Music Publishing is the business of exploiting your music through licensing your songs and collecting the royalties. The copyright owner may license others to use any or all of these exclusive rights for a fee. The income generated from granting a license is publishing income, and there are four main types:

  • Performance Income
    Every time your music is played in public, you are owed a fee for the performance of your music. It is impossible for anyone to track every time a song is played in a club or on the radio, so publishers sign up with, or “affiliate with,” one of the performance rights societies: BMI (Broadcast Music Incorporated), ASCAP (American Society of Composers, Authors and Publishers) and SESAC. These groups issue performance licenses to radio and television stations, nightclubs, restaurants, and so forth, so that these businesses can play a variety of music. The societies then track and collect the revenues and pay the copyright owners.
  • Mechanical Royalties
    When you issue a license to a record company to manufacture and distribute copies of your songs on vinyl and CDs, the record company will owe you a fixed price per song on each copy sold. This fixed fee is the “mechanical royalty rate,” and it can be either negotiated and set in your recording contract, or based on the current statutory rate as fixed by the Copyright Act. The mechanical royalty rate is set by the Compulsory License Provision found in Section 115 of the U.S. Copyright Act; the current statutory mechanical rate is 9.10 Cents for songs 5 minutes or less, or 1.75 Cents per minute or fraction thereof per unit sold – whichever is greater. The Harry Fox Agency, a subsidiary of The National Music Publishers’ Association, is available to grant mechanical licenses for its almost 28,000 publisher clients. For more information, contact:

    Harry Fox Agency
    711 Third Avenue, Eight Floor, New York, NY 10017
    (212) 834-0100; fax (212) 953-2384
  • Synchronization Income
    A “synch” license is what you grant to film or television productions to allow them to use your song as an accompaniment to film and TV pictures. There is no standard industry fee for synch licenses. The fees are negotiated and depend on the importance of the particular song and how it is used in the production. In a situation where a popular song is used as the basis of a scene, such as the “Old Time Rock and Roll” scene in “Risky Business,” the fee can be in the hundreds of thousands of dollars. For local television commercials and low-budget films, the fees are whatever you can negotiate.
  • Print Income
    These royalties are generated by any publication of your songs in written sheet music or a “folio”, which is a book of songs. This category is not a big earner for many artists, but “Greatest Hits” print anthologies published for artists like Joni Mitchell and Led Zeppelin are examples of popular printed music. For each book or sheet sold, the copyright owner of those songs receives a percentage of the retail price.

What do music publishers do?

A publisher is responsible for “administering the rights” associated with your copyrights, which involves getting your songs played, issuing the appropriate licenses and collecting the money. In the standard arrangement, a songwriter will sign over her copyrights to the publishing company for administration, and in turn the publishing company agrees to pay 50% of all revenues collected to the writer.

The publisher collects mechanical, synchronization, print and foreign release income for the author. The company keeps the “publisher’s share” and pays you the “writer’s share.” The one exception to this arrangement is in the performance income collected by performing rights societies. The societies issue the writer’s share directly to you, and issue the publisher its share separately.

Subpublishing: I have a popular song in a foreign country, but don’t speak the language and am not familiar with their music business customs and practices.   How can I take advantage of business opportunities related to my work over there and ensure that I am collecting the money I am owed for use of my work?

Being thousands of miles away makes it impossible to adequately conduct business without the help of a subpublisher, a foreign representative who will act on your behalf with regards to your intellectual property.  Your US publisher allows the foreign publisher (subpublisher) to act on its behalf in that respective territory.  Each foreign territory has its own particular rules in licensing music, collecting royalties, and protecting copyrights.  For this reason, it is incredibly important to select a subpublisher that you can work with and trust.  A good foreign representative will be well-versed in the local rules and procedures regarding business affairs surrounding your music, and have a music business network in place within the territory.

What exactly does a subpublisher do?

A subpublisher functions much like your own music publisher in the US. The subpublisher protects your copyrights, registers songs with the local mechanical and performance collection societies, promotes new uses for your work, collects royalties, audits royalty statements from users of your work, negotiates licenses, and sues infringers.

