[Royalties] in the Age of the Internet! - Part II

Guest post by Todd Brabec & Jeff Brabec

...go to Part I

ASCAP/BMI/SESAC

The Performance Right- the world of ASCAP, BMI, SESAC and foreign societies- represents the most valuable composer and songwriter continuing source of income. Though traditional media (television, radio, etc.) has had its share of recent challenges, the area still remains strong as to overall license fees and songwriter, composer and music publisher royalties-particularly if a work is part of a successful television show or a hit song on radio. The Internet and digital media area, on the other hand, has not produced as of yet license fees or distributions of any significant nature.

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To put this area into perspective, total ASCAP, BMI and SESAC annual receipts are in the area of 2.3 billion dollars (2015 showed ASCAP and BMI receipts at slightly over 1 billion dollars each with SESAC estimated in the area of 200 million dollars). Of that amount, television (network, local and cable) represents approximately 700 million dollars, radio 375 million, general licensing (concert performances, bars and grills, hotels, etc.) 300 million, royalties from foreign societies 700 million(most of it being writer money as most music publishers collect directly from foreign collection societies through sub-publishers) and new media in the area of 240 million dollars. Global Music Rights (GMR), the newest U.S. PRO founded in 2013, has only recently started to license music users and does not report revenues. ASCAP and BMI are non-profit entities with SESAC and GMR for-profit corporations.

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The majority of license fees in the online/new media area are the result of Rate Court decisions as well as settlements negotiated as a result of those decisions.  Under the ASCAP and BMI Consent Decrees with the Government (in effect since 1941), if a music user( radio, television stations, streaming services, etc.)and ASCAP or BMI cannot come to an agreement as to what reasonable license fees should be, either party can go to court (Southern District Federal Court in New York) where a trial is held with a judge making the decision as to what interim as well as final performance license fees should be as well as what is actually licensable. Rate court cases as well as settlements in the new media area have involved AOL, Real Networks, Yahoo, Netflix, Hulu, YouTube, AT&T, MobiTV, Verizon, Spotify, Ericsson, Rhapsody and Pandora, among many others. 

Regardless of the size of the license fees in this area (many deals in this area are confidential and the fees relatively small compared to traditional media deals), major services and sites are being surveyed by the PROs and royalties are being distributed to songwriters, composers and music publishers based upon the streaming of television shows, films, records and songs.

 As to payments, total license fees from a service and the accumulation of streams are two of the primary factors considered. The type of use distinctions between theme, score and feature continue to apply in new media ASCAP, BMI and SESAC distributions when dealing with the streaming of audio visual works(feature films, television episodes, etc.) Other aspects of their television distribution systems though do not apply including Nielsen ratings, audience measurement, time of day factors and theme bonuses, among others. In the audio only streaming area, bonuses are attached to compositions which reach certain levels of performances.

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Finally, practically every current PRO traditional media license fee re-negotiation or negotiation (radio, local television, cable, etc.)now covers within the license online/digital items such as streaming, mobile wireless platforms, website uses, webcasting, mobile apps and multicasts, among others.

Video Games

As to pre-existing songs, most video games pay a one-time synch license fee to the music publisher to put the song into the game with no additional royalties. The term of the license is usually short (5-7 years instead of life of copyright which is the norm for a feature film). The Master Use sound recording license is normally on a Most Favored Nations (MFN) basis with the song.

Other types of games though (e.g. Dance Central, Guitar Hero, Rock Band, etc.) negotiate per unit royalties, per unit royalties with escalators, sales plateau increases as well as royalties based on a composition being downloaded by a consumer into a game(the latter many times on a percentage of revenues versus a set penny per composition rate).

Some examples of these writer/publisher deals are:

1. 0-500,000 units sold = 1 cent per unit; 500,000- 1,000,000 = 1.3 cents; 1,000,001 plus = 1.5 cents per unit.
2. $10,000 to put the composition into the game; an additional $4,000 at 350,000 units sold; plus $5,000 for every additional 250,000 units sold
3. Downloadable Content (DLC): 15-20% of net Revenues as defined less third party distribution fees. Bundled compositions (2 or more compositions sold in a package) share pro-rata to revenue.

Motion Pictures

In the case of pre-existing songs being used in a movie, new language is being inserted into synch agreements to cover the online world. For example, a media clause in current synchronization licenses might read “distribute in any and all Media and by any and all means, now or hereafter known, including, without limitation all forms of television, all “on demand” services, all online, digital and wireless technologies and other transmissions capable of being experienced by means of any interactive devices or any future storage delivery and/or retrieved devices or systems.” An additional clause stipulates that the “viewer is not invited to manipulate the composition in any manner which is not possible using traditional analog home entertainment equipment”.

 The amount of the synchronization fee depends on a number of factors including how the song is used, the overall film budget, the timing of the use, whether there are multiple uses, whether uses are thematic or used over the opening or closing credits, the term and territory as well as any guarantee of inclusion on a soundtrack album.

 Another valuable area is the licensing of existing compositions and master recordings and the additional fees for the out-of-context use in film trailers. The media can be all forms of television, videos, radio, online, digital and wireless, linear audio web streaming, etc. There may also be additional fees for its use in the “making of “programs and featurettes as well as home/personal entertainment media menus.

Advertising Commercials

For certain compositions (hit songs, television theme songs, etc.), the advertising market can be profitable depending on, among other things, whether it is a radio, television or internet commercial, a nationwide or limited territory campaign, whether there are options for other media and delivery systems as well as other countries of the world, whether lyrics are being changed or added and whether all advertising rather than only product category exclusivity is being requested. 

As to some of the new types of agreement clauses brought on by the digital online world, the following example should help: 

Agreement lists composition title and product name with a term of one (1) year with an option to renew for an additional year at a 15% increase. Territory is the United States and Canada with the world as it pertains to the Internet. Media includes all TV including network, syndication, cable and satellite use with Internet included but not limited to client, agency and 3rd party websites. Included is a New Media App for iPad and industrial use.

As some commercials are being used in motion picture home videos, in motion picture theatres during previews and on mobile phones, rights for home video, theater promos and mobile phones may also be negotiated. Internet use should be non-exclusive and should be limited to streaming/non-downloadable use of the spot and subject to websites having a valid U.S. performance rights license and subject to the fees, rules and regulations of any foreign performance rights society.

Synch fees for well-known compositions in major campaigns can be substantial.

In addition, performance monies will also be generated by ASCAP, BMI and SESAC though the rates are on the low end of their payment schedules. Go to: https://twitter.com/ThaPalace

...go to Part I

...go to Part III

Copyright 2016, Todd Brabec, Jeff Brabec, All Rights Reserved

Todd Brabec, Esq., former ASCAP Executive Vice President, and Jeff Brabec, Esq., Vice President Business Affairs BMG Chrysalis Music, are the co-authors of Music, Money and Success: the Insider’s Guide to Making Money in the Music Business” (7th edition, Schirmer Books/ Music Sales).