basis.  Some agreements have the suggested retail price of the app actually in the contract (e.g., 99¢ for a 2 song bundle, etc.) so that you know what the actual royalty calculation will be when a song is downloaded in the app. Others only specify the formula being used.

 

The following example should give some perspective as to a representative licensing formula in this area.

 

 99¢ Retail Price

            - 30¢ Distributor Fee (30%)

69¢ Gross

            - 35¢ Developer Fee (50%)

            34¢ Net

           X 50% Publishing License

17¢ Royalty

 

 

Interactive Dolls and Toys

 

Many of these types of uses involve children’s products (Hasbro tooth tunes, pre-programmed instruments, animated pets, etc.)  As to the rights granted, the license will specify how the composition will be used (“as part of a digital/voice music chip embedded in your product”, etc.), indicate the territory and term of the license (U.S. and Canada, the world, 3 years with a sell off period, etc.) and a maximum duration of use (e.g. 2:00).

 

Writer and publisher royalties are usually either a negotiated per unit penny rate (e.g. 10-25 cents per unit but can be more) or a percentage of the wholesale or retail price.  The licensee will be prohibited from changing the basic melody, altering the fundamental character of the music, changing or adding lyrics or using the title as the name of the product. 

 

 

 

e- cards

 

Electronic cards represent an ever-increasing number of sales in the 5 billion unit greeting card business.  The all format song licenses in this area define both the “physical everyday and seasonal card” and the electronic card that is “perceived via an electronic device and may be delivered via electronic transmission (e.g. via the Internet, mobile phone, cable television or other electronic delivery media not yet in existence”).  Further, the song clip may only be distributed by either secure streaming or other secure file format intended to restrict further distribution or playback.

 

The territory for these deals is usually the world with a term of 3-5 years plus a sell off period with a maximum sound duration specified (60 seconds) and a royalty of a % of sales (e.g. 5%) or a per unit royalty (e.g.  15¢ per card).  Many times consumers are given permission to sample the song on an online website to see if they want to purchase it.  Masters are normally licensed on a MFN basis.

 

 

Ringtones/Ringbacks

 

Pursuant to the Copyright Royalty Board, ringtones generate a writer/publisher combined royalty rate of 24¢ per download.  This rate is good until 12/31/12 but an extension to December 31, 2017 is expected to be enacted. Based on ASCAP rate court decisions involving AOL, Real Networks ,Yahoo, and Verizon, no performance right  exists in the download of a ringtone. Previews of ringtones on a company’s website though are licensable by ASCAP, BMI and SESAC(ASCAP rate court decision involving AT&T).

 

Ringbacks on the other hand, are normally licensed by the music publisher as a % of the actual retail selling price to the consumer with a minimum royalty specified (e.g. 10% of the price to the consumer with a floor of 12.5 ¢).  All licenses have a sound duration specified and the territory is either the U.S., the U.S. and Canada or the World.

Performances of ringbacks are licensed by the U.S. PROs.

 

 

Direct Licensing

 

Performance Right Organizations (PROs) utilize various types of negotiated or court set license agreements with the users of music including the blanket license, the per program license, per segment license and “through to the audience” license.  Regardless of these licenses, the contracts that writers and publishers sign with ASCAP, BMI and SESAC are non-exclusive and give them the right to direct or source license a work, thereby bypassing the PRO license entirely

 

Direct licensing has been around since at least 1950 and many television and film scoring and song contracts contain language covering situations as to what happens when a broadcaster does not have a current PRO license or when the PRO is prevented by law from issuing such a license. Various contractual solutions are set forth including a negotiation “in good faith” to arrive at a fee, or an arbitration, or a reference to current PRO fees or no additional fee(a buyout).

 

The direct license issue has recently been in the spotlight again due to the 2011 notification to ASCAP by EMI Music of their intent to withdraw from ASCAP the licensing of their online digital music rights with a similar 2012 notification to ASCAP and BMI from Sony/ATV as well as the 2010 ASCAP and BMI rate court case decisions with background music supplier DMX where judges approved a blanket license adjusted by the amount of music directly licensed by the user.