Foreign publishers perform a combination of administrative and promotional tasks. Some do one or the other, while some do a little of both.It is important to match your interests with the strengths of the subpublisher. If you are an artist looking to ensure that royalties are collected for use of your song, then choosing a subpublisher with strength in administrative ability is ideal.  If you are looking for new uses for your song, then selecting a subpublisher with quality contacts in the local entertainment industry would be ideal.

Another thing to keep in mind is the geographical reach of the publishing company. Some publishers have offices worldwide, while some only have offices in specific territories. If you go with a worldwide publisher any problems that arise abroad can usually be resolved through the US office. This makes conducting business and communication more efficient since you are not trying to get a hold of a publishing office in another time zone. The biggest fear in going with a worldwide publishing company is that their artist catalogue is so extensive that your work may not get the personal attention and care that you desire.  Another concern is that offices abroad may run less efficiently than the US office.

Hiring independent publishing companies on a territory by territory basis can be beneficial in that they may be able to give you more individualized attention.  They may also know the lay of the land better in their specific region.  Your US publisher may already have subpublishers abroad, in which case it might be easiest to allow them to handle your affairs.

Protect yourself: the sub-publishing agreement

Your goal in negotiating any contract should be to maximize profits and minimize risk. To do this you want to negotiate favorable contract terms for yourself.  What follows is a list of common contract elements that you will want to be familiar with so that you (or your publishing company on your behalf) may consider them when you negotiate a subpublishing agreement.  

Term – The standard length of a subpublishing agreement is generally three to five years.  Three years is the minimum duration foreign royalty collection societies often accept.  Contract length can be negotiable dependent upon the following various factors (many of which are discussed later in this section).

Advance amount

Retention rights for local cover recordings

Right to collect “pipeline” royalties (money earned prior to the expiration of the term of the subpublishing agreement, but not yet paid by the music user until after the end of the term)

Released-album guarantees

Extensions if advances have not been recouped 

Rules of local performing rights societies

Suspensions due to breaches

Extensions based on the non-achievement of guaranteed earnings plateaus

Compositions Controlled by the Agreement – Agreement may comprise the entire catalogue of a US publisher, all songs written by a particular songwriter/artist, select compositions, or an individual song.

In agreements for the entire catalogue, the following language is common 

“Publisher grants to Subpublisher the following rights in and to all the musical compositions listed on Schedule A as well as any and all musical compositions currently or hereafter owned or controlled by Publisher during the terms of this Agreement.”

This usually entails all future songs acquired during the agreement duration as well.

Royalty Percentages – The foreign representative’s compensation is always based upon the percentage of money generated by the songs controlled by the subpublishing agreement.  Generally, this percentage is anywhere from 10%-25%.  For superstar artists, this percentage can get to as low as 5%.

Local Cover Recordings – Where a subpublisher is hired for the purpose of promotion, most agreements provide that the subpublisher can take a larger percentage of the income that is generated from a local recording (usually a “cover”).  

Be wary of language that provides that, if a local recording is secured, the subpublisher’s percentage on all versions of the song contained on that cover record will be increased. 

This kind of provision is unfair if the original US version is a major hit.  The exception is when the “cover” becomes a major hit in the foreign territory, and the original US version is not generating income in the foreign territory.

Increased Fees for Cover Records – Known as an “increased cover version percentage” clause, this only applies to mechanical income (CD sales, downloads, other audio recordings; things that can be counted on a per unit basis).

The subpublisher sometimes will take an increased fee on radio and television performance income generated by the cover version of the song.  This becomes hard to monitor because performing rights societies do not account separately for different broadcast versions of the same song.

Print – the US publisher generally receives 12.5%-15% of the retail price on printed editions of all compositions, or 50% of the subpublisher’s net income. 

Usually not a major source of income

Advances – This is the amount of money you will receive up front, and depending on the clout that your musical catalogue has, the advance amount can vary widely.  If a song/catalogue is likely to generate income in the subpublisher’s territory, advance amounts upwards of six-figures is not unusual.  

The advance amount should not be the only factor considered in choosing a foreign representative.  Other factors to keep in mind;

Company integrity

Reputation for administration and promotion

Personnel

Royalty rates

Retention rights

Duration of the agreement

Do not underestimate a foreign representative because of poor English ability.  A subpublisher knows their business and more importantly, their market.

How Advances are Paid – Advances are paid in any number of ways.

One-time payment upon signing (e.g., $10,000 upon execution of the agreement)

Specified advances at the start of each one-year period of the agreement (e.g., $10,000 upon execution of agreement, and $10,000 each year of the agreement thereafter)

Advances upon the release of each album, with reductions depending on the number of songs controlled by the artist on each such album (e.g., $10,000 upon the album’s release in the foreign territory provided the writer/artist has written at least x% of the compositions on the album)

Advances upon recouping all or a specified percentage of the previous advance (e.g., $100,000 upon recouping x% of the previous $100,000 advance)

Advances on local chart activity (e.g., if a song reaches the top 10, then $10,000.  If it reaches number one, then another $10,000)

Advances based on a company’s acquisition of other US catalogues (e.g., a mutually agreeable advance in the event that the US publisher acquires a major company for representation)

Advances based on actual earnings in the foreign territory (e.g., if an album earns $50,000 in its first year, an additional advance of $50,000 will be paid to US publisher)

At-Source Royalty Payments – This provision ensures that there will be no extra charges or deductions from royalties passing from one foreign territory to another before being passed on to the US.  Typical language follows;

“All royalties payable shall be based on gross income received at the source and shall not in any way be reduced by any charges including, but not limited to, any sublicensees granted by Subpublisher except only for: (1) those fees and commissions paid by the Subpublisher to the performing rights societies, mechanical license societies, and other collection agents in the territory; and (2) payments made by the Subpublisher for any “value-added” taxes and other taxes, if any, required to be deducted in the territory.”

This language prevents foreign companies from double-deducting fees on monies earned in portions of the territory covered.

E.g., if you have an agreement with Germany, Austria, and Switzerland, the agreement will prevent the German affiliate from deducting fees that may have been already deducted by Austria and Switzerland.  Without the provision, the German company could deduct 20%, then forward the remaining 80% to Austria who would deduct 20%, then forward the remaining onto Switzerland, whom would also take 20%.  

Rights Granted to the Foreign Representative – The writer/publisher usually grants the following rights in and to the musical compositions to the subpublisher.

Mechanical Rights – The right to issue mechanical licenses and collect royalties for the manufacture and distribution of records, CDs, downloads, and other audio recordings.  

Performance Rights – The local foreign representative is given the right to register the songs with the performance right society in the territory and collect the publisher’s share of income earned by performances of the songs on radio, television, live in concert, in restaurants, bars, etc.  

The writer’s share is paid directly to ASCAP, BMI, or SESAC (depending on writers’ US affiliation), and NOT the foreign subpublisher.

Audiovisual Rights

TV and Film – The US publisher normally grants the foreign subpublisher the right to issue synchronization rights to include songs in television shows and films that originate in the subpublisher’s territory.  

Home Video – For US films (and TV shows and video games, usually), the film producer will always demand that the US publisher grant home video rights on a worldwide basis via a one-time non-royalty buy-out basis.  Under this agreement, no money is paid to the foreign subpublisher.  The foreign subpublisher is usually given the right to negotiate home video licenses for audiovisual projects produced in the foreign territory, at least with respect to sales in that particular territory.

Recording Artist Videos – There is usually always a record company provision that grants worldwide right to manufacture and distribute short or long home video versions of the artist’s performances.  

For songs written by outside writers, the record company will have to negotiate a separate agreement with the publisher of each song.  In most cases a worldwide license granted on a per unit royalty or buy-out basis.  

It’s rare that a subpublisher be allowed to negotiate a separate video license for this product for sales in its territory.

Commercials – The right to include a song as part of a foreign commercial to be broadcast in a foreign territory is sometimes given to the subpublisher.  

When granted to the subpublisher, this right is usually conditional upon the subpublisher receiving approval for each particular request from the US publisher.  

Print – The right to manufacture and distribute sheet music is virtually always included in the rights being granted.

Rights Reserved by the US Publisher  – The following rights are commonly reserved by the US publisher;

  • Dramatic/literary rights
  • Commercials, political campaign uses, and endorsements
  • Grand rights (the right to use a song in a musical, live theatrical drama, opera, etc.)
  • Ownership of the copyright

All other rights that are not specifically granted by the terms of the subpublishing agreement

Royalty Payment Dates and Audit Rights – Royalties are normally accounted for twice a year, with semiannual payments and statements sent to the US music publisher 45-90 days after December 31 and June 30 of each year.  Audit rights are similar to those contained in US publishing agreements (30 day notice, audit conducted during normal business hours, limited number of times one can audit)

Retention Rights – Upon the termination of the agreement, many subpublishers will want to retain the following rights for some period of time after termination.

