Musicians' Copyright Royalties in the Face of a Changing Industry
Copyright is an essential part of making money in the music industry. By and large recordings have been the main source of copyright royalties, however in today's climate of declining record sales, and with digital sales still yet to truly prove themselves, are artists losing their main source of income? Or are other uses of music, such as in film, broadcasts and live performances, sufficient to fill the void? What about live concerts and the festival scene (which, in contrast to record sales, are thriving)? Here we will look at the different types of copyright that exist in music, and discuss how songwriters and other musicians can earn royalties from exploiting them. We will ask how these royalties are affected by a newly emerging music industry, one increasingly based around live performances rather than studio recordings.
What is copyright?
Copyright exists to reward individuals for their creative endeavour in expressing their ideas as, for example, a piece of music, a painting, a play or a novel. A song with lyrics consists of both a musical and literary work, thus it has two copyrights.
Copyright comes into being automatically, as soon as the creation is somehow recorded or written down, and lasts 70 years from the end of the year of death of the work's creator.
How is money made from copyright?
By recognising copyright, the law recognises that creators have a type of ownership in their creations. This essentially takes the form of a 'bundle of rights' in relation to the creation. Copyrights in a musical work, for example, include the rights to reproduce, publish, perform to the public, communicate to the public, or adapt the work.
These rights are exclusive, so that if somebody else wishes to exercise them, they will need the copyright owner's permission. Copyright owners exploit this to make money. They grant someone a licence to exercise an exclusive right in return for royalties.
Let's take a musician, Jim. Jim writes and records a song, which is a musical work protected by copyright. Anyone who wants to copy the recording in some form, use it in a movie, perform the song live, broadcast it on TV or radio, transcribe it, etc., will need to purchase a licence from Jim.
Jim might be signed to a publisher. A publisher's job is to try to get as many people as possible to use Jim's song. The more people licensed to exercise the exclusive rights, the more royalties Jim and his publisher will earn.
Jim's exclusive right to communicate his work to the public means that he can make money by having his song played on radio. His exclusive right to reproduce his musical work means that he can also make money if anyone wishes to record a cover of his song.
Jim's permission is not needed for someone to cover his song, unlike for the exercise of other exclusive rights. The cover artist must still pay Jim royalties, but the permission is automatic because of a statutory licence – a right granted by the Copyright Act. It would be very hard for Jim to stop someone covering his song unless it was previously unreleased (because composers have the right to release their work first). He would need to prove to a court that the particular cover version would significantly lower the integrity and value of the musical work itself.
If someone legally downloads Jim's song, he is entitled to both reproduction royalties (the work is reproduced in electronic form on the downloader's computer), and public communication royalties (the download is considered electronic communication to a member of the public).
Jim's publisher will try very hard to get other artists to record Jim's song, especially famous artists who will sell many records. This is because by making CDs, reproduction royalties will be payable to Jim and his publisher. Even if it is on a single as a B-side, it will still make equal money to the main single (because royalties are usually divided evenly between tracks)!
Unless the parties agree otherwise, the royalties for each track are 6.25% of the record's RRP (retail selling price), divided by the number of tracks on the record. So if Jim wrote one song on a 10-track record that sells for $20 RRP, excluding GST, then Jim will earn $20 x 6.25% x 1/10 = 12.5 cents per record sold.
But this is just the starting point, because the parties can agree otherwise. The collecting agency AMCOS, which many artists rely on, has its own licensing scheme. This specifies either 8.7% of the PPD (the wholesale price), or 6% RRP.
AMCOSstands for Australasian Mechanical Copyright Owners Society. Mechanical royalties are the royalties earned as a result of reproducing a musical work. Reproduction includes making physical or digital recordings of a musical work (or a 'substantial' part thereof), such as manufacturing CDs or making digital ringtones. AMCOS issues licences to anyone who wishes to exercise this right in a musical/lyrical work. It collects royalties on behalf of its member songwriters and distributes them accordingly, subtracting only its administration costs.
Jim can generate good income through mechanical and synchronisation royalties. Even if Jim records an album of his own material, his record company will still need to pay him mechanical royalties for each reproduction of that record! This is in addition to his cut of CD sales under his record contract (though note that in the US these mechanical royalties can be capped).
Public performance royalties
Another way that songwriters earn royalties is by exploiting the public communication exclusive right. This includes broadcasts and electronic communications (e.g. Jim's song being played on radio or aired on a television advertisement). Another exclusive right is public performance, so whenever Jim's musical work is performed in public, again royalties are payable.
Usually where copyright music is performed in public or communicated to the public, a licence from APRA (Australasian Performing Rights Association) is required. APRA collects fees from these licences and distributes them to the relevant copyright owners. Licences are required not only by radio and TV stations, but also by most businesses where music is played, such as shopping centres, live music venues, nightclubs, bars, concert halls, cinemas, gyms, and schools.
In many cases, APRA issues 'blanket' licences based on a percentage of gross income. For example, a cinema pays APRA 0.462% of its gross box office receipts. APRA then looks at the list of films played and determines which musical works were communicated to the public, and therefore to whom the royalties must be paid.
Even if Jim performs his own original music live at a pub, he will receive royalties! The pub pays APRA fees because it is responsible for music being performed to its patrons (the public). Jim (like you) should make sure he is an APRA member, and submit an APRA return at the end of each live performance!
A publisher usually gives its signed songwriter an advance. Until this advance is recouped, the publisher is entitled to the songwriter's royalties to put towards paying it off. But APRA fees are an exception. APRA pays at least 50% of royalties directly to the songwriter to keep. So starving songwriters who are unrecouped to their publishers can still earn a living by gigging and submitting APRA returns.
