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Guest Blog: Chris Taylor – Fractions to Fortunes: Recording and Songwriting Income Streams in the Digital Era

Entertainment lawyer Chris Taylor (B.A., LL.B) breaks down how artists can stay on top of new forms of income streams in the digital world. The views and opinions expressed in this article are not meant to substitute for legal advice which should be sought in each particular instance. Recording artists who also write their own songs now have more ways to make money than ever. This doesn’t mean they will make more money than ever; but rather, they have more streams of revenue to track, register and collect on. In more cases, those streams are portions of pennies. Fractions that add up to dollars. While these fractions can accumulate into large sums the tracking, registering, and collecting of all of these income streams has become an overwhelming task. This article seeks to outline how and where to track, register and collect on these income streams in a concise manner. Income Streams Recording artists make money in 4 primary ways:
  1. Recording
  2. Songwriting
  3. Touring
  4. Name + Likeness
For the purpose of this article we will not be looking at #3 (Touring) or #4 (Name + Likeness) above. Touring, as the reader will know, is simple enough: play shows/get paid. “Name + Likeness” covers areas like sponsorships, endorsements and artist merchandise where the artist’s name or image drives income. 1. Recording When an artist records a song that master recording generates a variety of different potential income: a) Physical – The physical format has decreased as an overall portion of music sales in Canada and the rest of the globe.[i] Vinyl, cassette and compact discs (CDs) are considered “physical sales”. They can be sold in brick and mortar retail locations like HMV, off-stage at concerts, via online/mail order. The major distributors Warner, Sony and Universal serve retailers as well as independent distributors such as Outside, FAB, and Entertainment One. You can’t just “sign up” for distribution with one of these distributors – the distributors choose who they elect to distribute very carefully. Other services like CD Baby and Indie Pool provide a physical online fulfillment role as well as a digital component. These types of services allow you to “sign up” provided you pay their setup fees which vary depending on which service you elect to go with. b) Digital Download – All the distributors mentioned above offer a digital download component ensuring your recordings are available on various retailers such as iTunes or Google Play. iTunes has dominated this market – as of the fourth quarter of 2012, it had a 63% share of paid music downloads.[ii] Digital aggregators have moved into this area such a Believe, The Orchard, or INgrooves. These aggregators are somewhat selective as well so many artist start with the fee-based distributors mentioned above to get their recording up on these download sites. c) Streaming – The new kid in town. Services like Spotify, Rhapsody and Rdio are generally employing a two-tiered user strategy: free and paid. Services like Spotify earn money from advertising on their site and from subscriber fees. These monies create a pool of earnings and 70% is generally sent to distributors who then pay their labels who then pay their artists. The average per-stream payout for Spotify in February was $.00521, meaning artists would need about 134 streams to pay the equivalent of 1 iTunes download (calculated at 70 cents for a single iTunes download).[iii]  d) Synchronization – When someone wants to use your master recording in a commercial, video game, film, or television show they have to pay a synchronization fee to use your master recording. These fees can range from $0 to millions of dollars. These fees are negotiated for each individual use between the user and whoever owns the rights to issue such licenses. [Note: the user has to negotiate with the songwriter too – see below under “Songwriting”]. e) Neighbouring Rights – If you are a performer on a sound recording (for instance, a session musician who hasn’t necessarily contributed creatively to the composition) you are entitled to royalties from the broadcast and public performance of these sound recordings in accordance with various tariffs approved by Copyright Board of Canada. These performer rights are commonly referred to as “Neighboring Rights”. In Canada, performers need to register with one of Re:Sound’s (http://www.resound.ca) member organizations authorized to distribute these monies:
  1. MROC - http://musiciansrights.ca/;
  2. ACTRA - http://www.actra.ca/racs/ ; or
  3. ARTISTI - https://artisti.ca/.
MROC and ACTRA provide a similar service and are primarily aimed at English speaking performers whereas Artisti work with primarily French-speaking performers. Re: Sound has reciprocal agreements with foreign collection societies such as Phonographic Performance Ltd. (PPL) in the UK to collect your monies around the world. f) Digital Performance – The “neighboring right” discussed above does not apply to terrestrial radio in the United States as of today; however, a similar right for performers does apply for non-interactive digital radio such as Sirius XM Satellite Radio and webcasters (i.e. the thousands of radio stations that broadcast online). This money is administered by SoundExchange - http://www.soundexchange.com/ . SoundExchange have a reciprocal arrangement in place with Re:Sound in Canada. You can register with SoundExchange and collect from them directly or receive your payments through Re:Sound after SoundExchange has paid them.  g) Private Copying – Performers on master recordings are entitled to a share of the levy charged when you purchase blank audio media (i.e. cassettes, CD-R’s). Re:Sound and it’s member organisations administer this money for performers on recordings.
  1. Songwriting – Songwriting generates its own income separate and apart from recording. Songwriting or “Music Publishing” income sub-divides into several sub-categories:
a) Performing Rights – When a song is performed on the radio, the internet, on television, in a theatre, on satellite radio, live in concert, or as a ringtone, it earns, what is generally described as performing rights income which is administered by a single organization in Canada, the Society of Composer, Authors and Music Publishers of Canada (SOCAN - http://www.socan.ca/). Registering with them is relatively straightforward with minimal thresholds. SOCAN has reciprocal agreements with sister organisations around the world to collect similar rights around the globe. SOCAN also administers the songwriter portion of the private copying levy described above. b) Mechanical Rights – When a song is reproduced on CD, vinyl, cassette or online via an iTunes download or on a streaming service it triggers a payment for the songwriter. While some songwriters may negotiate direct licenses for this purpose, most songwriters’ rights in this area are administered by 2 organizations in Canada: the Canadian Musical Reproductions Rights Agency Ltd. (CMRRA - http://www.cmrra.ca/) or the Society for Reproduction Rights of Authors, Composers and Publishers in Canada (SODRAC) (http://www.sodrac.ca/) which largely services the Quebec market. NeitherCMRRA nor SODRAC collect mechanical rights outside of Canada. In the US, songwriters can register with The Harry Fox Agency (https://www.harryfox.com/) to provide a similar service. CMRRA administers the Broadcast Mechanical for songwriters. This is money paid by radio stations and satellite broadcasters to reproduce your songs. Finally, the private copy levy is also administered by CMRRA for its members in competition with SOCAN for that privilege. c) Synchronization - When someone wants to use your song in a commercial, video game, film, or television show they have to pay a synchronization fee to use it. This is a separate license apart from the master license discussed above. Normally, the fee for the song is similar to the fee set for the master and can range from $0 to millions of dollars. YouTube These days I often get questions about how an artist earns income from YouTube. Let me first designate YouTube, out of the medley of digital delivery platforms now available, as an interactive video streaming service. It’s “interactive” (or on demand) because the user prompts the content it wants to view, unlike webcasting or a playlist-streaming app like Songza. It’s “streaming” because the user isn’t downloading a copy of the video for later replay (though technically, an ephemeral copy is stored in the user’s hard drive – which opens up a whole other discussion). And it’s “video”… well because there’s video. It’s important to remember that YouTube is a free service, so revenue is generated from ads. Let’s look again at how the money trickles back to recording artists and songwriters, through: (1) record company produced videos, and (2) non-commercial user-generated content:
  1. Record company produced music video
 As digital delivery of content becomes more commonplace, deals with record companies have become more predictable. Today, a streaming service such as YouTube can expect to pay a record company 70% of its income for record company produced music videos. The artist will apply its royalty rate to the amount the record company is paid. In turn, the publisher/songwriter will be paid around 10% for use of the composition out of the record company’s share.[iv] Services from the likes of TuneCore and Symphonic help artists collect sound recording revenue generated from YouTube, including revenue from user-generated content.[v]