Pipeline Monies – Enables the subpublisher to collect money that has been earned during the term of the agreement, but has yet to be collected at the time of the agreement’s expiration.  

The US publisher generally concedes this, though usually demands a time limit on such rights (6-18 months).  This prevents the pipeline collection period from being open ended.  

Retention Rights if Advances are Unrecouped – if advances paid to the US publisher have not been recouped, the foreign subpublisher may have the right to extend the agreement for a specified period of time so that advances can be fully compensated.  

The US publisher should place a time limit on such retention rights.

The US publisher is often allowed to repay advances for full recoupment to the foreign subpublisher.

Retention Rights on Guaranteed Albums – If advances are paid upon the release of an album, the subpublisher will normally have retention rights to the songs on any such album that is released in the last six months or one year of the agreement.  

This is fair for the subpublisher because royalties generated by such an album will not be received by the subpublisher until four to nine months after release.  The subpublisher needs to be allowed to receive earnings derived from use of the work.

Retention on Local Cover Records – The subpublisher often retains the right, (duration to be negotiated) to administer a composition if a local cover record has been released during the time of the agreement.  The same applies to local film and television uses generated by promotional efforts of the foreign subpublisher.  Various provisions can be written up for this retention right;

  • Retention only if the cover record becomes a hit 
  • Retention only if the cover record earns in excess of x amount of dollars
  • Retention only if the cover record charts in the Top 10

Information that must be supplied to the foreign representative – In order for the subpublisher to properly represent you, certain basics must be provided; 

  • Correct composition titles
  • Songwriter(s) identity
  • Authorship percentages if there are co-writers
  • Performance rights affiliation of the songwriters and music publishers 
  • Publisher’s control percentages if there is more than one copyright owner or administrator
  • Multiple authors = multiple publishers
  • The US publisher should submit the following information to the subpublisher;
  • Date of the recording’s initial release in the US
  • Release information in other territories

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.

Boombox-300

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.”

limited-liability-company-747

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.

choose_business_structure

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.

 

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About $21,329,000,000 in revenue during Q4 and 558,000,000 copyright takedown requests in 2015. Those enormous numbers are Google’s record profit and record disregard for creators’ rights.

In February, Alphabet — Google’s newly formed shell company — reported that it earned $21.33 billion in revenue during the final quarter of 2015, making it the most valuable company in the world. Advertising accounted for virtually all of this revenue haul, up 17% over last year’s results.

Its free YouTube video streaming service, with more than one billion users, is the most popular platform for music consumption in the world.[ii] Though Google does not disclose sales numbers for YouTube specifically, it ascribes its substantial growth in part to advertising dollars on YouTube:

“Our very strong revenue growth in Q4 reflects the vibrancy of our business, driven by mobile search as well as YouTube and programmatic advertising, all areas in which we’ve been investing for many years.”

The New York Times estimates the service makes between $4 and $8 billion annually.[iv] And this cash cow is powered largely by music. The top 10 most watched videos on YouTube are all music related.

Yet even as Google/Alphabet continues to build its empire on a foundation of music, it pays the musicians and record companies whose music undergirds its massive success and growth next to nothing. According to RIAA numbers just released this week, YouTube, in combination with other on-demand ad-supported services like Vevo and Spotify’s free platform, only contributed 5.5% of all music revenues in 2015.

As one music industry source recently said: “YouTube boasting about its payments to the music industry is like Bernie Madoff boasting about paying dividends to his investors.”

So how does that work? Basically, Google has figured out how to rip off artists through legal loopholes that were established for the company nearly twenty years ago, when it was only a fledgling search engine provider. First, it uses its massive size and control of the “indispensable” YouTube gateway to force music creators into accepting the lowest, below-market royalty rates in the business. Second, its search engines often prioritize unlicensed copies of songs, for which the creators of those original songs receive nothing. Meanwhile, Google receives massive amount of cash from the advertisers who feature their ads on top of said pirated results.

