Chapter 2: Copyrights and Royalty Streams
Copyright laws are the backbone of the music industry. Without these statutes, intellectual property would have little value – if any.
In the music industry, copyright rules shape most of the agreements that generate recording deals between musicians, labels, publishers, and other third parties. They ensure that intellectual property holders are fairly compensated for use of their assets.
The United States has some of the most advanced copyright laws in the world. Over the last 100 years, Congress has amended legislation to benefit the protection of intellectual property and to ensure fair compensation for its use by third parties.
Music copyrights originate at the moment they are “fixed.” This means that a song has been composed on paper, recorded, or digitally saved. This standard is necessary since it allows musicians to argue they originated the assets even if they failed to register with the U.S. Copyright Office.
How Long Does the Copyright Extend?
Each royalty stream varies according to the duration of the music copyright. As an investor interested in acquiring royalties, it is important to determine the value of your return by how many years you can expect payment based on your ownership rights.
Some royalty streams can be short: Perhaps a five- to 10-year time frame. Others can be much longer. It all depends on the time when the music was composed and filed.
Copyright law ensures significant protections to the holders of the music copyright. When a copyright expires, it becomes “public domain.” This term means that anyone can reproduce it and sell the music for personal financial gain without having to pay royalties to an IP holder.
For example, during every Major League Baseball game, stadiums play the song “Take Me Out to the Ball Game” during the seventh inning.
The song was written by Albert Von Tilzer with the assistance of Jack Norworth. Now, if this song were protected under copyright -- and had been written in (let’s say) 1990 -- baseball stadiums would have to pay royalties every time that fans sing this song. Also, film producers would pay royalties if the song appeared in movies. Any artists who want to reproduce their own version would also need to pay royalties.
But because this song was written in 1908, the song is in the Public Domain and no longer protected by copyright law.
The chart below breaks down the length of each copyright term depending on the original date of origination and the correlating terms protecting the asset.
Returning to our example of “Take Me Out to the Ball Game,” anyone can use this song given its status as “Public Domain.” As the chart above indicates, all music released before 1923 holds this designation.
Music created today is protected by copyright laws when the work is “fixed in tangible medium of expression.” Any work produced after January 1, 1978 is protected for the lifetime of the composer plus an additional 70 years.
So, if an artist passed away on January 1, 2016, their music would be protected under copyright laws until January 2086. Any use or reproduction would require a royalty payment to the artist’s estate if it maintained control of its creative assets.
Types of Music Copyrights
In music, a fundamental distinction exists between the types of copyrights issued by the U.S. government. Each song has two distinct copyrights attached to it: one for the Composition and another for the Recording. These are important distinctions that dictate how music may be used and who gets paid for these different uses.
The Composition refers to the song as it is written by the songwriter, including lyrics if applicable. The Recording is the actual performance of that song by musicians.
What this means is that songwriters receive publishing rights for their contribution, while musicians – the actual recording artists – receive the recording rights. Naturally, the songwriters and the recording artists can be the same people – meaning they receive both forms of copyrights and the accompanying royalties.
What Are Recording Rights and Publishing Rights?
Every piece of music has two different kinds of rights--Recording rights and Publishing rights. Recording Rights refer to the master recording captured on different formats (physical vinyl or CDs, and digital MP3s or streaming audio). Publishing refers to the underlying Composition from which that recording was made.
Who retains these rights depends on the types of deals musicians and songwriters make with different entities in the music business. For instance, if an artist is signed to a record label, the label typically holds the Master Recording rights
and pays the artist a percentage of what those rights earn depending on their individual contracts. But some artists control their own Master Recordings as well.
Legally, the extensions of these musical rights are called “licenses.” Many different types of recording rights can be licensed to third parties, thus generating different types of Royalties.
Recording Rights Licenses
Recording Rights generate royalties from the Master Recording, and include licenses for such uses as:
This refers to the rights to sell or otherwise transfer the sound recording across all formats, including physical (vinyl/CDs), and digital (downloads and streaming), as well as the means of that transmission (cable, Internet, phone lines, etc.).
Broadcast & Public Performance
Also called “neighboring rights,” this refers to the right to play the Recording from a single source to multiple people, including:
Internet radio platforms like Pandora
Satellite platforms like BBC Radio and Sirius XM
Cable Television music channels like MTV and VH1.
International terrestrial radio (outside of the USA)
In clubs and at live performances.
At retail locations and businesses that play background music.
Synchronization rights are tied to the reproduction of a song when it is used in television and film. But that’s not all – this includes video commercials, radio advertising, even when a song plays during a busy signal on a 1-800 number. The term synchronization means that the song is coordinated with advertisements, television, film, or another system in unison.
These can include the right to use the recording to manufacture CDs or other physical formats, store recordings in online databases, remix the recordings into derivative works, or sub-licensing activity.
These are the rights to the song Composition, including the individual notes to the song and the accompanying lyrics.
Publishing rights have similar benefits to Recording rights in that the owners can license their music to third parties. However, some distinct differences exist in the variety of Publishing rights.
These refer to the right to reproduce and commercially distribute copyrighted material in physical and digital format, similar to the Distribution rights of the Sound Recording (physical CDs, digital downloads, etc.). This includes when a music publisher has allowed permission for a song to be reproduced by a separate artist. We’ve seen many cases where popular artists cover little-known songs and make them popular.
Led Zeppelin’s hit “Dazed and Confused” is a cover of a song by Jake Holmes.
Popular 1980s hit “Tainted Love” by Soft Cell was a remake of a 1964 Gloria Jones song.
The Rolling Stones hit “Time Is On My Side” was a cover of an Irma Thomas song.
Cyndi Lauper’s “Girls Just Wanna Have Fun” was a remake of Robert Hazard’s song by the same name.
Joan Jett’s “I Love Rock N Roll” is a cover of the song originally written and performed by The Arrows.
In the U.S., the government sets mechanical rights through compulsory licenses. Today, the royalties pay roughly 9.1 cents for every dollar earned by the sale of these recordings. These royalties are traditionally paid directly to the publisher, who later distribute it to the other rights holders.
Internationally, rates and distribution differ by region, and there are multiple societies that exist to track and distribute those funds.
Broadcasting and Performance Rights
Songwriters also receive performance rights for the use of the composition (as opposed to the recording) but they are limited to certain media.
They include the use of songs on television and digital services like Pandora. However, songwriters also receive royalties whenever their music plays on terrestrial radio, whereas in the U.S. there is no royalty for the sound recording.
This qualification for radio royalties is a key distinction of copyright law.
Copyright law sees the performance of songs on the radio as a form of promotion for future sales. Due to this consideration, owners of Master rights – the actual song recording – do not receive payments.
Publication and Print Rights
These rights exist to produce, sell, or license sheet music.
This form includes both physical copies in books and magazines. It also includes the transmission of sheet music and lyrics from sites like MusicNotes.com or Google Lyrics.
Owners of print rights collect royalties when music lyrics are used in books, magazines, and on websites. They also include applications that help musicians play songs at home.
Similar to the rights of Recording Artists, owners of Publishing Rights receive similar royalty payments. Under these synchronization rights, individuals pay to “synchronize” music and lyrics to advertisements, television shows, and films.
Adaptation, Translation, Arrangement Rights
It is common for songwriters and publishers to alter the song that is played. Also, these rights allow individuals to take the song and translated it into different languages.