Creating Value from Music – the Rights that Make it Possible

These rights are defined within national copyright laws which are, in large part, shaped by international treaties, many of which are administered by WIPO (see box). Copyright law defines the rights conferred on authors of original works, and those who perform them, as well as those who support their widespread dissemination (i.e. record companies and broadcasters).

Once a work has been created – lyrics or musical notes written down, arranged or recorded - copyright protection kicks in. There is no formal obligation to register a work with a national authority, although in some countries, such the US, registering a work with the Library of Congress is the only way to bring a court action for infringement.

Under the 1886 WIPO Berne Convention for the Protection of Literary and Artistic Works, an original work is protected for a minimum of 50 years after the author’s death but in many jurisdictions that figure can be 70 years or more.

What is the purpose of copyright?

In a nutshell, copyright enables those who hold rights in a work to decide how, when and where it may be used and by whom. One of the purposes of copyright is to create the conditions for creators to be able: to earn a living from their talent by getting a financial return on the time and energy they put into producing a work and being recognized as its author.

Copyright includes economic rights which give the creator the right to authorize, prohibit or obtain financial compensation (in the form of equitable remuneration) for:

• the reproduction of a work, for example, on a CD, online or in a film;
• the distribution of copies of a work;
• the communication to the public of a work. If a piece of music is performed in public or played over a sound system in a shopping mall or a disco, a royalty is payable to authors, performers and/or right holders according to the national legislation.
• broadcasting or otherwise making available a work to the public (i.e. via radio, TV or online)
• the adaptation of a work (if someone translates the lyrics of a song and wants to record these using the same music as that of the original song, or changes an original work by, for example, adding new elements to it, they first need to get authorization from those holding rights in the original work). The new adapted work qualifies for copyright protection in its own right. Depending on the terms of the agreement to license the original work, anyone seeking to publish or use such a work may need to get authorization to do so from those holding rights in the original work.

Copyright also confers moral rights (Article 6bis of the Berne Convention) allowing the creator of a work to claim authorship in it (the right of paternity or attribution) and to object to any modification of it that may be damaging or prejudicial to them (the right of integrity).

Many of our favourite artists do not write their own songs, they perform and interpret works created by others. But in so doing, they add their own unique flavor to a performance and therefore also enjoy certain copyright-like rights, known as related rights in their performance. Other beneficiaries of related rights include record companies (formally known as “producers of phonograms”) and broadcasting organizations. Each adds specific value to a work whether through their own individual creativity, their know-how, or their financial and organizational resources.

Performers benefitting from related rights can authorize - or stop - others from recording (fixing) or broadcasting their live performance or otherwise distribute, broadcast, make available or communicate to the public their recorded performances. Or they may opt to claim “equitable remuneration” which refers to the rights of performers and producers to be paid fairly for the broadcast and communication to the public of their works. These rights are typically assigned to collective management organizations (CMOs) who enforce them on behalf of performers and/or producers.

The 2012 Beijing Treaty on Audiovisual Performances and some national laws also grant performers moral rights of paternity or attribution and integrity in their performance (see above). The “making available right” introduced in 1996 (by the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT)) gives authors, performers and phonogram producers the right to authorize or prohibit the dissemination of their works and other protected material through digital means such as streaming.

Who else benefits from related rights?

Producers of phonograms (those responsible for the fixation of a work, such as its recording) also enjoy related rights whereby they can authorize or block the reproduction, importation and distribution of their “phonograms” or records, CDs, etc. They too enjoy the right to equitable remuneration for broadcasting and communication to the public of their recordings.

Broadcasters, who invest considerable sums in programming and the transmission and re-transmission of broadcasts, also have the right to authorize or not the re-broadcasting, fixation and copying of their broadcasts.

Duration of related rights?

The related rights of performers and phonogram producers are protected for 50 years under the Beijing Treaty, the WPPT and the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) - from the date when the work was first recorded or date of performance. The rights of broadcasting organizations, however, are protected for 20 years but this may change if on-going negotiations result in a new international treaty for broadcasters.

Are these rights limited in any way?

Under certain circumstances, there are limitations on copyright and related rights (as set out in international and national copyright laws). For example, when someone wants to use a work or a portion of it for teaching, scientific research, news reporting, etc.

Most countries recognize the possibility of using work without the right owner’s authorization but may regulate such use in different ways. Some countries have a list of “permitted uses” whilst others have a general provision in their copyright law (e.g. “fair use” in the USA). Considerations in determining “fair use” include the nature and purpose of use, the nature of the work used; the amount of the work used; and the likely impact on the work’s commercial value.

