Recording and Music Publishing Business and ContractsIPIC McGill Copyright Master Class

Media Copyright Issues PanelAugust 8, 2014

Susan H. Abramovitch, PartnerGowling Lafleur Henderson LLPPhone: (416) 814-5673susan.abramovitch@gowlings.com

Overview

The Rights Owners in the Music Industry:I. The Artist/Songwriter

II. The Record Label

III. The Music Publisher

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Overview

I. The Artist /Songwriter as Original OwnerA. Composition vs. Recording B. The Rights of the Artist/Songwriter

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Overview

II. The Record Label A. Record Label

B. Types of Rights Controlled by the Record Label 1. Agreements with Record Companies

C. Understanding an Artist Recording Agreement1. Term

2. Territory

3. Advance and Recording Budget

4. Royaltiesa) Pricing

b) Packaging and Deductions

c) Net Sales and Free Goods

d) Reduction for CDs/New Tech

e) Royalty Rate

5. Accounting

6. Mechanical Royalties

7. Creative and Marketing Controls

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Overview

III. The Music PublisherA. Types of Rights Controlled by the Music PublisherB. Publishing Agreements

1. Ownership of Copyright 2. Term and Reversion Copyright 3. Administration and Creative Control

C. Income Splits D. “At Source” vs. “Receipts” Deals E. Income from Compositions

1. Mechanical Royalties2. Public Performance Royalties3. Combined Rates for Online Music Services4. Synchronization5. Advances

IV. 360 Deals

I The Artist/Songwriter

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I A) Composition vs. Recording

All rights start with the artist/songwriter

• Composition vs. recording:• Songwriter writes composition

• Copyright subsists immediately

• Artist performs/records music• Copyright subsists immediately

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I B) The Rights of the Artist/Songwriter

• A composition is a musical work• s.2: “musical work” means any work of music or musical composition, with

or without words, and includes any compilation thereof;

• Copyright in composition includes the rights to:• Publish if unpublished

• s.3(1): if the work is unpublished, to publish the work or any substantial part thereof

• Produce or reproduce in any material form• s.3(1): the sole right to produce or reproduce the work or any

substantial part thereof in any material form whatever

• Record• 3(1)(d): in the case of a literary, dramatic or musical work, to make any

sound recording, cinematograph film or other contrivance by means of which the work may be mechanically reproduced or performed

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I B) The Rights of the Artist/Songwriter

• Copyright in composition includes the rights to:• Perform in public/communicate by telecommunication

• s.3(1): to perform the work or any substantial part thereof in public• s.3(1)(f): in the case of any literary, dramatic, musical or artistic work,

to communicate the work to the public by telecommunication

• Including making available• s. 2.4(1.1): …communication of a work or other subject-matter to the public

by telecommunication includes making it available to the public by telecommunication in a way that allows a member of the public to have access to it from a place and at a time individually chosen by that member of the public

• Synchronize with moving picture• s.3(1)(e): in the case of any literary, dramatic, musical or artistic work, to

reproduce, adapt and publicly present the work as a

cinematographic work

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I B) The Rights of the Artist/Songwriter

• Copyright in performer’s performance includes the rights to:• s.15(1)(a)(i), (ii): Perform in public/communicate by

telecommunication• s.15(1)(a)(iii), (b): Fix in any material form/reproduce

if sound recording• s.15(1.1)(d): Make available

• Copyright in sound recording includes the rights to:• s.18(1)(a): Publish for the first time• s.18(1)(b) Reproduce in any material form• s.18(1.1)(a): Make available

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II The Record Label

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II A) Record Labels

• Various types of record labels• Major Labels:

• Sony, Universal, Warner • Independent Labels:

• True North, Maple, Roadrunner, Secret City Records

• Out of the Box Labels:• Starbucks, Electronic Arts, etc.

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II B) Types of Rights Controlled by the Record Label

Rights of the Record Label Depend on the Type of

Contract the Artist Enters Into

• Three Main Deal Structures:1. Artist Recording Agreement

2. License Agreement

3. Pressing and Distribution Agreement (“P&D”)

II B 1) Agreements with Record Companies

1. Artist Recording Agreement• Label:

• Responsible for marketing, promotion, manufacturing, distribution

• Pays for recording• Exclusive recording services

rendered to the label by the artist

• Owns copyright in recording (in perpetuity)

• Artist:• Paid advance/royalties

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II B 1) Agreements with Record Companies

2. License Agreement• Label:

• Responsible for marketing, promotion, manufacturing and distribution

• Exclusive recording services rendered to the label by the artist

• All rights in the record exclusively licensed to the label for the exploitation period

• Artist:• Produces own record• Retains ownership of copyright• Paid advance/royalties

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II B 1) Agreements with Record Companies

3. Pressing and Distribution Agreement• Label:

• Responsible for distribution• Granted exclusive distribution rights for a Term• Retains distribution fee and pays balance of net

proceeds to Artist• Artist:

• Produces own record• Retains ownership of copyright• Responsible for marketing,

promotion, manufacturing

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II C) Understanding an Artist Recording Agreement

Key Components of an Artist Recording

Agreement:1. Term

2. Territory

3. Advance and Recording Budget

4. Royalties

5. Accounting

6. Mechanical Royalties

7. Creative and Marketing

Controls

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II C 1) Term

• Measured in terms of a number of album cycles

• World versus specific territories• Release commitments

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II C 2) Territory

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II C 3) Advance and Recording Budget

• An Advance:• A lump-sum payment made by the record company to

the recording artist

• Advance + Recording Costs vs. “All-in” Recording Fund:• “All in”: includes funds

intended to cover both the

recording costs and the

artist advance

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II C 4) Royalties

• Expressed in terms of a percentage, or a number of “points”• To assess the actual value of a deal, a “penny rate

calculation” must be undertaken

PENNY RATE

equals SLRP or PPD

less PACKAGING DEDUCTION

less FREEGOODS

times ROYALTYRATE

▼

► ◄

[The calculation of SLRP – PD – FG is sometimescalled the “Royalty Base Price”]

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II C 4a) Pricing (SRLP/PPD)

• SRLP: Suggested Retail List Price• PPD: Published Price to dealers

• In Canada, the PPD published by most record companies is around $12.00 per CD

• Digital downloads- net receipts basis

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II C 4b) Packaging Deductions

• CDs - 25% packaging deduction

• Downloads- Rationale for packaging deduction?

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II C 4c) Net Sales and Free Goods

• Free goods ≠ Free product• Free goods = Discounts

• Can be a % discount or free records given for resale• Deduction may appear as:

• Royalties will be paid on X% of records sold (e.g. 85% of records sold); OR

• Royalties are payable on 100% of records sold; provided that “records sold” will be defined as records shipped less free goods and/or discounts

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II C 4d) Reduction for CDs/New Tech

• CDs - Historically 20% reduction• “New technology”- Up to 25% reduction• It is important to negotiate progressive reduction

of the reduction over time

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II C 4e) Royalty Rate

• CDs• 12-18% SRLP or 15-30% PPD.

• Digital Downloads• Danger: same rate as CDs but applied to net receipts

vs. 35-50% of net receipts

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II C 5) Accounting

• Accounting1.Semi-annual accounting (within ninety days)

2.Reserves for returns

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II C 6) Mechanical Royalties

• Royalties paid to the publisher for the right to embody compositions on records

• Rate is fixed by industry-negotiated agreement or certified tariff

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II C 7) Creative and Marketing Controls

• Approval rights over:• Producer and studio • Compositions and sequencing• Videos and singles• Re-editing, re-mixing and re-mastering• Synch licensing• Artwork• “Non-phonographic uses”

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III The Music Publisher

Music publishing = Exploitation of musical

compositions (as opposed to recordings)

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III A) Types of Rights Controlled by Music Publisher

Three principal rights:• Reproduction (“mechanical”) rights

• Includes any physical reproduction (CD, vinyl etc.) and digital downloads

• s.3(1): the sole right to produce or reproduce the work or any substantial part thereof in any material form whatever

• Public performance/Communication by telecommunication right• Radio, television, live performances, internet streaming• s.3(1): to perform the work or any substantial part thereof in public• s.3(1)(f): in the case of any literary, dramatic, musical or artistic work,

to communicate the work to the public by telecommunication• Including making available - s. 2.4(1.1): …communication of a work or other

subject-matter to the public by telecommunication includes making it available to the public by telecommunication in a way that allows a member of the public to have access to it from a place and at a time individually chosen by that member of the public

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III A) Types of Rights Controlled by Music Publisher

