DIGITAL ROYALTIES: A Whole New Ballgame

One of the upsides of the changes brought about by digital distribution systems is the possibility of more income for recording artists and record labels (yes, that includes your own indie record label) via copyright legislation.One of the upsides of the changes brought about by digital distribution systems is the possibility of more income for recording artists and record labels (yes, that includes your own indie record label) via copyright legislation.

Previous to 1995 and the enactment of the Digital Performance Right in Sound Recording Act (DPRSRA) and the Digital Millennium Copyright Act (DMCA) of 1998, only songwriters and publishers got paid a performance royalty for airplay, collected by the performing rights organizations (PROs-ASCAP, BMI, SESAC in the U.S.). Artists, singers and musicians were left out of this royalty stream. They were justifiably upset, as it caused problems within bands whose writers saw performance royalty income and other members did not. Artists who covered songs that they didn’t write-and who were partly responsible for the successes of those songs-were also upset since it’s never just the song that listeners respond to, but the singers and musicians as well.

These copyright decisions established royalties for performing artists and record companies who had been previously left out of the loop (and the loot!), so the new legislation was definitely a positive step. However, non-writing artists, singers and musicians still could not partake in performance royalties from previous sources (BMI, ASCAP or SESAC) since those are reserved for writers and publishers only.

These new sources for artist and record company royalties are limited to digital audio transmissions. A “statutory license” royalty is paid by transmission services, such as audio-only music channels delivered by digital cable and satellite television transmission systems (e.g., DMX Music, Music Choice), webcasters (e.g., Yahoo!, Live 365), satellite music services (e.g., XM and Sirius Radio) and others that qualify for the applicable statutory license. A “voluntary license” royalty may be negotiated with the copyright owner by services that offer interactive (on-demand or personalized) listening/downloading services, or those services that do not qualify for an available statutory license.

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How are statutory license rates established?

Statutory license rates are established through industry-wide negotiation between transmission services and copyright owner representatives. In the absence of industry-wide settlements, rates are determined through an arbitration proceeding before the Copyright Royalty Board (CRB), among those parties who elect to participate in the proceeding. Rates established by the CRB become applicable to all parties, even to those transmission services and copyright owners that did not participate in the negotiation/arbitration process. That process also establishes key terms and conditions of the statutory licenses that are critical to the fast and efficient distribution of royalties.

How do you get paid?

Performers and labels cannot collect statutory royalties directly from transmission services that utilize sound recordings. Instead, copyright law and regulation require artists and record labels to collect their share of statutory royalties through membership in collectives, called “designated agents” authorized to perform the collection and distribution functions. This is similar to the way performance royalties are received by composers and music publishers (i.e., through membership in ASCAP, BMI, or SESAC).

If you are an artist or record company, you receive statutory royalties by becoming an affiliate of one of the collectives. Only two entities have been designated to perform these functions-SoundExchange and Royalty Logic. Each designated agent receives the same statements of account and records of use of sound recordings from the transmission services. An artist may elect to receive royalties through the designated agent of his choice, regardless of which designated agent represents the record label.

If you don’t become an affiliate of one of the collectives, copyright office regulations establish a default mechanism for your royalties to be administered by SoundExchange.

The designated agents distribute allocated net statutory royalties 50 percent to the copyright owners of the sound recordings, 45 percent to the featured performing artist, 2.5 percent to the independent administrator representing the American Federation of Television and Radio Artists (AFTRA) and 2.5 percent to the independent administrator representing the American Federation of Musicians (AFM). (See below.) However, where license fees are paid pursuant to voluntary license transactions, the law, (§114(g)(1)), provides that featured recording artists who perform on sound recordings receive payments from the copyright owner of the sound recording in accordance with the terms of the artist’s contract. Non-featured recording artists receive payments from the copyright owner of the sound recording in accordance with the terms of the non-featured recording artist’s applicable agreement.

SoundExchange and Royalty Logic

In order to facilitate the collection and distribution of digital royalties, the Recording Industry Association of America (RIAA-the lobbying organization for major labels) set up the first organization, SoundExchange, as a non-profit organization to give it an arm’s length separation from themselves. SoundExchange is obligated to represent all qualified artists and record companies.

Royalty Logic is a private copyright management organization authorized by the Librarian of Congress to negotiate, license, collect and distribute royalties generated from the digital delivery of sound recordings.

Who or what is a sound recording copyright owner?

According to SoundExchange, “An SRCO is one who owns the sound recording copyright under U.S. Copyright law to perform publicly by means of a digital audio transmission one or more copyrighted sound recordings or has the right to license the public performance of one or more copyrighted sound recordings by means of a digital audio transmission.”

How do they know how many times a recording is played?

Because it’s digital, they get actual track level data and don’t need to use sampling methods. 

Can you belong to both a PRO and SoundExchange or Royalty Logic?

If you’re a songwriter and a recording artist-you should.

Royalties From The Audio Home Recording Act Of 1992

In addition to the above organizations who collect royalties for digital performances, The Alliance of Artists and Recording Companies (AARC)  is responsible for collecting the fees levied for the sale of non-commercial home recording devices and media (tapes, CDs, DVDs, etc.) worldwide to compensate for home copying of recordings. It also collects royalties for the rental of sound recordings (rentals are big business in Japan, for example, where they can rent your CD, burn a copy and return the CD). In case you were wondering what happens to that money and how you can get your share, the answer is by joining AARC. Overseen by a board of thirteen artist representatives and thirteen record company representatives they currently represent over 71,000 featured artists and sound recording copyright owners worldwide, including all the major record company labels and many independent labels in the U.S.

Every featured artist who releases a recording-whether on CD or digital delivery (iTunes, etc.)-should take advantage of these domestic and foreign royalties by joining AARC.

Can you receive royalties if you’re a background singer or musician on a recording project, and not a featured artist?

Yes, contact the AFM & AFTRA Intellectual Property Rights Distribution Fund. You don’t have to be a member of either union. The AFM & AFTRA Fund was formed for the purpose of distributing royalties from various foreign territories and royalties established by government statute under U.S. Copyright Law.

When should I join, and what does it cost?

Membership in both organizations is free, and you should join as soon as you perform on your, or anyone else’s, recording. Once your information is in their system, they’ll have it for every recording project you do after that. Just keep updating them with information on your new releases or changes of address.

How do they know how much to pay?

Payments for both are based on data from SoundScan. That makes it very important that you get a barcode and register with SoundScan thirty days before the release of the recording. Get the information at: www.soundscan.com. (Note: SoundScan defines a record label as having two or more artists.) Distribution of royalties, after deduction of overhead, is based on the formula mandated in the Audio Home Recording Act of 1992. See each of their Web sites for this info.

For more detailed information on these organizations and their services, please visit their websites.

John Braheny is a consultant for songwriters and author of the best-selling book, The Craft and Business of Songwriting, now in its third edition. More info at www.johnbraheny.com.