What’s that you say? “There ought to be a law to prevent all of this.” Well, there is — but Google and its lawyers have figured out how to exploit the outdated and obsolete “Digital Millennium Copyright Act” that was intended to stop abuse of creative works.

The DMCA dates back to the year of Google’s founding, when the Internet was a very different place. Uploading an unlicensed copy of a song took a long while, and downloading a song took minutes. The Internet moved at the speed of CompuServe and dial-up AOL. Also, there were limited places where unlicensed content could even go (remember GeoCities?), and few of those sites were accessible to non-expert users.
It was thought at the time that musicians and copyright owners could survey the limited landscape of the infant World Wide Web and identify each unlicensed copy of a song. Musicians and copyright owners could then send a notice to the website-hosting company, identifying the unlicensed work and asking the company to take it down. Provided that the company was not actively involved in the unlicensed activity and promptly took down the unlicensed copy, the company would be held legally harmless.

Key to this legal regime was that Internet Service Providers were considered “passive,” internet-hosting companies, and not profiteering, ad-dollars guzzling mega-corporations.

Today, Google is far from “passive” in the massive enterprise of illegally pirated music: YouTube clearly distributes and capitalizes from others’ creative work. The company makes bank off the advertising it actively targets at specific users and layers atop illegal copies of music. Yet it still claims the “hear no evil, see no evil” amnesty of the DMCA, which Congress intended only for “passive” intermediaries.

Thanks to Google hiding behind its legal exemption, the “fire” of pirated music online has only continued to rage. The old, faulty DMCA model — in which creators were responsible for surveying the entire Internet and finding illegal copies of their works –- has completely, but not surprisingly, broken down. Creators now send, at extraordinary expense, more than 65 million notices of infringement to Google a month, and a record 558 million notices in 2015 alone. It’s an unconscionable “Value Grab.” Google turns a blind eye to piracy and reaps the rewards from ads surrounding unlicensed content. Meanwhile, it extracts below market value for the music it is willing to license. The crumbs creators receive from these shoddy licensing deals must then be spent on monitoring the web and sending millions of futile “takedown notices” for websites that pop back up in a manner of seconds even when they get shut down.

This “Value Grab” can only be fixed with meaningful legal reform. Laws from the age of “Ask Jeeves” must be updated for the Google/YouTube goliath…

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I received an email this morning from a reader. He asked, “If SoundExchange was designated by the Library of Congress as the sole PRO to administer public performance licenses and also collect public performances fees for Sound Recording Company Owners, then why do artists still utilize the services provided by the other 3 US PROs (ASCAP / BMI) – is [SoundExchange] not sufficient by itself?”

A lot of indie artists are confused about the difference between ASCAP, BMI and SoundExchange. I’ll attempt to break down the most important differences between these groups and elaborate towards the end about other considerations and other royalty collection entities. Feel free to comment with any questions (or corrections).

Traditional performance royalties vs. digital performance royalties
ASCAP (American Society of Composers, Authors, and Publishers), BMI (Broadcast Music, Inc.) are US public performance organizations (PROs) who collect publishing royalties (performance royalties) for the PUBLIC PERFORMANCE of musical works as stipulated by the U.S. Copyright Act. This includes fees paid by radio stations, businesses, restaurants, concert venues, bars, nightclubs, sports arenas, bowling alleys, malls and shopping centers, amusement parks, colleges & universities, etc. for performing music in the public (within the confines of their establishment). These monies are paid to ASCAP, BMI for a blanket public performance license that grants the licensee (the business) permission to allow music to be performed in their environment (this includes music over speakers and music performed live by an artist). The license fees paid to ASCAP and BMI  are passed on to the copyright owners in the musical works (song) — PUBLISHERS (50%) and SONGWRITERS (50%) — as performance royalties for musical works.

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[Editor’s note: ASCAP considers the publisher’s share and songwriter’s share to each be 50% of total performance royalties. BMI talks about these same splits as 100% for the publisher and 100% for the songwriter. It gets a little confusing, but they’re essentially talking about the same money split up in exactly the same way. It’s just that ASCAP uses percentages that are based on total performance royalties (thus 50/50), while BMI splits those halves FIRST, and then distributes 100% of each half to the appropriate entities.]

SoundExchange is a US public performance organization (PRO) who collects royalties for DIGITAL PUBLIC PERFORMANCE of sound recordings stipulated by the Digital Performance Right in Sound Recording Act of 1995 and Digital Millennium Copyright Act of 1998.

[Editor’s note: SoundExchange only collects these digital performance royalties for NON-interactive streaming (the kind where a DJ, algorithm, or other outside force is determining exactly what you hear).]

This includes fees paid by music service providers (MSPs) to stream music over satellite (SiriusXM), internet (Pandora, Rhapsody), cable (Music Choice, Verve) and other digital means as stipulated by law.

[Editor’s note: Spotify, iTunes Radio, and Rdio have struck deals with labels and distributors to pay digital performance royalties directly to rights holders — thus bypassing SoundExchange. But again, digital performance royalties are only owed for non-interactive streams which occur within those services’ radio-like features, NOT in their on-demand capacities.

These fees are paid to SoundExchange for a digital statutory license, under sections 112 and 114 of the Copyright Act, to stream sound recordings. The license fees paid to SoundExchange are passed on to copyright owners in the sound recording (master) — RECORD LABEL (50%), FEATURED ARTIST (45%), and NON-FEATURED ARTISTS (i.e. background vocalist, session musicians, etc.) (5%) — as digital statutory royalties for sound recordings.

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Things to know…
* With some exceptions (mostly political) ARTISTS do not receive performance royalties in musical works (ASCAP/BMI) unless they wrote the song. So, Rihanna does not earn performance royalties in musical works when she performs “Stay” or when you listen to it on the radio or in a coffee house.

* With some exceptions (mostly political) SONGWRITERS do not receive digital statutory royalties in sound recordings (SoundExchange) unless they also recorded the song with their vocals. So, Diane Warren does not earn digital statutory royalties in sound recordings when you hear any of the songs she wrote for Whitney Houston, Enrique Iglesias, Faith Hill (and the list goes on) on Pandora or iTunes Radio. [Update: However, Diane Warren does earn public performance royalties in the musical works (ASCAP/BMI/SESAC) for these transmissions (Thanks Professor Surmani of the Masters of Artists in Music Industry Administration program at CSUN for catching this misleading omission!).]

* Pandora, Rdio, iTunes Radio, Spotitfy, etc. must pay both ASCAP, BMI public performance fees for musical works AND digital performance fees for sound recordings.

[Editor’s note: Though, as stated earlier, Spotify, Rdio, and iTunes Radio bypass SoundExchange to pay digital performance royalties directly to labels and distributors on behalf of rights holders.]

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Terrestrial radio stations, such as KISS FM, only have to pay ASCAP, BMI, SESAC public performance fees for musical works, but not SoundExchange digital performance fees for sound recordings because of special stipulations in the US Copyright Act for broadcast radio. This is part of the reason why Pandora wants to reduce the royalties it pays.

[Editor’s note: However, many terrestrial radio stations also have digital broadcasts or offer alternative playlists on a counterpart digital station. Those stations DO have to pay digital performance royalties to SoundExchange for those non-interactive streams.]

There are lots of other sound recording royalties (besides the digital royalties collected by SoundExchange) that are collected on behalf of featured recording artists, non-featured artists (ie. background or session vocalists), instrumental musicians, etc. They include:

* sound recording revenue (also known as DART royalties, which stands for Digital Audio Recorders and Tapes) generated from the U.S. Audio Home Recording Act of 1992 (AHRA). Manufactures and importers of audio home recording devices (such as tape recorders) and audio home recording media (such as black CDs) pay a royalty to the Copyright Office;

* sound recording revenue generated from reciprocal Private Copy agreements with numerous foreign collectives in countries that also have legislation providing these royalties such as: Japan, the Netherlands, Hungary, Spain, Portugal, Greece, Germany, Latvia, and Estonia, just to name a few;

* sound recording revenue from record rentals remuneration from Japan, where sound recordings are rented in much the same manner DVDs are rented here in the U.S.;

* sound recording revenue generated digital public performance from the Digital Performance Right in Sound Recordings Act of 1995 (DPRA) and the Digital Millennium Copyright Act (DMCA) paid to SoundExchange (as discussed above);

* sound recording revenue generated from a treaty with AIE, Sociedad de Gestión – the Spanish Rights Collective. The Audiovisual Division of the AFM & SAG-AFTRA Intellectual Property Rights Distribution Fund (established in 2010) distributes payments collected from any television show or motion picture that is broadcast on Spanish television and contains the performance of an AFM or SAG-AFTRA vocalist;

* sound recording revenue collected by the Symphonic Royalties division of the AFM & SAG-AFTRA Intellectual Property Rights Distribution Fund, which are royalties for performers on Symphonic sound recordings, including musicians and singers of an orchestra.

