By George Howard
(Follow George on Twitter)
[Editors Note: UPDATE – we published an updated article concerning neighboring rights in on August 23, 2017. This newest installment includes a current exploration of today’s neighboring rights, including which countries currently provide them and which don’t. It also explores recent United States’ legislation that has been discussed in an effort to extend “neighboring rights” to U.S. Citizens; as well as a discussion on the current financial impact these royalties have on the world-wide music business. It expands on the existing material while reinforcing the information it provides.]
We talk a lot about the importance of understanding copyright, and, in particular, understanding how revenue flows from the bundle of rights that a copyright holder is automatically granted upon fixing an original work in a tangible medium. That is, a copyright holder of a song (the ©), potentially has revenue flow to her whenever someone desires to reproduce or distribute her song—the rights of distribution and reproduction being two of the six exclusive rights automatically granted to a songwriter when she creates an original composition and fixes it in a tangible medium.
In fact, we show—over and over again—that it is the writer of the song, as opposed to the performer, who stands to receive the vast amount of revenue from the exploitation of a song. As above, when the song is reproduced and distributed (on a CD, download, etc.) it is the songwriter, and not the performer, who gets paid a mechanical royalty from the person doing the distribution and reproduction.
When a song is used in a movie, TV show, or advertisement, the songwriter, and not the performer, receives the revenue for the synchronization, reproduction, and distribution (yes, the performer, may see some money via the master recording usage, but only if the performer owns the master recording and/or is recouped with the label who owns the master recording). When a song is played on terrestrial radio, it is the songwriter, and not the performer, who receives a payment for the public performance of his/her song.
So…you may be asking: how do the performers make money?
Historically, the performers only made money from the record labels if they had recouped any advance that the labels paid them. This didn’t/doesn’t happen often, but assuming it did/does, the performer (the person signed to the label) typically receives a percentage of the suggested retail list price (srlp). So, for instance, if the performer (person signed to the label) had a 12 point (“point” is just shorthand for “percentage point”) royalty, and the download for the album was sold online (iTunes, etc.) for $10, this would mean that the performer is owed $1.20 per album download for the “performer”/”artist” royalty. Remember, this is different from the mechanical royalty that is paid to the writer of the song for the label’s right to reproduce and distribute the song. This mechanical royalty is set by law (statute) and currently stands at just under a dime ($.091) per reproduction.
Of course, performers also (and, often exclusively) make their money from things like live performances, merchandise, etc.
However, there is another way that MANY performers can possibly make money. It’s called “Neighboring Rights.” You can think of neighboring rights in the same way as public performance rights, with the difference that while public performance rights compensate the writer of the song when his/her music is publicly performed, neighboring rights compensate the master holder (typically, the label) and the performer when music is publicly performed. Sounds great, right?
In case you’re wondering where the term “neighboring rights” comes from, it’s because these rights are not actually conferred by existing copyright law, but “neighbor” those that are: a copyright is conferred in the public performance of a composition, and while one is not conferred for the sound recording, because it “neighbors” the copyright in the composition, most countries treat it as essentially having the same qualities as the copyright in composition).
Here’s the thing: neighboring rights payments aren’t paid in the USA.
That’s right, only countries who are signatories to the Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations of 1961 (frequently known as “The Rome Convention”) pay these rights, and only performers who are permanent residents of one of these countries (or if the musical recording was made in one of the countries who signed the Rome Convention) are eligible to receive these royalties.
You’re probably thinking: “Well, if the U.S. didn’t sign this, most other countries must not have either, right?” Here’s the list of countries that did sign (partial list):
Argentina, Australia, Austria, Barbados, Belgium, Bolivia, Brazil, Bulgaria, Burkina Faso, Canada, Chile, Colombia, Congo, Costa Rica, Czech Republic, Denmark, Dominican Republic, Ecuador, El Salvador, Fiji, Finland, France, Germany, Great Britain and N. Ireland, Greece, Greenland, Guatemala, Honduras, Hungary, Iceland, Italy, Jamaica, Japan,
Lesotho, Luxembourg, Mexico, Moldova, Monaco, Netherlands, Niger, Nigeria, Norway, Panama, Paraguay, Peru, Philippines, Republic of Ireland, Russia, Slovak Republic, Spain, Sweden, Switzerland, United Kingdom, Uruguay.
