BSMI Final Exam

Streaming portion of the U.S. Recorded Music Revenue in 2022

84% (Physical 11%, Sync 2%, Digital Downloads 3%)

Global Recorded Music Industry Revenue

Retail Values

• $66 billion 2023

• projected to be $89 in 2030

Top Global Markets for the Music Industry

1. USA

2. Japan

3. UK

4. Germany

5. China

Streaming revenue (2022)

$17.5 billion (up nearly 20% from 2018-22) (Physical $4.6 bil, Performance Rights $2.5 bil)

Subscription Revenue

Hit $18.7 billion in (2020) and is expected to grow to $36 billion by 2028, nearly doubling

Live Music (misc notes)

• growing fastest in developing markets

Live Music Revenues

• $21.5 billion in 2019

• projected to reach $23 billion in 2023

Two Distinct Copyrights

• musical works / composition (songwriters often assign or share ownership with music publishers)

• sound recordings (record companies usually own the copyright)

Requirements for Copyright

• can’t copyright idea, only expression of the idea

• must be fixed in a tangible form that is perceptible directly (sheet music, CD) or with the air of machine or device (like computer, hard drive, USB, or mp3)

• original to the author

• of sufficient substance to constitute a work

Current Copyright Act enacted in…

1976 —> gave sync rights

US Digital Millennium Copyright Act (1998)

• 1998

• life + 70 years (+20 years from 1976 act)

• 95 years for works of corporate authorship (also up 20 years from 1976 act)

• aka Sonny Bono Copyright Term Extension Act or Mickey Mouse Protection Act

• required webcasters to pay license fees to record companies

• made production + dissemination to technology that could circumvent measures taken to protect a copyright a criminal act

• heightened penalties for copyright infringement on the Internet

• provided safe harbor for Internet Service Provider’s (ISPs)

  • protects them from infringement if they promptly remove or block access to allegedly infringing material on their sites when asked (takedown notices)

  • Problems with YouTube: because it covers YT, they pay music creators less per stream than Spotify + Apple Music

Bundle of Rights (copyright)

1. Reproduction - in physical copies and digital files (streams)

2. Distribution — selling copied works (by sale or license)

3. Modification — derivative works based on copyrighted work (translations, parody, sampling)

4. Public Performance (ASCAP, BMI, + SESAC collect revenue for public performances)

5. Public Display (any literary, dramatic, choreographic, pictoral, graphic, or sculptural works. LYRICS)

6. Public Performance by means of digital audio transmission

Sampling

• all sampling requires permission of copyrights owner

• you must have license from publisher and record company

• you may use pre-cleared of public domain sounds + effects

Exclusive Right #4 - Public Performance

ASCAP, BMI, + SESAC collect revenue for public performances

• TV + Radio ($$$)

• From live performance venues

• internet

• gyms, restaurants, bars, supermarkets etc

Exclusive Right #5 - Display Work Publicly

Applies to any literary, dramatic, choreographic, pictorial, graphic, or sculptural works

LYRICS (ex:on sites, on t-shirts, sheet music)

Exclusive Right #6 - Public Performance by means of digital audio transmission

• limited to sound recordings

• Digital Performance Right in Sound Recordings Act (DRPA) of 1995

Digital Performance Right in Sound Recordings Act (DRPA, 1995)

• allowed Exclusive Right #6 (right to publicly perform by means of a digital audio transmission)

Terrestrial Radio Stations

• licensing payments only go to rights owner of underlying musical composition

• they DO NOT pay rights owner and artists of the sound recording

Exceptions to Copyright Holders’ Exclusive Rights

• Works Made for Hire are not covered

• compulsory licenses (After the first recording of a work, the owner is compelled by law to license it to anyone else in exchange for fixed staturtory royalty)

• Fair use (law allows minimal takings for scholarship, research, and news reporting)

• Certain song elements aren’t protected

  • Ideas, themes, song titles, song construction, arrangements of others’ songs

Compulsory Licenses

allows use of copyrighted materials without the explicit permission of the copyright older — in exchange, royalty is paid to copyright holder (set by Copyright Royalty Board)

After the first recording of a work, the owner is compelled by law to license it to anyone else in exchange for fixed staturtory royalty

• royalty rates paid to songwriter under compulsory license is set by Copyright Royalty Board

Infringement Litigation

• copyright registration is required to file an infringement lawsuit

• if registered, you may recover costs of hiring an attorney + “statutory damages” which court can award within your having to prove actual loss of money due to infringement

• if not, you can only recover money lost that you can prove, or “actual damages”

Must establish:

• ownership

• copying

• independent creation (musical background, hit songs, expert witnesses — forensic musicologists)

US Copyright Act of 1976

• remains primary basis of copyright law in US

• established copyright protection of author’s life plus 50 years

• or 75 years for work of corporate authorship (work for hire)

• spells out basic rights of copyright holders

• codified doctrine of fair use

• converted copyright terms from fixed period requiring renewal to extended period based on date of creator’s death

