BUSINESS OF MUSIC

LECTURE - WEEK 2
 Last Week

• We introduced the unit.

• We considered the learning outcomes for the unit.

• We considered the origins of the recorded and live music

industries

• We blew up my dog’s Instagram account

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 Introduction -Vital Basic Fact

• When people think of “music” they tend to think of what they hear
on the radio or stream on Spotify as “the track” – a single entity
that was created by “the artist”.
• People naturally assume that the artist somehow ”owns” that track
and is somehow making money from it.
• So when Taylor Swift decided to record new versions of recordings
people naturally think that some creative or business situation led
to her wanting to do that.
• But few people actually know or care about the legal, structural
or institutional basis that underpins the business of music.
• And why should they? – none of that impacts on whether they like
the track or not
 Introduction -Vital Basic Fact

• But this unit is called The Business of Music – not “Being a Fan of
Music” so I’m obliged to lift the veil on this important piece of
information.
• The “track” as you know it actually consists of two things:
• 1. “the song” – that is the work of the songwriter – the person(s) who
composed the music and lyrics.
• 2. “the recording” – that is the work of whoever it was that made the
recording!
• Usually “the recording” is a recording of “the song” and that’s
when things get interesting.
• Maybe the songwriter and the person making the recording are
the same person – but maybe they are not?
 Introduction -Vital Basic Fact

• So it actually becomes important to establish who owns the song and

who owns the recording.
• And by ”own” I don’t mean who owns the tape or the digital file or the
book where the lyrics were scribbled down.
• What is important is who owns ”the rights” to those two separate (but
sometimes connected) assets.
• That’s requires understanding a thing called “copyright”
 Copyright In The Recorded
Music Industry

• Copyright is one form of intellectual property, and as such, is the

subject of a large body of law.
• Copyright law creates incentives for people to invest their time, talent
and other resources into developing new material, particularly cultural
content, which benefits society.
• The impact of copyright on the music industry – specifically recording
and publishing – is very clear in the Copyright Act 1968 (Cth) – the
Australian copyright law.
• Similar laws apply around the world.
MEET HARRY*….

* HARRY IS NOT A HIPSTER FROM NORTHCOTE, HARRY IS A CAVEMAN

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* NOT HER REAL NAME

 Copyright In The Recorded
Music Industry
• Copyright only protects specific things or “subject-matters” stated in the
Copyright Act 1968 (Cth).
• Copyright protects “works”, being:
• literary works;
• dramatic works;
• musical works; and
• artistic works.

• Copyright also protects “subject-matter other than works”, being:

• films;

• sound recordings;
• broadcasts; and

• published editions.
 Copyright In The Recorded
Music Industry

• It’s not hard to see that a song fits the description of “musical work” and that
the recording of a performance of music is within the meaning of “sound
recording”.
• Hence the creations of songwriters and recording artists are protected by
copyright and hence the protections given by copyright are the legal basis
of the recording and publishing industries.
• Specifically copyright law provides the owner of a copyright work the
exclusive right to reproduce the work and to communicate the work to the
public.
 Copyright In The Recorded
Music Industry
• So its not hard to imagine that a business would spring up around these rights.
• The owner of copyright in a song has an exclusive right to reproduce a song (in
any form) or to perform/communicate the song publicly.
• They also have the exclusive right to give permission for others to either
reproduce or publically perform the song.
• It follows that they then have the right to negotiate terms and conditions upon
which they will grant that permission and those terms and conditions may
include a payment in some form.
• From there the notion of a “business” built around those payments is easy to
understand.
• That business is called “music publishing”
 Copyright In The Recorded
Music Industry
• The owner of copyright in a sound recording has an exclusive right to reproduce
that recording (in any form) or to communicate the recording publically.
• They also have the exclusive right to give permission for others to either
reproduce or communicate the sound recording.
• It follows that they then have the right to negotiate terms and conditions upon
which they will grant that permission and those terms and conditions may
include a payment in some form.
• From there the notion of a “business” built around those payments is equally easy
to understand.
• That business is called “the recorded music industry”.
 Copyright In The Recorded
Music Industry

§ Not only does copyright form the commercial basis of both recording and
publishing industries but it also is at the heart of most of the contracts, disputes
and evolutionary issues that those industries face.
§ If you look at recording contracts and publishing contracts (which we will) most
of the clauses are about who owns the copyright, what are they allowed to do
with it and what does the creator of the work receive (payments or services)
§ And most of the disputes in these industries – especially those relating to
payments in the digital era (think Napster)are firmly based in the law of
copyright.
 Overview

§ That short introduction should help you understand the legal basis of the
Recording and Publishing Industries.
§ We will return to looking at the business models of companies in those industries
next week
§ We will also consider the nature of the services provided by people and
businesses within those industries aimed at enhancing the value of those
copyright assets and the returns they generate.
§ But before that we need to understand how the ownership and control of
copyrights in the songs and recording generate income.
§ Because its generally the income streams rather than the ownership itself that is
important.
Mechanical Royalties