 

In response to EMI Music's notification to ASCAP that they wished to withdraw the digital licensing of a major portion of their catalogue(with ASCAP continuing to license EMI compositions for all traditional media), the ASCAP Board of Directors passed a resolution which set forth the considerations and procedures involved for the removal of works for defined categories of online music users. Subsequent to EMI's   withdrawal request, EMI was acquired by Sony/ATV Music  who notified ASCAP and BMI that they too were removing their works for online licensing. Other major music publishers soon followed and direct publisher negotiations with online music services commenced. The reasons expressed by these major publishers for the withdrawing of their online rights from the PROs was that they felt they could negotiate better deals than the ones that resulted from the recent ASCAP and BMI Rate Court decisions in this area.

 

A major complicating factor regarding EMI/Sony ATV's right to withdraw their digital licensing rights from ASCAP(or any publisher for that matter) occurred in September of 2013 as part of the ASCAP/ Pandora Federal Rate Court proceeding to determine reasonable rates. Pandora had signed a webcasting license agreement with ASCAP in 2005 which they terminated effective 12/31/10. A Rate proceeding was commenced with Pandora requesting an " adjustable fee blanket license" as they had made direct licensing deals with EMI and Sony/ATV, as well as other publishers, all of whom had withdrawn their digital rights from ASCAP. 

 

In a Summary Judgement decision prior to trial, the federal judge ruled that "licensing was all or nothing" with ASCAP and that an ACAP  publisher member could not partially remove its works for a specific media- when a publisher removes works it has to be for all purposes and media. Further, all the works in the ASCAP repertory at the time of applying for a license were to be  included in any final license agreement decided upon by the Court. The short term seeming effect of this ruling was that  all of the direct licensing deals that Pandora had made with EMI, Sony ATV and other major publishers were voided. A trial date was set for December of 2013.

 

In response to the Pandora Summary Judgement, major publishers requested a motion to intervene as they claimed that under the Copyright Law they had the right to grant some or all of their rights to either licensees or agents and that nothing required them to grant all of their public performance rights to ASCAP. They also claimed that their rights were not adequately represented in the Summary Judgement proceeding.

 

 

The DMX rate court cases involved a request by DMX, a leading background and foreground music service provider, for a "through to the audience" blanket license adjusted to reflect the number of direct licenses they obtained from publishers. Prior to litigation, DMX had a program in place where they did acquire direct music licenses from a number of music publishers including one major. In the BMI case, the judge entered a final rate for the blanket license subject to adjustment for performances that were directly licensed. In the ASCAP case, the Court required ASCAP to issue to DMX a blanket license with carve-outs for direct licensing. Both decisions were appealed by ASCAP and BMI to the 2nd Circuit Court of Appeals which denied the appeals. This new type of license is referred to as a "carve out blanket license" or "adjustable fee blanket license".

 

 

To make intelligent decisions in the field, you need to know the traditional licensing structures of the PROs with their long history of negotiations, license fees, litigation and actual royalty payments, as well as the possible ramifications of a direct or source license as to the terms, payments, and other contractual obligations and considerations both in the United States and worldwide.  Also important are whether the license provides for continuing royalty payments (i.e. “licensee shall have no further responsibility with respect to U.S. performing right royalties”) whether it affects additional media and areas of exploitation and how does it affect any writers, co-writers, publishers or co-copyright owners.  What rights are actually being delivered and does one have the right to grant those rights is also an important consideration.

 

This information is essential regardless of whether you are happy with past or current PRO licensing or are in a situation where you are contemplating a direct or source license or have been asked to consider one or are being forced to enter into one.

 

Summary

 

The online/digital world has changed how music is licensed, how contracts and deals are negotiated and structured and how songwriter, composer and music publisher compensation is arrived at. This article has gone through many of the changes in the traditional world of music as well as showing new opportunities for music use created by the digital/online environment as well as challenges. It is our hope that a better understanding of all of these new types of deals that are being negotiated and the considerations for those deals as well as the environment that they are being made in, will help in fostering a spirit of negotiated agreements rather than ones arrived at via litigation.

