Internet Law: Podcasting Music For Money, Pt. I

This is Part 1 of a two part article in which I discuss podcasting as a revenue source in the music industry. 

Part 1 focuses on the basics - how podcasting works and what the current obstacles are to podcasting becoming a main stream media outlet for the music industry.

In Part 2 I dive into some possible solutions in advertising and subscription models for podcasting, and I also identify other potential revenue streams for this fledgling media.

Introduction
Podcasting, one of the newest media on the block, has money-making potential in the music industry – that is if podcasters can find a sound economic model and survive licensing plagues. 

Imagine the following hypotheticals:

Hypo 1:

Ben is a college student who loves music.  Every weekend he goes to shows; he reads magazines and websites about up and coming bands; and generally he has his finger on the pulse of the local and national music scene. 

His friends recognize him as their source for great new music, and Ben is always excited to tell people about the next band ready to blow up.  To capitalize on this, Ben created a blog where he writes album and show reviews and news updates about the new bands he’s listening to. 

Hypo 2:

Andrew founded a small record label two years ago.  He has signed a few bands whose music he really believes in, and he works tirelessly to beat down doors of opportunity for these bands.  Andrew knows the internet gives him access to a vast audience of potential fans, so he created a website with tour schedules, bios and MP3s of his bands’ songs to get the word out. 

Hypo 3:

Kate is a struggling folk musician.  For the past few years, she has been writing her own music and honing her craft.  She knows that because of the music she plays, it is unlikely that she will be signed to a lucrative record deal or receive airtime on any major radio station. 

Kate knows that the best way for her to make a living off her music is to connect directly with her fans.  She has been touring diligently, and she also had her friend build a website so her fans can stay updated about her work.

Ben, Andrew and Kate have several things in common:

1.    They are all proponents of under-recognized, niche music – that is, music that is not already widely promoted by the major labels, radio stations, and magazines. 

2.    They all have strong opinions about the music they listen to or play and want to communicate these opinions or the music itself to people. 

3.    They also all use the internet as a tool to connect with a wider audience. 

There is also a fourth commonality – they all could benefit from podcasting.

Podcasting Overview

At its most basic, podcasting is simply the process of creating digital audio files, uploading those files onto a website, and making them available to online listeners. 

Listeners can then listen to these audio files on their home computer, laptop, or portable digital audio players. 

In addition to podcast creators and listeners, there is another participant – podcast aggregators.  Aggregators, such as iTunes, are programs that compile podcasts in one location on the user’s computer or on a website, and for listeners subscribed to several podcast sources, aggregators make organizing and listening to podcasts much more convenient.

A technology called RSS (Real Simple Syndication or Rich Site Summary, depending on who you ask) allows podcasts to be automatically delivered to internet users without the need of constantly checking each podcaster’s website for new podcasts. 

Used to notify web surfers about updates to their favorite websites, RSS is a text-based file format containing the website’s name, a summary of the update, and a hyperlink to the website’s update itself. All of this compiled information is called an RSS “feed.”

Sites with RSS feeds are said to be “syndicated,” and readers can “subscribe” to these feeds by simply clicking on a link on the website.  Once readers have subscribed, they will be notified automatically of updates to the site without actually having to check the site itself. 

The use of RSS feeds has since expanded from text, and now websites containing audio files (podcasts) syndicate themselves.  The audio file itself can be included in the RSS feed, and subscribers receive these feeds automatically on their computer.

Automatic downloading of the audio files onto the user’s computer has one obvious implication – the ability to “time-shift.”  A podcast subscriber can go to sleep Sunday night and wake up Monday morning with a fresh batch of podcasts downloaded to their computer for their listening pleasure whenever they want, regardless of when the podcasts themselves were recorded. 

Taken a step further, these podcasts can also be transferred to the listener’s portable digital audio player (an iPod or an MP3-player), and the listener can then take their podcasts with them wherever they go.  Thus, not only may podcasts be time-shifted but also space-shifted.

Additionally, using aggregators like iTunes the listener can organize a group of podcasts into play lists, essentially creating their own specialized radio programming. 

Who can podcast?

Anyone with the right equipment can create a podcast.  The basic equipment includes audio capture tools (microphone, audio software and a computer); a program to convert the raw audio into an MP3 file format; web space to host the file; and an RSS syndication. 

Because most people interested in podcasting already own a computer, the start-up costs to create a professional sounding podcast can be under $200.  On the other end, podcast listeners need a computer, an RSS reader program to automatically download the podcasts, perhaps an aggregator to organize the podcasts and a portable audio player.  At the moment, most podcasts are offered free of charge. 

How many people actually do this?

No one knows for sure how many people are currently creating and receiving podcasts, nor can anyone predict with accuracy how the podcasting industry will grow over the next decade. 

That said, here are a few statistics: 

As of 2005, the Pew Internet & American Life Project was estimating that 6 million adults were listening to podcasts in the U.S.  Diffusion Group estimates from the same year stated that the number of people listening to podcasts will shoot from 840,000 in 2004 to 56 million by 2010, representing a growth from 15% of those who own portable digital music players to 75%.  Forrester Research Group has more cautiously predicted that 12.3 million Americans will be in the podcast audience by 2010.

