What are neighboring rights royalties? Learn about neighboring rights and how to collect royalties generated internationally from your music.

WHAT ARE NEIGHBORING RIGHTS?

Neighboring rights royalties are one of the fastest growing revenue streams in music. Neighboring rights refer to the legal right to perform or broadcast recorded music in public.

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Musicians and sound recording owners receive these royalties when their recording is performed or broadcasted on radio, streaming services, new media, TV, in a public place such as a club or restaurant. The rights do not generate royalties for selling music.

WHO CAN CLAIM NEIGHBORING RIGHTS ROYALTIES?

Royalties generated from neighboring rights go to the owner of the master recording and the performing artists. The master recording rights owner is typically a record label. And, the performing artists include anyone who made an audible contribution to the recording. For example, singers, instrumentalists, and music producers.

Ownership of the master recording is also typically split 50/50 between the master owner and the performers. However, the performers share gets divided between the featured performer and non-featured performer.

Independent musicians can also collect royalties if they are the master rights owner. There are neighboring rights companies such as Collins Connect that provide royalty administration services.

WHO COLLECTS NEIGHBORING RIGHTS ROYALTIES?

Neighboring rights collection societies collect neighboring rights royalties. However, neighboring rights laws differ around the world.

Collect royalties due by registering your master recording with collection societies. Register with your local collection society and the territories where the recording is getting performed or broadcasted in public. It’s also important to register your artist name and music, so collection societies know who to pay.

Currently, the United States does not recognize neighboring rights. For example, U.S. terrestrial radio does not pay royalties on behalf of the master recording. Only recordings created outside of the U.S. are eligible to collect royalties for terrestrial radio. However, services like SoundExchange collect digital performance royalties from platforms like Pandora, Sirius XM, TV music channels, and other streaming services.

AM I EARNING NEIGHBORING RIGHTS ROYALTIES?

The master recording owner and performing artists earn royalties whenever that recording is publicly performed or broadcasted on the media sources below:

  • Pandora (or any internet radio platform)
  • Sirius XM (or any satellite radio platform)
  • Terrestrial radio outside of the USA
  • Cable TV music channels
  • Live in clubs (or any performance venues)
  • Businesses and retailers as background music (restaurants, shops, hotels, etc.)
  • Various new online media as digital music technology changes and develops

Royalties collected in many countries may not reach you. The reason being, neighboring rights laws are different throughout the world. In addition, the processes and distribution are complex, making it difficult to collect them.

If you’re a performing artist on a recording, talk to the record label that released the music getting radio airplay. Ensure the label is collecting these royalties for you! Or, research a trusted neighboring rights administration company.

NEIGHBORING RIGHTS VS. PERFORMANCE RIGHTS

Neighboring rights are similar to performance rights in music publishing. The reason being, both generate royalties through public performances and broadcasts of music. However, there are differences.

Neighboring rights generate royalties from the master sound recording. The master owner and performing artists own the rights to the master recording. Also, collection societies collect these royalties.

Performance rights generate royalties from the musical composition. Publishers and composers/songwriters own the rights to the composition. Also, Performing Rights Organizations (PROs) collect these royalties.

CONCLUSION

Collecting neighboring rights royalties can be difficult. However, they provide valuable income for musicians and record labels. Do some research and don’t dismiss this worthwhile revenue stream.

The United States House Judiciary Committee voted unanimously today (32-0) to approve the Music Modernization Act. The act combines key provisions of what were four separate legislative initiatives into a single bill that will update how music rates are set and how songwriters and artists are paid. The bill now awaits consideration by the full House of Representatives.

A key provision of the bill (HR 5477) is for Congress to establish the equivalent of a SoundExchange for songwriters to track credits and distribute royalties when digital services use their work. The switch to a market-based rate standard for artists and writers, closing the pre-1972 loophole that denied digital compensation to legacy artists and the addition of copyright royalties for producers and engineers are other changes widely hailed as improvements by a wide range of industry organizations, from the Recording Academy and the RIAA to ASCAP, BMI, the American Association of Independent Music and the American Federation of Musicians.

