What’s Next for ASCAP and BMI as SESAC Buys The Harry Fox Agency?

A lot of people are wondering what it means for the music industry since it was reported that the National Music Publishers Association (NMPA), the leading trade organization for US music publishers, has sold its wholly-owned mechanical licensing subsidiary, The Harry Fox Agency, Inc. (HFA) to SESAC, Inc., the smallest of the three domestic music performing rights organizations (PROs). While I don’t have a crystal ball, I suspect that this strategic acquisition is part of the trend to transform PROs from mere licensors of performing rights to broader music rights and data mining clearing houses.

Published reports in Billboard and elsewhere state that SESAC’s winning bid of about $20 million over others, including PROs, BMI and SOCAN, was the culmination of a process that began a year ago when NMPA put HFA up for sale. As to why BMI, but not ASCAP was a bidder, it may have to do with the Consent Decrees under which the two organizations have operated for decades.

ASCAP’s Consent Decree (last amended in 2001) and BMI’s Consent Decree (last amended in 1994) are similar but far from identical. Specifically, under Article IV(A) of its Consent Decree, the only music right ASCAP is permitted to license is the  public performing right (although it can also serve as an agent to collect royalties from the sale of blank digital audio tape). BMI, under Section IV(B) of its Consent Decree is only specifically precluded from being a record label or a record or sheet music distributor.

That said, until recently, BMI traditionally refrained from entering other aspects of the music business, such as mechanical (songs used in audio-only recordings) and synchronization (songs used in audio-visual use in film, TV, video, etc.) licensing out of concern that the Department of Justice (DOJ) would seek to impose more stringent restrictions. However, this is one instance where the Internet really has changed everything, with ASCAP and BMI welcoming the ongoing DOJ review.

The revenue for licensed digital performances (e.g., streaming) is growing and the online environment knows no geographic boundaries. So while the traditional analysis focused on competition for domestic public performing rights among the three US PROs, foreign PROs, which often bundle performance and mechanical rights, have been creating competitive transnational alliances. And, as extensively discussed in the Copyright Office’s Music Licensing Report earlier this year, the major publishers (which are free to bundle all music rights) sought to withdraw digital performance rights from ASCAP and BMI because they felt Consent Decree and other legal restrictions (i.e., de facto compulsory licensing and statutory rate setting standards) artificially suppressed the fees these PROs could obtain from licensees such as streaming services.

However, the judges that oversee the ASCAP and BMI Consent Decrees held that such “partial withdrawals” were invalid. So, among other things, ASCAP and BMI are seeking modification of their Consent Decrees to allow partial withdrawal of digital rights and the bundling of various music licenses (e.g., performance, mechanical and synchronization). The Copyright Office Report supports relaxing the Consent Decree restrictions as well as amending the Copyright Act to have all licenses that are set by a tribunal (whether Rate Court or the Copyright Royalty Board) to be determined on a willing buyer/seller standard.

Conventional wisdom holds that DOJ is likely to relax ASCAP and BMI’s Consent Decree restrictions. SESAC doesn’t have a Consent Decree but has been subject to anti-competition litigation. What this means for the PROs is far from secret. Last year, at a public forum held by the Association of Independent Music Publishers (AIMP), the CEOs of the three PROs shared the stage and their thoughts about the future of their businesses. All three agreed that the future for the PROs is to offer efficient one-stop licensing for music users who often require several distinct music rights, including mechanicals currently offered by HFA (and music publishers who don’t license through HFA), synch rights which are controlled by each individual publisher, and even performing rights in sound recordings (currently licensed by SoundExchange), especially if such performing rights are statutorily extended to radio broadcasts, as endorsed in the Copyright Office’s Music Licensing Report. Indeed, the Report recommends that the PROs and other licensing collectives morph into broader “music rights organizations” (MROs).

And while SESAC is principally owned by a private equity firm, BMI probably had more than $20 million in its war chest to offer NMPA but didn’t. Why? ASCAP and BMI together represent north of 90% of US songwriters and music publishers. With HFA going to SESAC, that shifts the domestic competitive landscape, giving even more reason for DOJ to relax Consent Decree restrictions, which is probably more valuable to BMI. Moreover, even with mechanical income falling to about 21% of music publishing income from about double that at the peak of the CD market (and with overheads staying static or increasing due to processing millions of micro-payments, reason enough for NMPA to sell), the data HFA has regarding the 48,000 publishers it represents and the 6.7 million musical works it’s licensed on 21.4 million recordings, is probably more valuable to the much smaller SESAC than to BMI.

So what happens now? First, I don’t see SESAC significantly trying to grow its market share as a PRO. Their business model in that arena will likely continue to be, as it states on its web site, “a selective organization, taking pride in having a repertory based on quality, rather than quantity.” So I don’t see SESAC courting writers and publishers in a more concerted manner although adding HFA may make them a more viable alternative to ASCAP and BMI. In fact, I don’t foresee significant changes in writer-publisher relations at any of the three PROs.

Rather, I think that the game plan for all three PROs is what SESAC states in the news release posted on its web site:

SESAC’s acquisition of HFA is part of a previously announced strategy under its new leadership team to pursue a simplified and more efficient, multi-right, multi-territory licensing model utilizing an ongoing focus on information technology and data science to meet the developing needs of music users, distributors, writers, composers, publishers and other stakeholders. The transaction enables SESAC to enhance value by offering music streaming and other digital platforms greater efficiency and transparency in the music licensing process, thereby delivering better monetization outcomes for its affiliated writer and publisher clients.

As much bigger companies, ASCAP and BMI already have plenty of data, even without adding HFA’s to the mix. And reading between the lines (as was hinted at by the three CEOs at last year’s AIMP forum), lies the ancillary and potentially very lucrative business of mining, packaging and selling the vast stores of data the PROs collect to entities both inside and outside of the music industry, thus taking a page from the Google and Facebook playbooks.

If the ASCAP and BMI Consent Decrees are relaxed, then all three PROs can more freely pursue diversified business strategies. This could lead to higher performance royalties to writers and publishers through both more competitive negotiations and, by leveraging the data they collect, lower overheads – but potentially at the cost of control of “proprietary” information and transparency if the PROs expand beyond core music licensing businesses.

And there is also the risk that HFA, now to be owned by a for-profit privately held business as opposed to a trade organization controlled by its member music publishers, may impose higher tolls to access data and could potentially lead to less, rather than greater industry-wide licensing transparency. But the likelihood of this occurring will be diminished if ASCAP and BMI offer mechanical and other forms of licensing. And I don’t think SESAC will have HFA cease licensing ASCAP and BMI composers. That would be a bad business move, especially since SESAC will want to maintain as much current music data as possible.

Anyway, that’s how I see it. That said, the only certainty about the music business is that it’s always unpredictable.

Update: 14 September 2015:

It’s now been reported that the sale of HFA to SESAC has been approved by the NMPA Board and membership. The sale is now complete and SESAC now officially owns HFA.

Update: 1 October 2015:

It’s now been reported, quoting SESAC’s CEO, that up to 30% of HFA employees are being let go because of what is euphemistically called in HR-speak, “redundancies” between the SESAC and HFA staffs.

Why Pandora’s Batting 500 with BMI’s Recent Rate Court Win

On May 18, BMI’s “Rate Court” judge, Louis L. Stanton of the Southern District of New York, ruled in BMI’s favor in its rate dispute with Pandora. However, it wasn’t until May 28 that Judge Stanton’s 60-page opinion was made public. As my former colleague, BMI’s CEO, Mike O’Neill, reminded me at the BMI Student Composer Awards on May 18, Rate Court opinions are not made public for several days until confidential information is redacted. Mike was fairly giddy that evening given that Judge Stanton gave BMI a slam dunk in finding that the rate BMI sought, 2.5% of Pandora’s revenue, was reasonable. This was particularly good news for songwriters and music publishers as well since Pandora was the clear winner in its prior Rate Court dispute with ASCAP.

