Negotiating Music Licensing and Structuring Deals:...

Presenting a live 90-minute webinar with interactive Q&A

Negotiating Music Licensing and StructuringDeals: Digital Sampling, Royalty Rates,Music Copyright and More

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, FEBRUARY 8, 2017

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Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

Anjan Choudhury, Partner, Munger Tolles & Olson, Los Angeles

Steve Gordon, Founder, Steve Gordon Law, New York

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INTRODUCTIONTO MUSICCLEARANCES

INTRODUCTIONTO MUSICCLEARANCESSTEVEGORDONLAW.COM

[email protected]

212 924 1166

BASICCONCEPTS AND

DEFINITIONS

“MUSICCLEARANCES”

6

MUSIC CLEARANCES

• MUSIC CLEARANCES = SECURINGLICENSES TO USE PRE-EXISTING SONGSAND MUSIC RECORDINGS FOR VARIOUSPROJECTS

• MUSIC CLEARANCES DOES NOTPERTAIN TO CREATING NEW MUSIC (e.g.,HIRING A MUSICIAN OR A COMPOSER TOCREATE ORIGINAL MUSIC)

• MUSIC CLEARANCES = SECURINGLICENSES TO USE PRE-EXISTING SONGSAND MUSIC RECORDINGS FOR VARIOUSPROJECTS

• MUSIC CLEARANCES DOES NOTPERTAIN TO CREATING NEW MUSIC (e.g.,HIRING A MUSICIAN OR A COMPOSER TOCREATE ORIGINAL MUSIC)

7

EXAMPLES OF MUSICCLEARANCE PROJECTS• “ELVIS BY THE PRESLEYS” –DOC AIRED

ON NETWORK TV—SECURED LICENSESTO USE DOZENS OF SONGS RECORDEDBY ELVIS

• “FRONT AND CENTER”—TV CONCERTSERIES ON PBS FEATURING VARIOUSBLUES ARTISTS—SECURING LICENSESTO USE THE SONGS THAT THE ARTISTSPERFORMED IN THE SHOW (e.g., BUDDYGUY PLAYED SONGS BY HENDRIX,DYLAN AND OTHERS)

• “ELVIS BY THE PRESLEYS” –DOC AIREDON NETWORK TV—SECURED LICENSESTO USE DOZENS OF SONGS RECORDEDBY ELVIS

• “FRONT AND CENTER”—TV CONCERTSERIES ON PBS FEATURING VARIOUSBLUES ARTISTS—SECURING LICENSESTO USE THE SONGS THAT THE ARTISTSPERFORMED IN THE SHOW (e.g., BUDDYGUY PLAYED SONGS BY HENDRIX,DYLAN AND OTHERS)

8

“MUSICCLEARANCES” VS

“MUSIC LICENSING”

“MUSIC LICENSING” IS SOMETIMESUSED TO REFER TO MUSIC

CLEARANCES, BUT IS ALSO USED TOREFER TO THE “SYNCH BUSINESS”

9

NUTS ANDBOLTS

MUSICAL COMPOSITIONS (“SONGS”)VS

MUSIC RECORDINGS (“MASTERS”)VS

FOOTAGE CONTAINING MUSIC(“FOOTAGE”)

MUSICAL COMPOSITIONS (“SONGS”)VS

MUSIC RECORDINGS (“MASTERS”)VS

FOOTAGE CONTAINING MUSIC(“FOOTAGE”)

10

SONG

SPANISH HARLEMBMI Work #1393049

Songwriter/Composer Current Affiliation CAE/IPI #LEIBER, JERRY BMI 17713791LEIBER, JERRY BMI 17713791SPECTOR, PHILIP BMI 63684950

Publishers Current Affiliation CAE/IPI #ABKCO MUSIC, INC. BMI 56388746SONY/ATV SONGS, LLC BMI 187062752

12

MASTER

13

FOOTAGE

THE BEATLES ON THE ED SULLIVAN SHOW

SOFA Entertainment, owners of the Ed Sullivan Show, own footageincluding the recording contained in the footage.

14

PUBLIC DOMAIN/SONGS

Works Registered or First Published in the U.S.