A new study by the Arbitron-Edison Media Research indicates that 13% of Americans say they have listened to podcasts – that’s aroud 37 million people!

Podcasting Problems in the Music Industry – Money Models and Licenses

Anyone who can benefit from transmitting or receiving audio files over the internet stands to benefit from podcasting.  But just as important as the great potential of podcasting is the looming question of how to make money in this new field.  Without a solid financial foundation, it is unlikely that podcasting will continue to grow, develop and potentially outpace other forms of media.

Problem 1:  Financial Models

The primary obstacle to podcasting becoming a source of revenue is the lack of a directly applicable, tried-and-true financial model.

While podcasting shares many similarities with other forms of media (radio in its programming, TiVo in its time-shifting, cable television and magazines when it is offered in a subscription model), podcasting is also unique – it is a downloadable, portable media appealing to niche market consumers.  No technology or media offers a complete analogy. Thus, economic modeling must take cues from several sources.   

Problem 2:  Licensing

In the context of podcasting music, this analogy problem is coupled with another problem – licensing. 

The audio content of podcasts can be as varied as there are types of sound.  When podcasts include other people’s music, copyrights are implicated. 

Here I need to refresh your memory about the copyrights involved in a song.  A song has 2 copyrights – 1 for the underlying lyrics & composition, and 1 for the recording of the lyrics & composition. We’ll call the first one the “musical composition” and the second one the “sound recording.” 

You should remember too that the two copyrights can be owned by different groups.  Composition copyrights are typically owned by songwriters and publishers, of which there may be several per song.  Recording copyrights are typically owned by artists and record labels, of which there are usually one or two per song.

Here’s the last thing you should know - the copyrights for compositions and recordings actually consist of a handful of rights.  Thus, "copyright" actually includes the right to:

1. reproduce
2. perform publicly
3. distribute
4. adapt (make “derivative works” of)

Now let’s apply this to podcasts.  Which of the above rights are involved in a podcast and who does a podcaster need to pay?

The reproduction rights of the musical composition and the sound recording are certainly implicated because podcasting music involves making downloaded copies of that music. 

The Harry Fox Agency typically handles licensing of a composition’s reproduction rights.  However, to date the HFA has not gotten involved in issuing podcast licenses.  This means a podcaster using other people's music would have to approach the individual publishers about getting permission, which can be time consuming since there can be several publishers owning rights in a single song.

On the sound recording side, artists or record labels typically handle licensing the recording’s reproduction rights.

The public performance rights of the musical composition and the sound recording are implicated only if the playing of podcasts by individuals is viewed as a "public" performance. 

If license fees were to be paid for a composition’s public performance rights, this would most likely be handled by the performance rights organizations such as ASCAP, BMI and SESAC in the United States.  However, this is a tricky area in copyright law right now. 

In April of 2007, the 2nd Circuit Federal Court in New York stated that for a musical composition, where a song is downloaded, the reproduction copyright is implicated but the public performance copyright is not implicated.  (United States v. ASCAP, 2007 U.S. Dist. LEXIS 31910 (S.D.N.Y. Apr. 25, 2007). 

This means there is now strong judicial support for an argument that performance rights organizations such as ASCAP, BMI and SESAC, which collect public performance royalties for musical composition owners, cannot collect a license fee for downloaded music. 

Taken a step further, this may also mean that podcasters using other people’s music will not have to pay public performance license fees to performance rights organizations.  However, the rules for podcasters regarding the payment of various license fees are still far from concrete, and until there is a ruling from on high - the safe bet is to pay up.

Also, it should be noted that the case mentioned above applies only to downloaded music (not streamed music) and to musical compositions (not sound recordings).  The performance rights for sound recordings have not been litigated (yet), and currently Sound Exchange handles that licensing.

The distribution rights of the composition and the recording are implicated because sending out podcasts containing other people’s music to users’ computers is in some ways the same as distributing the music. 

The industry standard is evolving to include this right in a license for the reproduction right to the music in a podcast.  Thus, on the musical composition side - as Harry Fox is not handling reproduction rights for podcasts (yet), the distribution right would most likely be included in a reproduction license from the individual publishers.

On the sound recording side, ;abels/artists would include distribution rights in their reproduction license for recordings.

The adaptation rights are not typically implicated, unless the podcaster is somehow altering the lyrics or the recording.  If this is the case, the podcaster would need to include this right as well in a license from potentially both the owner of the composition (songwriter/publisher) and the owner of the recording (artist/label).

So what does all this mean?  For every right implicated, permission needs to be granted.  Anyone wishing to podcast other people’s music may be required to pay licensing fees to the people or companies that own those rights.

Here’s how it plays out in today’s licensing market:

Musical Composition:

1. Reproduction & Distribution rights:   individual Songwriters / Publishers
2. Public Performance rights:  ASCAP/BMI/SESAC?  (US v. ASCAP, 2007)

Sound Recording:

1. Reproduction & Distribution rights:    Record Labels & Artists
2. Public Performance rights:        Sound Exchange

This is the end of Part 1.  To read more, check out the upcoming Part 2.

by Howie Cockrill, Esq.

Comments

[Jack]

Great article. The internet has definitely become this ages record store and radio