BMI and ASCAP are music performing rights organizations (PROs) and both operate under decades-old Consent Decrees which are currently being reviewed by the Justice Department. Both decrees contain a provision that if either ASCAP or BMI and a licensee can’t agree upon a rate, either party can submit the dispute to their respective “Rate Court” for a determination of a “reasonable” rate, in each case a district judge in the Southern District of New York. BMI’s Rate Court Judge is Judge Stanton and ASCAP’s is Denise Cote.

Because BMI and ASCAP are heavily regulated, a Rate Court’s determination of a “reasonable” rate under the relevant Consent Decree (i.e., what a willing seller and buyer would negotiate in an arm’s length transaction) usually requires referring to one or more “benchmarks,” which as Judge Stanton explained, are “the rates set in (or adjusted from) contemporaneous similar transactions.” BMI and Pandora bitterly argued over what the appropriate benchmark(s) should be for Pandora’s internet streaming service.

The PROs’ publisher members, particularly the majors (Universal, Warner-Chappell and Sony/ATV (which now controls the EMI catalog)), felt they could negotiate better deals for digital (Internet) rights themselves than through ASCAP and BMI because of the Consent Decree restrictions. So the majors undertook a “partial withdrawal” of their grant to ASCAP and BMI to license public performances of their music to Internet streaming services, allowing the PROs to continue licensing the publishers’ works for all other purposes.

This partial withdrawal was itself the subject of Rate Court litigation, with both Judge Stanton and Judge Cote eventually ruling, albeit with slightly different rationales, that publishers could not partially withdraw their grants to ASCAP and BMI, respectively. In other words, they were either “all in” or “all out” at ASCAP and BMI and the partial withdrawals were invalid.

However, between March 2012 and December 2013 (before the Rate Courts said such deals were verboten), the major publishers entered into a series of separate deals with Pandora, with rates ranging from 2.25% to 5.85% of Pandora’s revenue. BMI also submitted as benchmarks, agreements with Pandora’s competitors, entered into between 2010 and 2013, with rates ranging between 2.5% and 4.6% of the service’s revenue. Pandora disputed not only the validity of the interregnum partial withdrawal agreements but also the agreements of its “competitors” as appropriate benchmarks.

As for the agreements made during the period of partial withdrawals, Pandora claimed they were not, in fact, arms-length negotiations, but rates that the PROs extracted under threat of infringement litigation. As for the other agreements, Pandora claimed its service was different from its competitors, and more like traditional over-the-air radio, which has a rate of 1.75% of revenues, which was also the rate for Pandora’s prior BMI license. The foregoing is very much an over-simplified distillation of more the more than 30 pages of factual background in the Court’s opinion.

After the lengthy recitation, including quoting various email exchanges, the Court began its discussion with a concise statement of its conclusion:

The evidence presented at trial shows that BMI’s proposed license fee of 2.5% of Pandora’s gross revenue is reasonable, and indeed at the low end of the range of recent licenses. The direct licenses between Pandora and Sony and UMPG [Universal] for the 2014 calendar year are the best benchmarks because they are the most recent indices of competitive market rates.

Shortly after this, Judge Stanton quotes verbatim an email chain which consists of several single-spaced pages of internal discussion among Pandora’s executives (leaving one to wonder what was actually redacted from the Court’s public opinion), in support of its conclusion that Pandora’s deals with the publishers were, in fact, market rate negotiations: “Once the rate negotiations were freed from the overhanging control of the rate courts, the free-market licenses reflect sharply increased rates.”

The Court then went on to distinguish how Pandora is not just different from traditional radio, but also from other online streaming services: “

The fact (not unusual when traditional business models are evolving and shifting) is that Pandora cannot be accurately characterized as in any specific category for which rates have been established. It has aspects of several, but it is not confined to any one in particular.

As for radio, even considering Pandora’s purchase of a traditional radio station, Judge Stanton concluded:

Pandora is not similarly situated to any RMLC [Radio Music Licensing Committee] licensee, including iHeartMedia. The rate for the ten thousand terrestrial broadcasting members of the RMLC is not a useful benchmark for Pandora.

Both ASCAP and BMI, in their respective Rate Court cases, relied upon the testimony of Peter Brodsky, Sony’s EVP and in-house counsel, to demonstrate the arm-length nature of the negotiations he had with Pandora’s attorney, Robert Rosenblum, during the “partial withdrawal” period. Judge Cote specifically found that Brodsky‘s testimony wasn’t credible. Judge Stanton took great pains set forth the specifics of these negotiations in his concluding that “I do not find Brodsky’s credibility impaired.”

Similarly, in rejecting Judge Cote’s conclusion in the ASCAP proceeding that the rates produced in the Pandora-publisher negotiations were not proper benchmarks because of the fear of “crippling copyright infringement liability, Judge Stanton stated that the record before him, many months after the closing of the record in the ASCAP case, “is far more extensive that what Judge Cote had before her.”

As with Judge Cote’s decision, Judge Stanton’s decision will likely be appealed. If, as with Judge Cote’s ASCAP decision, Judge Stanton’s BMI decision is affirmed, it will be a significant victory for the publishers of the songs streamed on Pandora, although the publishers still get a fraction of what the labels, who are not subject to Consent Decrees, get paid by streaming services. And Pandora can still take solace in its ASCAP win.

The conflicting decisions reached by the ASCAP and BMI Rate Courts regarding Pandora are another example of why the Copyright Office, in its Music Licensing Report, recommended that rate-setting for PROs and their licensees should be removed from a single life-tenured federal district judge and instead be given to the Copyright Royalty Board, with its panel of specialized judges who each serve for a limited term. While that won’t eliminate results that some may not like, at least there will be consistency in the decision-making.

Why The Copyright Office’s New Fair Use Index Rates Only Fair At Best

The Copyright Office recently issued several well-considered studies and recommendations, like the music licensing report. And Register Pallante has been bold in her call to Congress for increased independence and resources so as to best serve all copyright constituents in the digital age. So I take no pleasure in crying foul over the Copyright Office’s recently-released Fair Use Index. However well-intentioned, this searchable database of mere case summaries is only likely to create more confusion among non-lawyer creators and users in an already murky, misunderstood and evolving area of the law.

To be fair, the Copyright Office’s news release for the database emphasizes its limited scope:

Although not a substitute for legal advice, the Index is searchable by court and subject matter and provides a helpful starting point for those wishing to better understand how the federal courts have applied the fair use doctrine to particular categories of works or types of use, for example, music, internet/digitization, or parody.

The database’s home page contains similar disclaimers: “[a]lthough the Fair Use Index should prove helpful in understanding what courts have to date considered to be fair or not fair, it is not a substitute for legal advice.” Click on the link, More Information on Fair Use, and you’ll get a one-page summary of the four factor test of Section 107 of the Copyright Act, the broad guidelines for determining fair use. However, the most important point is buried at the bottom of the page:

Courts evaluate fair use claims on a case-by-case basis, and the outcome of any given case depends on a fact-specific inquiry. This means that there is no formula to ensure that a predetermined percentage or amount of a work—or specific number of words, lines, pages, copies—may be used without permission.

The above quote should be in bold, blinking print at the top of the search page, not buried at the bottom of a link for “more information.” That’s because what most people think they know about fair use is wrong.

So what do you get if you search the database? First, you can select whether you want to search cases in the Supreme Court and/or those within any or all of the thirteen federal circuits, including the district courts  – but without any explanation of the federal court system such as what a “circuit” is.  You can also search within these courts under any or all of sixteen subject matter topics, such as computer program, music, internet/digitization, and parody/satire.

Let’s search “music” in all courts. The result is a list of seventeen cases in reverse chronological order.  But there’s no hierarchy to them so the first case is from the Central District of California and the lone Supreme Court case, Campbell v. Acuff-Rose Music, Inc., appears near the bottom. The list is in columns, stating the case name (including the citation), the year, the court, the jurisdiction (i.e., circuit), category (e.g., parody/satire) and the outcome (i.e., stating whether fair use was or was not found). Since there’s no explanation of court precedents, a non-lawyer wouldn’t necessarily know that a California district court decision isn’t binding in the Second Circuit, even if it’s more recent.

