Copyright Recapture Rights May Create New Investment Opportunities

Sep 29, 2017

Benom Plumb, Assistant Professor of Music Industry Studies at the University of Colorado Denver, reviews the biggest stories of the week affecting music royalties. He is a music industry professional, not an attorney.

Inside the Secretive, Difficult Struggle Between Artists & Labels Over Recording Copyrights (Billboard)

Benom’s Take: In light of this week’s big story about the Royalty Flow IPO, the Billboard article regarding copyright termination of sound recordings is very timely. The article sheds light on a mysterious corner of the music industry that could actually open up more opportunities for the Royalty Flow investment model. Under the 1976 Copyright Act, creators have an opportunity to recapture their copyrights assigned under previous agreements, such as recording and publishing contracts. This recapture right is excluded, however, from a classification of works known as “works-for-hire.” A “work-for-hire” is legally defined as a work prepared by an employee within the scope of their employment or a specifically commissioned work for nine specific uses.

Artists attempting to obtain ownership over their master recordings from their record label is a hot-button topic often met with resistance from the record labels. This is because of a common provision in many record contracts that specifically refer to the artist’s services and master recordings as “works-for-hire.” In fact, it’s also common to see an additional sentence that says “if for any reason” the recordings are not deemed a work-for-hire, the artist will relinquish all claims to ownership of the recordings, including copyright recapture rights. That “if for any reason” part is a sly acknowledgement of the definition of a work-for-hire.

This is because in practice, recording artists are not considered an “employee” of the record company. They are independent contractors responsible for their own taxes, insurance, etc. There is absolutely nothing about the artist-record company relationship that can be deemed an employee-employer relationship. So if the artist isn’t an employee of the record company, are the recordings specific “commissioned uses?”

Audio recordings are not specifically listed as one of the commissioned uses to be a “work-for-hire.” Most record companies plant their flag on the “work-for-hire” provision in the record contract and refuse to give the copyrights back to the artist. However, many artists have successfully regained ownership of their recordings through negotiations, and this provision in the Copyright Act. This is usually in exchange for something favorable to the label, such as exclusive distribution or administration rights to the recordings.

Record companies will likely fight to the death over valuable catalog recordings. Especially since the streaming boom has increased their catalog royalties exponentially year-over-year. The labels definitely do not want to let go of these assets. If more and more artists take back the ownership of their recordings, the labels stand to lose massive market share and downsize operations on a colossal scale.

Artists recapturing their recording copyrights might have more control and say in how their music is licensed (as well as retaining the lion share of income), but doing so comes with all the responsibility of managing those details as well.

The ideal situation is for the artist to regain control and then put someone or some company in charge of promoting, marketing, licensing and collecting the income. This is what most labels will offer.

Some artists can typically find common ground with the label here, because the artist knows they need those label services. Other artists want to get as far away from their label as possible and take full control over their recording assets.

When artists are successful in recapturing their recordings, it gives them more control over valuable assets with the freedom to seek out other financing and investment options with those assets. As more artists successfully execute their copyright recapture rights, I believe more of them will jump on board this financing model and sell an interest in their recording royalties to finance tours, new recordings or personal business.

There are two primary hurdles to all of this. First, not enough artists understand or know about their U.S. copyright recapture rights and are generally not very astute in business organization. Copyright recapture is a complex subject of law that is often clouded in mystery and misunderstanding. For example, this copyright recapture right doesn’t apply throughout most of the world. It’s primarily a “U.S.” concept not accepted throughout most of the global music business.

Second, investors need more education to understand the complexities and risks of investing in assets returned to individuals who may, or may not, be the most organized and astute business people.

Nevertheless, the opportunity is there for artists and investors alike. Many folks inside and outside of the music business stand to benefit from U.S. copyright recapture rights.

And now for this week’s other headlines: