What They'll Never Tell You About the Music Business

by Peter M Thall

  INTANGIBLE RIGHTS AND THE INTERNET

  Music rights do not exist in tangible form. You can’t touch them; you can’t put them on a table; you can’t pour anything into them. Music rights are an idea—a concept. Most of the humanmade items that the world has valued since time immemorial are the tangible assets created by the hard work of people: everything from buildings to automobiles, from farm products to steak, from electronics to furniture.

  A copyright is an accumulation of intangible rights. The bundle of rights that makes up a copyright consists of an indeterminate number of rights—long-established ones (for example, print rights, recording rights, performing rights, display rights, and synchronization rights [the recording of sound together with visual images]), and the “new” rights that seemingly emerge with each passing decade. Of course, many of the manifestations of intangible rights are real: sheet music, scores, CDs, etc. But the rights that allowed these manifestations to be created are nevertheless intangible. Got it?

  It is the second decade of the 21st century, and we are faced with an entirely new mother lode of rights: There are digital download rights, webcast rights, podcast rights, and streaming rights. As discussed in chapter 23, this page, maybe there is even an “Internet right” that will be discovered to exist within the protective coating that copyright provides for the expression of ideas!

  This period of expansion and accompanying uncertainty is not the first time rights owners and users of music have had to face anomalies such as these. When the videocassette was first introduced in the late 1970s and early 1980s, it was unclear whether the reproduction of a song on the videocassette was a mechanical reproduction (for which copyright law provides copyright owners with certain privileges and users certain responsibilities) or a synchronization (for which copyright law provides mostly responsibilities). The question has really never been answered—except by virtue of the fact that the entertainment industry (film and music divisions, in particular) has decided to consider these reproductions to be synchronizations so that the original license fee for the use of a song in a movie, for example, covers all subsequent reproductions on videocassettes, discs, and DVDs (together called videograms).

  The federal copyright law (Title 17, United States Code), does not entirely distinguish among many of these rights, nor does it make much of an effort to catalogue them. It prefers the bundle to be flexible—evolving. The problem this presents to those who own music and those who use music is that they are forced to squeeze newly discovered rights into old definitions. Thus, to some a webcast is a performance and a mechanical reproduction as well. Is a download a mechanical reproduction (and, to some extent, a performance as well)? Is streaming…well, maybe a performance and a mechanical reproduction—maybe even a synchronization? When confronted with such questions, rights owners have universally concluded that the answer is always “yes.” That the rights owners are not exactly sure why they answer in the affirmative does not weaken their resolve.

  So, we have law achieved by consensus. Is the same type of law-without-legislation taking place now in the world of the Internet? It seems so. Digital downloads, webcasts, and streaming uncover rights that the copyright owners decide exist. Perhaps this is payback time for what the rights users did to the rights owners in the videogram area. Of course, until these issues are litigated, legislated, or arbitrated, the question as to what rights exist and who owns or controls them will not be resolved definitively.

  LICENSING FROM MUSIC PUBLISHERS AND SOUND RECORDING OWNERS

  Nothing in the law establishes a legal definition of “music publisher.” This is totally a creation of the music industry, and it has served the industry well over the years. Authors’ rights are dealt with in the writers’ contracts with their publishers. Of course, since this relationship is not legislated, room for bargaining exists, so each writer’s relationship with his or her publisher is unique.

  The administration of songs can be quite complex, and large publishing companies have developed over the years to take the administration responsibilities out of the hands of the smaller publishers and writers. Therefore, it is most often these music publishers with whom rights users have to deal in order to obtain permission for the use of musical compositions. Insofar as performing rights are concerned, music publishers have bundled their rights and placed the responsibility to license such rights into the hands of monopolies, the two largest of which are ASCAP and BMI. These two entities, together with SESAC, control the performing rights to almost all of the musical compositions in the world. They represent just about all of US authors’ songs, and they share the representation of the remainder of the world’s music. For all practical purposes, these organizations are obliged to give licenses to anyone who requests them. The rates, however, are different for each organization, since their negotiating strengths differ, in part because of the difference in number and quality of their music catalogues.