Now let’s look at the Campbell case summary. In one page we get the year, the court, key facts, the issue, the holding, tags (e.g., parody/satire) and the outcome, in this case a “[p]reliminary ruling, mixed result or remand.” Here’s the holding:

The Court reversed the Sixth Circuit, finding that it had erred in giving dispositive weight to the commercial nature of 2 Live Crew’s parody and in applying an evidentiary presumption that the commercial nature of the parody rendered it unfair. The Court held that the commercial or nonprofit educational purpose of a work is only one element of its purpose and character. Like other uses, parody “has to work its way through the relevant factors, and be judged case by case, in light of the ends of the copyright law.” The Court commented that it is essential for someone doing a parody to be able to quote from existing material and use some of the elements of a prior work to create a new one that comments on the original. The case was remanded for further proceedings.

How is this helpful to a songwriter trying to determine if her parody of a song is a fair use or not? The summaries read like the canned Casenotes briefs one used in law school (here’s an example) only not as good and without the casebook or instruction from a professor for context.

The home page does explain up front that “[the summary] does not include the court opinions themselves” and that “[w]e have provided the full legal citation, however, allowing those who wish to read the actual decisions to access them through free online resources….” But there’s no explanation for the lay person as to what these citations, e.g., 510 U.S. 569 (1994), mean. And how many users will read the cases without hot links to them? Moreover, the database provides no guidance where cases may have contrary holdings on similar facts – as fair use cases often do. Nor can a relatively small number of cases adequately track recent trends in fair use decisions.

How could the database be improved? A few more signposts such as such I’ve suggested would help. The Copyright Office might also produce a circular (brochure) on fair use, stating some broad guidelines to provide context for the case summaries. The Code of Best Practices in Fair Use for the Visual Arts, recently issued by the College Art Association, although not without its critics, is a good example.

The database won’t be helpful to lawyers who have access to services like Westlaw and Lexis because there are so few cases currently on the site and the commercial services are updated continuously.  But because the Index is produced with the authority of the Copyright Office, non-lawyers are likely to rely on the summaries rather than reading the actual cases or consulting a lawyer – despite the disclaimers.  Since “a little learning is a dangerous thing,” creators and users may then find themselves in litigation land, leading to greater legal fees than if they’d talked to their attorney in the first place. So while I’d rate the Copyright Office’s effort as “excellent,” the utility of the Fair Use Index is only “fair” at best.

A Declaration of Independence for the Copyright Office

On April 29, the head of the Copyright Office, Register Maria A. Pallante, was the sole witness before the House Judiciary Committee at a hearing entitled The Register’s Perspective on Copyright Review. Both her oral and written statements — the latter consisting of a 32-page memorandum with copious footnotes and an appendix of proposed technical amendments to the Copyright Act — contained an even more urgent call for an independent Copyright Office than was stated in her lengthy March 23 letter to Rep. Conyers, which I discussed here.

The hearing, which was interrupted by the Japanese Prime Minister’s address to Congress, was largely a love fest for the Register, with most of the Committee members effusively praising her work. The only slightly sour note was sounded by Rep. Issa (R-CA), who felt that the Copyright Office was spending too much time on studies without making specific recommendations. But anyone who’s read recent studies from the Copyright Office, such as the music licensing study and the IT report, knows that they contain very specific recommendations, several of which were reiterated in the Register’s testimony.

The big takeaway is that the majority of the Committee seemed sympathetic to the Register’s recommendation that the Copyright Office cease to be a mere department of the Library of Congress and instead, become an independent agency, whose head would be appointed by the President and confirmed by the Senate. So as to retain agency independence and continuing to serve both the Executive and Legislative branches, the agency’s head would serve for a specified term set by Congress and not merely at the pleasure of the President.

The Register’s written statement opens with a statement of six themes, culminating in her declaration for independence:

(6) To properly administer the copyright laws in the digital era, facilitate the marketplace, and serve the Nation, the United States Copyright Office must be positioned for success. As stated by one Member of this Committee, “it is time to enact a restructured, empowered and more autonomous Copyright Office that’s genuinely capable of allowing America to compete and protect our citizen’s property in the global marketplace.”

To support her petition, Register Pallante, in her written statement, singled out IT issues, citing the GAO’s scathing report, detailing myriad IT deficiencies at the Library of Congress but recommending consolidation of IT resources. The Register obviously opposes a single IT team:

The Office’s current organizational structure is under strain because the copyright system has evolved and because digital advancements have changed the expectations of the public….The mission of the Copyright Office is fundamentally different from the mission of the Library, and I believe that the Copyright Office must have its own CIO, technology staff, and management authority, including the ability to implement IT investment and planning practices that focus not on agency-wide goals but on its own specific mission. As noted in my prior testimony, the Copyright Office sits at the center of a dynamic marketplace in which creative content drives a sophisticated chain of business in the information and entertainment sectors. A faster and more nimble Copyright Office must be a priority.

Although the discussion largely centered on the potential independence of the Copyright Office, many of the questions in the latter part of the hearing focused on topics discussed in the Copyright Office’s music licensing study, including pending legislation. With respect to the Fair Play Fair Pay Act, the Register voice her support and was particularly blunt in her view of the current state of the law where labels and artists do not get paid performance royalties on radio, stating the status quo was “indefensible as a matter of law and embarrassing as a matter of policy” as well as being “out of step with the rest of the world.” Take that, NAB!

With respect to the Songwriter Equity Act, the Register stated her support for Congressional action. When asked by Rep. Collins (R-GA), who sponsored the bill, what would happen if Congress doesn’t act, the Register replied in part that the existing legal regime is already “torturing” the music community.

The Register was also asked about the “anticircumvention” provisions of Section 1201 of the Copyright, enacted as part of the DMCA. She stated that as drafted, the fair use defense codified in Section 107 of the Act is not applicable to Section 1201. When questioned about potential problems with Section 1201 and cybersecurity issues, the Register wryly noted that having a potential cybersecurity exemption subject to a three-year Copyright Office review process was not in the best in the best interests of national security.

Given the importance of copyright to the economy, and the reactions sentiments of the Committee members, it’s possible that Congress may actually address copyright issues sometime soon.

 

 

 

 

The Terminator: Where Copyright Meets Marriage Equality

The “Copyright and Marriage Equality Act,” as set forth in S.23 and H.R. 238, was sponsored in the Senate by Sen. Leahy (D-VT) and in the House by Rep. Kilmer (D-WA) right after New Year’s. You might ask what does marriage equality have to do with copyrights? After all, if I’m a songwriter, novelist, photographer or any other creative artist, can’t I make a will and leave my work to whomever I want?

Well yes, and Section 201(d) of the Copyright Act states in part:

The ownership of a copyright may be transferred in whole or in part by any means of conveyance or by operation of law, and may be bequeathed by will or pass as personal property by the applicable laws of intestate succession.

But leaving your life’s work to a loved one assumes that you, the creator, actually own the copyright in that work. And that’s often not the case. To illustrate, let’s assume you’re a songwriter and you wrote both the music and lyrics to a hit tune we’ll call “The Marriage Equality Blues” or “MEB” for short.

To keep the example simple, let’s say you then ink a traditional music publishing deal where you assign the worldwide copyright in MEB to a music publisher, MP, who then owns the work for the life of that copyright, which for works written since 1978 is your life plus 70 years. The songwriter agreement also states that you and MP split the royalties from MEB 50/50. MP’s share covers its overhead, including rent, staff and equipment and hopefully, some profit.

Now, even though you no longer “own” MEB, you can still sign a will leaving your royalties to whomever you want. So what’s the fuss about? It has to do with the provisions of the Copyright Act that deal with terminations of grants, such as your assignment of the copyright in MEB to MP. The rationale behind the termination provisions is that a fledgling artist often lacks the bargaining power and/or knowledge to make a good deal regarding the exploitation of his work. Or in other words, newbie artists (and even mature ones) often get ripped off and deserve a second bite at the apple – but only after they’ve potentially been taken advantage of for 35 years!