  1. Non commercial user-generated content
Have you recently come across a homemade video on YouTube where your song was playing in the background? If so, you can expect to get paid for that. In these cases, the record company will only receive payment for the use of the sound recording. If it’s a commercial sound recording, the publishers are paid 15% of net ad revenue through separate license agreements with YouTube. If the video depicts the live performance of your song, only the publisher (and writer) and not the record company will get paid since it’s the composition being used, and not the master recording.   So this new recording of the song will garner the publisher 50% of net ad revenues. If the user who created the video gets a cut of the ad money, it will be deducted from whatever is paid to the publisher. But this deduction will be limited such that a publisher cannot earn less than 35% of net ad revenues. For details, check out the NMPA/HFA/YouTube Licensing Offer at http://youtubelicenseoffer.com/docs/notice.pdf.[vi]  Collectors and Other Issues Lawyers can be thankful that the world of administration has increased in complexity over the years. As income streams splinter and the need for detailed analysis increases, lawyers provide a vital role keeping their music clients abreast of the varying intricacies involved in tracking all the pennies. Third party companies have proliferated to aid recording artists in the registering, tracking and collection of these various income streams. While it is possible for an artist to perform this on their own, many are using a variety of rights management companies to aid them in this task. Companies such as ole, Fintage, Premier Muzik, Sony/ATV, Kobalt and others provide a valuable service to recording artists seeking to ensure they are collecting every fraction of income generated; particularly, internationally where varying time zones, language barriers and regulatory restrictions might impede ones capacity to collect fully. All for a fee of course. __________________________________________________________________________________________ CMW Chris Taylor Chris Taylor is an entertainment lawyer with the law firm of Taylor Klein Oballa LLP and works with Drake, Nelly Furtado, Billy Talent and Sam Roberts among others. Assistance and research for this article was provided by Marco Figliomeni, an articling student at Costa Law Firm PC. He also researches and writes on entertainment and media law topics. www.tkolawyers.com __________________________________________________________________________________________ [i] From 2012 to 2013 in Canada, sales from physical formats decreased 15.1% from US$211.5m to $179.7m. Digital sales (comprised of downloads, mobile, subscriptions and ad-supported formats) increased 10.4% in that same time period to $216.3m. The total Canadian music market contracted 2.5% to $436.8m in 2013, with digital retail sales accounting for 48%. See Music Canada, Licensing Digital Music in Canada (April 2014), online: Music Canada http://musiccanada.com/wp-content/uploads/2014/06/Licensing-Digital-Music-in-Canada-Web.pdf; http://musiccanada.com/wp-content/uploads/2014/06/2013.pdf. In 2013, digital accounted for 39 per cent of the music industry's $15.1 billion in global revenue. Revenue from physical formats declined from 60 percent in 2011 to 51 percent in 2012. See Digital Music in Figures (March 2013), online: IFPI <http:// www.ifpi.org/facts-and-stats.php. [ii] Alex Pham, “iTunes Market Share Still Dominant After a Decade (Research)” (13 April 2013) online: Billboard http://www.billboard.com/biz/articles/news/1557486/itunes-market-share-still-dominant-after-a-decade-research. Apple opened the iTunes Store on April 28, 2003, see Andy Fixmer, “Apple’s 10-Year-Old iTunes Loses Ground to Streaming” (25 April 2013) online: Bloomberg Businessweek http://www.businessweek.com/articles/2013-04-25/apples-10-year-old-itunes-loses-ground-to-streaming. [iii] Digital Music News, February 21, 2014, What Your Favorite Streaming Service Is Actually Paying Artists…, Paul Resnifkoff, http://www.digitalmusicnews.com/permalink/2014/02/21/favoritepays. [iv] Donald Passman and Chip Sutherland, All You Need to Know About the Music Business (New York: Simon & Schuster, 2013) at 162 [Passman]; Helienne Lindvall, “How record labels are learning to make money from YouTube” (4 January 2013) online: the Guardian http://www.theguardian.com/media/2013/jan/04/record-labels-making-money-youtube. [v] Kevin Cornell, “Collecting your YouTube Sound Recording Revenue” (21 October 2014) online: Tunecore http://www.tunecore.com/blog/2014/10/tunecore-launches-new-youtube-money-service.html. [vi] See Passman supra note 4 at 162, 287.
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