[This is the 5th article in our series on recording artists and major labels. This month Dina tells us about Public Performance Money and the New Webcasting Royalty. If you have a story to tell, please send e-mail to microscope@cosmik.com. - Ed.]

American recording artists are popular everywhere. Whether it is Eminem, Garth Brooks, Madonna, Michael Jackson, or 2Pac, innovation by American music artists sets the tone for music trends that permeate the rest of the world. If that is the case, why are American artists still paid so poorly in the United States compared to artists residing in nations such as the U.K., Canada, Germany, France, Australia, Italy and The Netherlands, just to name a few? Besides the fraudulent manner in which U.S. record labels account to its recording artists, the U.S. drastically differs from other nations with respect to the payment of public performance royalties. But, that just may be about to change, and advocacy by and on behalf of artists and their representatives is instrumental in effecting that change.

What Are My Exclusive Rights if I Write or Record a Song?

To illustrate the way in which public performance royalties are paid in the U.S., we need to first examine the exclusive rights pertaining to copyright holders under the U.S. Copyright Act:

1. The right to Reproduce the Work (e.g. to copy a recording)

2. The right to Distribute copies of the Work (e.g., to sell a recording);

3. The right to Perform the Work publicly (e.g., broadcast the recording over the radio, television, Internet, and some public places such as a bar or restaurant);

4. The right to Make a Derivative Work (e.g., the right to approve new recordings that "sample" the original recording, or the right to create "new versions" of your original recording, such as remixes);

5. The right to Display the Work Publicly (e.g., licensing the lyrics to song for a poster or a public display).

Public Performance Royalties in America

It is the Right to Perform the Work Publicly (#3 above) that we need to be most concerned with in the future. Under U.S. Copyright Law, the songwriter is entitled to a "public performance royalty" (usually collected by ASCAP, BMI, or SESAC) for musical compositions (i.e., "songs") that are broadcast over the radio, television, or Internet only. (Incidentally, note that songwriters in America do not get paid for their music that is publicly performed in theaters!). Additionally, American songwriters are entitled to payment for music that is played in certain public venues, such as a restaurant or a bar, provided certain specifications are met. For example, a restaurant needs to be over 2000 square feet, and a bar over 3750 square feet, for public performance royalties to be payable pursuant to the provisions in the Fairness in Music Licensing Act of 1998.

But, what about those who own the sound recordings of those songs? And, what about those that perform the songs on the actual sound recordings?

Under U.S. Copyright Law, public performance royalties relating to sound recordings are only payable for the digital transmissions of those sound recordings. Aside from that, the U.S. public performance royalty limits payment to the song publishers and "actual" songwriters of "songs." In most other countries, however, two types public performance royalties are payable, one relating to "songs" and one relating to "sound recordings."

The first type of public performance royalty (which is recognized in the U.S.) is paid to the copyright holder of the musical composition or the "song" (i.e., songwriters and/or their publishers). The second type of public performance royalty (which is not recognized in the U.S.) is paid to the copyright holder of the sound recording (i.e., the record company or those who may own the masters) and its featured performers (i.e., the artist, session players, and back up vocalists).

To grasp the distinction, consider the German band, Rammstein who actually writes their songs AND performs their songs on the sound recording (like many rock bands). Because Rammstein is from Germany, they are entitled to both types of public performance royalties. In other words, Rammstein will earn a songwriter public performance royalty because they actually wrote their songs, and they will also earn a sound recording public performance royalty because they are performing the songs on the sound recording as well. Were Rammstein a U.S. band recording in the States, they would only be entitled to public performance royalties for their songs and any digital transmission of the sound recording of those songs (e.g., over the Internet). Translation--less money in the U.S.

Additionally, foreign countries that pay public performance royalties to sound recording copyright holders will not pay American artists the corresponding royalty even if an American artists' music is played on radio or television in their countries or in their theaters. Stated technically, there is an absence of "reciprocal right." This traces back to the U.S. and it's non-payment of sound recording public performance royalties. The rationale of such foreign countries is, since foreign artists do not receive public performance royalties when their songs are played publicly in the U.S., then those foreign countries should not have to pay U.S. artists when their songs are publicly played abroad. Can we blame them?

Politics and the National Association of Broadcasters

Why is the U.S. so behind the times when it comes to paying performance royalties? Politics. The National Association of Broadcasters ("NAB") is a very powerful lobbyist group in the U.S. which has effectively managed to keep legislators from amending the U.S. Copyright Act to include the sound recording copyright holders' right to receive public performance royalties in the U.S. If the U.S. Copyright Act was amended to provide payment for both types of public performance royalties (i.e., for both the musical composition and the sound recording), then the amount of money paid out by the U.S. radio and television stations would basically double.

For years, the NAB has creatively argued that U.S. radio is directly responsible for pushing sales of records, therefore, the record companies and artists already derive an economic benefit from the sales of records being broadcast over the radio. According to the NAB, providing for payment of a public performance royalty to the sound recording copyright holders (usually the record companies) would in effect allow the record companies and artists to get paid twice in relation to the public performance of sound recordings.