Date of Publication Conditions Copyright Term

Before 1923 None None. In the public domain dueto copyright expiration

Copyright Term and the Public Domain in the United Statescopyright.cornell.edu/resources/publicdomain.com

15

PUBLIC DOMAIN/MASTERSDate of Fixation/Publication Duration of Copyright

Fixed prior to 15 Feb. 1972 Subject to state statutory and/orcommon law protection. Fully enters thepublic domain on 15 Feb. 2067

15 Feb. 1972 to 1978 95 years from publication. 2068 atthe earliest

1978 to 1 March 1989 70 years after death of author, or ifwork of corporate authorship, the shorterof 95 years from publication, or 120 yearsfrom creation. 2049 at the earliest

1978 to 1 March 1989 70 years after death of author, or ifwork of corporate authorship, the shorterof 95 years from publication, or 120 yearsfrom creation. 2049 at the earliest

After 1 March 1989 70 years after death of author, or ifwork of corporate authorship, the shorterof 95 years from publication, or 120 yearsfrom creation. 2049 at the earliest

16

MFNMost Favored Nations: In the event Licenseegrants more favorable terms including, withoutlimitation, additional consideration in anyform, to the co-publisher(s) of the Compositionor the party granting rights to use the masterrecording thereof (if applicable) in the MotionPicture, Licensee shall notify Licensor thereof,and this Agreement shall be deemed amendedto incorporate same as of the date when suchhigher fee is paid or such more favorable termsare granted to such third party, and to continuefor the duration of the period which such morefavorable terms are granted.

Most Favored Nations: In the event Licenseegrants more favorable terms including, withoutlimitation, additional consideration in anyform, to the co-publisher(s) of the Compositionor the party granting rights to use the masterrecording thereof (if applicable) in the MotionPicture, Licensee shall notify Licensor thereof,and this Agreement shall be deemed amendedto incorporate same as of the date when suchhigher fee is paid or such more favorable termsare granted to such third party, and to continuefor the duration of the period which such morefavorable terms are granted.

17

PBSSpecial Rules for Public Broadcast Stations are Favorable for Producers

Songs

Section 118 provides for a statutory license subject to rates negotiated by PBSand publishers.

PBS, on the producers’ behalf—with funding from the Corporation for PublicBroadcasting—will pay the federally prescribed fees to the copyright owners.

(But Section 118 does not provide for a statutory license for any other windowsincluding home video.)

Masters

Section 114(b)

The exclusive rights of the owner of copyright in a sound recording . . . do notapply to sound recordings included in educational television and radioprograms . . . distributed or transmitted by or through public broadcastingentities . . . Provided that copies or phonorecords of said programs are notcommercially distributed by or through public broadcasting entities to thegeneral public.

(Again, clearances are required for other windows.)

Special Rules for Public Broadcast Stations are Favorable for Producers

Songs

Section 118 provides for a statutory license subject to rates negotiated by PBSand publishers.

PBS, on the producers’ behalf—with funding from the Corporation for PublicBroadcasting—will pay the federally prescribed fees to the copyright owners.

(But Section 118 does not provide for a statutory license for any other windowsincluding home video.)

Masters

Section 114(b)

The exclusive rights of the owner of copyright in a sound recording . . . do notapply to sound recordings included in educational television and radioprograms . . . distributed or transmitted by or through public broadcastingentities . . . Provided that copies or phonorecords of said programs are notcommercially distributed by or through public broadcasting entities to thegeneral public.

(Again, clearances are required for other windows.)

18

DOCS (SONGS ANDMASTERS)

OPTION 1: Basic Cable or Pay Television

TERRITORY: United States & Canada

Term: 3 Years

FEE: $1,000.00 per song

OPTION 2: Foreign Television

TERRITORY: World excluding United States & Canada

Term: 3 Years


OPTION 3: Internet Streaming Services (eg. Hulu,Netflix)

TERRITORY: World

TERM: 3 Years


OPTION 4: Airplane and Closed Circuit

TERRITORY: World

Term: 3 Years

FEE: $500.00 per song

(Offer same terms for concert programs)

Home Video

Royalty: 10 cents PBS Pledge onlyOR 12 cents for PBS Pledge,commercial DVD and downloads offull programs.

Advance: 2,500 units ($300) withrollovers every 2,500 units thereafter

Territory: U.S.