The fact that the U.S. is not a signatory, and therefore does not pay public performance to performers and sound recording owners when their music is publicly performed raises a host of issues and questions, and gets to the Chinatown-like underbelly of the music industry (imagine, if you will, myself as a proxy for musicians everywhere, having my nose sliced open for asking too many questions, Jake Giddes style, by a Roman Polanski type who stands in for the old guard record industry played by John Huston).
For example, you’re a U.S.-based performer who recorded your song in the U.S. This song gets publicly performed in, for instance, the UK (one of the signatories of the Rome Convention). You are owed Neighboring Rights money. You ain’t getting it. Why not? Because, think about the reverse, a UK-based performer records a song in the UK, and it gets played in the U.S. (you know, like, maybe the Beatles). The U.S. doesn’t pay Neighboring Rights moneys, and so, the countries that do, figure, “why should we pay your artists if you don’t pay our artists? You want reciprocity? Here’s your reciprocity [insert raspberry sound].”
While understandable from a quid pro quo perspective, it doesn’t answer the question of “Where’s the money?” Remember, this money has to be, and is, paid by the broadcasters via a blanket license fee in the same way the broadcasters in the U.S. pay a blanket license fee for public performance rights of the composition in the U.S., it’s just that it’s not distributed to the performers/labels. Therefore, it sits. It goes into Black Box money, which then gets distributed to the companies in the territories who are affiliated with one of these societies. In other words, they are getting your money.
As above, in most countries other than the U.S., there are societies much like the PROs (ASCAP, BMI, and SESAC) in the U.S. that issue licenses for these neighboring rights in the same manner (and, often hand-in-hand) as they do for public performance of the composition. These societies then distribute (after taking their overhead/cut) to their affiliate performers/labels. And, again, as above, they distribute the collected, but not distributed, money to these affiliated labels/performers as well.
Money—lots of it—is being left on the table, and then, eventually, distributed to parties who have no rights to this money!
The U.S.’s refusal to recognize neighboring rights has created a ripple effect that hurts artists where they can least afford to be hurt today: their wallets.
The good news is that while the U.S. doesn’t require payment of neighboring rights royalties for terrestrial public performance (i.e. songs played on non-digital radio), with the Digital Performance Rights in Sound Recordings Act of 1995, there is now a public performance royalty in sound recording for non-interactive digital transmissions that works the same way. That is, if you’re a performer/label, and your music is publicly performed via satellite radio, internet radio, or some other form of non-interactive stream (that is, the customer cannot pick a specific song, cannot rewind the song, cannot play the song repeatedly) like Pandora, both the owners of the master, the featured performer, and any non-featured performer are paid. The splits are, respectively, 50%, 45%, and 5%. The organization that collects and distributes these royalties on behalf of these parties is called SoundExchange.
If you are a label owner and/or performer, you must register with SoundExchange for them to be able to distribute the money they’ve collected on your behalf.
This helps, but, as should be abundantly clear from above, it doesn’t get us where we need to be. For now, the vast majority of public performances (in the U.S. and elsewhere) still occur via terrestrial broadcast. This leaves performers, producers, and labels out in the cold for a massive revenue stream. Like so many things in the traditional music industry, this can’t (and won’t) continue to stand. Chinatown it may be, but it’s getting harder to keep it all under the cover of darkness.
Click here to download all diagrams as a PDF.
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George Howard is the Executive Vice President of Wolfgang’s Vault. Wolfgang’s Vault is the parent company of Concert Vault, Paste Magazine, and Daytrotter. Mr. Howard is an Associate Professor of Management at Berklee College of Music