 

 

 Copyright 2013 Todd Brabec, Jeff Brabec, All Rights Reserved

 

Todd Brabec, Esq., former ASCAP Executive Vice President, and Jeff Brabec, Esq., Vice President Business Affairs BMG Chrysalis Music, are the co-authors of Music, Money and Success: the Insider’s Guide to Making Money in the Music Business”(7th edition, Schirmer Books/ Music Sales)Royalties in the Age of the Internet / 2016

By

Todd Brabec

Jeff Brabec

 

 

      The online/digital world has dramatically changed the way music is licensed in all media in addition to affecting the songwriter, composer and music publisher fees and backend royalties associated with any project. Many new opportunities have arisen for the exploitation of copyrights but with those opportunities have come increasingly complex contracts, new royalty structures and rates, expansions of the "grant of rights" notion and increased requests for new types of licensing models some of which challenge long-standing practices of compensation and rights.

 

This article explains many of the areas you need to be aware of and the concepts involved in this "new world of traditional/online/digital media and distribution".

 

Television

 

Because of the myriad of distribution platforms and ancillary uses, television continues to be an extremely valuable media for the use of music…whether it be score, theme music, newly written songs or pre-existing compositions.

 

In this world of multi-media platforms, the licensing of existing material (e.g., contemporary hit songs, standards, newly released records, etc.) can take on many variations depending on the program, how the music is used, the rights being requested, the budget of the production, the expectations of the audience, and the marketability and commercial exploitation avenues available.

 

There are many variations depending on whether the show is a new series, established hit, drama, comedy or music centric contestant based format (e.g., American Idol, The Voice, Dancing With The Stars, America’s Got Talent, etc.).

 

For example, many successful series license music via an “all media life of copyright” synchronization agreement which ensures that for a one-time payment, the producer can distribute the program via all existing and future media platforms including home/personal use video.  In most cases, theatrical distribution is excluded from this license arrangement as is out-of-context promotional use.  Depending on the series, there may be additional fee options included for the use in promo spots for a limited period of time (including downloads from digital services such as iTunes), a negotiation as to mechanical rates for soundtrack album or single sales and, in some cases, even a “hold back” period for a short period of time after the initial broadcast as to previously unexploited songs.

 

Other major types of licensing arrangements are an “all television with home video option” and an “all television and home video license”; both usually providing for the show’s producer to turn the license into an “all media” one for a separate fee if the original license was for less than such media and to “life of copyright” if there was a shorter duration.

 

As opposed to scripted series, the music centric and dance programs (The Voice, Dancing With The Stars, etc.) are licensed in a much different manner usually on a shorter term and multi-option basis.  For example, the original territory for the license sometimes may be for the U.S. and Canada (rather than the world) and the term might be for 1 to 5 years rather than life of copyright.  Fees are also many times based on the timing of the composition and whether it is used in recaps or is repeated in future episodes.  There are usually separate fee options for use on websites, streaming, audio downloads, ringtones, ringbacks, apps, electronic sell through and out-of-context advertising.  “So You Think You Can Dance” even has an option to use a clip using a composition on the large screen on stage during the live tour which occurs after the season ends each year.

 

          Television scoring contracts are usually work for hire agreements and the grant of rights normally covers all media and distribution platforms now or hereafter known.

 

Album and Single Sales (Mechanical Royalties)

 

At one time, albums and singles sold well.  With the proliferation of illegal file sharing, piracy and a single song download preference, mechanical royalties (the amount paid to a music publisher and songwriter by a record company for the sale of one song) have dropped significantly.  Regardless, this area can be an important source of income for some songwriters and music publishers.

