Music Law: Foreign Publishing Royalties

Cheap Trick "Live at Budokan."  A classic live album that catapulted the Illinois band to the top of the U.S. charts in the late 70s and early 80s. 

And much of the enthusiasm for the album came from audiences abroad including a dedicated audience in Japan.  "Live at Budokan" clearly demonstrated that American heavy metal groups can have huge followings overseas before they ever make an impact in their homeland. And it is not just heavy metal groups; it is true with many different genres.

Jazz, for instance, has a tremendous following in Japan and Europe. Many of the legendary jazz artists from the American bebop and avant-garde movements found that in the 1960's, their only sustenance was the appreciation of French fans.

The bottom line: 

Foreign recording and publishing deals can be a valuable source of income for the developing artist. Product is distributed, reviews are written, tours build a fan-base, and a buzz is generated.

However, there are important differences in the manner in which foreign royalties are paid which are, unfortunately, rarely apparent to the artist who lacks experienced legal counsel.

It is important to remember here the difference between the 2 copyrights in any given piece of recorded music. 

There is the copyright in the lyrics  / underlying composition (publishing side), and there is a copyright in the recording of that composition (master side). 

The publishing side involves songwriters and publishers.  The master side involves musicians and labels.

In this article, we are dealing with the PUBLISHING. 

When a musician wants to record a "cover" of someone else's song (think Naked Eyes cover of Burt Baccharach's composition "Always Something There To Remind Me") - that musician needs to get the songwriter's (or their publisher's) permission via a license.

In the U.S., the Copyright Act has set up a "compulsory license," (meaning songwriters / publishers are required to issue it) which is available to anyone  who wants to record a cover of someone else's composition and distribute that cover in the U.S.  The Copyright Act establishes a set "statutory" rate in Section 115.

The current royalty rate as of January 1, 2007 is 9.1 cents per composition 5 minutes or shorter, or 1.75 cents per minute of playing time for compositions over 5 minutes, per record, tape or CD made and distributed.  This publishing royalty is often referred to as a "mechanical" royalty. 

Record companies usually (and successfully) attempt to limit the payment of mechanicals to the writer to 75% of the statutory rate.  In addition, there is often a cap on payment of mechanicals based on 10 compositions per album. (This is known as the "Controlled Composition Clause" in the record deal.)

However, the method by which mechanical license fees are paid outside the United States is entirely different. 

In the U.S., the mechanicals, as indicated above, are paid on a per song basis and are paid directly to the respective publishers by the record companies.

In most other countries the mechanicals are a set percentage of the retail price, which covers all songs on the record.  In addition, the mechanicals are usually paid into a fund maintained by a government agency.

Typically, a local publisher in each country must apply for payment of the royalties. Thus, if an artist/writer is signed to a German label, it must find a local publisher to collect the mechanical royalties which are payable to the songwriter in Germany.  (Note that this does not affect the payment of artist royalties which are still paid directly by the label to the artist.)

For this reason, an artist/songwriter who is entering into a foreign record deal should consider signing with the Harry Fox Agency (HFA) to collect its mechanical license fees.

Technically, HFA will not sign with the songwriter directly, but only with a publishing company (which can be a sole proprietorship owned solely by the songwriter). 

HFA has established relationships, both formal and informal, with mechanical licensing and collection societies operating in about 90 countries throughout the world.  Thus, if such a publisher is without representation in certain territories, collection and monitoring services may be arranged in those territories through HFA.

HFA charges a 6.75% commission from the publisher.  Each foreign society also deducts its administrative fees before remitting royalties back to HFA for distribution.

It is possible, of course, for a U.S. publisher to deal directly with some of the foreign rights societies. 

For example, an artist/songwriter with a German record deal could have his or her publishing entity sign directly with GEMA, which collects in Germany, Austria, Bulgaria, Romania, Hungary, the Czech Rebuplic, Poland, South Korea, Taiwan, Yugoslavia, Turkey, and the Philippines.

By doing so, the songwriter is saving the 6.75% fee charged by HFA.  On the other hand, it is often more convenient to delegate some of the administrative functions to HFA so that the artist/songwriter can focus on writing, touring and recording.

It is important to remember that neither HFA nor the foreign societies act as publishers.  Thus, there is no advance for foreign rights, no exploitation of the copyrights, and local foreign language recordings are not solicited.

For this reason, it is sometimes advantageous to enter into a foreign "sub-publishing" agreement.  This grants a foreign publisher the right to administer a copyright (or an entire catalog) in their country and to collect the royalties earned in that territory.

Foreign sub-publishers often try to get "cover" songs recorded by artists in their native language. 

Bear in mind that the foreign lyricist translating will likely participate in the writer's share of all royalties.  For this reason, it is important to carefully review any royalty statements to ascertain that royalties are correctly allocated between the original version and the translation.

In practice, a claim for mechanical royalties will be filed with the foreign rights organization based on each publisher's share of a particular composition.  Some organizations, such as JASRAC in Japan, are notoriously slow in responding to claims for royalties, even when HFA is involved.

If no claim is made within a certain amount of time (which may vary in each country, but is usually 2 to 3 years) the funds are disbursed to local publishers based on the ratio that its earnings bear to the total earnings of the society. (In regard to performance monies, BMI and ASCAP similarly have arrangements with affiliate organizations in various territories.)

by Anthony Berman, Esq.

edited by Howie Cockrill, Esq. and Keith Oliver

Comments

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