By: Joseph R. Gagliano, Jr.
Performance royalties are one of the most misunderstood
aspects of compensation in the music industry. At three of my past seminars
on music industry topics, I handed out paper and pens and asked the working
musicians and songwriters in attendance to write down a definition of performance
royalties. At each seminar, less than five percent of those present even came
close to a correct definition.
The confusion stems from the fact that performance royalties are derived from a musician’s “work” as a composer, but are generated not by the act of composition but by the act of performing the composition. Under the United States Copyright Act1 , songwriters are given the exclusive right to perform their compositions. Most composers make money from their compositions by granting other persons permission to perform them: either live or on a recording. The grant of permission is called a license. Songwriters who license their work to others are entitled to receive a payment every time the work is performed. “Performance” includes not only live musical events (concerts, recitals, etc.), but every time a musical composition is played on the radio, in an elevator, as “music on hold” on a telephone system, as part of a television broadcast, on a website, as background music in a restaurant, or by a DJ in a bar or night club. In sum, (a) if you write a song, every time someone performs it live in public, you are entitled to a performance royalty; (b) if you write a song and you or someone else records it, every time that recording is played in a public setting, you are entitled to a performance royalty. Invariably, after artists and composers develop an understanding of the concept of performance royalties, the next question they as ask is – “how on earth can I possibly be paid for all of those uses and events?” Despite the numerous ways in which performance royalties are generated, the process of collecting them has been greatly simplified by the existence of performing rights organizations: the American Society of Composers and Publishers, Broadcast Music Inc. and the Society of European Stage Authors and Composers – commonly known by their initials: ASCAP, BMI and SESAC.
The process of turning a performance (live or recorded) into a royalty generating event begins when the composer registers the song with one of the performing rights organizations. Composers join a performing rights organization by “affiliating” with it. Affiliation is exclusive. Composers are permitted to join only one organization2. Once a song is registered, the performing rights organization generates performance royalties for its “affiliates” by licensing the song to “users.” Performing rights organizations generally categorize users based upon the type of business they run, however, anyone who needs to perform music (either live or recorded) in public can be considered a “user.” It would be impossible for you to individually license each and every use of your composition to every perspective user who wants to perform it live or to the various businesses that want to play a recording of your song in public. Due to the enormity of the number of individuals and business that use music on a daily basis, it would be equally impossible for performing rights organizations to do the same. As a result, most users of musical compositions get permission to play your composition and arrange to pay for doing so through a “blanket license.”3 Blanket licenses permit users to use any or all of the songs that are registered with a performing rights organization. A radio station that purchases a blanket license from both ASCAP and BMI will obtain permission to broadcast almost 99% of all currently available recorded music.
Through blanket licenses and other methods4, the performing rights organizations collect hundreds of millions of dollars in performance royalties every year. The performing rights organizations deduct their operating expenses which equals about 20% of their total collections. The balance is divided among songwriters and publishers. Since performing rights organizations were originally formed as collaborative ventures between composers and their publishers, the organizations divide the performance royalty monies collected into writers’ shares and publishers’ shares. A songwriter who has not entered into a publishing agreement with a music publisher can collect both the writer’s share and the publisher’s share of the performance royalties generated by his or her work.
Most composers are curious about how performing rights organizations determine how much money should be paid to each of their affiliated songwriters. Each of the performing rights organizations uses a somewhat different system to track the use of music registered to it and calculate the distribution of royalties, but the systems are sufficiently similar to allow us to focus on the ASCAP system as an example.
ASCAP uses two methods for tracking performances: counting and sample surveying. Television performances are counted. ASCAP tabulates uses from television cue sheets, program schedules, network and station logs. It also reviews tapes of broadcasts. Live performances are also counted. ASCAP reviews set lists obtained from concert promoters and performing artists. Internet sites, circuses, theme parks and other live venues also provide ASCAP with music use data for counting purposes. On the other hand, radio performances are sample surveyed. ASCAP performs a sample survey of all radio stations, including college stations and public radio. Instead of counting every time a song is played, it requests radio stations to provide sample information about the songs they play, when they play them and how often they play them. Users of background music such as restaurants and bars are neither counted or surveyed, but pay a flat rate based upon the trends ASCAP observes in usage by radio stations in the geographic area where the bar or restaurant is located.
Using its counting and sampling methods, ASCAP determines the number of times a song is played and the manner in which it is used and then assigns a certain number of “credits” to that song. In addition to the frequently of use, ASCAP considers factors such as: (1) type of use (theme, underscore, or promotional); (2) the geographic location of the user (major city vs. rural area); (3) time of use (prime time vs. middle of the day or night). Each of these factors is called a “weight” and credits are increased or decreased depending upon this weighing system.
ASCAP also uses a “follow-the-dollar” factor. Royalties are divided and paid based upon the medium that generates them: monies paid to ASCAP by radio stations is paid to composers (and their publishers) whose songs are used for radio performances; monies paid to ASCAP by television stations is paid to composers (and their publishers) whose songs are used for television performances. Accordingly, a classical composer whose works are never played on radio but are only performed live in the concert hall would receive nothing from the monies paid to ASCAP by radio broadcasters.
A typical ASCAP performance royalty credit calculation would
look like this:
Weighting based upon type of use
x
Weighting based upon location of user
x
Weighing based upon time of day of use
x
“Follow the dollar” factor
+
Premium credits
(bonus credits for frequently played songs)
= Total number of credits
ASCAP determines the number of credits earned by a song and then determines the credit value to each composer and songwriter. For example, presume that a song is written by one composer and he has keep 100% of the songwriter’s share and agreed to let the publisher to keep 100% of the publisher’s share.5 ASCAP determines the total number of credits earned by each song it controls on a quarterly basis. If we assume that in one quarter ASCAP’s complete catalog generated 20,000,000 million credits and ASCAP collected $40,000,000 in performance royalties in that quarter, the songwriter in our example would earn $5,000 for a song that amassed 5000 credits:
5000 credits
x
50% or .50
x
$2.00 credit value ($40,000,000 / 20,000,000 credits)
= $5,000 performance royalty
Now that you have a complete understanding of how performance royalties are generated, tracked and collected, let’s discuss the exception that undoubtedly accompanies every rule: performance royalties that are paid to people who are not the composers of the song but the performing artists or the record label that record the song.
In 1877, Thomas Edison first recorded sound on a cylinder. In 1909 Congress began recognizing a sound recording as a separate copyrightable event – separate from the copyright in the composition being recorded. The owner of a sound recording, however, was not given the right to collect royalties from the public performance of that recording. That is still true today: when your local radio station plays the Sony/Epic recording of Gloria Estefan singing “Breaking Up is Hard to Do” – neither Sony/Epic nor Gloria receive any portion of the performance royalty credits allocated to that performance under the ASCAP credit system. The credits and the royalties go to Neil Sedaka – the song’s composer. In 1995, Congress complicated this arrangement by enacting the Digital Performance Right in Sound Recordings Act (“DPRSRA”).6 Under that law, every time a composition is transmitted digitally, a performance royalty must be paid to the owner of the sound recording. This payment is separate from AND in addition to the performance royalties paid to the songwriter and publisher of the musical composition that is digitally performed. An entity called SoundExchange was formed to collect and distribute digital performance royalties. SoundExchange gathers electronic play logs from cable and satellite subscription services, non-interactive webcasters, and satellite radio stations. It issues licenses to those users, collects performance royalties from those users, collects and processes all data associated with the digital performance of the sound recordings, allocates royalties for the digital performances of sound recordings, distributes featured artists’ shares, record labels’ shares and nonfeatured artists’ shares of the royalties. Under the DPRSRA, 50% of the performance royalties belongs to the owner of the sound recording, which is generally a record label. The other 50% belongs to the performing artists. The law slices up the performing artists share by allocating 45% to the featured artist(s) and 5% to the background musicians and vocalists.
We hope that this article helps you better understand the complex nature of performance royalties. If you believe that you are entitled to performance royalties from the use of your compositions or digital performance royalties from the digital use of your recorded performance and you are not receiving them, we encourage you to contact our office and schedule a consultation.