As a guiding principle, the “free use” of protected works must be confined to certain specific instances; must not “conflict with the normal exploitation of the work”; and must “not unreasonably prejudice the legitimate interests of the author (or right holder).” This is often referred to as the three-step test.

How can these rights be used?

The owner of economic rights in a musical work (moral rights can never be transferred from the original author) can use them to generate income. They can sell or license them to a third party – a company or individual who is well placed to commercialize the work - in return for a payment known as a royalty, where payments usually depend on the actual use of the work. They can assign the rights to authorize or prohibit certain or all of the acts outlined above. In both instances, the person to whom the rights are sold or assigned becomes the new owner of the copyright. In some countries, e.g. Germany, assignment is not legally possible and so works can only be licensed.

Licensing involves the copyright owner entering into a deal with a third party, authorizing it to use the work for a specific purpose and time period. For example, a songwriter may give permission to a music publisher to authorize the recording of his or her song by performers and record companies. These licenses may be exclusive, involving only one party, or non-exclusive involving multiple parties.

Because it is simply is practical for authors and performers to negotiate separate licensing deals with every single radio or television station, or business that wants to use their work, musicians and other creators often sign up with, and in so doing, grant exclusive licenses to, a collective management organization.

Acting on behalf of songwriters, musicians and performers, CMOs connect creators with those who want to use their work. National laws may also authorize a CMO to negotiate on behalf of authors and performers. CMOs authorize the use of a musician’s work; collect and distribute licensing fees or royalties, and also keep tabs on any misuse or infringement.

Every piece of music is protected by copyright. There is copyright in the music itself and in it's lyrics and related rights in the sound recording. If anyone wants to use a musical work, or a portion of it, they must obtain the permission of the copyright holder(s), except in the cases covered by a limitation (see above). Just as CMOs can help artists manage their music and collect associated royalties; they can also help those seeking to obtain permission to use a protected work.

Sampling (when someone takes a part of a sound recording and re-integrates it into a new piece of work – for commercial purposes) or mash-ups (whereby a song is created by blending other pre-recorded works) without obtaining authorization from the owners of rights in the original works is a risky business and can and often does result in lawsuits.

Websites, such as WhoSampled.com, or mobile apps, such as Shazam’s music-identification service, make it possible to dig deeper into music and to identify direct connections with thousands of songs. Check out the clips relating to Robin Thicke and Pharell Williams’ Blurred Lines, , that a recent court case in the US held to have infringed the 19977 Marvin Gaye hit, Got to Give it Up .

Some artists feel strongly that artists should have the final say in when and how their work is used and by whom. “Approval is the most important right that a recording artist or songwriter has and they need to retain the ability to approve how their works are used, notes Aerosmith’s lead singer, Steven Tyler. Others, however, are happy to make their work available for others to use. Take for example, the work that is posted on the Converse Rubber Tracks Sampling Library. Musicians contributing to this extensive library of royalty free samples, see sampling as a way of giving something back to the community.

“Investment in music cannot be taken for granted, notes IFPI’s Chairman, Placido Domingo, “Like the creativity of the artist, it is something that needs to be supported and protected by a secure legal environment. That is why a safe, adequate copyright framework for artists and labels is so crucial.”

The music industry depends on copyright. “It is copyright that makes investment in music possible. It is copyright that allows the industry that helps artists, gain a return on its investment and plough back new funds and resources into the next generation of talent,” the Spanish tenor said.

Rights: the currency of creativity

The rights held by those who make music are a sort of currency that can be traded when negotiating deals within the industry. For example, songwriters and composers enter into publishing contracts with a music publisher under which they assign rights to their lyrics, composition and musical arrangement. The publisher, in turn, promotes their work among recording artists and within media outlets (film, TV etc.) and might also collect royalties which are then redistributed to the songwriters and composers.
Music publishers handle various kinds of royalties:

• Mechanical royalties which are generated from the sale of recorded music (a CD or a digital download) and are paid to publishers by record companies;
• Public Performance royalties which are collected by performance rights organizations (e.g. SESAC, BMI, ASCAP, PRS) and are paid by radio stations, companies, basically anyone who broadcasts recorded music;
• Synchronization royalties which are paid when a piece of music is used in a film or TV soundtrack.

