Music Biz: Income Streams in the Recording Industry

For the working musician, having just a rudimentary knowledge of copyright law can be as valuable to your career as knowing your barre chords.

Also, and on a more practical level, knowing what you have and what you don't have can greatly facilitate your music business dealings, whether with a producer, a label, a music publisher, or your bandmates.

Rule #1

You can, of course, make a career in music by being a session musician, a music educator, a timpanist in a symphony, or a lounge performer.

Today, however, the most rewarded monetarily are those that write, record, produce and perform popular music - rock, rap, country, alternative, world, and so on and on.

A popular songwriter will get her music recorded by famous musicians; they'll get their songs played on the radio; they'll get to perform in front of sold out audiences; they'll sell t-shirts, hoodies and posters bearing their band's logo; and maybe they'll even get to do a cameo appearance on their favorite TV show. It all begins, however, with getting your music heard.

Which brings us to Rule #1 in the "traditional" music industry:

to generate any money, the music has to get on a record. Which means, one way or another, all sources of income stem from The Recording Contract.

The corollary to this is: If you are in any way involved in the recording process and you want to share in this income, you better protect your interest with a solid contract.

(Note - I'm sure you're sick of hearing how the internet has turned the music industry on its head, but it's true.  Artists can now make decent livings without getting in bed with the industry.)

Copyright Protection

Copyright law was designed to protect the authors of original material by giving them the complete control over what happens to the material they worked so hard to create.

If you want to read how the United States protects these rights, you should look at the Copyright Act of 1976, codified at Title 17 of the United States Code, beginning at Section 101 [this is abbreviated as 17 USC Section 101 et. seq.].

Under our federal copyright law, something becomes protected when it is "fixed in a tangible means of expression."

So, the first thing to look at is:  What, exactly, are the original materials that are fixed in a tangible means of expression in your favorite album?        

The first, obviously, is the performance of the musicians and singers which is fixed in a master recording.

[In this article, I will refer to the recorded performance itself as a "master recording," and the CDs, downloads, etc. which contain copies of the master recordings as "records"].

Somewhat surprisingly, sound recordings did not qualify for federal copyright protection until 1972; however, they are fully protected now [17 USC Section 102(a)(7)].

The other copyrighted component many people tend to overlook is the song itself, that is, the musical composition (i.e., the music and lyrics) which is embodied into the performance that the artist then records.        

Achieving federal copyright protection gives you the right to control your composition, and the right to control your master recording, in various ways, the most important for us being the right to control reproduction [17 USC Section 106(1)], the right to control public performance [17 USC Section 106(4),106(6)] and the right to control distribution [17 USC Section 106(3)].

Now, the music industry is confusing to a great many people (including us lawyers) because they chop up all these rights and sell them off to different entities. Here's a brief look at how:

Musical Compositions

First of all, you have to determine who wrote the compositions (songs) you wish to exploit.

This is not so hard, obviously, if you're one person, alone in your room writing a song. This is a bit more difficult, however, when the song is a result of a collaborative effort, or if one person writes the music and the other the lyrics (as is most often the case in hip-hop).

I've witnessed the break-up of bands over instances where the members could not agree on how to share writing credits (if indeed they should be shared - remember, the band certainly shares in the copyright of the master recordings, but unless they actually make a contribution to composing the music or lyrics, it is arguable that only the songwriter should receive the copyright in the song).

Thus, the first step is to have a solid understanding amongst the bandmembers how the copyright in the compositions is to be shared, and this understanding should be reduced to a writing. And it should most certainly be done before any exploitation of the composition takes place - in other words, figure out your songwriting interests before you enter into a publishing or recording contract.

Now, the songwriter, if he wants to exploit his copyright in his compositions at all effectively, will often enter into a contract with a music publisher, often called a "Standard Songwriters Agreement,"         although there's nothing standard about them.

The music publisher's primary job is to get someone to record the compositions.

Thus, if you are a singer-songwriter and have just been offered a huge recording contract, signing a deal with a music publisher may not be all that beneficial to you as people will soon be coming to you for your songs - unless of course you want some money up front, or if you are "forced" to also sign a publishing contract in tangent with the recording contract, two very real considerations.

The publisher's other jobs are to issue licenses, collect money, and keep up the business end of songwriting; however, I suggest that you can often hire a publisher to do only these tasks for you via what is termed, naturally, a "Publishing Administration Deal" which can be a lot less expensive to you than entering into a Standard Songwriters Agreement.

In the Standard Songwriters Agreement, the songwriter will assign his copyright to the publisher, who in exchange for this will chop it up into 2 pieces, called the "publisher's share" and the "songwriter's share," naturally.

Unless you bargain differently, the publisher will generally take 100% of the publisher's share (i.e., 50% of the net monies from exploitation of the copyright; I say net monies because, in some agreements in certain circumstances, the publishing company will be able to take a percentage off the top, and thus the songwriter will get less than 50% of the gross monies the publisher receives).

Along with your assignment of copyright, the publisher will receive the right to control your song (often with some approval mechanism for you, but not much unless you've got some bargaining power).