  Since the performing rights societies in the United States are not permitted to control their rights exclusively, they differ significantly from their affiliates in other countries in that those who seek performing rights can go directly to the source in the United States because the original copyright owners retain the right to license performing rights directly. Notwithstanding the hybrid nature of the American societies (that is, while they act as monopolies, the rights they have acquired from the music publishers are nonexclusive), they are still considered by the US government necessary, although dangerous, aggregators of the performing rights in essentially 100% of the world’s music. In particular, ASCAP and BMI are controlled quite closely by the Justice Department and operate under consent decrees that are regularly reviewed. SESAC is not—yet.

  Under certain circumstances, performing rights must be obtained for sound recordings as well. Specifically, certain rights must be obtained for sound recordings created since 1995 (the year in which the Digital Performance Right in Sound Recordings Act [DPRSRA] was passed), and copying of sound recordings created after 1972 is also subject to a plethora of protections that must be dealt with. Sound Exchange, a spin-off of the Recording Industry Association of America (RIAA), has begun to assume the responsibility for the licensing of the performing rights in sound recordings that ASCAP, BMI, and SESAC have assumed with respect to musical compositions.

  Clearance of the mechanical reproduction and synchronization rights to most, but not all, songs (but not with respect to rights to synchronize musical compositions or to reproduce sound recordings) can be obtained through the Harry Fox Agency, Inc., or through its principals, the music publishers, most of whom are members of the National Music Publishers’ Association (NMPA). As with the US performing rights societies, the Harry Fox Agency, in the United States, acts on behalf of the mechanical rights societies around the world that control equivalent rights. Contrary to the Harry Fox Agency’s general refusal to issue synchronization licenses on behalf of its members, it has facilitated arrangements to assist its members in tracking and licensing such synchronizations as occur on YouTube, VEVO, and similar web outlets.

  With the exception of certain qualifying users of music who can obtain a statutory license automatically from the government to webcast or otherwise provide noninteractive digital audio services, the clearance of the rights to mechanically reproduce sound recordings must be obtained from the sound recording copyright owner. This is usually one of the four major entertainment conglomerates (Universal, Sony BMG, Warner Music Group, and, recently disappeared, EMI), innumerable labels distributed by them, and yet even more independent (indie) record labels that are nearly impossible to quantify or, in many cases, to identify and locate.

  One result of the many mergers that have recently taken place (for example, MCA with PolyGram and A&M, forming Universal; Geffen and Interscope with Universal; Virgin and Chrysalis with EMI, Sony with BMG, and, in 2012, EMI Records with Universal Music Group for sound recordings and EMI Music Publishing with Sony/ATV and its partners for music publishing right
s) has been huge staff cutbacks, so that companies that have doubled and tripled their catalogues need to get by on the administration side with the same size staff that they started with prior to the mergers. (A similar diminution of the combined staffs of Warner Music Publishing Company and Chappell Music Corporation occurred when Warner bought Chappell, forming Warner/Chappell Music Publishing Company.) Clearance procedures that were always a nightmare in the past are now even more difficult to negotiate, particularly within a time frame that is commercially practical. Note that when Sony Records merged with BMG Records, their music publishing divisions remained separate. BMG has since sold off its interest in Sony BMG and its publishing companies as well, only to be reborn as BMG Rights Management where it has been actively acquiring independent music publishing catalogues, thereby joining once again the top three of music publishing companies.

  COPYRIGHT PROVISIONS APPLICABLE TO THE INTERNET

  The Digital Millennium Copyright Act

  The Digital Millennium Copyright Act (DMCA), which was signed into law in 1998, was designed to address issues relevant to the age of digital transmissions:

  • Title I prohibits unauthorized access to a copyrighted work by circumventing technological protection measures (for example, encryption software), as well as civil remedies and criminal penalties for violation.

