Royalty Points - Music Royalties - Royalties in Digital Distribution - US Regulatory Provisions

US Regulatory Provisions

Regulatory provisions in the US, EU and elsewhere is in a state of flux, continuously being challenged by developments in technology; thus almost any regulation stated here exists in a tentative format.

The US Copyright Act of 1976 identified “musical works” and “sound recordings” eligible for copyright protection. The term “musical work” refers to the notes and lyrics of a song or a piece of music, while a “sound recording” results from its fixation on physical media. Copyright owners of musical works are granted exclusive rights to license over-the-air radio and TV broadcasts, entitling them royalties, which are, as said earlier, collected and distributed by the PROs. Under the Act, record companies and recording artists are, presently, not entitled to royalties from radio and TV broadcasts of their music, except in the case of digital services and webcasts where copyright owners and performers obtain royalties (see later). This is in contrast to international standards where performers also obtain royalties from over-the-air and digital broadcasting.

In 1995, the Congress introduced the Digital Performance Right in Sound Recordings Act (DPRA), which became effective 1 Feb 1996. This Act granted owners of sound recordings the exclusive license to perform the copyrighted work publicly by means of digital audio transmissions but it exempted non-subscription services (and some other services). Where the rights owner could not voluntarily reach agreement with the broadcaster, it could avail of compulsory licensing provisions. Under the Act, the compulsory royalty (the royalty schedule follows) was to be shared in the manner: 50% to the record companies, 45% to featured artists, 2½% to non-featured musicians through American Federation of Musicians (AFM) in the United States and Canada and 2½% for non-featured vocalists through American Federation of Television and Radio Artists (AFTRA). United States Congress also created a new compulsory license for certain subscription digital audio services, which transmit sound recordings via cable television and Direct-broadcast satellite (DBS) on a non-interactive basis in the absence of a voluntary negotiation and agreement.

In 1998, the Congress amended DPRA to create the Digital Millennium Copyright Act (DMCA) by redefining the above-noted subscription services of DPRA as “preexisting subscription services” and expanded the statutory license to include new categories of digital audio services that may operate under the license. In effect, DMCA created three categories of licensees:

1. pre-existing satellite digital audio radio services
2. new subscription services, and
3. eligible non-subscription transmission services.

In addition to the above, a fourth license was created permit webcasters to make “ephemeral recordings” of a sound recording (temporary copies) to facilitate streaming but with a royalty to be paid.

Non-subscription webcasting royalties have also to be shared between record companies and performers in the proportions set out under DPRA.

The Table below titled SUMMARY OF STATUTORY ROYALTY RATES FOR DIGITAL WEBCASTING - UNITED STATES encapsulates the royalties set for non-interactive webcasting.

To qualify for compulsory licensing under non-subscription services, the webcasting needs to fit the following six criteria:

• it is non-interactive
• it does not exceed the sound recording performance complement
• it is accompanied by information on the song title and recording artist
• it does not publish a program schedule or specify the songs to be transmitted
• it does not automatically switch from one program channel to another, and
• it does not allow a user to request songs to be played particularly for that user.

An inter-active service is one which allows a listener to receive a specially created internet stream in which she dictates the songs to be played by selecting songs from the website menu. Such a service would take the website out from under the compulsory license and require negotiations with the copyright owners.

However, a service is non-interactive if it permits people to request songs which are then played to the public at large. Nonetheless, several rules apply such as, within any three-hour period, three cuts from a CD, but no more than two cuts consecutively can be played, or a site can play four songs from any singer from a boxed CD-set, but no more than three cuts consecutively.

The SoundExchange, a non-profit organization, is defined under the legislation to act on behalf of record companies (including the majors) to license performance and reproduction rights and negotiate royalties with the broadcasters. It is governed by a board of artist and label representatives. Services include track level accounting of performances to all members and collection and distribution of foreign royalties to all members.

In the absence of a voluntary agreement between the SoundExchange and the broadcasters, Copyright Arbitration Royalty Panel (CARP) was authorized to set the statutory rates as could prevail between a "willing buyer" and "willing sellers". SoundExchange handles only the collection of royalties from "compulsory licenses" for non-interactive streaming services that use satellite, cable or internet methods of distribution.

To recap, under the law three types of licenses are required for streaming of musical recordings:

(a) a performance license applicable for underlying words( lyrics) and music (score)

(b) a performance license applicable to the streaming the sound recording

(c) a storage license for the passage of a sound recording through a file server

The royalties for the first of the above two licenses are obtained from SoundExchange and the third from the PROs. Failure to make required payments constitutes copyright infringement and is subject to statutory damages.

Both broadcasters involved in webcasting and pure-Internet non-broadcasters are required to pay these royalties under the rules framed under the Act. All webcasters are also required to be registered with the United States Copyright Office.

SUMMARY OF STATUTORY ROYALTY RATES FOR DIGITAL WEBCASTING - UNITED STATES