The NAB's argument is unfounded, however, because we are talking about two separate royalty streams (i.e., record royalties vs. public performance royalties). First, with the deregulation of radio in 1996, radio in the U.S. has basically become corporate and corrupt (again), as only those artists whose record companies fork over hundreds of thousands of dollars to independent radio promoters get radio airplay (...but this is a separate article...). Second, withholding public performance royalties to the sound recording copyright holders affects more than just record companies--it eliminates a revenue stream to artists and musicians whose performances are contained on the sound recording. Is this fair?

The New Webcasting Royalty

As dismal as all of this may be, there is hope! In 1998, Congress passed the Digital Millennium Copyright Act ("DMCA") which mandates that a license be obtained from copyright holders of sound recordings when those recordings are broadcast over the Internet (the "Webcasting License"). The Webcasting License provides that a royalty must be paid to the copyright holders of sound recordings, the artists that are featured on the sound recordings, and all session players and back up vocalists whose performances are also contained on the sound recordings. This Webcasting License requirement has opened the door for public performance monies to be paid to sound recording copyright holders in the U.S. for other mediums including radio and television. And, progress is being made to that effect.

Under the DMCA, a body called the Copyright Arbitration Royalty Panel ("CARP") is authorized to establish the public performance royalty rate payable for sound recordings broadcast/webcast over the Internet. In June 2002, CARP passed what is now referred to as the "Webcasting Royalty Act." The Webcasting Royalty Act stipulates that music providers on the Internet (i.e., broadcasters and webcasters) must pay certain royalties to copyright holders of sound recordings as well as the artists and musicians featured on those sound recordings. As of the date of this writing (March 2003), the types of royalties and the rates are as follows:

1. Per-Performance Rate for Broadcasters- For large broadcasters (defined as having at least $1 million in revenues) such as Internetworks, AOL, MSN, and Yahoo, the rate is currently set at $0.0007 per stream per person (i.e., 7 cents per every 100 persons).

2. Non-Commercial Rate- For non-profit broadcasters, such as religious organizations and colleges, the rate is currently set at $0.0002 per stream per person (i.e., 2 cents per every 100 persons).

3. Small Webcaster Rate- Pursuant to the Small Webcasters Amendments Act of 2002, the rate for small webcasters will be set at a percentage of the "net revenue" collected over a consecutive twelve month period. As of this writing, the exact percentage has not been determined. For sake of context, a small webcaster would be the likes of "Metal Mistress" streaming her favorite Joan Jett sound recordings from the desktop computer in her bedroom.

4. Pre-Existing Subscription Services Rate- For pre-existing subscription services, such as DMX, Music Choice, and Muzak, a percentage of the "net revenue" collected shall be paid and divided up among the copyright holders of sound recordings and featured artists and musicians. As of this writing, pursuant to 17 U.S.C. Section 114, the royalty rate payable to owners of sound recordings proposed by CARP is 7% of the subscription services' monthly income. This rate will escalate to 7.25% effective January 1, 2004 where it will remain until December 31, 2007.

5. Satellite Digital Audio Radio Rate- Such as XM Satellite and Sirius. As of this writing, these rates have not been determined.

Who Collects Webcasting Royalties?

Currently, the largest collection agency, SoundExchange, licenses, collects, and distributes public performance revenue for sound recording copyright holders from such digital distribution channels as cable, satellite, and webcast transmissions. Although webcasting monies can be collected directly or through the smaller lesser known digital collection agency, Royalty Logic, SoundExchange wields the most power and is the most innovative when it comes to being on the "cutting edge" of technology and the changing tides of the music industry.

In addition, SoundExchange is a not-for-profit organization whose board is comprised 50% of sound recording copyright owners (generally record companies) and 50% of artists and groups representing artists. By contrast, Royalty Logic is a for-profit company whose main business, according to industry leaders, is helping broadcasters reduce their payments to ASCAP, BMI, and SESAC for the use of music in their broadcasts.

Only two years in existence, SoundExchange currently pays out royalties once per year for the period ending October 31st of the prior year. For year 2002, SoundExchange has collected approximately 4.2 million dollars and is currently disbursing these royalties to copyright holders of sound recordings and their featured artists and musicians. In addition, SoundExchange is also holding historic webcasting money until all appeals are exhausted, a final rate is set, and the regulations surrounding the disbursing of the royalties are enacted.

How Does SoundExchange Pay?

Out of monies collected on behalf of a particular sound recording, SoundExchange pays the following:

• 50% to the sound recording copyright holder (i.e., usually the record company);

• 45% to the featured artist whose performances are embodied on the sound recording; and

• 5% is to AFTRA and the AFM for the session players and back-up vocalists whose performances are embodied on the sound recording.