  • Title II exempts from liability certain online service providers. This provision includes an exemption (the “safe harbor”) for Internet service providers who make a temporary copy of a piece of music for the purpose of delivering the music to online users.

  • Title III exempts Internet service providers from copyright infringement merely because they have turned on a computer to make repairs.

  • Title IV extends to digital transmissions the “ephemeral” recording exemption of the Digital Performance Right in Sound Recordings Act of 1995, which applied to analog broadcasts.

  Title IV also adds a paragraph to Section 112 of the Copyright Act containing a laundry list of limitations and exceptions to the necessity of seeking permission from copyright owners, which are analogous to those in Section 114 of the Copyright Act exempting certain transmissions and retransmissions of music from claims of copyright infringement by copyright owners. In the one case, however, the law helps users of music and then limits the help, and in the other case, the law helps copyright owners and then limits their remedies. Anyone who has to deal with this area should certainly seek out expert counsel. Just to give you an example of how incomprehensible the law can be, here is one sentence from a Congressional “explanation” of Section 114:

  Among those limitations is an exemption for non-subscription broadcast transmissions, which are defined as those made by terrestrial broadcast stations licensed as such by the FCC. 17 USC. 114(d)(1)(A)(iii) and (j)(2). The ephemeral recording exemption presently privileges certain activities of a transmitting organization when it is entitled to transmit a performance or display under a license or transfer of copyright ownership or under the limitations on exclusive rights in sound recordings specified by section 114(a)….

  Who says lawyers don’t earn their fees?

  In 2000, David Nimmer, a highly respected copyright law expert, wrote an article in the UCLA Entertainment Law Review, preparatory to including it in his (and his father’s) invaluable treatise Nimmer on Copyright. It was entitled, “Ignoring the Public, Part I: On the Absurd Complexity of the Digital Audio Transmission Right.”

  Enough said?

  Actually, not. In the world of copyright exploitation, one’s truly innocent behavior can have dire consequences. This law can actually have the effect of freezing the development of the Internet. Innocence is no defense, so be careful.

  The Government to the Rescue: Statutory Licenses

  As noted above, the statutory license available to users of certain sound recordings for certain subscription services is fraught with exceptions and limitations. Actually, there are two statutory licenses established by the DPRSRA. One deals with performances of sound recordings that meet certain programming and other requirements, and the other deals with certain ephemeral (or incidental) reproductions of sound recordings, usually an interim step taken to store the music in the hard drives of computers known as “servers” prior to an authorized use such as a webcast. (The term webcast is generally used to refer to audio streaming on the Internet, or nondownloadable “Internet radio.”) Under the ephemeral recordings exemption, for example, a radio station can record a set of songs and broadcast from the new recording rather than from the original CDs, which would otherwise have to be changed rapidly during the course of a broadcast.

  The law is enormously complex and filled with exceptions and limitations. To stream sound recordings that are subject to copyright protection requires a statutory license. Securing one is not easy. (Note that one-artist-only webcasts and channels that perform the recordings of one artist continuously are not permitted to obtain a statutory license.)

  Determining whether a statutory license is available for a particular use is no piece of cake. Yet, without a statutory license, a website utilizing music will have enormous, and probably overwhelming, difficulties in attempting to comply with the law. Seeking specific permission from sound recording owners is expensive, time-consuming, and, ultimately, prohibitive in every way. (A recent attempt to clear Internet rights with Universal Music Group was met with the following [paraphrased] response: “We don’t do that. How about an ‘up to’ thirty-second license? We can do that!” What kind of “Internet radio station” can exist without the recordings of the largest company in the world?)

  The fine print in the law that governs whether or not a statutory license is obtainable is very fine indeed. And provisions change frequently as the law’s impact becomes more understood and modifications are sought and obtained. Consider yourself warned.