 

In 2008, the Copyright Royalty Board (CRB) set mechanical rates for the period 2008-2012 for the sale of physical recordings, permanent digital downloads, limited downloads, on-demand streams and master tones.  The primary rate was 9.1¢ per song sold on a physical recording or digital download with a rate of 1.75¢ per minute if the recording was over 5 minutes.  For limited downloads and interactive streams, rates were based on a percent of the online music service’s revenue (10.5%) with minimums and reduced by whatever fees were being paid to ASCAP, BMI and SESAC.  The rate for master tones was 24¢ per download.

 

In early 2012, NMPA, RIAA and DIMA entered into an industry-wide agreement which would cover the years 2013 to 2017.  The draft of regulations has been submitted to the Copyright Royalty Judges for approval.  Under these regulations, the 2008 rates and configurations would be continued with 5 new subscription and non-subscription services at new rates added to the mix.

The new royalty bearing categories for music publishers, songwriters, composers and lyricists are:

 

Paid Locker Services – Subscription based locker providing on demand streaming and downloads.

Purchased Content Lockers – a free locker provided to a purchaser of a permanent digital download, ringtone or CD where the music provider and locker have an agreement.

Limited Offerings – Subscription based service offering limited genres of music or specialized playlists.

Mixed Service Bundles – A music service combined with a non-music product such as a mobile phone

Music Bundles – music products such as CDs, ringtones and digital downloads being bundled together.

 

The rates for the new categories involve the greater of a percentage of service revenue, total content costs (payments to record companies for sound recording rights) and, in the case of limited offerings, a per subscriber figure.

 

As to the actual royalties generated, physical and download sales are relatively easy to calculate.  For example, 100,000 download single track sales will generate $9,100 in writer and music publisher income (9.1¢ x 100,000). Controlled composition clauses may reduce that amount with respect to physical sales, but in most cases, not for digital sales.

 

For all the other configurations, the payments to date have been small.  For example, approximately 832,000 quarterly plays on one bundled subscription service might generate $438 in total writer and publisher royalties with a per play rate of $0.000527.  The figures for a stand-alone portable subscription service for approximately 330,000 plays might currently generate approximately  $240 with a per play rate of $0.000725.  These royalties are arrived at after 25 different line item calculations which include service revenue, number of subscribers, label payments and performance royalties, among other factors…a not uncomplicated exercise.  It is anticipated, however, that as subscription services become more successful and more prevalent, the payments will increase.

 

ASCAP/BMI/SESAC

 

The Performance Right- the world of ASCAP, BMI, SESAC and foreign societies- represents the most valuable composer and songwriter continuing source of income.  Though traditional media (television, radio, etc.) has had its share of recent challenges, the area still remains strong as to overall license fees  and songwriter, composer and music publisher royalties-particularly if a work is part of a successful television show or a hit song on radio. The Internet and digital media area, on the other hand, has not produced as of yet license fees or distributions of any significant nature.

 

To put this area into perspective, total ASCAP, BMI and SESAC annual receipts are in the area of 2 billion dollars(2012 showed ASCAP at 941 million, BMI at 899 million and SESAC estimated in the area of 100 million plus). Of that amount, television (network, local and cable) represents approximately 650 million dollars, radio 400 million, general licensing(concert performances, bars and grills, hotels, etc.)200 million, royalties from foreign societies 700 million(most of it being writer money as many music publishers collect directly from foreign collection societies through sub-publishers) and new media in the area of 70 million dollars. 

 

The majority of license fees in the online/new media area are the result of Rate Court decisions as well as settlements negotiated as a result of those decisions.   Under the ASCAP and BMI Consent Decrees with the Government(in effect since 1941), if a music user( radio, television stations, streaming services, etc.)and ASCAP or BMI cannot come to an agreement as to what reasonable license fees should be, either party can go to court (Southern District federal court in New York) where a trial is held with a judge making the decision as to what interim as well as final performance license fees should be as well as what is actually licensable.  Rate court cases as well as settlements in the new media area have involved AOL, Real Networks, Yahoo, Netflix, Hulu, YouTube, AT&T, MobiTV, Verizon, Spotify, Ericsson, Rhapsody and Pandora among many others.