Let’s say you made a bad deal assigning your rights in MEB to MP. Assuming you wrote the song in or after 1978, Section 203 of the Copyright Act gives you the right to terminate your assignment of the U.S. copyright in MEB. However, the termination, which will be effective no earlier than 35 years after you signed that bum songwriter contract, must happen during a specified window of time and under certain picayune conditions. There are similar, but not identical provisions under Section 304 of the Copyright Act for pre-1978 works.

Thirty-five years is a long time. So let’s assume that when it comes time to exercise your termination rights, you’re dead. Here’s where “marriage equality” comes into play. Both Sections 203 and 304 provide that where an author (creator) is dead, his termination right is controlled by the author’s “widow or widower” unless there are also children and then the widow owns half of the author’s termination interest.

The problem is that Section 101 of the Copyright Act currently defines “widow or widower” as:

the author’s surviving spouse under the law of the author’s domicile at the time of his or her death, whether or not the spouse has later remarried.

Let’s now assume that your surviving spouse is the same sex as you. Regardless of whatever may be in your will, federal copyright law, including Sections 101 and 203 (or 304), defines who controls your termination rights in MEB. For example, if you and your same-sex spouse were married in Maine, which recognizes the validity of your same-sex union, but at the time of your death you two made your home in Missouri, a state that does not recognize same-sex marriages, then regardless of the validity of your Maine marriage or any attempt to assign your termination rights under your will, your surviving spouse has no statutory termination rights.

The Copyright and Marriage Equality Act would correct this. In somewhat convoluted language, the proposed legislation amends Section 101 to provide that a surviving spouse is the “widow or widower” for purposes of the copyright law if they were married in a state or other jurisdiction that recognizes the validity of that marriage. So your Maine marriage to your same sex partner would be valid for copyright termination purposes, even if you two were living in Missouri at the time of your death. Whatever one thinks of same-sex marriage, policies regarding marriage equality should not be determined by arcane provisions of the Copyright Act.

Please note that, unlike a copyright registration, which is often easy to do without lawyerly assistance, the termination provisions are deliberately difficult to comply with and the complexities of how and when to serve a termination notice and the specific rights you recapture go beyond the scope of this article.

Finally, as with the proposed Songwriter Equity Act, it’s not likely that this bill will pass the first year it’s introduced. So if you’re in favor of marriage equality you should consider contacting your local Congressman to express your support for this bill.

 

Blurred Lines in the Difference between Copyright in a Song and in a Recording

There’s been a blizzard of articles regarding the jury decision finding that Robin Thicke and Pharrell Williams’ 2013 megahit, “Blurred Lines,” infringed upon Marvin Gaye’s song, “Got to Give It Up.” I’ll leave it to you, gentle reader, to judge how similar the recordings of two songs are to each other. While most of my musician friends were pleased with the decision and the jury’s $7.3 million award, my copyright law colleagues and I are somewhat skeptical that it will be upheld on appeal. Here’s why.

As I’ve recently written, when one is dealing with recorded music, there are two distinct copyrights involved. One is the copyright in the musical composition or song and the other is the copyright in the particular recording of the song. This is best illustrated in connection with “cover” recordings. Some of us are old enough to remember that The Bangles had a hit around 1987 with a cover of Paul Simon’s song, “Hazy Shade of Winter,” which was originally recorded by Simon & Garfunkel in 1968. The copyright in the song is owned either by the songwriter(s) or their music publisher(s). The particular recording of the song is usually owned by the artist’s record label.

In the “Blurred lines” case, Marvin Gaye’s heirs sued on the basis of copyright in the song, only, not in his original recording of “Got to Give It Up” as they presumably had no copyright ownership in the recording. This leads to the question as to what the song is, separate from the recording of it. Although it’s no longer required for copyright protection, in order to obtain a copyright registration in any work, the copyright owner has to file an application with the Copyright Office. This consists of the application form, which includes the title and writers of the work as well as a “deposit copy” of what the work is. Back when Gaye wrote “Got to Give It Up” in 1977, copyright registration was mandatory to obtain copyright protection for the song.

And back when “Got to Give It Up” was registered for copyright, the only music that was often filed as a deposit copy was a “lead sheet” for the song. As anyone who’s ever played out of a fake book knows, a lead sheet consists only of the song’s melody line, lyrics and the chord symbols that represent the song’s harmonies. I’ve posted a handwritten lead sheet here. Sometimes the deposit copy consists of slightly more elaborate sheet music: the melody line and chord symbols with piano accompaniment. Deposit copies still need to be filed with a copyright registration but these days you can upload a MP3 recording of the song with your online registration, which, of course, provides a richer, more fully realized rendition of a song than can be conveyed in simple lead sheet or even a full score.

So, for copyright purposes, the song, “Got to Give It Up,” is likely at best, a piece of piano/vocal sheet music and at worst a lowly lead sheet. That’s why the judge instructed the jury to only consider the sheet music, not Marvin Gaye’s recording, a copyright that Gaye’s family doesn’t own. It would be very difficult to convey the “groove” of the “Got to Give It Up,” including the beat and other elements in the sheet music to the song as opposed to the recording of it. It’s far more likely that the deposit copy of the song, “Blurred Lines,” is in fact, the recording (which is now permitted) or at least some demo version of it.

Moreover, not every element in a song (whether in the form of sheet music or in a recording), is copyrightable. You can’t copyright “ideas” but only “expression” of ideas. For example, chord progressions such as a “falling thirds” (think of the C, Am, F, G chords of hundreds of 1950s songs) are not copyrightable. So, ultimately, for purposes of this lawsuit, the issue on appeal will be whether the song or the recording of “Blurred Lines” infringed original, copyrightable expression in the song “Got to Give It Up,” as represented by the sheet music. And that’s hard to prove.

And that’s why the jury verdict may be overturned on appeal. In other words, one can’t blur the line between the copyright in the song and the copyright in the recording. In terms of content (as opposed to ownership) it’s less of a distinction now since deposit copies of songs can be recordings of them – but that’s not what the practice was when “Got to Give It Up” was registered for copyright protection.

So, What’s The Songwriter Equity Act About?

Update: I originally published the post below on May 14, 2014, shortly after the Songwriter Equity Act was introduced last year. The bill has was re-introduced in both houses of Congress on March 3, 2015 by the same sponsors as before, led by Sen. Hatch (R-UT) and Rep. Collins (R-GA), who posted the bill on his website. In addition to my original piece below, I also discuss the background underlying the rate-setting for songwriter royalties from the sale of recordings (“mechanical” royalties) in my post on the Copyright Office’s recently-released music licensing study, which advocated for the changes incorporated in the proposed legislation.

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Given the continuing Congressional deadlock, I generally don’t pay too much attention to the mere introduction of bills relating to copyright and music.  So, I didn’t pen a post when Rep. Doug Collins (R-GA) introduced H.R. 4079, the “Songwriter Equity Act” at the end of February. This bill, it were somehow to pass, would amend the Copyright Act with respect to how songwriters’ statutory “mechanical” royalties and certain public performance royalties are determined. It has 14 co-sponsors, including Representatives Steve Cohen (D-TN) and Steve Cooper (D-TN).

But now Senators Lamar Alexander (R-TN), Bob Corker (R-TN), the senators who represent Songwriter City (a/k/a Nashville) and Orrin Hatch (R-UT), himself a songwriter, have announced that they will be introducing their own version of the “Songwriter Equity Act” in the Senate. This, along with the Copyright Office’s extending their public comment period for their Music Licensing Study until May 23, makes me think that there may be some real momentum to make changes in the laws affecting those who create and license music.

Any tunesmith will tell you that their two biggest income streams are royalties from the public performance of their works and royalties from the sales of recordings of their songs. Unlike most creators of copyrighted works, songwriters’ ability to earn a living is heavily regulated by the federal government. Let me explain, starting with royalties from recordings.