Thus, the publisher can control who can reproduce the song; which means it can control who may record the song and manufacture copies of records embodying it, and who may create sheet music and print up copies.

The reproduction right also means the publisher controls who may put the song in a movie (e.g., an actor reciting the lyrics, or using a close-up of the sheet music, or, most likely, using a master recording of the song in the soundtrack).

Also, reproduction rights include the right to copy the song or parts of it into another song (which is what you are doing to the underlying composition when you use a "sample" of another master recording in your master).

The publisher also will control who can perform the song, live or as recorded, in a nightclub, or on the  radio or on TV. Note that, the right to reproduce the song into a TV program is different than the right to perform it on the TV as contained in the program.

In other words, this means you (or, rather your publisher) gets paid twice for this! (The first payment is by, for instance, the producer of the TV program for the reproduction, and the second by the TV station for the performance).

Also, the publisher controls the distribution of the song. An example of this is sending copies of a record embodying your song to the retail stores.

Technically, this is separate from the right to reproduce the song in a record; however, in the contract the publisher signs with the record company, both the right to reproduce the song (i.e., record it) and the right to distribute copies will be granted for one fee - this agreement is called a "Mechanical License."

Master Recordings

But for entering into a recording contract, there would not likely be any publishing income, merchandising income, touring income - and just forget about that walk-on part on "Grays Anatomy."

Unfortunately, the record companies realize this, and will use it to their advantage. Invariably, a performing artist will have to assign the copyright in the master recording over to the record company in exchange for a royalty on record sales (if any; in many contracts, there is no guarantee that the record company even has to release a record containing your master recordings).

After that, the artist will also have to pay for the cost of recording the masters. True, the record company will front the money and will often pay an advance to you against your future royalties, but these have to be paid back before the artist ever sees a penny in royalties.

The other important aspect of the bargaining position being pretty one-sided is that these contracts will often extend years into the future; i.e., the terms you sign today will be with you for a long, long time.

Thus, the record company will control your master recordings (again, with some approval mechanisms for you, but not many).

The record company controls who can reproduce the master recording, which means it controls what film production companies can use the master recording in their movies, and what other record companies may use the master recording in their records (either by licensing the right to use the entire master,         or just part of it as in the case of "sampling"), and who can manufacture copies of these records.

They also control the right to distribute the records containing copies of the master recordings.  Curiously, in the United States there has been no corresponding performance right for master recordings; that is, a record company cannot exact a fee from, say, a regular "terrestrial" radio station for broadcasting its records over the airwaves. [See 17 USC Section 114; but see 17 USC Section 114(e), as amended.

It should be noted that as of the spring of 2007 (and over the past decade), the law is changing drastically, as record companies now have a right to control the public performances of their recordings by means of "digital audio transmission," as would be, for example, playing music over the Internet

Digital income stream for master recordings is becoming more and more crucial, and this will be discussed in a separate article.  For now, let it be said that recording contracts should definitely address this issue.

Getting Licenses

Okay, now say you want to travel from state to state in your van, selling CDs at swap meets. The CDs are compilations of your favorite tracks from your personal record collection, and you've already manufactured 5,000 copies.

To attract customers, you want to broadcast the CDs out of the van's hefty speakers. Being an honest         businessman, how many entities do you have to contact to obtain all the rights necessary to do what you want?

Copyright is all about control, which means, the copyright owner can always say "no" (except in specific instances, the most important of which in the music industry being the case of a mechanical license for re-recordings of songs previously released on records and for re-issues of previously released master recordings embodying such songs, which is called, naturally enough, a "compulsory mechanical license" - read about them at 17 USC Section 115].

Also, there can be varying degrees of "yes."  For instance, a record company could say you may release their master recording in your record, but only for a certain time, or only in a certain country, or only if you pay them a royalty that is as high as you are paying everyone else, or any other number of conditions.

So, first you would have to identify and contact each record company which controls a master recording contained in your CD and obtain from them the rights to reproduce and distribute their master.

If any one of them says "no," there's nothing you can do (except maybe offer more money).

Then, you would have to identify and contact each music publisher which controls the copyright to each of the songs you are using to obtain mechanical licenses for each of the compositions.

For many publishers, but certainly not all, a central clearing house called the Harry Fox Agency works on behalf of its member publishers and makes this task easier.

FRIEND OF THE DEVIL

Depending upon your expertise, a knowledgeable representative becomes necessary at some point in your music career.  Yes, as I've said before, attorneys are your friends.

The key is in finding one who is knowledgeable about copyright law in general, and the music industry specifically, and internet music even more specifically.

A knowledgeable music attorney will be able to identify the rights you need to obtain for your project, will help you negotiate and draft an agreement protecting your rights and will be able to give you guidance as to what terms you can expect (read that: how much money you are likely to generate and how soon you will see any of it).

But don't leave it all up to your attorney. A little self-education will go a long, long way in helping you make a career in the music industry.

by Jonathan Earp, Esq.
edited by Howie Cockrill, Esq.

Comments

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