The legislation appears to be on a fast track, with the Senate expected to introduce its version next month, paving the way for President Trump’s signature. Although the bill has bi-partisan support, the legislation’s provisions – which have advanced piecemeal in various bills over the past four years – have a free-market thrust popular with Republicans over the years, which means it is unlikely to meet with executive branch opposition.

Aerosmith cofounder Steven Tyler said:  “I am ecstatic and relieved that the House Judiciary passed the Music Modernization Act out of committee today and onto the House floor, then onto the Senate. I am a proud member of Songwriters of North America and we are changing these outdated laws that unfairly hold down songwriters and other music creators from being paid fairly. [Attorney] Dina LaPolt, who brought this issue to my attention years ago, has been my partner in copyright reform and together, we have spent years advocating and fighting for this. Justice will finally be served!”

Supremes cofounder Mary Wilson said: “We are one step closer to a new day when artists like me who recorded music before 1972 are paid for those digital radio streams under federal law. It’s critical we get this bill over the finish line – the greatest generation of music deserves to be paid for our work, regardless of when it was made! I urge all Members of Congress to support this important legislation.”

RIAA CEO Cary Sherman said: “As this historic legislation begins to advance through Congress, we move one step closer to the finish line.  A unanimous vote should send unmistakable signal to lawmakers in both chambers:  this package of reforms enjoys deep, bipartisan support.  And for good reason –  this bill is result of thoughtful, extensive examination of the patchwork of antiquated music licensing laws that poorly serve creators.  This includes the unintended and unfair quirk in the law that denies legacy artists the federal right to be compensated by digital radio services.  We are grateful for the stewardship of Chairman Goodlatte and Ranking Member Nadler, as well as Representatives Issa, Johnson, Collins, Jeffries, Smith, and Deutch, who all have been tireless advocates for this important legislation. We now look to the House floor, and urge all Members of Congress to advance this bill to help make these critical reforms a reality.”

National Music Publishers Association president/CEO David Israelite said: “The House Judiciary Committee’s approval of the Music Modernization Act (MMA) is a critical step towards finally fixing the system to pay songwriters what they deserve. We greatly appreciate the committee’s attention to helping music creators, specifically Chairman Goodlatte, Ranking Member Nadler, Congressman Hakeem Jeffries, and a special thanks to Congressman Doug Collins for being the driving force behind the MMA. There is unprecedented consensus and momentum behind this bill, and we look forward to seeing it soon pass the full House.”

ASCAP CEO Elizabeth Matthews said: “Today’s reintroduction of the Music Modernization Act signals we are one step closer to reforming our outdated music licensing system and providing songwriters a better future. We thank Chairman Goodlatte, Ranking Member Nadler and Reps. Collins and Jeffries for their leadership and keeping America’s songwriters a priority.”

Recording Academy Chief Industry, Government & Membership Relations Officer Daryl Friedman said: “After years of effort to modernize, the time has come. This bill has strong bipartisan support and we expect there will be Senate movement in May.  As technology changes there will continue to be incremental legislation and tweaks, but this is broad enough, and substantial enough where we think this is our generation’s major change for music. No matter what happens in technology, the MMA will be able to address payments to creators much more effectively than the present system. It’s a very consequential bill and we are thrilled it has hit one week before Grammys on the Hill. Our advocates are ready to hit the House and Senate and lobby on this to make sure we have final passage.”

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WHAT IS A LIMITED LIABILITY COMPANY?

A Limited Liability Company (“LLC”) is the most simple kind of business entity. Your label may want to consider registering as a formal business entity (or “incorporating”) in the state where you live to use certain tax advantages and to avoid personal liabilities, should your label ever be sued.

WHY SET UP AN LLC?

1) Protection

One of the primary benefits of forming an LLC is that label owners’ personal assets (home, car, etc.) would not be placed at risk in the event that your label or member of label  finds itself in some kind of legal trouble. In most cases, if an LLC gets sued and loses, the financial responsibility does not lie on your life outside of the label. Having corporate protection prevents you having having to take individual responsibility—which could potentially affect other people in your life who are not your label mates.