Term: 7 Years

OPTION 1: Basic Cable or Pay Television

TERRITORY: United States & Canada

Term: 3 Years


OPTION 2: Foreign Television

TERRITORY: World excluding United States & Canada

Term: 3 Years


OPTION 3: Internet Streaming Services (eg. Hulu,Netflix)

TERRITORY: World

TERM: 3 Years


OPTION 4: Airplane and Closed Circuit

TERRITORY: World

Term: 3 Years

FEE: $500.00 per song

(Offer same terms for concert programs)

Home Video

Royalty: 10 cents PBS Pledge onlyOR 12 cents for PBS Pledge,commercial DVD and downloads offull programs.

Advance: 2,500 units ($300) withrollovers every 2,500 units thereafter

Territory: U.S.

Term: 7 Years

19

FEATURE MOVIES (INDIEMOVIE)RIGHTS:

Film Festival/One (1) year/ World $500

OPTION:

All Media Broad Rights Step Deal:

Media: All media now known or hereafter devised

Initial Fee: $2500

With Steps of $2000 at $3M, $5M, $8M, $10M, $12M and $15Mworldwide gross receipts based in ALL forms ofexploitation (including but not limited to theatrical, allvideograms/DVD, all TV media, and Internet streaming anddownloading).

(Factors in determining price – Identity of song or master; use,i.e., foreground/background or over credits; personalities andapprovals)

RIGHTS:

Film Festival/One (1) year/ World $500

OPTION:

All Media Broad Rights Step Deal:

Media: All media now known or hereafter devised

Initial Fee: $2500

With Steps of $2000 at $3M, $5M, $8M, $10M, $12M and $15Mworldwide gross receipts based in ALL forms ofexploitation (including but not limited to theatrical, allvideograms/DVD, all TV media, and Internet streaming anddownloading).

(Factors in determining price – Identity of song or master; use,i.e., foreground/background or over credits; personalities andapprovals)

20

TVProducers will seek buy-outs of all rights in perpetuity

Example: $12,000 for excerpts of 2 songs in HBO docudrama

Spectrum:

MTV will offer $0 for songs by new bands to be used in any oftheir programs

The bands only get ASCAP BMI $

Cable shows will offer a few thousand to a few more thousandfor emerging acts

Bruno Mars will cost $25,000 and up

Producers will seek buy-outs of all rights in perpetuity

Example: $12,000 for excerpts of 2 songs in HBO docudrama

Spectrum:

MTV will offer $0 for songs by new bands to be used in any oftheir programs

The bands only get ASCAP BMI $

Cable shows will offer a few thousand to a few more thousandfor emerging acts

Bruno Mars will cost $25,000 and up

21

“TOMORROW NEVER KNOWS” IN MAD MEN

In 2012 Lionsgate, the studio that produces “Mad Men” for AMC paid about $250,000for the recording and publishing rights for the Beatles’ “Tomorrow Never Knows.”"Tomorrow Never Knows" was used at the end of an episode in Season 5 of Mad Men. 22

MUSICAL THEATRE

• No advances

• 4-5% of Gross Box Office

• Pro-rated by the number of songs

• Denials depending on identity ofwriter

• No advances

• 4-5% of Gross Box Office

• Pro-rated by the number of songs

• Denials depending on identity ofwriter

23

ADVERTISINGPrice:

• $0 for current hit song in a promo for homeless dog

• $5,000 for Billy Ocean hit from 80’s for ten days infive small markets for commercial for car show

• $375,000 for song and $375,000 for master fornational TV commercial for life insurance

• Other terms: Duration – usually no longer than ayear; Media – on-line in addition to TV may costextra; Identity of song – obscure songs may be cheap

• Save 50% by re-recording

Price:

• $0 for current hit song in a promo for homeless dog

• $5,000 for Billy Ocean hit from 80’s for ten days infive small markets for commercial for car show

• $375,000 for song and $375,000 for master fornational TV commercial for life insurance

• Other terms: Duration – usually no longer than ayear; Media – on-line in addition to TV may costextra; Identity of song – obscure songs may be cheap

• Save 50% by re-recording

24

STAND-ALONE DIGITAL PROJECTS

Apps

Simulcasting

Webisodes and web series

Kickstarter videos

Digital sheet music

Lyric sites

Artists Websites

Music Webzines and Blogs

Ringtones and Ringbacks

Video Games

Apps

Simulcasting

Webisodes and web series

Kickstarter videos

Digital sheet music

Lyric sites

Artists Websites

Music Webzines and Blogs

Ringtones and Ringbacks

Video Games25

APPS

BEWARE BLANKET LICENSES FROM MAJORS:

Major Label 1:

Advance: $50,000 advance

Minimum guarantee: $250,000 for one year.