Section 115 of the Copyright Act essentially provides that once a song has been recorded, anyone can do a “cover” of that song, under a compulsory license from the copyright owner(s), i.e., music publishers, provided they are paid the statutory royalty known as a “mechanical” royalty, which has applicable first to piano rolls, then to 78s, to LPs, 45s, cassettes, CDs and now, downloads. Under authority of the Copyright Act, a  tribunal called the Copyright Royalty Board sets this statutory rate, which is currently 9.1 cents per recording distributed for a recording that is 5 minutes or less. This statutory rate serves as a benchmark, even for voluntarily negotiated “mechanical” licenses, such as those issued by The Harry Fox Agency.

Let’s move on to performance royalties. The majority of songwriters belong to ASCAP or BMI, which are private entities known as performing rights organizations (PROs). PROs are collectives that issue licenses to publicly perform music on radio, TV, in live music venues, over the Internet and elsewhere. ASCAP and BMI issue “blanket” licenses of all the works they control to users and distribute the royalties they collect to songwriters and music publishers.

However, since the 1940s, ASCAP and BMI have operated under Department of Justice Consent Decrees which were last amended in 1994 (BMI) and 2001 (ASCAP), long before the advent of digital download and streaming services. The ASCAP and BMI Consent Decrees are each overseen by a federal District Judge in the Southern District of New York. When a user (e.g., Pandora) or group of users (e.g., the radio broadcasters) can’t agree with ASCAP or BMI on an appropriate license fee, the parties can have a “Rate Court” proceeding before the judge overseeing the ASCAP or BMI Consent Decree. The Rate Court judge then must determine a “reasonable rate” for the particular user. However, there are certain limitations placed on the judge by the Copyright Act as to how to determine a “reasonable rate” for the user(s) in question.

The ASCAP and BMI Consent Decrees were entered into as part of a settlement of anti-trust litigation. At the time, it seemed like the PROs had a certain amount of market power when dealing with radio and later,TV stations. The PROs now argue that the playing field has dramatically changed in the ensuing decades and it’s new players like Apple (iTunes) and Google (YouTube) and telecommunications companies like Verizon and Comcast that have the real power and that therefore the Consent Decrees should either be amended or scrapped because of this and other shifts in the marketplace. And by including the functioning of the Consent Decrees in its music licensing study, the Copyright Office may ultimately share the PRO’s view.

So, what does this all have to do with the proposed “Songwriter’s Equity Act”? As David Israelite, President of the National Music Publishers Association (NMPA) put it: “Roughly two-thirds of a songwriter’s income is heavily regulated by law or through outdated government oversight,” which results in devalued intellectual property rights.” The bill would change the standard of how the CRB sets mechanical rates and the criteria under which ASCAP and BMI Rate Court judges determine a “reasonable rate” for public performances.

Specifically, the bill would amend Section 114(i) of the Copyright Act to allow introduction of sound recording royalty rates in a Rate Court proceeding. It would also amend Section 801(b)(1) of the Copyright Act to direct the Copyright Royalty Board to set the statutory mechanical rate under Section 115 based upon a fair market rate, or what a willing buyer and seller would negotiate, including looking to comparable rates and agreements, rather than “reasonable” rate based on factors other than market conditions.

Advocates argue that songwriters would greatly benefit from these revised rate-setting standards and songwriter royalties would more closely align with those for the use of the sound recording, which are often many times higher than the comparable songwriter royalty. In short, this bill, should it become law, would be sweet music to songwriters’ ears. This bill, along with one granting labels and recording artists royalties when records are played on the radio  that was introduced last year (and the U.S. is one of less than a handful of nations that don’t already have this), would create a more level music licensing landscape.

All You Need To Know About The Copyright Office’s 202-Page Music Licensing Report

On Friday, February 6, the Copyright Office issued a 202 page comprehensive report (plus appendices) on the music licensing business, “Copyright and the Music Marketplace.” The Report is the culmination of a nearly year-long process of soliciting and evaluating input from interested parties on how to fix what everybody agrees is a broken system.

Anyone with an interest in the music business should read the full report – or at least the 11-page executive summary. But in case even that’s too much, here’s all you need to know, in layman’s terms and with analysis, in little more than half the length of the executive summary:

The Report starts with four guiding principles:

– Music creators should be fairly compensated for their creations
– The licensing process should be more efficient
– Market participants should have access to authoritative data to identify and license sound recordings and musical works
– Usage and payment information should be transparent and accessible to rights holders.

Like Mom and apple pie – it’s kind of hard to argue with these. But before we get to the Report’s recommendations as to how to implement these principles, including four subsidiary principles, we need some background on the current music licensing framework. So instead of the Report’s 50-page primer (which is quite readable and mostly correct), here’s a roughly three-page summary of the current music licensing landscape, rocky as it is.

The Report is primarily concerned with the distribution of recorded music, whether through sales of physical product like CDs and downloads or public performances, whether over the radio or by streaming services on the Internet. This means that unless it’s a recording of public domain music, like Beethoven, most recordings consist of two distinct copyrights: (1) the copyright in the musical work, which is typically controlled by one or more music publishers; and (2) the copyright in the recording of that work, which is typically controlled by a record label. This is best illustrated with “cover” records. For example, I prefer the Carole King version of “You’ve Got a Friend” to James Taylor’s. Same song, two different recordings; two separate copyrights for each recording.

Let’s deal with the songwriter/publisher side first. ASCAP, BMI and SESAC are performing rights organizations (PROs) that license the public performing right (and only that right) in musical compositions (i.e., songs, but not the recordings of them) when they are performed live in stadiums, concert halls and clubs, broadcast on radio and TV or streamed over the Internet. PROs typically issue “blanket licenses” to users, meaning for a set fee (either a flat fee or percentage of the user’s revenue, depending upon the license), the user has an all-you-can-eat buffet of the music in that PRO’s repertoire allowing the user, such as a radio station, to play any song in the PRO’s catalog as often as it likes. The PROs pay 50% of the licensing revenue to the writers and 50% to the music publishers after deducting their operating costs.

ASCAP and BMI, according to the Report, represent more than 90% of the domestic music market while SESAC and another recently-formed entity represent most of the remainder. ASCAP and BMI (but not SESAC) have been operating under Department of Justice Consent Decrees since World War II. And they haven’t been amended since the dawn of the Internet. Think about that. These decrees were instituted to settle alleged anti-trust violations when 78s were the dominant recording format. Under DOJ regulations in place since 1979, most consent decrees are supposed to terminate within 10 years – not 75!

The Consent Decrees for ASCAP and BMI are overseen by two different federal judges in the New York City. When either PRO can’t reach an agreement as to a license fee either with an individual user (e.g., Pandora) or an entire industry (e.g., radio), the parties may have a “Rate Court” proceeding before the judge. Like all federal litigation,  a Rate Court case is very time consuming and costly. Both Consent Decrees state that the judge must determine a “reasonable” fee, which has been interpreted to approximate what a willing buyer and a willing seller would pay for a license in a free, open market.

Most important about these Consent Decrees is that they require ASCAP and BMI to grant a license to anyone who requests one, making the process a de facto compulsory license regime. What’s more, users often pay nothing – sometimes for months or even years at a time – while the parties either negotiate or litigate what a “reasonable” fee should be. Songwriters and publishers have long maintained that users, availing themselves of a compulsory license with the ability to use the “product” while negotiating a fee, are at a significant bargaining advantage.

Still sticking with songs (as opposed to recordings), when a song is covered by another artist, the Copyright Act provides the label with a compulsory license whereby the label pays a statutory rate to the owner of the song. This is how Carole King the songwriter gets paid for James Taylor’s cover recording. The statutory rate is currently set every five years by the Copyright Royalty Board (CRB) in Washington, DC. This three-judge panel sets the fee, not based upon a market rate standard, but in accordance with a separate statutory provision requiring a “fair return” to the work’s creator, while balancing certain public policies, such as maximizing availability of works and minimizing a disruptive impact on businesses and industry practices. The Report indicates that this standard results in lower rates than a fair market standard. Although designed to be solely a license for cover recordings with first recording rights reserved to the copyright owner, most recording contracts have provisions tying the release and payment of all songs to the statutory scheme (often at a lower payment rate). Songwriters and publishers have long maintained that this compulsory scheme, as with performing rights, provides artificially low rates.