LLC-Advantages

2) Structure

Most states consider a group of people who get together for a shared business purpose a “partnership.” As a partnership, the group can be held individually or collectively responsible for any legal liabilities incurred by the partnership as a whole. If your group is not incorporated, the default rule in most states is that a group of people that gets together for a common business purpose is a partnership. Also, most states have sections of their state legal codes that automatically apply to partners in a partnership. Relying on these default rules can be dangerous and may have unanticipated consequences. Establishing an LLC allows the group to customize their rights and responsibilities as the LLC would have an “Operating Agreement” that can differ from the state law default rules that would otherwise apply to the label as an unincorporated partnership.

Most labels do not consider the value of having a band agreement, covering all artists’ activities and members, present and future. For many groups, this is not a problem until a label member leaves the label, or if the label starts generating significant amounts of money and conflicts arise due to misunderstandings or unclear label policies. Many problems can be avoided by drafting an agreement, or, as described below, creating an Label Operating Agreement that covers all label members’ rights, responsibilities and expectations. LLCs have members; there can also be “managing members” who run the LLC business, or the LLC can be member-managed, with all members can be actively involved in the day-to-day management and operations of the LLC.

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3) Convenience

Another good reason to establish an LLC is that groups can run all of their music business revenue through the LLC, taking relevant deductions of expenses and, in certain circumstances, availing themselves of tax benefits, such as limiting or avoiding self-employment taxes on income. One LLC can be a publishing company or record company, and can process revenue from all sources including music publishing, sales of sound recordings, public performance revenue from SoundExchange, public performance revenue via ASCAP, BMI or SESAC, merchandise sales, touring and live performance income, endorsement payments, asset licensing income, etc. Consolidating all of these income streams and carefully tracking group income and expenses can help avoid conflicts and misunderstandings. At the end of the LLC’s tax year, each member is furnished with an IRS Form K-1, detailing the overall income or loss that each individual group member would declare on their personal tax filings.

4) Tax assistance

LLC’s, as with all formal business entities, will have what is called an Employer Identification Number (“EIN”) which functions like a social security number for the LLC. Instead of, say, live performance checks payable to one label member, the check would be payable to the label LLC and the LLC’s EIN would be used on W-9 Forms for income reporting to the label LLC. This way labels can avoid the problem of payments being made to one person, whom, in the eyes of the IRS, would be on the hook for reporting all of that income and personally paying any taxes due on that amount.

Before becoming an LLC, you should discuss your intentions with a tax-preparer, accountant and/or qualified attorney to see if an LLC is right for you, and see if there are some tax considerations that would inform your decision-making about setting up an LLC and/or electing a special tax status for the LLC, such as seeking to have your LLC taxed like an IRS Subchapter S Corporation.

HOW TO SET UP AN LLC

LLCs are registered through the Corporation Division in every state. This process can usually be done online and will involve a filing fee. Filing fees, tax laws and other restrictions may apply, so do obtain all necessary information about this process from an authority in whatever state in which you wish to file. Generally, your group must have a physical mailing address in that state: PO Boxes may not be sufficient for this purposes.

The LLC must also designate a “registered agent” for the purpose of receiving notices from the state and/or formal legal notices from third parties. Note: even if your group is registered in your home state, if you perform services or sell products in other states, notably, California, you may be required to register as a “foreign LLC,” and pay taxes, in their states.

OPERATING AGREEMENTS; POINTS TO CONSIDER.

An LLC Operating Agreement is essentially a formal, written “partnership” agreement between all LLC members. The Operating Agreement will list of all LLC Members and their LLC ownership interests and will cover all of the life events in the life of an LLC: The initial organization of the entity; the names and addresses of all members and the ownership shares and responsibilities of each Member; rules for voting on major issues, such as when a new member joins, or a member leaves; and rules regarding the dissolution or wrapping-up of the LLC and its business operations. Other issues and questions to consider include the following:

● What will each label member’s share of the LLC ownership be? One or more label member may have larger shares of ownership than others. This may be reflected in both the ownership voting rights and in the distribution of net income.