Royalty: 70% of gross revenues deriving from that label's masters.

Territory: U.S. only

Major Label 2:

Advance $350,000 advance payable upon execution

Additional $20,000 "content prep fee" also payable upon execution.

After the first year $30,000 would be due at the beginning of each month.

Royalty: 50% of revenues from that label's masters.

Territory US Only

Publishing included

APPS

BEWARE BLANKET LICENSES FROM MAJORS:

Major Label 1:

Advance: $50,000 advance

Minimum guarantee: $250,000 for one year.

Royalty: 70% of gross revenues deriving from that label's masters.

Territory: U.S. only

Major Label 2:

Advance $350,000 advance payable upon execution

Additional $20,000 "content prep fee" also payable upon execution.

After the first year $30,000 would be due at the beginning of each month.

Royalty: 50% of revenues from that label's masters.

Territory US Only

Publishing included26

OTHER STAND-ALONE DIGITALPROJECTS

Simulcasting (PRO licenses)

Webisodes and web series (Similar to TV)

Kickstarter videos

Digital sheet music (Pennies for downloads)

Lyric sites (LyricFind)

Artists Websites (avoid covers)

Music Webzines and Blogs (Pitchfork - avoidcovers)

Ringtones and Ringbacks (26 cents)

Video Games (buy-outs)

Simulcasting (PRO licenses)

Webisodes and web series (Similar to TV)

Kickstarter videos

Digital sheet music (Pennies for downloads)

Lyric sites (LyricFind)

Artists Websites (avoid covers)

Music Webzines and Blogs (Pitchfork - avoidcovers)

Ringtones and Ringbacks (26 cents)

Video Games (buy-outs)27

ALTERNATIVES(ESPECIALLY FOR ADS, TV, ANDMOVIES)

• Music libraries (“stock music”)

• Commission/Work for hire

• Music libraries (“stock music”)

• Commission/Work for hire

28

The Legal Landscape of DigitalMusic Licensing in a Streaming

World

LOS ANGELES | SAN FRANCISCO | WASHINGTON,D.C.| MTO.COM


The Legal Landscape of DigitalMusic Licensing in a Streaming

WorldPresented by:

Anjan ChoudhuryFebruary 8, 2017

Anjan ChoudhuryPartner, LitigationLos AngelesT: (213) [email protected] Law School (J.D., magna cum laude, 2004)George Washington University (B.A., summa cum laude, 2001)

Nice to meet you!


Anjan ChoudhuryPartner, LitigationLos AngelesT: (213) [email protected] Law School (J.D., magna cum laude, 2004)George Washington University (B.A., summa cum laude, 2001)

Agenda

Importance of Streaming Revenue

Sources of Royalty Income andLicensing

Four Legal Developments that AffectDigital Music Licensing and Royalties


LOS ANGELES | SAN FRANCISCO | MTO.COM

Importance of Streaming Revenue

Sources of Royalty Income andLicensing

Four Legal Developments that AffectDigital Music Licensing and Royalties

31

Streaming (and Licensing) Are IncreasinglyImportant



Source: News and Notes on 2016 Mid-Year RIAA Music Shipment and Revenue Statistics32




Source: News and Notes on 2014 RIAA Music Industry Shipment and Revenue Statistics33




Source: News and Notes on 2016 Mid-Year RIAA Music Industry Shipment and Revenue Statistics34

Sources of Royalty Income for Recording Artistsand Songwriters

• Publishing License

• Recording Agreement – MasterLicense Provision

• PROs and SoundExchange

• Direct Licenses (DIY)LOS ANGELES | SAN FRANCISCO | WASHINGTON,

D.C.| MTO.COMLOS ANGELES | SAN FRANCISCO | MTO.COM

• Publishing License

• Recording Agreement – MasterLicense Provision

• PROs and SoundExchange

• Direct Licenses (DIY)35

How are Royalty Rates Determined for CopyrightOwners

• Direct Licenses– Interactive Services– Non-Interactive Services

• Rate Court Decisions

• Copyright Royalty BoardDecisions



• Direct Licenses– Interactive Services– Non-Interactive Services

• Rate Court Decisions

• Copyright Royalty BoardDecisions

36

Legal Development 1: PROs, Partial Withdrawal,100% Licensing

• ASCAP and BMI operate under a consentdecree and are therefore subject to thejudicial oversight of a federal court in NewYork

• Can you withdraw your rights for just digitalstreaming?