Works Made for Hire

• 95 years from date of publication OR

• 120 years from date of creation

• whichever expires first

Publish

offer for sale or otherwise distribute to public in form of sheet music or phonorecord (can be digital download of a sound recording too)

Music Licensing

• musical works (publishers / songwriters)

• sound recordings (record labels / artists)

Performing Rights Organizations (PROs)

negotiate public performance licenses of non-dramatic musical works (composition) on behalf of writers + publishers + issue licenses

• ASCAP, BMI, + SESAC

• offer blanket license for all the songs in their repertoire

• collect money from licensees + pay writers + publishers

• maintain reciprocal arrangements w/ international societies throughout the world

• retain 9-12% of user’s revenue for expenses + pay out the rest to rightsholders

• flat annual fee

• ASCAP + BMI each collected around $1.3 billion in 2019

Global PROs

• each country has its own PRO

• Japan — JASRAC

• Germany — GEMA

• Canada — SOCAN

• report to CISAC (society of societies)

CISAC

• 239 society members from 120 countries

• represent 3 million rights holders

• collected 8.6 billion euros in 2015

• collections from digital services = 7.2% of overall collections

PRO System

• more airplay = more income generated by song

• collect data from 4 million hours of radio + 15 million TV hours

• algorithm-based; favors hit songs — certain genres receive bonus credit

• ASCAP + BMI “listen in” during key logging periods to determine statistically reliable projections for all music use

Direct Licenses

• some music users prefer to license directly for only the music they use rather than pay for blanket license

• under 1941 consent decree, rightsholders may not selectively pull rights form ASCAP for certain classes of users like Pandora

Sound Exchange

created by DMCA, it collects + distributes royalties from non-interactive digital transmissions

• collects income for non-interactive digital transmissions like Pandora, Sirius XM + webcasting

• SX uses census method: actual play logs, not algorithm-based like PROs

• 2019: distributed $908 million (50% to labels, 45% featured artis, 5% to background musicians)

Music Modernization Act of 2018

improves compensation to songwriters + streamlines how music is licensed for audio-only, on-demand streaming

• creates blanket license for DSP’s to offer downloads + streams

• Creates MLC to administer the blanket license

• creates public database of songs, owners + % ownership; matches writers to compositions + sound recordings

• producers + engineers can get royalties for their contributions

Music Modernization Act’s Shortcomings

Does NOT solve video or lyrics licensing

Does NOT license YouTube, TikTok, + Facebook

Radio

• broadcasters do NOT pay performance royalties on masters

• they DO pay royalties to PROs —> PROs pay publishers + composers

Types of Licenses

• mechanical

• synchronization

• performance

• sheet music

Music Publishing Market Revenue

$5 billion +

Music Publishers (Majors)

Sony / ATV, Universal Music Publishing Group, Warner / Chappell

Mini-Majors + Independent Music Publishers

Mini

• BMG

• Kobalt

• Concord

Independent

• downtown

• round hill

What do Publishers do?

• find + develop songwriters

• verify copyright + register compositions

• find revenue producing opportunities

• negotiate licenses + fees

• keep track of all licenses, money, music

• oversee printed + digital music notation

• protect against infringement

Different Sectors of Music Publishers

• Creative teams / A&R (music publishing) — sign writers + songs to labels (mechanical), film & TV (sync)

• Catalog Acquistion — do valuatoins

• Royalty Department — calculate + remit royalties

• Copyright Department — registration, transfers

• Legal

• maybe editing, printing, distribution if you’re a print publisher

Harry Fox Agency (now under SESAC)

• issues mechanical licenses on behalf of nearly 50k publishers

• collects mechanical income

• distributes mechanical income to publishers

• conducts royalty audits

Copyright Royalty Board

independent government tribunal of 3 copyright judges

• 2008: set compulsory rate at 9.1 cents per song for physical product + digital downloads / for interactive streaming, a % of service revenue

• 2017: songwriters + publishers got 44% raise from digital music services

• 2022: headline royalty rate set at 15.35% of DSP revenue

Mechanical Royalties Payout Formula

copies manufactured times 9.1 cents statutory rate per song sold

• but labels holds 60% in reserves because mechanicals paid on sold, not manufactured units

Advances

payment given to an artist, songwriter, or producer in advance of royalties to be earned in the future

• advance is recouped by company by offsetting future earned royalties against money advanced — advances are usually non-refundable

• label pays publishers twice a year (but streaming has increased transparency + frequency of payments)

• can take several years for writer to receive payments

SESAC

• sample + census

• cut checks to both writer + publisher

Television Sync Rates

$1,750 - $3,500+

Film Sync Rates

$15k - 60k +

Advertising

$75k - 1 million +

Full Publishing Deal

• Writer gets 100% of Writers Share (50% of total)

• Publisher gets 100% of Publishers Share (50% of total)

monthly salary: “non-returnable” advances on royalties

Co-Publishing Deal

Writer 75 / Publisher 25

• Writer gets 100% writers share + 50% Publisher’s Share

• Publisher gets 50% publisher’s share (25% of total)