 

Regardless of the size of the license fees (most deals in this area are confidential and the fees relatively small), major services and sites are being surveyed by the PROs and royalties are being distributed to songwriters, composers and music publishers based upon the streaming of television shows, films, records and songs.

           As to payments, total license fees from a service and the accumulation of streams are two of the primary factors considered. The type of use distinctions between theme, score and feature continue to apply in new media ASCAP, BMI and SESAC distributions when dealing with the streaming of audio visual works(feature films, television episodes, etc.) Other aspects of their television distribution systems though do not apply including Nielsen ratings, audience measurement, time of day factors and theme bonuses, among others.

 

Further, practically every current PRO traditional media license fee re-negotiation or negotiation(radio, local television, cable, etc.)now covers within the license online/digital items such as streaming, mobile wireless platforms, website uses, webcasting, mobile apps and multicasts, among others.

 

Video Games

 

 

As to pre-existing songs, most video games pay a one-time synch license fee to the music publisher to put the song into the game with no additional royalties.  The term of the license is usually short (5-7 years instead of life of copyright which is the norm for a feature film). The Master Use sound recording license is normally on a Most Favored Nations (MFN) basis with the song.

 

Other types of games though (e.g. Dance Central, Guitar Hero, etc.) negotiate per unit royalties, per unit royalties with escalators, sales plateau increases as well as royalties based on a composition being downloaded by a consumer into a game(the  latter many times on a percentage of revenues  versus a set penny per composition rate).

 

Some examples of these writer/publisher deals are:

  1. 0-500,000 units sold = 1 cent per unit; 500,000- 1,000,000 = 1.3 cents; 1,000,001 plus = 1.5 cents per unit.
  2. $10,000 to put the composition into the game; an additional $4,000 at 350,000 units sold; plus $5,000 for every additional 250,000 units sold
  3. Downloadable Content (DLC): 15-20% of net Revenues as defined less third party distribution fees.  Bundled compositions (2 or more compositions sold in a package) share pro-rata to revenue.

 

Motion Pictures

 

In the case of pre-existing songs being used in a movie, new language is being inserted into synch agreements to cover the online world.  For example, a media clause in current synchronization licenses might read “distribute in any and all Media and by any and all means, now or hereafter known, including, without limitation all forms of television, all “on demand” services, all online, digital and wireless technologies and other transmissions capable of being experienced by means of any interactive devices or any future storage delivery and/or retrieved devices or systems.” An additional clause stipulates that the “viewer is not invited to manipulate the composition in any manner which is not possible using traditional analog home entertainment equipment”.

 

            The amount of the synchronization fee depends on a number of factors including how the song is used, the overall film budget, the timing of the use, whether there are multiple uses, whether uses are thematic or used over the opening or closing credits, the term and territory as well as any guarantee of inclusion on a soundtrack album.

 

              Another valuable area is the licensing of existing compositions and master recordings and the additional fees for the out-of-context use in film trailers. The media can be all forms of television, videos, radio, online, digital and wireless, linear audio web streaming, etc. There may also be additional fees for its use in the “making of “programs and featurettes as well as home/personal entertainment media menus.

 

 

 

Advertising Commercials

 

For certain compositions (hit songs, television theme songs, etc.), the advertising market can be profitable depending on, among other things, whether it is a radio, television or internet commercial, a nationwide or limited territory campaign, whether there are options for other media and delivery systems as well as other countries of the world, whether lyrics are being changed or added and whether all advertising rather than only product category exclusivity is being requested.

 

As to some of the new types of agreement clauses brought on by the digital online world, the following example should help:

 

Agreement lists composition title and product name with a term of one (1) year with an option to renew for an additional year at a 15% increase.  Territory is the United States and Canada with the world as it pertains to the Internet.  Media includes all TV including network, syndication, cable and satellite use with Internet included but not limited to client, agency and 3rd party websites.  Included is a New Media App for iPad and industrial use.

 

         As some commercials are being used in motion picture home videos, in motion picture theatres during previews and on mobile phones, rights for home video, theater promos and mobile phones may also be negotiated.  Internet use should be non-exclusive and should be limited to streaming/non-downloadable use of the spot and subject to websites having a valid U.S. performance rights license and subject to the fees, rules and regulations of any foreign performance rights society.

