In one week this month, Apple announced that it will get into Internet Radio, and Pandora, the biggest player in that space, announced that it will be buying a traditional, over-the-air radio station. What do these two big announcements say about the state of music royalties for digital music services? Apple’s struggles to get its service launched were well chronicled, as it was working to get an agreement for its new service from the record labels. What was less reported was its simultaneous negotiations with the music publishing community. Pandora’s radio station purchase, on the other hand, was admittedly a simple deal to take advantage of a blanket license available to all similarly situated companies owning radio stations. We’ll explain why these two deals were so different, and what impact the deals may have on other digital music services below.

The Apple deal is one negotiated with the copyright holders for the simple reason that the service that it is offering appears to be an interactive one, unlikely to be completely covered by any statutory (compulsory) or other blanket license. As we’ve written before, a statutory or compulsory license is one where the copyright holder, by law, cannot refuse to make available his or her copyrighted work. But, in return, the copyright holder receives a royalty set by the government – in the US, usually the Copyright Royalty Board. In the music world, the two most common compulsory licenses are the ones that allow webcasters and other digital music services to publicly perform sound recordings (the royalties paid by webcasters, satellite radio and digital cable radio companies to the record companies and artists), and the royalty that allows users (including record companies) to make reproductions of musical compositions in connection with the making of a sound recording, downloads, ringtones, and probably on-demand streaming services. This royalty is commonly referred to as the mechanical royalty, and is paid to songwriters and composers or their publishing companies. To qualify for these compulsory licenses, a company must follow certain rules. If they don’t, then they have to negotiate directly for the licenses from the copyright holder – which appears to be what Apple did.


Continue Reading Apple Announces an Internet Radio Offering and Pandora Buys a “Real” Radio Station – What Does It Mean for Music Royalties?

Just as webcasters thought that they had their royalty obligations figured out, there comes news that the already complicated world of digital media royalties may well become more complicated.  Last week, EMI, which in addition to being a record label is a significant music publishing company, has reportedly decided to withdraw portions of its publishing catalog from ASCAP – which had been licensing the public performance of these songs. The withdrawal from ASCAP applies only to "New Media" licensing.  What is the impact?  As of today, webcasters pay ASCAP, BMI and SESAC for the rights to play virtually the entire universe of "musical compositions" or "musical works" (the words and musics of the song).  By withdrawing from ASCAP, EMI will now license its musical compositions itself, adding one more place that webcasters will need to go to get all the rights necessary to play music on an Internet radio type of service.  In addition to royalties paid for the musical composition, webcasters also pay SoundExchange for public performance rights to the sound recordings (the song as recorded by a particular singer or band) – and by paying this one organization, they get rights to perform all sound recordings legally released in the US.   But any Internet radio operation needs both the musical composition (except for those compositions that have fallen into the public domain) and the sound recording performance rights cleared before they can legally play the music.

The news reports quote EMI as talking about the efficiencies that will be created by its licensing the musical compositions directly – in conjunction with the licensing of other rights – like the rights to make reproductions of its compositions, or the rights to publicly perform sound recordings to which its record label holds the copyright. But the whole idea of a performing rights organization with collective licensing is that it provides to digital music services the efficiencies offered by a one-stop shop for the purchase of rights to all a very large set of musical compositions.  Up to now, a digital music service knew that, by entering into licensing agreements with ASCAP, BMI and SESAC (the "performing rights organizations, or "PROs"), it had rights to virtually all the musical compositions that it would normally use (i.e. they received a "blanket license").  If these rights are balkanized, so that each significant publisher licenses their own music, the webcaster will have to make multiple stops to license all the music they need – which always leads to confusion.  The more places they have to go to license music, the more possibility that they will overlook a necessary rightsholder.  But there is even a bigger potential issue for webcasters – price.


Continue Reading Another Royalty Payment for Webcasters? EMI Withdraws From ASCAP For New Media Licensing