Three principal rights (cont.):• Synchronization

• Putting music in a TV show, movie, video game• s.3(1)(e): in the case of any literary, dramatic, musical or artistic work,

to reproduce, adapt and publicly present the work as a cinematographic work;

III B) Publishing Agreements

• Publishing Agreements• Administered directly by songwriter or by music publisher• Songwriter may want to negotiate approvals over uses

• 3 main publishing agreement structures:

1.“Full” Publishing Agreement

2.Co-Publishing Agreement

3.Administration Agreement

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III B 1) Ownership of Copyright

1. Full Publishing Agreement• Assignment of 100% of

copyright

2. Co-Publishing Agreement• Assignment of 50% of copyright

3. Administration Agreement• No assignment of copyright

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III B 2) Term and Reversion of Copyright

1. Full Publishing Agreements & 2. Co-Publishing Agreements:

A. Term• The period during which the songwriter is required to deliver

compositions to the publisher• Measured as # of records or # of years

B. Length of time the publisher retains rights in songs delivered during Term• Ranges from a few years to life of copyright• “Reversion” of the copyrights

• Songwriter may regain ownership of copyright and/or administrative rights at some point over the life of copyright

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III B 2) Term and Reversion of Copyright

3. Administration AgreementsA. Term

• The period of time over which administration happens

B. No Reversion

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III B 3) Administration and Creative Control

• Administration of composition involves• Registration of copyright• Defense of the copyright in infringing situations• Licensing exploitation• Collection and distribution of income derived from the composition

• Typical approval rights• Synchronization Licenses• Issuance of Mechanical Licenses for less than the statutory (or

“Stat” rate)• Changes to the English language lyric, title or the basic melody• Foreign Translations• Parodies

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III C) Income Splits

1. Full Publishing Agreement• Publisher’s Share ≈ 50%• Songwriter’s Share ≈ 50%

2. Co-Publishing Agreement• Publisher’s share ≈ 25%• Songwriter’s share ≈ 75%

• Calculated “at source” or based on the publisher’s “receipts”

3. Administration Agreement• Publisher’s share ≈ 5 - 20%• Songwriter’s Share ≈ 80 – 95%

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III D) “At Source” vs. “Receipts” Deals

• “At Source” vs. “Receipts” Deal• “At Source”: Songwriter’s share calculated upon

gross amount paid at the source by licensee using composition

• “Receipts”: Publisher remits to songwriter 75% of that which it receives

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III E) Income from Compositions

Income from Compositions• Mechanical Royalties• Public Performance Royalties• Synchronization Income• Print + Other

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III E 1) Mechanical Royalties

Physical• CMRRA/CRIA Agreement

• 8.3¢ for song 5 mins. or less + 1.66¢/ extra minute(s) or fraction thereof

Digital• CMRRA/SODRAC (CSI) Tariff - Online Music Services (2008-

2010)• Royalties payable by online music services for the

reproduction of musical compositions• Permanent downloads (temporary or limited) downloads +

streaming

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III E 2) Public Performance Royalties

• Radio play• Television broadcast• Live performance• Streaming over the internet (but

not downloads)• Rates are set by tariff approved

by Copyright Board• Royalties administered by

SOCAN

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III E 3) Combined Rates for Online Music Services

Certified Rates for Online Music Services

CSI Rate SOCAN Rate Total Rate

Permanent Downloads

9.9% N/A 9.9% of retail price

Limited Downloads

9.9% N/A 9.9% of subscriber fees

On-demand Streaming

5.18% 7.6% 12.78% of subscriber fees

The N/A indicators in red are a result of the Supreme Court’s 2012 ESA v SOCAN decision.

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III E 4) Synchronization Income

• Negotiated between the parties• Whatever the market will bear as consideration

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III E 5) Advances

• Non-returnable pre-payment to the songwriter of songwriter’s royalties

• Crucial to assess value of deal to ensure not being paid pipeline

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IV 360 Deals

IV “360” Deals

• “360” Deals• Becoming more common as risk increases in music industry• Artist engages a single company for multiple functions: manager,

record company, publisher, merchandising• Financially can be attractive as 360 deals typically split net

receipts rather than pay record-based royalty rate• Risky as more egg in one basket• One-stop shopping

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Thank You

Susan H. Abramovitch, PartnerGowling Lafleur Henderson LLPPhone: (416) 814-5673susan.abramovitch@gowlings.com