Recording - September 2011 - 62

By Todd Gascon with Bruce Kaphan

Chapter 18: DIGITAL DISTRIBUTION ISSUES
Despite one of the worst recessions in recent U.S. history, the first half of 2011 may be looked upon as a period when venture capitalists renewed their faith in the distribution of music online. Here is a short list of some of the companies that have reported receiving funding this year: Beyond Oblivion: ----------------------------------------$77M MOG:----------------------------------------------------------------$3M Rdio: ------------------------------------------------------------------$17.5M Root Music: ----------------------------------------------------$2.3M Shazam: ----------------------------------------------------------$32M Simfy: ----------------------------------------------------------------$14.4M Spotify: --------------------------------------------------------------$100M Sound Cloud: ------------------------------------------------$10M TOTAL ----------------------------------------$2.56 Billion Hopefully the recent investment in these and other online musicrelated businesses will provide greater opportunities for artists to make their music available to fans on a variety of platforms and services throughout the world. This article will provide an overview of the primary ways music is distributed and sold online, as well as how artists earn money when their music is sold online. The U.S. Copyright Act obligates businesses selling or streaming music online to pay royalties to the copyright owner of the sound recordings (i.e., masters) and the song embodied in the recording. As you may recall, in one of the first installments of “It’s Your Music: Know Your Rights”, we discussed the rights provided artists under the U.S. Copyright Act. Specifically, the author of a creative work has the following rights that he/she alone controls: (1) right to reproduce the work; (2) right to publicly perform the work; (3) right to distribute the work; (4) right to create a derivative work; (5) right to publicly display the work; and (6) right to publicly perform sound recordings by means of a digital audio transmission. Because of these exclusive rights, the copyright owners of songs and masters are entitled to receive certain royalties discussed below. (i) The Right to Reproduce and Distribute—Mechanical Royalties Since the passage of the 1909 U.S. Copyright, the copyright owner of a song (i.e., publisher) has been entitled to receive a mechanical royalty from those who distribute and sell their songs on records (e.g., record companies). As of the date of this article, the mechanical royalty is $0.091 for the recording of a song that is less than five minutes in duration. If the recording exceeds five minutes, the mechanical royalty is $0.0175 per minute (the “long
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RECORDING SEPTEMBER 2011

rate”). In order to calculate the mechanical royalty using the “long rate”, you simply round the recording up to the nearest minute and multiply it by $0.0175. So, if your recording of a song is 6 minutes and 42 seconds, you would “round up” the recording to 7 minutes and multiply it by $0.0175, which would result in a mechanical royalty of $0.1225 cents. This is the mechanical royalty that will need to be paid to the publisher for each record sold whether that record is sold in a physical format (e.g., vinyl or compact disc) or a digital format (e.g., MP3 file). (ii) The Public Performance Right—Performance Income (Songs) Under the U.S. Copyright Act the copyright owner of a song has the exclusive right to publicly perform the song. This means that any radio station, television station, club, stadium, etc. that wants to play your song must get your permission. But how is one to negotiate a public performance license with all of these entities? Enter the performing rights society or performing rights organization (“PRO”). There are three PROs in the United States—ASCAP, BMI and SESAC. A PRO is an organization that collects fees from music users (called “licensees”) for the right to publicly perform any song in the PRO’s catalog. The PRO collects these fees pursuant to what is called a “blanket license”. Under a blanket license, the licensee gets the right to perform all of the songs controlled by all of the publishers that are members of that PRO in exchange for the payment of a fee. This fee can range from a few hundred dollars (e.g., your local club) to millions of dollars (e.g., a television network). These license fees are quite substantial. For example, in 2010 ASCAP reportedly collected $935 million and BMI $917 million. (iii) The Public Performance Right—Performance income (Masters) Until very recently the copyright owner of a master had no public performance right. Please note that this digital performance right does not apply to audio-visual works (e.g., videos). This meant that recording artists and record companies were not entitled to receive any payment for the public performance of their sound recordings. This inequity changed in 1995 when Congress enacted the Digital Performance in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998 which together granted a performance right for sound recordings. As a result of this legislation, recording artists and record companies that own masters are now able to receive payment for the following types of digital public performances: (a) digital cable