  Blanket Performance and Synchronization License Agreements

  The underlying principle behind all of the current standard agreements from each of the “blanket licensing” organizations (ASCAP, BMI, SESAC, the Harry Fox Agency, Inc., and the RIAA) is to charge fees based on revenue—with a minimum fee per year. The revenue-based model itself is susceptible of variations. For example, as with the all-industry-negotiated rates in the traditional broadcast media, ASCAP and BMI could one day seek to charge webcasters a percentage based solely on revenues less some agreed-upon percentage of operating expenses, or they could charge a percentage based solely on revenue derived from digital sales, but not hard goods sold via an Internet interface. But the websites that engage in webcasting are balking at this method. They argue that much of what is available on their websites does not include music, and only a percentage of those portions that do include music are devoted to streaming, that is, the real-time performance of the music. Variations on the theme abound, and it will not be clear for years how the societies will deal with this issue. Blanket license agreements for a variety of music uses can be viewed or downloaded from these websites:

  • Performing rights—www.​ascap.​com, www.​bmi.​com, and www.​sesac.​com.

  • Mechanical and synchronization rights—www.​nmpa.​org.

  The agreements are still evolving, but even an attempt to comply, and regular communication with these organizations, will be useful in defending a claim from either the organizations or their members in case of a problem. SESAC has a particularly user-friendly site whereby one can download the license agreement relevant to a user’s particular needs.

  Some people have recommended that the societies create a “hobbyist” license for $25 to $50 a year. Unfortunately, as the DMCA now reads, a hobbyist would not qualify for the DMCA exemption because a hobbyist would not be able to meet the sound-recording criteria of the law. Said hobbyist would have to seek and obtain permission from an array of writers, publishers, record companies, and performing and mechanical rights societies every time he or she wanted to make an ephemeral copy by which legal, authorized rights could
be exercised. This seems too bad, as the hobbyist license approach would afford a marvelous opportunity to “sign up” millions of young Internet users while educating them in the niceties of copyright compliance at the same time.

  TERM OF COPYRIGHT

  The copyright in a song written in the United States in the 1990s now extends for the author’s life plus seventy years. (See chapter 23, this page, for a discussion of anticopyright interests’ unsuccessful attempts to reduce the term of copyright to the author’s life plus fifty years.) A copyright secured by a company as an employer who has contracted for a work for hire extends for ninety-five years. Works for which copyright was secured under the 1909 Copyright Act (the one preceding the current act) also enjoy a copyright term extending ninety-five years, provided certain formalities—no longer necessary—were followed when they were supposed to be pre-1993.

  Throughout the rest of the world, the copyright term is essentially the same as exists in the United States, although most other countries do not have the work-for-hire option: everyone who creates is an author. In addition, the copyright terms in countries outside of the United States were not subject to the renewal formalities provided under the 1909 Act and therefore the determination of whether a US work is in or out of copyright outside of the United States is much easier to calculate.

  SAMPLING, BORROWING, AND STEALING

  As chapter 23 discusses in some detail, “borrowing” copyrighted material is not permitted. Using any copyrighted work without permission, for just about any purpose—especially one with a commercial aspect—constitutes an intentional act of copyright infringement: Although the copyright law permits some uses as noninfringing under its fair-use provisions, most “borrowing”—including sampling—does not meet fair-use criteria. The idea that using a de minimus portion of a song is entitled to a fair-use defense is just plain wrong. (This defense is not to be confused with the defense of de minimus non curat lex, which is a general defense, not specific to the intellectual property field, available to all when a claim is of such little consequence as not to be worth the court’s time.) The fiction perpetuated by those who are unfamiliar with copyright law that borrowing up to eight measures—or four measures—of music is permitted by law should be abandoned once and for all. Courts have actually held that copyright pertains to a single note on a sound recording when that note is distinguishable and original.