Many aspiring musicians dream of securing a deal with a major record label. “Record companies are the primary investors in the careers of musicians,” notes IFPI in its 2014 report “Investing in Music” (www.ifpi.org/investing-in-music.php). In 2013, record companies invested USD4.3 billion worldwide in developing and marketing artists and their repertoire.

In signing an exclusive recording contract with a record company, artists can expect support in developing their career, promotion of their work and a welcome financial advance (anything from USD50,000 to USD350,000).

The role of recording companies is “to discover, nurture and promote artists,” IFPI notes, and to connect them with the broadest possible audience. They offer financial support and access to wide-ranging experience, skills and connections. A recording deal can help talented artists stand out in a very crowded and competitive marketplace. “The relationship between artists and record labels remains the essential partnership at the heart of the modern music business,” notes IFPI.

Daniel Glass, President and found of Glassnote Records sums up the continuing relevance of record companies to artists as follows: “Rarely does an artist break through without a team. A team supports artist development, gets music in the stores, gets it on radio stations, organizes promotion, press and TV. A team helps you cut through the mass of music on streaming and social networks to get you to the forefront so that people can discover you.”

With the expansion of the digital music marketplace, the range of services offered by record companies to artists is expanding. Max Hole, Chairman and Chief Executive of Universal Music Group International explains, “record companies’ importance to artists has expanded, not contracted. In the past, we provided A&R [artists and their repertoire], marketing, promotion, sales and physical distribution. In 2014, we still do all this, but so much more as well. We are now active across hundreds of digital partners, we create digital campaigns, new platform services, give our artists access to in-depth consumer insight, data research and analysis, social media promotion, direct to consumer campaigns, as well as product development such as new digital formats, deluxe products, mobile services and opening up countless new revenue streams.”

Many upcoming musicians develop their own online networks on social media in an endeavor to increase their fan base. While it is exceptional that an artist hits the big time this way (think Psy and Gangnam Style), record companies are increasingly seeing social media networks as a means of gauging an artist’s popularity.

The risks record companies take

Record companies bear the brunt of the risk associated with breaking a new artist into a major market, which can cost between USD200,000 and USD700,000. With only a few of the artists signed enjoying commercial success, record companies don’t make money on the bulk of the albums they work on. Nick Raphael, President of Capitol Records, UK, whose artists include Sam Smith, notes, “We put just as much effort and money, if not more so, into the acts that don’t succeed, as with those that do. There may be any number of reasons why they don’t connect with the audience, but it is not for lack of effort and support from the labels that want them to succeed.”

Digital streaming services come of age

With the emergence of a growing number of digital platforms, record companies are increasingly focusing on online marketing. The growing popularity of digital streaming services is also changing the way record companies recoup the financial advances they make to artists. Whereas in the past, this was possible through album sales, now the focus is on downloads and streams.

These new digital platforms are breaking down barriers to success – putting a song on-line gives it global visibility – and make it easier for listeners to discover new talent. Commenting on the success of the young Australian band, 5 Seconds of Summer (5SOS) whose debut album topped the iTunes chart in over 70 countries, Nick Raphael, President of Capitol Records, UK, says, “The digital age means you can now break an act simultaneously around the world, indeed you can’t hold anything back as music spreads virally around the Internet.”

Within just a few years, digital services such as Spotify (20 million paying subscribers as of June 2015), Apple (some 10 million subscribers as of January 2016) and Deezer (over 6.3 million users) have gained a global foothold. Almost every day, we read about the launch of new music streaming services.

According to IFPI’s Digital Music Report 2015, the industry’s digital revenues rose to USD 6.9 billion (a growth rate of 6.9 percent) in 2014. That same report notes digital music revenues are now on a par with physical sales globally.

Streaming services are “sales channels for recorded music,” notes IFPI’s Lauri Rechardt. He notes that one of the biggest differences between streaming and the sale of CDs, etc., “is the way right holders are paid. For CD sales and download right holders receive an agreed fee upon the sale of a product regardless of whether the consumer listens to the music. In contrast, with the consumption-based model applied by streaming services right holders receive recurring income as content is consumed. Right holders receive smaller initial payments but income accrues over a longer period of time,” he explained.

Many believe that the subscription-based streaming model has the potential to ensure the long-term sustainability of the global music industry.

Trademarks are also playing an increasingly important role within the world of music. Technically speaking a trademark or service mark, is a sign that distinguishes the goods and services produced and provided by one company from those of another. In the world of music, a band’s name is its brand, and as such, can be protected as a service mark. Examples of bands with trademarks include The Grateful Dead, Aerosmith and REM. Bands can also register trademarks in relation to their albums, t-shirts or any other merchandize they produce.