 

Synch fees for well-known compositions in major campaigns can be substantial.

In addition, performance monies will also be generated by ASCAP, BMI and SESAC though the rates are on the low end of their payment schedules.

 

 

 

Apps

 

This new area of exploitation can be very valuable depending on the success of the individual app since the licensing formulae are usually based on a percentage of net receipts after the deduction of the distribution fee (30% in the case of iTunes) and, in some cases, the developer fee.

 

Musical compositions are licensed at either 25% or 50% of the net revenue with the primary question being the definition of net revenue (e.g., is a distributor fee being taken off the top or is there a distributor and developer fee being deducted).  If a master recording is also involved, the fees are usually conditioned on a most favored nations (MFN) basis with the fee paid for the recording.

 

The platforms usually include all digital media such as the iPhone, Android, iPad, other mobile and handheld devices as well as internet and social networks and are from 3 to 5 years in duration but can be longer.  Accounting is usually on a quarterly basis.  Some agreements have the suggested retail price of the app actually in the contract (e.g., 99¢ for a 2 song bundle, etc.) so that you know what the actual royalty calculation will be when a song is downloaded in the app. Others only specify the formula being used.

 

The following example should give some perspective as to a representative licensing formula in this area.

 

 99¢ Retail Price

            - 30¢ Distributor Fee (30%)

69¢ Gross

            - 35¢ Developer Fee (50%)

            34¢ Net

           X 50% Publishing License

17¢ Royalty

 

 

Interactive Dolls and Toys

 

Many of these types of uses involve children’s products (Hasbro tooth tunes, pre-programmed instruments, animated pets, etc.)  As to the rights granted, the license will specify how the composition will be used (“as part of a digital/voice music chip embedded in your product”, etc.), indicate the territory and term of the license (U.S. and Canada, the world, 3 years with a sell off period, etc.) and a maximum duration of use (e.g. 2:00).

 

Writer and publisher royalties are usually either a negotiated per unit penny rate (e.g. 10-25 cents per unit but can be more) or a percentage of the wholesale or retail price.  The licensee will be prohibited from changing the basic melody, altering the fundamental character of the music, changing or adding lyrics or using the title as the name of the product. 

 

 

 

e- cards

 

Electronic cards represent an ever-increasing number of sales in the 5 billion unit greeting card business.  The all format song licenses in this area define both the “physical everyday and seasonal card” and the electronic card that is “perceived via an electronic device and may be delivered via electronic transmission (e.g. via the Internet, mobile phone, cable television or other electronic delivery media not yet in existence”).  Further, the song clip may only be distributed by either secure streaming or other secure file format intended to restrict further distribution or playback.

 

The territory for these deals is usually the world with a term of 3-5 years plus a sell off period with a maximum sound duration specified (60 seconds) and a royalty of a % of sales (e.g. 5%) or a per unit royalty (e.g.  15¢ per card).  Many times consumers are given permission to sample the song on an online website to see if they want to purchase it.  Masters are normally licensed on a MFN basis.

 

 

Ringtones/Ringbacks

 

Pursuant to the Copyright Royalty Board, ringtones generate a writer/publisher combined royalty rate of 24¢ per download.  This rate is good until 12/31/12 but an extension to December 31, 2017 is expected to be enacted. Based on ASCAP rate court decisions involving AOL, Real Networks ,Yahoo, and Verizon, no performance right  exists in the download of a ringtone. Previews of ringtones on a company’s website though are licensable by ASCAP, BMI and SESAC(ASCAP rate court decision involving AT&T).

 

Ringbacks on the other hand, are normally licensed by the music publisher as a % of the actual retail selling price to the consumer with a minimum royalty specified (e.g. 10% of the price to the consumer with a floor of 12.5 ¢).  All licenses have a sound duration specified and the territory is either the U.S., the U.S. and Canada or the World.