This statutory compulsory license (meaning music publishers and songwriters are subject to an “offer” they can’t refuse) is called a “mechanical” license due to the mechanical reproduction of the music and is a term dating back to the days of piano rolls when the license provision was first enacted. But the mechanical license applies solely to audio-only recordings – there is no compulsory license for film, TV, videos, games and other AV uses. Although many music publishers issue mechanical licenses directly, a licensing collective, the Harry Fox Agency (HFA), issues these licenses for probably more than half of the market. However, unlike the performing rights licenses issued by PROs, there are no “blanket” mechanical licenses and they are issued on a work-by-work basis, something that online music services find particularly inconvenient and impractical.

As for audio-visual uses, a “synchronization” (or “synch”) license is required from both the owners of the song and the recording of that song. So, if you want to use Tony Bennett and Lady Gaga’s recording of “Cheek to Cheek” in a movie, you need to get permission from Irving Berlin’s music publisher and also permission from the artists’ label for that particular recording of the standard. Synchronization licenses, unlike mechanical licenses, are typically negotiated and issued directly by the copyright owners, the labels and publishers.

The Report states that between public performance and mechanical income, about 75% of a songwriter’s (and therefore a music publisher’s) income is subject to government regulation (compare that to a novelist whose income isn’t regulated at all). So, that means that the majority of a songwriter’s income can be determined by four judges – one in New York and three in DC. By contrast, a label’s income (and therefore a recording artist’s income) consists mostly of sales of recordings (e.g., CDs and downloads) and licensing of those recordings, such as “synchronization” usage as discussed above. There are no compulsory licenses or consent decrees for these uses so it’s a pure, free market negotiation between labels and users for these rights. And music publishers, who can negotiate synch licenses in a free market unshackled by consent decrees and compulsory licenses, are usually able to get about the same fee for their rights as the label gets for theirs.

But not all restrictions disadvantage the songwriter. With respect to performances, the United States, except in very limited circumstances discussed below, does not grant a public performing right in a sound recording. For example, when Sinatra’s recording of “New York, New York” is played on oldies radio (or over loudspeakers at Yankees games), the songwriters, Kander & Ebb, and their music publisher, get paid through their PRO. What do Sinatra’s heirs and his label get? Nothing! As the Report points out, the United States is one of less than a handful of industrialized nations, including Iran and North Korea, which do not have a public performing right in a sound recording for radio.

Why? There are historical reasons in that the radio stations felt that they were providing the labels with promotion for the sale of recordings. Also, every Congressional district has at least one or more radio and/or TV stations. As the Report points out, with the recent shift in consumer preferences from purchases (e.g., CDs and downloads) to streaming (e.g. YouTube), the promotional value of radio probably isn’t what it used to be.

However, because of laws enacted in the 1990s, there is a limited public performing right in a sound recording for digital transmissions, basically, streaming over the Internet, whether through YouTube, Spotify, Pandora or another service. And there is a compulsory license for non-interactive streaming services, which like the mechanical license, has a rate that’s determined by the CRB. The royalties for the compulsory streaming licenses are administered by a collective that’s similar to the PROs, SoundExchange, which distributes this income to labels (50%), featured artists (45%) and side artists (5%). As for “interactive services” (and the Report spills much ink over the lengthy statutory provisions about what is and is not “interactive”), these license fees are determined in market negotiations by the parties.

Our discussion began with the notion that there are two copyrights in a recording: one in the underlying song and one in the actual recording or “master.” However, for historical reasons, recordings that were made prior to 1972 are not covered by the federal Copyright Act, unlike the songs embodied in them. Rather, these recordings, which are still purchased and performed all the time, are governed by state law.

Recent well-publicized lawsuits in New York and California have determined that, at least in those two states (and likely in many others), there is a state-based public performance right in a sound recording, the contours of which remain largely unknown. For example, it’s possible that in some states, this performing right for pre-1972 recordings could be even broader than the one granted under federal law for later recordings in that there conceivably could be a performing right in the older recordings played over the radio under various state, but not federal laws. This could lead to a quagmire of uncertain and inconsistent  treatment.

The Report also contains a lengthy discussion of recent ASCAP and BMI Rate Court decisions, both of which held that publishers could not partially withdraw certain rights from ASCAP and BMI while leaving others. For example, Sony/ATV, one of the three major publishers, felt that it could negotiate better deals regarding digital performances than what it could get through ASCAP and BMI because of the constraints imposed on those PROs by the Consent Decrees. Reaching the same conclusion albeit under slightly different reasoning, both the ASCAP and BMI Rate Court judges determined that a publisher had to be either “all in” or “all out” and that it couldn’t cherry pick certain aspects of the performing right. These decisions figure prominently in the Report’s recommendations.

Why would a major publisher feel they could get a better deal by itself? As we’ve seen in the synch license arena, where there’s a free market, song copyright owners get paid about the same as recording copyright owners in most instances. Contrast that to the download situation where the publisher gets paid 9.1 cents for the download (the compulsory statutory rate) while the label gets about 70% of the sale price on iTunes (a market negotiation).

The Report also contains lengthy and detailed descriptions of the lack of uniformity in data associated with both musical works and sound recordings. Without going into detail about ISWCs, ISRCs, ISNIs and DDEX standards, suffice to say there is currently no consistent, uniform, international process for assigning codes to musical compositions, albums or individual tracks, writers or artists. And there’s no centralized database for this necessary information. This leads to inefficiencies and delayed licensing and payment for creators.

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With the foregoing background, here are the Copyright Office’s four subsidiary principles regarding implementation of their four Guiding Principles:

– Government licensing should aspire to treat like uses of music alike
– Government supervision should enable voluntary transactions while supporting collective solutions
– Rate-setting and enforcement of anti-trust laws should be separately managed and addressed
– A single market-oriented rate-setting standard should apply to all music uses under statutory licenses

So now let’s look at the Report’s most significant recommendations to implement its eight principles:

– Regulate musical works and sound recordings in a more consistent manner. (As we’ve seen, song and master recording rights are often treated differently, with more restrictions on songwriters and publishers than on recording artists and labels.)
– Extend the public performance right for recordings to traditional “terrestrial” radio. (This fosters the first goal and the Report recommends that non-interactive radio be subject to the same compulsory license scheme as are non-interactive streams.)
– In keeping with similar treatment for similar rights, the Report also recommends full federal copyright protection for pre-1972 recordings. (Besides being fair to older artists, this avoids the potential legal chaos discussed above).
– The Copyright Office further suggests that all rate-setting for both recordings and the underlying musical works should (a) be subject to the same “willing-buyer / willing seller” or “fair market value” standard and (b) that all rate setting, even for music performance rights, should be done by the CRB. (This would remove rate-setting for music performance rights from a single, life-tenured federal judge in New York and place it before a tribunal with a specific mandate and expertise. It also fosters the goal of uniform treatment for songs and records.)
– The Report also states that the CRB should only meet as needed and that procedures for setting interim rates, as well as for the overall process, should be streamlined. (This should foster voluntary negotiations and make rate-setting proceedings faster and cheaper).
– The Report also suggests that detailed provisions, such as what constitutes an interactive streaming service, should be put into regulations rather than in the copyright statute, so that they can be more easily modified to adjust to changes in the marketplace.
– The Report stopped short of stating that the ASCAP and BMI Consent Decrees should be repealed. (This position is undoubtedly in deference to the Justice Department’s ongoing review of those decrees, but is clearly supportive of relaxing restrictions, as discussed below.)
– Allow for audit rights under the compulsory mechanical license and allow SoundExchange to terminate licensees who avail themselves of a compulsory license but do not pay. (These are obvious legal loopholes that need to be plugged. If creators are subjected to a compulsory licensing regime, they should at least have the ability to ensure they’re being properly paid and that deadbeats don’t keep the benefits of the license).

The Report also recommended that, as the Copyright Office had previously, licensing collectives be permitted to expand their role and become Music Rights Organizations (MROs) that would license both performing and mechanical rights and possibly other rights as well. ASCAP’s Consent Decree forbids it from licensing mechanicals and other rights and BMI has voluntarily refrained from doing so to date. However, the CEOs of both organizations have indicated that expansion of their licensing capabilities is in their business plans and users should welcome the availability of multi-use licenses.