Recording - September 2011

Table of Contents for the Digital Edition of Recording - September 2011

Recording - September 2011
Fade In
Talkback
Contents
Fast Forward
Surviving A Triple Music Computer Upgrade, 2011 Style
Zoom R8
Managing Large Sample Libraries
Universal Audio 4-710d
Plug-In Outlet
Reviewed And Revisited: Spectrasonics Omnisphere 1.5
iZotope Stutter Edit
Make Room For Your Music
Once Over—Reviews In Brief
Recording’sShowcase of Sound
It’s Your Music—Know Your Rights. Chapter 18: Digital Distribution Issues
Readers’ Tapes
Advertiser Index
Fade Out
Recording - September 2011 - Recording - September 2011
Recording - September 2011 - Cover2
Recording - September 2011 - 1
Recording - September 2011 - Fade In
Recording - September 2011 - 3
Recording - September 2011 - 4
Recording - September 2011 - 5
Recording - September 2011 - Contents
Recording - September 2011 - 7
Recording - September 2011 - Fast Forward
Recording - September 2011 - 9
Recording - September 2011 - 10
Recording - September 2011 - 11
Recording - September 2011 - Surviving A Triple Music Computer Upgrade, 2011 Style
Recording - September 2011 - 13
Recording - September 2011 - 14
Recording - September 2011 - 15
Recording - September 2011 - 16
Recording - September 2011 - 17
Recording - September 2011 - 18
Recording - September 2011 - 19
Recording - September 2011 - 20
Recording - September 2011 - 21
Recording - September 2011 - 22
Recording - September 2011 - 23
Recording - September 2011 - Zoom R8
Recording - September 2011 - 25
Recording - September 2011 - Managing Large Sample Libraries
Recording - September 2011 - 27
Recording - September 2011 - 28
Recording - September 2011 - 29
Recording - September 2011 - Universal Audio 4-710d
Recording - September 2011 - 31
Recording - September 2011 - 32
Recording - September 2011 - 33
Recording - September 2011 - Plug-In Outlet
Recording - September 2011 - 35
Recording - September 2011 - 36
Recording - September 2011 - 37
Recording - September 2011 - 38
Recording - September 2011 - 39
Recording - September 2011 - Reviewed And Revisited: Spectrasonics Omnisphere 1.5
Recording - September 2011 - 41
Recording - September 2011 - iZotope Stutter Edit
Recording - September 2011 - 43
Recording - September 2011 - Make Room For Your Music
Recording - September 2011 - 45
Recording - September 2011 - 46
Recording - September 2011 - 47
Recording - September 2011 - 48
Recording - September 2011 - 49
Recording - September 2011 - 50
Recording - September 2011 - 51
Recording - September 2011 - 52
Recording - September 2011 - 53
Recording - September 2011 - 54
Recording - September 2011 - 55
Recording - September 2011 - Once Over—Reviews In Brief
Recording - September 2011 - 57
Recording - September 2011 - Recording’sShowcase of Sound
Recording - September 2011 - 59
Recording - September 2011 - 60
Recording - September 2011 - 61
Recording - September 2011 - It’s Your Music—Know Your Rights. Chapter 18: Digital Distribution Issues
Recording - September 2011 - 63
Recording - September 2011 - Readers’ Tapes
Recording - September 2011 - Advertiser Index
Recording - September 2011 - 66
Recording - September 2011 - 67
Recording - September 2011 - 68
Recording - September 2011 - 69
Recording - September 2011 - 70
Recording - September 2011 - 71
Recording - September 2011 - Fade Out
Recording - September 2011 - Cover3
Recording - September 2011 - Cover4
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