Performances of ringbacks are licensed by the U.S. PROs.

 

 

Direct Licensing

 

Performance Right Organizations (PROs) utilize various types of negotiated or court set license agreements with the users of music including the blanket license, the per program license, per segment license and “through to the audience” license.  Regardless of these licenses, the contracts that writers and publishers sign with ASCAP, BMI and SESAC are non-exclusive and give them the right to direct or source license a work, thereby bypassing the PRO license entirely

 

Direct licensing has been around since at least 1950 and many television and film scoring and song contracts contain language covering situations as to what happens when a broadcaster does not have a current PRO license or when the PRO is prevented by law from issuing such a license. Various contractual solutions are set forth including a negotiation “in good faith” to arrive at a fee, or an arbitration, or a reference to current PRO fees or no additional fee(a buyout).

 

The direct license issue has recently been in the spotlight again due to the 2011 notification to ASCAP by EMI Music of their intent to withdraw from ASCAP the licensing of their online digital music rights with a similar 2012 notification to ASCAP and BMI from Sony/ATV as well as the 2010 ASCAP and BMI rate court case decisions with background music supplier DMX where judges approved a blanket license adjusted by the amount of music directly licensed by the user.

 

In response to EMI Music's notification to ASCAP that they wished to withdraw the digital licensing of a major portion of their catalogue(with ASCAP continuing to license EMI compositions for all traditional media), the ASCAP Board of Directors passed a resolution which set forth the considerations and procedures involved for the removal of works for defined categories of online music users. Subsequent to EMI's   withdrawal request, EMI was acquired by Sony/ATV Music  who notified ASCAP and BMI that they too were removing their works for online licensing. Other major music publishers soon followed and direct publisher negotiations with online music services commenced. The reasons expressed by these major publishers for the withdrawing of their online rights from the PROs was that they felt they could negotiate better deals than the ones that resulted from the recent ASCAP and BMI Rate Court decisions in this area.

 

A major complicating factor regarding EMI/Sony ATV's right to withdraw their digital licensing rights from ASCAP(or any publisher for that matter) occurred in September of 2013 as part of the ASCAP/ Pandora Federal Rate Court proceeding to determine reasonable rates. Pandora had signed a webcasting license agreement with ASCAP in 2005 which they terminated effective 12/31/10. A Rate proceeding was commenced with Pandora requesting an " adjustable fee blanket license" as they had made direct licensing deals with EMI and Sony/ATV, as well as other publishers, all of whom had withdrawn their digital rights from ASCAP. 

 

In a Summary Judgement decision prior to trial, the federal judge ruled that "licensing was all or nothing" with ASCAP and that an ACAP  publisher member could not partially remove its works for a specific media- when a publisher removes works it has to be for all purposes and media. Further, all the works in the ASCAP repertory at the time of applying for a license were to be  included in any final license agreement decided upon by the Court. The short term seeming effect of this ruling was that  all of the direct licensing deals that Pandora had made with EMI, Sony ATV and other major publishers were voided. A trial date was set for December of 2013.

 

In response to the Pandora Summary Judgement, major publishers requested a motion to intervene as they claimed that under the Copyright Law they had the right to grant some or all of their rights to either licensees or agents and that nothing required them to grant all of their public performance rights to ASCAP. They also claimed that their rights were not adequately represented in the Summary Judgement proceeding.

 

 

The DMX rate court cases involved a request by DMX, a leading background and foreground music service provider, for a "through to the audience" blanket license adjusted to reflect the number of direct licenses they obtained from publishers. Prior to litigation, DMX had a program in place where they did acquire direct music licenses from a number of music publishers including one major. In the BMI case, the judge entered a final rate for the blanket license subject to adjustment for performances that were directly licensed. In the ASCAP case, the Court required ASCAP to issue to DMX a blanket license with carve-outs for direct licensing. Both decisions were appealed by ASCAP and BMI to the 2nd Circuit Court of Appeals which denied the appeals. This new type of license is referred to as a "carve out blanket license" or "adjustable fee blanket license".