● What is the group’s songwriting policy as far as who will own musical composition copyright and publishing rights to songs that the artist writes, records and performs?

● Who will own and control band intellectual property assets, including copyrights (sound recordings, musical compositions, album and merchandise artwork, etc.), trademarks, service marks, logos, etc.? There should be attached to the Operating Agreement a list of all artist’ sound recordings and song compositions: Who owns them, and in what percentages?

● How will LLC assets be distributed if the LLC is dissolved?

● What are the ownership and voting rights? How and when will LLC member meetings occur and how will decisions get made, in terms of label member voting rights? Will the majority rule or must some, or all, decisions be unanimous?

● What if the label buys a van or other gear? Who will effectively “own” equipment purchases?

● Will there be mandatory contributions to a common label fund for future touring or recording expenses?

● Who will be Managing Members, if applicable. Who will be signers on the LLC Bank account?

● What are the expectations and rules, if any, as to label member conduct, professionalism, etc.

● What rights will departing or replacement label members have? Will they have any ownership or control over collective LLC band assets such as sound recordings (and related income), musical compositions (and related income), merchandise, label intellectual property assets such as copyrights, trademarks, artwork, logos and the like?

In sum, LLCs provide many benefits to labels seeking to avoid personal liability, organize their finances, and operate in a more professional manner. A well-crafted LLC Operating Agreement can act as a partnership agreement, clearly outlining each label member’s rights and responsibilities.

FOR MORE INFORMATION OR FOR HELP SETTING UP YOUR LLC PLEASE CALL OR EMIAIL CANDACE COLLINS 214) 686-8079/collinsconnect@gmail.com

BMI today announced the highest revenues in its 76-year history, achieving $1.060 billion for its fiscal year ended June 30. The Company also distributed and administered a record-breaking $931 million to its songwriters, composers and publishers, a 6% increase over last year. These results represent the most public performance revenue and royalty distributions by any music rights organization in the world.

BMI operates on a non-profit-making basis and returns approximately 88% of all revenue to the musical creators and copyright owners it represents.

“We are beyond pleased with this milestone,” said Mike O’Neill, President and CEO, BMI. “The ability to provide our songwriters, composers and publishers with our largest royalty distributions to date proves that the current marketplace is working efficiently, a fact the DOJ has undermined with its recent interpretation of our consent decree. We’re eager to build on this success and continue to ensure that all of our music creators are fairly paid for their work and that licensees maintain full access to BMI’s repertoire of nearly 12 million songs. As of now, the DOJ’s interpretation will disrupt these efforts, stifle creative freedom for songwriters, limit choices for music users and bog down the marketplace. We are determined not to let that happen.”

BMI’s total domestic revenue performance of $784 million was bolstered by record-breaking results in its digital and general licensing categories. Digital revenue, which exceeded $100 million for the first time last year, hit a new high of $152 million, up 50%. Numerous new agreements were signed throughout the year, notably a multi-year license with Pandora, as well as deals with Spotify, Apple Music, Microsoft, Sony’s PlayStation Video and Slacker, among others.

General Licensing, which includes fees from businesses like restaurants, bars, hotels and fitness facilities, along with other income, hit a new milestone of $140 million. The category added 15,000 new businesses to the hundreds of thousands already in BMI’s diverse portfolio.

Revenue from all media licensing, including radio, television and cable and satellite entertainment, grew to $492 million, with cable and satellite entertainment accounting for the largest portion of BMI’s domestic revenue for the third consecutive year. International revenues came in at a strong $276 million, despite significant economic challenges overseas resulting in lower foreign exchange rates. While down 5% year to year in U.S. dollars, BMI’s international revenues would have exceeded last year’s performance by $14 million had it not been for the strengthening dollar.

BMI processed more than one trillion audio performances this year, over 950 billion of which were digital, a 45% increase from last year.