* sound recording revenue from master use licenses between record companies and film/TV production companies (TV shows, movies, and web series), advertisers (commercials and products), video games; and

* sound recording revenue from compulsory mechanical licenses for sample use in other songs, copies and re-distribution, and ringtones.

There are lots of other musical works royalties (besides the public performance royalties collected by ASCAP/BMI/SESAC) that are collected on behalf of songwriters, music producers and publishers:

* publishing revenue from synchronization rights of music to film/TV, video games, or commercial. (Collected by publisher);

* publishing revenue from lyric print rights used in music apps, books and magazines, apparel, websites (like the lyric websites), or sheet music (such as MusicNotes.com. (Collected by publisher);

* publishing revenue from compulsory mechanical licenses for record labels or indie artists to record and distribute music works (such as going a song placed with a major artist or an indie artist doing a cover of a song previously performed by a major artist) whether posted on YouTube or sold on a CD. (Collected by Harry Fox Agency);

* publishing revenue from DART royalties from Audio Home Recording Act of 1992 distributed to the Music Publishers Subfund and Writers Subfund (collected by Copyright Office);

* publishing revenue from public performance via ASCAP, BMI (Note: A songwriter can only be registered to one of these guys);

* publishing revenue from foreign monies via sub-publishing agreements and other licensing arrangements in foreign territories. (Collected by PROs, publishers and other collecting entities depending on the nature of the royalties and legislation);

* publishing revenue from hundreds of other licensing sources (collected by PROs, publishers and other collecting entities depending on the nature of the royalties and territory)

In today’s music business, a musician needs to understand and receive all the various streams of revenue that they are entitled to for their musical works. However, many of today’s artists are uninformed as to what royalties they are entitled to; and, even more musicians are not properly registered nor have their works indexed. This prevents the artist from receiving all the income earned for their creative works. One of these most important streams of income that many musicians fail to recognize or handle properly  are the revenues collected by SoundExchange.

Sound Exchange is a performance rights organization authorized to collect royalties for the digital performance of sound recordings under Section 114 of the U.S. Copyright Act. The right to these funds was originally established with the passage of the Digital Performance in Sound Recording Act of 1995 and later expanded by the Digital Millennium Copyright Act. Originally, SoundExchange was created by the Recording Industry Association of America (R.I.A.A.) to handle these new revenues; however, Sound Exchange eventually became its own stand-alone entity representing the interests of over one hundred thousand artists and copyright owners. As of August 5, 2015, Sound Exchange has reportedly paid over $3 billion directly to its artist and label members (http://www.soundexchange.com/pr/soundexchange-breaks-the-3-billion-mark/).

Unlike the other performance rights organizations in the United States that collect royalties for the public performance of musical compositions (i.e., ASCAP, BMI, and SESAC); Sound Exchange is the only entity authorized to collect royalties for the digital performance of a sound recording. Sound Exchange derives its authority, pricing and guidelines from the Copyright Royalty Board, which is appointed by the U.S. Library of Congress. SoundExchange is run by a board of directors that includes nine artist representatives and nine label representatives. This structure gives artists an equal say in the running of the organization.

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SoundExchange is authorized to collect digital performance royalties on behalf of the owners of the sound recording copyright (i.e., the actual recording of a performance of the musical composition, which is referred to as the “master recording”). Typically, the sound recording copyright is transferred to the record label as a part of the recording contract with the musician. However, there has been an increase in sound recording ownership by the artists themselves as record labels are extending far fewer recording contracts than they had done in the past. This fact is further evidenced by the large number of musicians who are involved in “Do-It-Yourself” music promotion and distribution without any traditional record label assistance.

