Jazz Industry & Music Business Committee Examines The U.S. Copyright Office Study on Music Licensing Part II
By Cheryl Slay Carr
This article is the second in a series on “Copyright and the Music Marketplace,” a study issued this year by the U.S. Copyright Office. Read part one here.
A Closer Look at Music Licensing
The Copyright Office’s report is generally regarded as significant because of its potential to usher in copyright law reform through its detailed analysis for consumption and implementation by Congress. To the extent that the report’s recommendations may bring about reform in the law, the Copyright Office has specifically targeted music licensing as the scope of such changes and a broader scope is not intended. For example, its report does not address redefining the nature of exclusive rights set forth in the law, or proposing changes to fair use, or changing how copyright ownership is acquired. Those general copyright law tenets that apply to all creative products, e.g., visual art, film, literature, etc, are not at issue. As mentioned in the initial article in this series, the report focuses only on musical works and sound recordings, and specifically on music licensing. The breadth and nature of the report recommendations would indeed signal reforms to that system and to the way music business is transacted, if adopted.
Since music licensing is at the heart of the report recommendations, the objective of this installment is to provide a basic overview of music licensing and of some of the challenges that led the Copyright Office to consider alternatives to the current system. As a disclaimer, I am compelled to point out that providing a comprehensive primer on music licensing is beyond the scope of this article. There are many definitions, concepts, and layers of participation in licensing that can not be abbreviated without omitting critical information. In an effort to create a comprehensive study the Copyright Office’s report yielded a voluminous 245 pages, much of which is comprised of a description of how the current licensing system works. It provides the definitions that are integral to a fuller understanding of the concepts introduced here. That disclaimer notwithstanding, my intent is to lay a basic foundation for appreciating some of the recommendations in the report.
Licensing involves the granting of permission by copyright owners or their designees (licensors) for uses of their creative works, usually in exchange for compensation by users (licensees) of the music. Ultimately, that is the core of what is involved, which would seem to suggest that the licensing process is relatively straightforward and simple. Or could be. Yet the Copyright Office reports that the system is fraught with complications. Here are some of the components and challenges of licensing under current copyright law:
- 2 products: In the context of music there are two types of works protected by copyright law, namely, (a) sound recordings (SRs) and (b) musical works (interchangeably referenced here as songs). They are generally physically connected yet have entirely separate and different exclusive rights.
Challenge — If a licensee wants to use a particular song that has been recorded, it is usually necessary to obtain two different licenses; one for use of the SR and a separate license for use of the musical composition. For example, this is the common scenario for licensing musical samples/sampling.
Challenge – If the owner of a SR is not the same individual/entity that owns the song, then the licensee must figure out from whom to get the licenses, and generally can not obtain both simultaneously.
Challenge – SRs do not have the same rights as songs. For example, SRs have no public performance right for non-digital transmissions over terrestrial radio under current copyright law. Though two distinct products (the song and the SR) are involved in creating music, this differentiation in rights reduces the overall profitability of SRs even though in most cases a song would not be heard (and therefore sold) if it was not recorded.
- Multiple License Types: There are several types of licenses involved in the use of musical works and sound recordings.
- Mechanical license – permits licensee to reproduce and distribute a musical work to create sound recordings.
- Performance license – permits licensee to publicly perform musical works and sound recordings
- Synchronization license – permits licensee to use the musical work and SR with film (including music videos and electronic games), television programs and television ads, other audiovisual works
- Distribution license – permits licensee to disseminate physical copies of musical works and sound recordings
- Master Use license – permits licensee to reproduce a sound recording
- Derivative Works license – permits licensee to make changes to a musical work or sound recording, e.g., to create mashups and remixes
Challenge: Needing to obtain multiple licenses can be confusing.
Challenge: Multiple licenses are generally needed to use a single work. This is not necessarily a negative for copyright owners since each license generates a separate revenue stream. One issue involves creating a less cumbersome process that is also market-friendly for users.
Challenge: Mechanical licenses currently must be obtained on a song-by-song basis, i.e., there is currently no way to license say, all the works of a particular composer at one time or the entire catalogue of a particular music publisher. Blanket licenses are available for performance licenses, so the model exists, but not for mechanical rights (unless dealing directly with copyright owner, which is not customary).
- Multiple licensing entities: ASCAP, BMI, SESAC – all Performance Rights Organizations or PROs, Global Music Rights (a new collective rights entity started in 2013), SoundExchange, the Harry Fox Agency, music publishers, and copyright owners are all involved in administering the music licenses listed above.
Challenge: Seeking a license to use a work or facilitating the licensing of works that you own is more complicated when there are multiple entities responsible for the licensing process, particularly if there is no practical means of coordination between entities.
- Multiple compensation schemes and rates: Copyright law has created compulsory licenses for certain permissions to prevent monopolies and thereby prescribes both the procedures and the statutory rates set for those licenses. For example, Copyright law provides for a compulsory mechanical license. Mechanical licenses can be obtained through either the compulsory license process or through direct negotiation with the copyright owner, whereby the rate for compensation to licensor is arranged between licensor and licensee. However, the existence of a statutory rate essentially acts as a rate ceiling for negotiations.
Challenge: In addition to being subject to complex ratesetting procedures, these statutory rates can act as a ceiling for profitability for copyright owners, artists, publishers, record companies.
- Multiple licensors/copyright owners: Collaboration in creating music can engender greater creativity. However, if a song was originally co-written by more than one author and each author sub-divided their ownership with different publishers or co-owners, not only could multiple licensing agents be implicated, but it could be difficult to ascertain who all of the owners are.
Challenge: There is no single database or clearinghouse that streamlines song or SR ownership inquiries or licensing to account for multiple owners and licensing agents.
Over time as the uses for music have become more complex, so has the process for licensing those uses. Having provided examples of some of the challenges to our current licensing system, the next installment in this series will explore the Copyright Office report’s recommendations for addressing many of these challenges.
JEN will explore other music business topics during the 2016 JEN Jazz Industry & Music Business Symposium at the upcoming Annual Conference to be held in Louisville, KY. The Symposium will offer a forum dedicated to an array of business sessions, workshops and clinics on Wednesday, January 6, 2016.
Stay tuned to this column for the final installment in this series.
Cheryl Slay Carr is Associate Professor of Music Business at Belmont University, attorney and author of Music Copyright Law, and a jazz vocalist. You may reach her at firstname.lastname@example.org