Administration Publishing Deal

Writer 95 / Publisher 5

• writer retains 100% of copyright

Publisher-Writer Contract Duration

US termination rights after 35 years for works created after 1978

• can be negotiated sooner with leverage

Manager Payment

10 - 25% of gross

Sunset Clause

100% for 6 months, 50%, 25%, 0% in 6 month increments

National Full-Service Agencies Commission

10 - 15%

Attorneys

can be paid hourly, w/ retainer, through fixed fee, or contingent payment plan

Recorded Music Business Revenues (2021)

$28.8 billion (up 24.7%)

• major labels made 65.5%

• Streaming made 18.5 bil (was 64% of total revenue)

Majors + Indies

• each own a distribution company and an independent distribution network

• are vertically integrated

Different Sectors of Recorded Music

• A&R — find + sign talent, artist development, artist relations, production

• Sales + Distribution — position release through DSP’s + physical retain, order + ship, work w/ digital + physical accounts

• Marketing — product management, playlisting, promotion, publicity, advertising, creative services

• Special Products / Catalog / Commercial — master licensing of catalog product; new packages of catalog music: “best of,” boxed sets, reissues

• multi-artist compilations (“now that’s what I call music…”)

Total Cost to set up a Pop or Hip-Hop Act

$500k - 2 million+

Record Label Income Sources

• distributors (for sales of physical records + streams)

• Sound Exchange (for non-interactive streaming)

• Film, TV etc producers (for sync)

• Other labels (for licensing recordings to use as samples)

• other parties seeking permission to use recordings

Recoupment

repayment of advances, recording costs, and other expenses by an aritst to a record company from artist’s royalties

Record Deals

• Terms (album cycle — 2 to 3 is the norm)

• Exclusivity

• Royalties & Advances (13-17% of wholesale / 18-22% for major stars)

• Production Budget

• Creative Control?

• Promotion Commitment

• Chargebacks (Studio rentals, sidemen, arranging, producer)

• ownership of masters

• video rights (recoupable against royalties, usually 50%)

• Foreign Releases

• assignment (what if the record company changes ownership)

• Right to Audit

• 360 deals (may include merch, endorsements, touring etc)

• Controlled Composition (label will only pay 75% of statutory rate times a maximum of 10. Can be disastrous for artist if recording controlled and non-controlled compositions)

What to watch out for in Recording Contracts

• Packaging

• Free Goods

• Breakage

• New Tech

• Foreign

Producers

• may be on staff, but almost always independent

• salary or production fee + royalty override + possibly & possibly a piece of publishing

• producer receives producer’s production fee, 50%

Points

• 1 point = 1% of net revenue to the label (including streaming); that is, net receipts

• standard producer bank end = 3 points

• % of net receipts or flat fee revenue is calculated by taking # of producer points / total artist royalty

  • ex: 3 points / 15% royalty = 20% net receipts or flat fee revenue streams that the producer is entitled to

Five Phases of Record Production

• pre-production — budgeting + planning

• In the studio — basics + tracking

• in the studio — overdubbing

• in the studio — mixing, sequencing, splits

• post production — mastering + delivery

Average Ticket Price in 2019

96.17 (seeing rising prices)

National Concert Promoters

• coordinate tours

• need local promoters

• negotiate share of net recipts

• live nation, AEG

Local Promoter Responsibilities

• venues

• seating arrangements

• promotional tie-ins

Booking Agent

• 10% of artist’s take

• get gigs’ negotiates fees + available dates

• tour routing, venues, deal negotiation

• Largest: CAA (now includes ICM), WME

Concerts & Touring Deal Types

• flat fee vs. split of ticket revenues (ex $20k + 90% of ticket sales)

• 85/15 vs. 90/10 splits favor of artist

• venue cut of merchandising

Live Nation

• $19 billion 2022 revenues

• $25 billion market cap

• 2023: 140 million tickets sold so far

• own many venues in US + some internationally

Net Profit / Loss for Tours

• Club Tour = $58k (-$80k net loss)

• Theater Tour = $150.5k / week ($74.5k/week net profit)

• Arena Tour = $900k / week ($900k/week net profit)

Music Merch Business Revenues

$2.5+ billion

• artist advance vs. royalties of 8-14% of wholesale + 15-22% at concerts

• venues get 25-40% cut though

• 75/25 in artist’s favor after recoupment

Global Music Streaming Subscription 2022

• 616.2 million total subscribers

• spotify 30%

Global Sync Market Revenues

• 3.39 billion in 2018

• projected to be 7.34 billion in 2023

Net Publishers Share (NPS)

• gross revenue retained by publishers after paying royalties to songwriters

• revenue - royalties

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

• represents actual earnings of business independent of the way the business was financed

• recorded music are valued as a multiple of EBITDA

• Today, labels trade for 12x EBITDA minimum

Net Label’s Share

revenue - royalties - (manufacturing + distribution costs)

Music Publishing NPS Multiple

16.5%

Recorded Music NLS Multiple

13%