Additionally, it is essential to understand the difference in the types of revenues collected by SoundExchange and those collected by “small” Performing Rights Organizations, such as ASCAP, BMI, and SESAC in the United States. Performing Rights Organizations collect “small” public performance royalties for the owners of copyrighted musical composition (the underlying musical composition). These public performance royalties are paid to the music publishers, songwriters and composers of the song. For example, when Jimi Hendrix’s version of “All Along The Watchtower” is played over an analog radio station, the songwriter, Bob Dylan (in addition to the song’s publisher) receive royalties from the appropriate Performing Rights Organization as the original composer of the song. In contrast, Sony Music, as the sound recording owner, and Jimi Hendrix, as the featured artist, would receive royalties from SoundExchange for the song’s recordings’ transmission over a non-interactive digital platform, for example, when the song is played on Pandora. Accordingly, companies and artists can collect royalties from both sources (i.e., one royalty for the musical composition copyright and another for the sound recording copyright) as these organizations work with each other to pay musical creators the royalties they have earned from these distinct streams of income.

Under Section 114 of the American Copyright Act, SoundExchange is only authorized to issue statutory licenses for non-interactive digital platforms. These include satellite radio stations (e.g., SiriusXM Radio), internet radio stations (e.g., iHeartRadio.com), non-interactive digital music streaming services (e.g., Pandora) as well as digital cable and satellite TV services (e.g., Music Choice, Muzak, DirecTV, Dish Network). A comprehensive list of all the current licensees is available from SoundExchange at http://www.soundexchange.com/wp-content/uploads/2015/10/2015-Q3-Licensee-Count-10-19-2015.pdf. For example, Pandora is a non-interactive service as it plays similar artists and songs based on a user’s selections and preferences; whereas, Spotify is an interactive service that enables a user to determine the exact song they wish to hear at that moment.

Each non-interactive licensee pays a statutory rate that is determined by a variety of factors, including the number of stations or channels, the number of listeners or subscribers, and/or the amount of advertising and other revenues earned by the licensee. In contrast, on-demand or interactive music streaming services, such as Spotify, are not subject to SoundExchange statutory licensing. These interactive services must enter into separate licensing agreements with the song’s copyright owners to utilize the works.

To pay its members, SoundExchange receives monthly reports from each of its licensees listing exactly what each licensee has performed that month. This data is compiled and utilized to distribute the licensing fees collected by SoundExchange to the appropriate6a00d83451b36c69e201b8d1897e71970c-800wi
parties on a pay-per-play basis. Of the total amounts collected, 50% percent of these funds are distributed to the owner of the song’s sound recording (typically, a record label), 45% of these funds go to the featured performer on the track (typically, the musician) and the remaining 5% of these funds are distributed to the non-featured performers on the track through the American Federation of Musicians (A.F.M.) and American Federation of Television and Radio Artists (A.F.T.R.A.). Additionally, SoundExchange takes a 4.6% administrative fee “off the top” of the total funds collected to handle these matters on behalf of its members.

Additionally, these royalties are very important to an artist as the funds are distributed directly to the recording artist without the artist’s respective share being first distributed to the artist’s record label. Typically, if the record label were to receive these funds first, they could potentially apply the funds against any unrecouped balance amount owed to the label; however, SoundExchange prevents this by distributing the funds directly to the artist. This distribution system is extremely advantageous to an artist, especially those signed to a major record label, as the artist can continue to receive SoundExchange payments without being fully recouped with their record label, which is not the case with most other royalties accrued in the music industry.

Also, SoundExchange currently holds at least $200 million in royalties owed to non-member artists. Most of these artists are unaware of the existence of this relatively new digital performance right and of the organization, SoundExchange, which administers the licensing. With the rise in popularity of Internet radio stations and music streaming services coupled with the decline in CD and download sales, it is essential that record labels and recording artists properly register with SoundExchange to ensure proper collection and distribution of all the royalties owed to them. SoundExchange’s distribution numbers have steadily risen in recent years and should continue to increase as more users switch from downloading media to streaming-based digital music services.

In conclusion, in order to receive the full value of an artist’s work, they should sign-up with SoundExchange and ensure that their musical repertoire is properly indexed to receive all the amounts they are entitled to. Additionally, SoundExchange does not administer royalties on behalf of downloaded material, as that is typically handled by the sound recording copyright owner (the record label).

Collins Connect handles all matters pertaining to music and the law, contact our office for help in registering your copyrights as well as indexing your works with ASCAP, BMI and SoundExchange visit www.collinsconnect.org.