With a trademark a band acquires the exclusive right to use its name as a provider of entertainment services and gains greater control over its identity. Acquiring a trademark can help secure additional sources of revenue, for example, through licensing and merchandizing deals.

Registering a band’s name as a trademark is an important first step that can help avoid a situation in in which it comes up against another band operating under the same name, somewhere else. Such a scenario could mean the band would have to change or add an additional identifier to its name. The UK boyband One Direction encountered such a situation and was sued by a US punk band of the same name in 2012, although it won its day in court.

As in other areas of commerce, a band’s trademark is an extremely valuable asset encompassing the goodwill and reputation that it builds up over time. Trademarks also play a key role for businesses within the industry, that focus on developing the instruments, sound systems, and host of other technologies that everyday bring us closer to the music we love.

Titles of songs are not normally eligible for trademark protection but may be so in relation to associated merchandize or if part of a series of works. For example, Meat Loaf has a trademark on “A Bat out of Hell” which was used as the title to a series of three albums. However, if it can be shown that consumers have come to exclusively associate a song title with a given artist then it is said to have acquired secondary meaning and can be registered.

Music and commerce: a symbiotic relationship

Music and commerce have a long-standing symbiotic relationship. Corporate marketers have long recognized the power of music to attract clients and create an emotional connection with them. Their need to expand their clientele often plays into the hands of emerging artists in search of new platforms to promote their music. Artists equipped with trademark rights are well placed to take advantage of such corporate sponsorship and merchandizing opportunities.

A recent study by The Future of Music Coalition notes that “merchandize sales are the most common source of income related to an artist’s brand”. Moreover, artists who are in a position to leverage their brand (many, such as composers, salaried orchestra players, session musicians, etc., are not) are becoming increasingly strategic in using it.

Merchandizing of consumer products not only generates revenue it is also an effective way for a band or an artist to broaden their audience. Some, such as Carlos Santana have leveraged their merchandizing activities for philanthropic purposes. Brandchannel.com reports that in 2001 the legendary rock star created “Carlos by Carlos Santana” women’s shoes with a percentage of the sales going back to Santana’s Milagro Foundation which seeks to make a difference to the lives of children around the world.

As the world goes digital, local bands can easily gain global visibility by posting their work online, or setting up a web page. This makes it increasingly important for them to have their ducks in a row when it comes to protecting their trademark rights.

Innovation is a hallmark of music. The search for distinctive new sounds and for ways to enhance the listening experience (e.g. radio broadcasts, the Walkman, MP3 players, iPod, tablets, etc.,) have both driven the industry’s commercial growth and brought about major leaps in technological development. The drive to create the next big sensation continues to shape the way music is made; the way we listen to it and, indeed, the way musicians and the industry as a whole, make money and earn a living from it.

To enable those responsible for inventing these ever-more sophisticated technologies to recoup their costs and to prevent others from copying or free-riding on the time and energy they have invested in developing them, inventors can apply for patent protection.

Patents are granted by national IP offices for technologies that break new ground, - that are novel, useful and not obvious to someone working the field. Patents like other IP rights are designed to recognize and reward inventors and to encourage them to continue to develop more and better technological solutions, while also ensuring that the public benefits from these inventions. A patent is valid (subject to periodic payments) for a maximum of 20 years at which time it falls into the public domain meaning that anyone seeking to exploit these technologies can do so without having to obtain the authorization of the right holder.

The changes brought about by new technologies, most recently the widespread use of the Internet and other digital technologies, which have revolutionized every aspect of the music industry – from composition, performance and recording, to distribution, promotion, and listening - have also affected the way those who hold rights in a musical work are compensated.

For example, while new streaming services, such as Spotify and Deezer, offer consumer unprecedented access, share and enjoy to a huge library of music, there is an on-going debate among musicians about the advantages and disadvantages of these is new business models. Some are embracing them as a tool to reach new audiences and boosting their profile and profits; others believe that musicians are losing out and are fighting for a better deal.

The digital revolution has undoubtedly transformed the music landscape, bringing about huge benefits in terms of the quality and diversity of the music we listen to, and how and when we do so. The question is, what will this landscape look like 5 years from now and what arrangements need to be put in place to ensure we continue to enjoy a rich stream of the music we all love?