The foregoing royalties are paid directly by SoundExchange to each of the record companies, artists, and unions. Incidentally, if you are an artist signed to a record company, make sure you register with SoundExhange as a featured artist on your own, so your 45% share will be sent directly to you, similar to the direct payment of songwriters by BMI, ASCAP, and SESAC. For more information on becoming a member of SoundExchange log on to www.soundexchange.com.

How Can I Collect Foreign Public Performance Income?

According to Perry Resnick, Treasurer of the Music Manager's Forum in the U.S. and a Senior Manager with the business management firm of RZO in New York, foreign broadcasters pay hundreds of millions of dollars per year to foreign record companies and their artists and a significant portion of these monies are attributable to performances by U.S. artists. U.S. record companies receive their share of these monies via their international affiliates, such as Warner Music UK or BMG Germany. However, in the majority of cases, U.S. artists are not eligible to collect this income.

In contrast, any song recorded in a foreign territory is entitled to receive public performance monies payable in that particular territory as well as other foreign territories that make payments for the public broadcasting of sound recordings. (Most countries have "reciprocal rights"). Additionally, any artist who is a citizen of any foreign country that pays such royalties will also qualify to receive these monies.

According to Resnick, the following are specific examples of how U.S. artists can receive foreign performance income:

Music Recorded Outside the United States- All songs recorded outside the U.S. are eligible to receive performance royalties in foreign countries. For example, many of the Eagles songs were recorded in London and, although all the Eagles are U.S. citizens, they are still eligible to receive this income, because the songs were recorded on UK soil. In addition, any "live" performance recorded outside the U.S. also qualifies.

Non-U.S. Citizen in the Band- If a member of any U.S. band is a foreign citizen, then that band member is entitled to foreign public performance income regardless of the fact that the songs were recorded in the U.S. For example, Shirley Manson, the lead singer of the U.S. band Garbage, is a U.K. citizen, thus, she is entitled to receive foreign performance royalties. In certain territories, she may even be able to collect the entire artist's share (on behalf of her U.S. bandmates) through a Performers Share Agreement (log on to www.AURAUK.com to download a Performers Share Agreement).

Non-U.S. Resident- If an artist is a U.S. citizen but resides in a foreign country, then that artist may be entitled to collect foreign performance income. For example, Tori Amos is a U.S. citizen but a resident of the U.K. Accordingly, she qualifies to receive public performance income on all songs recorded during her residency in the U.K.

In short, if you are an artist that qualifies under 1 of the 3 scenarios above, then you are entitled to receive foreign public performance income, and you may want to join the Association of United Recording Artists (AURA) which is a U.K. non-profit organization that represents featured recording artists and producers and which collects performance income, blank tape levies, and CD rental income from most territories in Europe, Japan, Canada, and Australia. PAMRA is the UK organization that represents non-featured performers and collects performance income on their behalf. For more information on foreign performance monies please contact Perry Resnick presnick@rzo.com.

Conclusion

With increasing consolidation of the music industry and the ever decreasing role of the major record companies in artist development, artists and their representatives need to continue the on-going fight for artist rights in the U.S. The creation of new income streams such as the Webcasting Royalty and other forms of public performance income can increase an artist's chances of success in music, even though he or she may not be signed to a major record label. Additionally, through groups such as the Recording Artist Coalition, Future of Music Coalition, and Music Managers Forum coupled with the strength of the unions (i.e., AFTRA and AFM), the fight continues and the voice of the artist will finally prevail. Depending on the record companies and the NAB to correct an already flawed system that they themselves created is an unreasonable expectation on all our parts. That expectation is tantamount to the expectation that the plantation owners were going to abolish slavery in the 1800s. Go right to your government representatives. KNOW THE ISSUES AND GET INVOLVED! For more information on the current legislative issues in the music industry please log on to www.recordingartistscoalition.com, www.futureofmusic.com or www.mmfus.com.

[Look for more articles in this series in future issues of Cosmik Debris Magazine.]

[Pictured: Dina LaPolt]

*Dina LaPolt is an entertainment attorney at LaPolt Lw, P.C. in Los Angeles. Her firm specializes in representing clients in the music industry and developing artists. The firm’s clientele include recording artists, artist owned record companies, publishers, producers, managers, film production companies, writers, authors, and actors. In addition to practicing law, Dina teaches "Legal and Practical Aspects of the Recording and Publishing Industries" at UCLA Extension in the Music Business Department, speaks regularly on panels at various music industry conferences all over the country, happens to be part owner of an independent record company, and performs in an all girl rock band called, "Trophy Girl." For more information on Dina or her firm, please log on to www.LaPoltLaw.com.

[Disclaimer: The opinions expressed in this article are those of the author and do not necessarily reflect those of the publisher and editors of Cosmik Debris Magazine. This is also not to be taken to mean Cosmik Debris is not in agreement. This very same disclaimer will run with every article and interview in this series, no matter what view is being presented.]