• Every time a CD or any device containing music is manufactured

and sold, it will generate a mechanical royalty
• The mechanical royalty is paid to the owner of the copyright in the
music and lyrics
• Mechanical royalty gets its name from the old mechanical
devices that were once used to distribute and reproduce music.
• These days the definition of a “device” has extended to include
no just physical devices such as vinyl albums, CD’s and cassettes,
but also to include a digital file that may be downloaded.
Mechanical Royalties

• There is a lot of logic to the idea of a mechanical royalty. A

songwriter who writes a song is not necessarily the same person
who performs or records the song.
• Logically there is a separate copyright in the song to the
copyright in the sound recording or in the performance and
where there is a separate copyright there is a separate royalty
payable.
• This separate royalty - where a song is used in a a reproduction of
a recording – is what is known as a mechanical royalty.
Calculation of Mechanical
Royalties

• The rate of the mechanical royalty is actually set by statute

and is payable to the songwriter.

• The rate of the mechanical royalty varies between country and

country as it is up to each country to determine the rate under
their own law.
• However, the rate does not change when the artist and the
songwriter are the same person. Strictly – if an artist records and
releases the album independently they are required to pay
themselves (wearing the songwriter hat) a mechanical royalty.
Calculation of Mechanical
Royalties

§ When there are a number of tracks on one recording, the mechanical

royalty is divided equally between each of the musical works. This is
known as a “pro-rata” calculation.
§ Pro rata per track applies regardless of the popularity, length or any
other feature of the tracks.
§ On an album that contained ten songs, each song would earn exactly
the same amount of money in mechanical royalties — even if one
was a hit the other were not.
Performance Royalties

• Performance Royalties are payable whenever a song is

performed or communicated to the public.

• Some of these situations include:

• background music in a shopping centre
• a live performance of a solo acoustic singer in a pub
• an international concert performance -Entertainment Centre
• music played on a jukebox
• music used in a TV commercial
• music played on the radio
• music played in a hair salon
• music used on a telephone ʻon-holdʼ system
• a dance party at a disused warehouse.
Performance Royalties

• Performance Royalties are collected on behalf of the songwriter by a

Performing Rights Organisation (PRO)
• In Australian this is APRA – the Australian Performing Rights
Association
• Unlike mechanical royalties, there is no simple formula to calculate
the amount of public performance and broadcast royalty payable.
• PRO’s issue ʻblanket licencesʼ to some users of music
• Those users donʼt have to log the exact songs that they play.
• Other users, such as radio and TV stations, are required to log an
exact list of what music they play. The money generated from these
uses is more easily attributed to the actual songwriters.
 Synchronization

• When this happens the song is said to be ‘synchronized’ and the the
songwriter is entitled to receive a synchronization fee or royalty.
• The permission that is needed to synchronize a song to a visual image is
called a synchronization license or a ‘sync’ license for short.
 Synchronization

• A synchronization license grants permission to to embed or attach a song

or a musical composition with a visual image, usually for a specified time
duration.
• It usually relates to film or television but it is required whenever music is used
together with visuals.
• The license is granted by the controller of the copyright – either the original
composer or the publisher.
 Synchronization

• A synchronization license is usually coupled with a master license.

• A master license is also required if the user wants to use a sound recording of the
song as well as the song.
• The master license is granted by the owner of the sound recording – that is
usually the record company.
 Synchronization

• You need both licenses because the person giving the permission in each case is
usually different – the songwriter or publisher gives the synch license and the
recording artist or record company gives the master license.
 Synchronization

• There may be numerous recording of

a song, but the song remains the
same.

• EG: The song "Hallelujah” was written

by Leonard Cohen but it has been
recorded by many artists including
Jeff Buckley, Rufus Wainwright and
many others.
 Synchronization

• It doesn’t matter which version the filmmaker wants to use they will need
to get a synch license from Leonard Cohen’s publisher.
• The filmmaker will only have to get a master license from the owner of the
recording that they use.
• Leonard Cohen or his publisher wont have any say in which sound
recording is used – unless of course they choose to withhold permission on
the sync license.
 Synchronisation

• The fees that a songwriter can

charge for a synchronization license
can vary a great deal.
• It will depend on factors such as the
territory, whether the film is a major or
independent film, how important the
song is to the film/scene, how many
seconds the song is being used,
where the song is being used
(background/foreground/opening or
closing titles etc.)
• For example a song used in a
wedding scene of a major movie, will
get paid a lot more than if a
character in the film casually sings a
couple of lines as they are driving in
their car.
 Summary

• The way copyright owners in the music industry generate income comes
down to being made for the reproduction, public performance and use of
the copyrights – both the copyright in the music composition and the
copyright in the sound recording.
• The owner of the copyright in the musical composition is paid a “mechanical
royalty” when the song is reproduced.
• Both copyright owners (song and sound recording) receive payments when
the song and the sound recording are publicly communicated
• Both copyright owners (song and sound recording) receive payments when
the song and the sound recording are “used” in visual works. In the case of
the song that payment is called a ”synchronization fee” and in the case of
the recording it is called a “master use fee”.