Other royalties from musical works
Other ways of exploiting copyright in a musical work include issuing licenses to print sheet music or lyrics, or to adapt the work (i.e. to make a new arrangement or transcription). A songwriter usually earns 10-14% of the RRP of sheet music sold.
So song writing can potentially be very lucrative. Provided you have not signed a bad deal with a publisher, record company or anyone else surrendering your rights, you can earn decent royalties from having your work downloaded, reproduced, broadcast, performed, played in public, recorded, etc.
For this reason, bands must be very clear about who has written each song. It must be clearly agreed on, documented and communicated to your publishers. Some collaborative, jam-orientated bands agree that all songs coming out of the jam room will be split evenly across band members. Some song writing duos, such as Lennon and McCartney, split everything 50/50. In other bands there is one songwriter and there is a mutual understanding that the other members do not own any copyright in the musical/lyrical works. Whatever the case, get things clear from the outset to avoid messy disputes down the track.
What about non-songwriting band members? Can they only make money from CD sales, merchandise and gigs? Not necessarily. There is a type of copyright that they might be entitled to.
Sound recordings themselves also attract copyright protection. This is in addition to, and separate from, copyright in the musical/lyrical work being recorded. This is good news for musicians who perform on records. The law recognises their creative endeavour, i.e. their performance expressed and captured on record.
The owners of copyright in sound recordings (made from 2005 onwards) are all the performers on the recording, plus whoever owns the master at the time of recording (often the record company). Each will own an equal share of the copyright, and all must consent to the granting of any licences. So if a cover band records Jim's song, the cover band will actually own the copyright in their sound recording! (But Jim must of course be paid for the reproduction of his musical work).
But sometimes performers on records do not get to own the copyright in their recordings.It is imperative that a lawyer read over any contract you sign related to a recording, because if the wording is such that you are being employed to perform on a record (such as a session musician might be) or that the record company is commissioning you to make the record, then you as a performer will not be deemed a co-owner of the copyright! This could have severe financial consequences down the track.
Recording contracts can also exclude you from owning the copyright in a sound recording! Many specify that the record company will own 100% of the copyright, rather than splitting it with the performers. Artists should try to negotiate for shared ownership of recordings at the time of signing with a label, although this can be difficult. Recording copyright can be a useful source of income, particularly for non-songwriting band members who do not receive musical work copyright royalties.
Exclusive rights for copyright in a sound recording include making copies of the recording and communicating the recording to the public (e.g. broadcasting). As with musical works, this usually means that licences are granted for a fee, so that the copyright owners are exploiting their asset in order to earn income.
The Phonographic Performance Company of Australia (PPCA) issues licences for the broadcast and communication to the public of sound recordings and music videos. PPCA is overseen by record companies themselves, so naturally it fights hard to secure better licensing fees from parties such as radio broadcasters.
PPCA collects royalties and divides them amongst the relevant record companies, which then work out how to distribute royalties to their artists. Your entitlement will depend on your record deal. It may be that the record company keeps all or some of the royalties. It may be that you are entitled to it, but only after the record company has recouped its advances (this is a likely scenario).
Royalties arising from the public communication of sound recordings are valuable because (a) they can apply to non-songwriting band members; and (b) in today's world where record sales are on the decline, they are a good way of generating income! Radio and TV are certainly not playing any less music, but it is important to realise that these royalties are much less valuable than those paid by APRA and AMCOS. One reason for this is the Commonwealth law which caps radio stations' fees for broadcasting copyright recordings at 1% of the station's gross income! This has been a controversial topic for decades, and is currently the subject of a High Court challenge (see 'PPCA takes appeal to the High Court' article in this issue).
Owners of copyright recordings can also make money through having their recordings synchronised with films or advertisements, as discussed above. Licence fees can be generous, but will depend on the size and bargaining power of the artist. Again, the performers' share of the income will usually go towards recouping the record company's advances before they actually earn any profit.
Finally, you might like to consider the earning potential of having a musical/literary work or sound recording in which you own copyright sampled. The sampling DJ will need licences from the owners of copyright in both the sound recording, and the musical work if a 'substantial' portion of the song is used'..
Copyright royalties in today's music industry
We have seen that income from copyright is based around records to a large extent, but, whilst songwriters do gain a lot from record sales and downloads, they also earn income from their musical works being used in ways unrelated to records – i.e. having their music broadcasted, sampled, adapted, printed, played in public places, synchronised in films and advertisements, and performed at gigs and concerts. These continue to be lucrative sources of income despite low record sales.
Non-songwriting musicians, on the other hand, do not earn royalties from musical works. They might own some copyright in sound recordings they performed on, but this is hard to negotiate for, and even if it is achieved, PPCA royalties are significantly less than those earned by songwriters.
So the financial interests of all musicians are hurt significantly by decreased record sales, although songwriters have secondary income sources to fall back on.
But demand for music has not declined. The market has just shifted. Hard-working bands can earn exceptional income from touring and gigging. In contrast to times when concert tickets were cheaper than albums, today we see festival ticket prices exceeding $500 and selling out instantly. There is certainly money to be made in live music.
Whilst it is only songwriters who earn APRA fees from these live performances, that is precisely why copyright exists. It rewards the creative endeavours of individuals who have expressed their ideas in crafting music.
Of course certain types of artists benefit from the festival boom more than others. But the art of the studio album is far from dead. Live acts often sell great quantities of CDs at their gigs. The director of Bluesfest was recently quoted in a newspaper article as saying that tens of thousands of records are purchased at Bluesfest each year. These are recordings not only of bands who play at Bluesfest, but also of other artists that the organisers think the audience is likely to enjoy. So perhaps it is a matter of the right bands and the right audiences finding each other.
David Szental is a recent graduate of Bachelor of Arts / Bachelor of Laws (Hons) at Monash University. He is a Melbourne-based drummer and music enthusiast.