For example, if ASCAP, BMI, SESAC, Harry Fox and Sound Exchange all became MROs and licensed performing rights and mechanical rights, there would be six MROs competing for business. The Report also recommended congressional overrule of the Rate Court decisions, to the extent of allowing publishers to withdraw digital rights for interactive streaming so that publishers are on parity with the labels in the ability to negotiate for these rights. Although not mentioned in the Report, I think that the MROs should also be able to license the posting of lyrics, as HFA currently offers this service. The PROs and HFA currently allow for a music publisher to issue a direct license and not go through the collective. This should be maintained to both ensure free competition and allow copyright owners to handle individual negotiations where warranted.

If there are six competing MROs offering a variety of bundled licensing services, which would include the right to withdraw certain rights and directly license all rights, it would seem that the ASCAP and BMI Consent Decrees would not be needed (at least not in their present form) as there would be ample competition. As the Report indicated, there are currently only three major labels and three major publishers. They aren’t subject to Consent Decrees. While the US currently has three PROs, most other nations have only one, and that PRO often is able to bundle mechanical rights. The time has come to recognize that the public doesn’t need excessive government protection from the collective licensing by songwriters.

The Report also recommended that membership in MROs be mandatory and that there be a “general” MRO, the GMRO that would act as a stop-gap for certain unrepresented parties and would standardize data formats and create a global rights database for users. I believe neither mandatory membership in a MRO (given that membership in licensing collectives is currently voluntary), nor the creation of a GMRO, another level of governmental involvement, is necessary. First, if a MRO were able to offer more comprehensive services and there was competition for members, there would be enough incentive for all writers, publishers, artists and labels to join one.

Second, as the Report acknowledges, the various interested parties, including the PROs, have been working on various projects to facilitate the uniformity and transparency of data. If, for example, the PROs were to offer mechanical licensing, they would be strongly incentivized to synch their works registrations with recording and artist information. Similarly, if HFA were to offer performing rights, they would be incentivized to ensure that their recording information is coordinated with works information. Third, with MROs having both data for songs and recordings, they could create an aggregate portal for users to look up who controls which rights to songs and recordings. Finally, I also don’t think that a GMRO is necessary to address the problem of unlicensed or unaccounted for shares in works and other missing data. The MROs can license based upon partial representation and hold reserves until such time other interested parties properly register their works and shares.

The Report attempts to address the issue of transparency of licensing and royalty information. Standardizing works and recording codes will help. So will the elimination of the “pass through” mechanical license for downloads in that publishers have to be paid through the labels and not directly by the download services like iTunes. And while the issue was raised regarding equity stakes in and advances from, streaming services like Pandora, no real solutions regarding creators sharing in the wealth were offered. Similarly, the Report alluded to the “whack-a-mole” problem under the DMCA of dealing with rampant infringement on services like YouTube but did not offer any recommendations, an area where the balance between the services and creators, especially individual artists, should be adjusted .

Although the Copyright Office had previously suggested that the compulsory mechanical license be repealed, the Report stops short of advocating it. Instead, it suggests that publishers have limited opt-out rights for interactive streaming and downloads. It further recommends that mechanical licensing should be done on a blanket license basis, like the PROs. The Report’s recommendation that an artist may obtain a compulsory license for a cover recording released as a CD but not as a download makes no sense to me as it is a needless discrimination in format (e.g., LP versus cassettes in the analog world) rather than means of distribution (e.g., purchases versus performances).

I also believe that the song-by-song mechanical license should still be available as an option. For example, an artist making a self-produced recording that include covers should be able to obtain only the licenses needed. And those licenses should be available for both physical copies and downloads. Finally, I think that if the mechanical licensing regime remains compulsory, the CRB should set rates for different tiers of usage. Three should suffice. In the synch market, for example, a Rolling Stones song will command a higher fee than one by an unknown writer. The publisher can select which tier it wants its song priced at and if the user market balks, the publisher can then change to a lower tier.

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In sum, the Report offers some solid recommendations as to changes to the legal and regulatory aspects of music licensing. Other suggestions such as creating a new agency, the GMRO, and mandating coding standards are probably unnecessary if private parties are better incentivized through revised laws and regulations. But the Report contains far more detail and nuances, both regarding the current licensing landscape and its recommendations, than can be covered in my brief summary. Songwriters and composers, whose income is currently regulated the most, would likely benefit most from the Report’s recommendations, although recording artists could also receive a significant boost to their income with the adoption of a performing right for radio and TV airplay.

Undoubtedly, major players in the user community, such as streaming services, will object to some of the proposed changes to the music licensing landscape, such as relaxing Consent Decree restrictions and having all compulsory licenses subject to a fair market standard. However, as the Report points out, music creators should not have to subsidize any particular business model. But as the Report also notes, it is ultimately up to Congress, rather than the Copyright Office or the Justice Department to make most of the needed changes. Given Congress’ recent history, it’s hard to be optimistic about legislative fixes happening anytime soon. But one can hope….

Estate Planning for Composers: 10 Things to Do Before You Die

Making preparations for your eventual demise isn’t fun. But there are far more important things you can do for your musical legacy than writing a requiem. Proper planning for your death or incapacity is important even if you don’t have a spouse or kids and involves more than just making a will. Besides, what better time than in the dead of winter to deal with these issues?

So here’s a bucket list of ten things composers and other musicians should do before they die. You don’t have to do everything all at once and some steps are more important than others. But get started! Spoiler alert: it all boils down to organizing your musical life, deciding who you want to be in charge of it once you’re gone, and then working with professionals to ensure a smooth hand-off.

1. Organize your files. All contracts, royalty statements and other important documents should be kept together and clearly organized. Get a filing cabinet and a bunch of manila folders.

Create clearly labeled physical files for:

– PRO (ASCAP, BMI or SESAC) membership agreements both as a writer and, if applicable, as a publisher

– your publishing company documents (e.g., d/b/a certificate, operating agreement, bylaws)

– songwriter, composer or other music publishing agreements for any works represented by other publishers

– copyright registration certificates

– agreements with collaborators and/or owners of copyrighted text, including royalty splits/payment information

– recording contracts if you’re a recording artist or have self-produced any recordings

– mechanical licenses from record labels or Harry Fox for any recordings of your works

– all commissioning agreements, particularly if there are any unexpired exclusivities

– film, TV, advertising, videogame, corporate and other scoring agreements

– copies of recent royalty statements (e.g., past 3-5 years) from performing rights organizations (PROs), music publishers,     record labels, Harry Fox (HFA) and other entities that are supposed to pay you for the use of your music

Organize your digital files, too:

– clearly label all your Sibelius, Finale, PDFs, audio and other digital files in specific folders

– back them up onto a thumb drive and/or cloud storage

– organize, label and back-up PDFs of physical documents listed above

2. Create an easily accessible master list for the passwords to:

– your computer(s)

– your PRO and SoundExchange account(s)

– your web site and web hosting account(s)

– your email and social media account(s)

– any online services where you’ve posted your music

– any password service for any of the above

3. Make sure all your works have been registered with ASCAP, BMI or SESAC. You need to do this regularly in order to get paid public performance royalties. Also, if you are self-published, it’s the easiest way for potential licensees to find your music other than Googling you to find your web site. And periodically check to make sure works represented by other publishers are properly registered, too. (If you’re a recording artist or have self-produced recordings you should also sign up with SoundExchange and register your works there as well).

4. Assign the copyrights in your works to your publishing company if it’s a corporate entity. If you don’t have a publishing company or it’s merely a sole proprietorship (e.g., Jane Doe d/b/a Jane Doe Music) this is not an issue – there’s no need to assign something to yourself. However, if your publishing company is some other form of business entity (e.g., S Corp., LLC, LLP) you probably should do this. Since PROs only track payees, not owners, merely registering your works in the name of your publishing company with your PRO may not be sufficient when it comes to any sale or transfer of your publishing company. A one-page assignment of copyright with a schedule of works may be all that’s needed.

5. Register your works with the Copyright Office. While registration is permissive, rather than mandatory, there are many benefits to registration, including proof of authorship, the existence of deposit copies of your work and availability of statutory damages if your work’s infringed. You can do a group registration under certain conditions and you can do it online at www.copyright.gov.

6. Make a list of works represented by other publishers. It can be a simple Excel spreadsheet with columns for the title of the work, instrumentation, the publisher’s name and contact information.

7. Let someone know where all the above information is kept. Any master list and instructions should be in a separate document kept with your will and other estate planning documents and insurance policies.

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While you’re organizing your files and making sure your works registrations are up to date, here are some things to think about regarding estate planning for your music and other creative properties:

8. First, find a local trusts and estates (T&E) attorney. While the Copyright Act is federal law, T&E law is largely governed by state laws, which can vary greatly. Moreover, you want to meet with a local T&E lawyer about drafting important documents such as your will, living will, health care proxy and any trusts for the benefit of loved ones. Your T&E attorney will ask you all the right questions about how you want to deal with your estate, including tax issues, and will customize an estate plan for you in accordance with your state’s and applicable federal laws.

9. But, also consider working with an entertainment lawyer, too. While there are T&E lawyers who are well-versed in copyright and the music business, most are not, especially if you live in an area that’s not a big arts hub. So, it may be helpful to have an entertainment lawyer work with your T&E attorney. The entertainment lawyer need not be local, but should be someone with copyright and music business expertise, including things that are specific to “new music.” The pitfalls avoided will be well worth the modest additional cost.

An experienced music lawyer can be helpful because this attorney can:

– assist your T&E lawyer in ensuring that the applicable provisions in any will, trust or assignment documents are appropriately drafted. This way, copyrights, royalties, scores and other aspects of your creative life will not merely be vaguely lumped together with other personal property or financial assets – especially if you want to divide up ownership of individual works or royalty streams or you want specific instructions as to the disposition of individual scores, instruments and mementos.

– ensure that appropriate documentation is supplied to PROs, publishers, labels and other entities so that your beneficiaries will have their rights promptly recognized and royalties will continue to be paid, rather than placed on hold.

– determine whether royalties are being properly paid and whether certain agreements may be terminated either through contractual provisions or by the termination provisions of the Copyright Act.

– perform a valuation for your works or assist an estate appraiser so that any deals your estate makes with respect to the sale or administration of your catalog will be a fair one for your loved ones.

– negotiate an agreement for the sale and/or administration of your music as part of your estate plan that would only take effect upon your death so as to avoid your executor or your loved ones having to deal with arcane areas where they lack expertise. Any agreement would have to address financial terms, such as acquisition fees, advances, royalty splits and other contingencies, such as the ability of an executor to back out of a deal and/or make alternative arrangements if the publisher/administrator ceases to exist or is otherwise unable to comply with the terms of the agreement.

10. Consider having a separate music or arts executor. The person you choose as the executor of your overall estate should be the person you trust the most to deal with your home, your finances, the care of your loved ones and most of your other physical possessions. However, that person may not be the best one to deal with your music and any other literary or creative properties (e.g., did she really mean to put that C# in the horn part?). So, just as you may consider consulting an entertainment lawyer as part of your estate planning, you may want to consider naming a friend or colleague who is familiar with your music to serve as a special music or arts executor to deal with your compositions and other creative works. You should discuss your choice of executor(s) with the individuals you choose and should have back-ups. Executors can decline to serve – or may even predecease you.

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As with other aspects of your estate planning, paying attention to issues relating to your music now, before you either die or are incapacitated, will not only give you peace of mind but will spare your loved ones unnecessary cost and anxiety. It’s the best way to protect your creative legacy.

Five Things Composers Should Ask About Working With a Publisher

In December, I was invited by Jennifer Higdon to speak about various aspects of the music business to the Curtis Institute’s Composers’ Forum. I was peppered with some very pointed questions about the music publishing prospects for emerging composers. The students were justifiably skeptical because a publishing deal isn’t for everyone. But there are also alternatives besides signing your works away to a publisher or doing everything yourself.

Here are five questions a composer should ask to determine whether a publishing deal makes sense:

1. What exposure do you already have? Just as a record label won’t sign a band that doesn’t already have a following and a self-produced album, publishers need to see that you are worth the investment of their resources. So, if you already have a resume that includes performances, awards, commissions and residencies (not all boxes need be checked) that’s a foundation a publisher can build upon. It also shows that you’re serious about your career and are willing to work at it.

2. What kind of works do you mostly write? Publishers are best when dealing with large-scale works such as orchestral works or operas. And even if a composer submits a Sibelius or Finale “manuscript” it’s still very costly and time-consuming to produce performance materials acceptable to professional orchestras and opera companies. Because they are voluminous and expensive to produce, performance materials for symphonic and operatic works are rented rather than sold. Publishers make the most money, both for themselves and the composers they represent, from the rental and performing rights income.

Works for smaller ensembles, such as string quartets, works for solo piano, piano and voice and other ensembles of say, eight players or fewer, are mostly sold rather than rented. After deducting print costs, publishers make much less money off of these works. Public performance income is also typically much lower than a larger-scale work of comparable length. Similarly, works for concert band or chorus are also sold rather than rented. These will be “new issued” like books and will generate sales in the first year or two. After that, unless the composer continues to supply new product, i.e., new band or choral pieces, a single work will likely languish – as far too many composers have found out the hard way.

3. Who’s performing your music? If you’re a member of an ensemble and you write for that group there’s no need for a publisher intermediary. You also have to ask yourself if you really want other groups to perform your music. And even if you do, if your ensemble has unique instrumentation it’s less likely that other groups will program your works.

4. Will a publisher promote my music? Publishers have long-established relationships with artistic administrators at orchestras, opera and ballet companies, as well as domestic and international music festivals, individual conductors and soloists. However, all publishers have an existing roster of composers that need care and feeding. For example, at Boosey & Hawkes, where I used to work, not only do they have living composers like Adams, Reich and Rouse, but the heirs of Bernstein, Carter, Copland, Stravinsky and many others still want these composers’ works programmed as much as possible. Classical publishers haven’t been immune from the ills that have plagued the music industry for more than a decade. And everyone’s promotion staff is stretched thin. That said, some publishers do a better job than others. Ask around.

5. Do I really want to handle the business of being a composer? This includes photocopying and shipping scores and parts, negotiating commissions and license agreements, managing expenses and being your own publicist. Some composers are good at this and enjoy it. Others, not so much.

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In short, if you are a composer that writes mostly smaller-scale works, particularly if it’s for your own ensemble, you may well be better off selling downloads from your own web site.

However, if you:

– want to write large-scale works
– have an existing catalog that’s generating some income
– are getting commissions and performances
– have gotten some awards and/or a residency or two

Then, a publishing deal may be something to consider.

However, publishers sign very few composers. Boosey, Schirmer, Presser, Peer, Peters, Schott, Subito and any others will sign only about a handful of composers a year combined – not each. That’s less than a composer per publisher per year. Why? Because it’s a very expensive, long-term commitment and each of these publishers has continuing obligations to its existing composer roster.

Bonus Question: What should I ask if a publisher’s interested in me?

Here are five basic questions to ask:

– Will they pay an acquisition fee for my “back catalog” of pre-existing works?

– Will they pay an advance on royalties for works written during the term of the contract?

– Will I retain ownership of any portion of the copyrights to my works or will the publisher own them outright? In other words, am I being offered a publishing, co-publishing, administration or distribution deal – or some combination of them?

– What are the royalty splits for various income types (print, rental, grand rights, synch, etc.)?

– How will they promote my works, including increasing my income and getting commissions for me?

Those are just the preliminaries. A typical publishing contract has many other terms that need to be understood and often negotiated. Entering into a publishing agreement can be the most important career decision a composer can make. Any composer contemplating signing up with a publisher should consult with a knowledgeable attorney. And a good lawyer can also suggest and negotiate possible alternatives to a pure publishing or pure DIY relationship, such as hiring a publicist, administrator or music distributor.