By John Seay, Atlanta Entertainment Lawyer: The Seay Firm LLC (@TheSeayFirmLLC)
Part 1 of this blog posts discusses the Artist Revenue Streams project and provides insight on monetizing activities in the music industry and its related fields. Part 2 of this blog post provides helpful definitions of common industry terms relating to revenue.
In my last blog post I discussed some of the findings of the Future of Music Coalition’s (FMC) Artist Revenue Streams project. In learning about the monetization of your band’s activities, you may see references to some fairly arcane concepts. The FMC provides one-to-two-sentence descriptions of those concepts, but in some cases, a little bit more information would be helpful. What follows, then, is my attempt to at least impart a cursory understanding of those concepts and how they may impact your incoming revenues so that you can better understand all of those fast talking industry types.
As an initial note, remember that whether you’re eligible to receive money from any of the revenue streams described below, and if so how much, depends on whether you own the copyright in the sound recording or the copyright in the musical composition or both, and whether you are a performer on the record. I’ve tried to make those distinctions below, but if you have any additional questions, feel free to contact me.
If you’re a songwriter, then whenever a recorded version of your song is sold in either physical or digital formats, you are entitled to mechanical royalties. Mechanical royalties are what a record company or other entity pays for the right to use your song on a release. Typically, that entity pays your publishing company for that right. Note that your publishing company may simply be you, or it may be some other company you’ve transferred your rights to, or hired to administer your publishing rights. Often, your publisher contracts with an entity known as the Harry Fox Agency to collect and distribute mechanical royalties. The statutory rate for mechanical royalties is currently 9.1 cents per manufactured copy of your song, but record labels—who are often the ones needing to pay mechanicals to their recording artists—will sometimes contract around that rate in the record deal. A common percentage is 75% of the statutory rate.
Public performance (PRO) royalties
If you’re a songwriter, then whenever your song is played on radio, TV, and in clubs and restaurants, you are entitled to public performance royalties. The entities that play your song in their establishments or on their stations (subject to some relatively narrow exceptions) must obtain a license to do so. Often, they obtain “blanket licenses,” which means they pay a flat, yearly fee for the right to play any song from a particular catalog. Those licenses are issued by a performance rights society, e.g., ASCAP, BMI, or SESAC. As a songwriter, you should be a member of one of those performance rights societies if you want to collect your money. If you don’t have an external publisher, then—in addition to registering with one of those performance rights societies as a songwriter—you should either register as a publisher or write in 200% for your writer’s share. That way, you get both the writer’s share and the publisher’s share (otherwise, the publisher’s share just sits in limbo). Note that ASCAP, BMI, and SESAC are sometimes confusingly referred to as “publishers.” They are not publishers. They are performance rights societies.
If you’re a songwriter, then whenever some entity wants to use your song in a movie, documentary, television show, video game, internet, or commercial, they must obtain a synch license. The license is called a “synch” license (short for “synchronization”) because your work is sequenced, or synched, alongside images to create an audio-visual work. The money you receive from a synch license is for the licensing of a musical composition. Money from such licenses are paid to you via your publisher or record label, or via a direct licensing deal if you are self-published (meaning you‘re your own publisher). If the entity wants to use a specific recorded version of your song, then they must also get permission from the owner of the rights in that sound recording in the form of a “master use” license.
Interactive service payments
If you’re a songwriter or performer, then whenever your song or song you performed on is streamed on an on-demand service like Rhapsody, Spotify, and Rdio, you are entitled to interactive service payments. This money is typically paid to your label, which then pays you. However, note that this source of revenue has been the subject of some controversy, as more often than not, very little money trickles down to the artist from these uses of the artist’s songs. Spotify in particular has come under fire for paying very little money per play of a given song. But that’s the subject of another blog post.
Digital performance royalties
If you’re a performer, then whenever sound recordings featuring songs on which you performed are streamed over internet radio, Sirius XM, and Pandora, you are entitled to digital performance royalties. The only entity authorized to track such uses and pay out royalties accordingly is SoundExchange. They may require your banking information in order to set up your account—don’t worry, it’s legitimate. If you’re not sure if registering with SoundExchange is worth it, then create a username and password to use SoundExchange’s “Plays” database, where you can type in your band’s name or a particular song title and search to see if SoundExchange has money for you.
Alliance of Artists and Record Companies (AARC) royalties
The AARC collects royalties for digital recordings of your songs, foreign private copying levies, and foreign record rental royalties. The money is collected and then distributed to performers by AARC. The AARC was formed to collect royalties generated from the sale of blank CDs (the foreign royalties were added to its purview later). When blank CDs arrived in the 90s, the industry saw them as vehicles for piracy. So, a law was passed that said for every blank CD sold, a percentage of that money had to be placed into a fund to compensate artists whose music was likely to be pirated. Hence, free money for you.
YouTube Partner Program
If your band has content up on YouTube, then you may have the option to monetize any traffic that is directed to those videos. Sure, you might not want annoying ads to pop up before your video plays, or while it is playing, but a little bit of money in your pocket might make the process a little easier to stomach. Join YouTube as a Partner and create and then link an AdSense account. How much you’ll make depends on the ads that are shown along with your video. Note that YouTube requires you to own the worldwide rights in the video—so don’t copy someone else’s content or use anything without permission, as this may cause YouTube to flag your video and cease payment to your AdSense account.
This is a hot topic in the industry right now, as bands are successfully raising large sums of money employing a concept known as “crowd-funding,” which refers to the act of people collectively pooling their resources to fund projects, usually via the internet. Some of the most popular crowd-funding sites are Kickstarter and Indiegogo. To raise money to record a new album or fund a tour, etc., create a project on one of the crowd-funding sites, make a video describing the project, come up with different tiers of non-monetary rewards to give to your fans based on their levels of contributions, and then set a funding deadline. If you don’t meet your funding goal by that deadline, then nobody’s credit cards are charged and you collect nothing. If you do achieve full funding status, then Kickstarter and Amazon (which processes the payments) both take a percentage of your contributions (something around 8% total) and you get to keep the rest.