• DOJ Decision (August 4, 2016)– Consent decree not modified on partial

withdrawals– Full work licensing requirement

(rejected/appealed)

• Implication for publishers/songwritersLOS ANGELES | SAN FRANCISCO | WASHINGTON,

D.C.| MTO.COMLOS ANGELES | SAN FRANCISCO | MTO.COM

• ASCAP and BMI operate under a consentdecree and are therefore subject to thejudicial oversight of a federal court in NewYork

• Can you withdraw your rights for just digitalstreaming?

• DOJ Decision (August 4, 2016)– Consent decree not modified on partial

withdrawals– Full work licensing requirement

(rejected/appealed)

• Implication for publishers/songwriters 37

Legal Development 2: The Copyright RoyaltyBoard

• Non-interactive digital services pay performance royalties forsound recordings.– $884 million in 2016 alone. 16% of the entire recorded music industry

revenue in 2015.– These statutory royalties are required by law to have a set artist’s

share.

• The Copyright Royalty Board sets statutory royalty rates everyfive years

• In May 2016, the Judges published the Web IV decisioncovering non-interactive webcasters (Pandora, iHeartRadio)through the year 2020.

• In setting the statutory rates, the Judges relied on directlicenses negotiated to substitute for the statutory rates.

• The decision is on appeal to the D.C. Circuit



• Non-interactive digital services pay performance royalties forsound recordings.– $884 million in 2016 alone. 16% of the entire recorded music industry

revenue in 2015.– These statutory royalties are required by law to have a set artist’s

share.

• The Copyright Royalty Board sets statutory royalty rates everyfive years

• In May 2016, the Judges published the Web IV decisioncovering non-interactive webcasters (Pandora, iHeartRadio)through the year 2020.

• In setting the statutory rates, the Judges relied on directlicenses negotiated to substitute for the statutory rates.

• The decision is on appeal to the D.C. Circuit

38

Legal Development 3: Pre-72 Sound Recordings

• Federal copyrights apply to soundrecordings that were “fixed” beforeFebruary 15, 1972

• Does that mean that Pre-72 recordings areunprotected?

• Pandora and SiriusXM lawsuits

• Class Action settlement depends on CA, NY,FL cases

• Why does this matter to post-72 recordingartists?



• Federal copyrights apply to soundrecordings that were “fixed” beforeFebruary 15, 1972

• Does that mean that Pre-72 recordings areunprotected?

• Pandora and SiriusXM lawsuits

• Class Action settlement depends on CA, NY,FL cases

• Why does this matter to post-72 recordingartists?

39

Legal Development 4: Digital Sampling

• The Madonna “Vogue” case – VMG Salsoul LLC v. Ciccone, 824F.3d 871 (9th Cir. 2016) vs. the George Clinton/NWA case –Bridgeport Music, Inc. v. Dimension Films, 410 F.3d 792 (6th

Cir. 2005)

• Sample: a .23 second horn hit. Would an average audiencerecognize the appropriation?

• Los Angeles (9th Circuit) and Nashville (6th Circuit) nowoperate under different rules: “Because we conclude thatCongress intended to maintain the “de minimis” exception forcopyrights to sound recordings, we take the unusual step ofcreating a circuit split by disagreeing with the Sixth Circuit’scontrary holding in Bridgeport”

• See also, German Constitutional Court and Kraftwerk (2016)case – freedom of the creator to sample



• The Madonna “Vogue” case – VMG Salsoul LLC v. Ciccone, 824F.3d 871 (9th Cir. 2016) vs. the George Clinton/NWA case –Bridgeport Music, Inc. v. Dimension Films, 410 F.3d 792 (6th

Cir. 2005)

• Sample: a .23 second horn hit. Would an average audiencerecognize the appropriation?

• Los Angeles (9th Circuit) and Nashville (6th Circuit) nowoperate under different rules: “Because we conclude thatCongress intended to maintain the “de minimis” exception forcopyrights to sound recordings, we take the unusual step ofcreating a circuit split by disagreeing with the Sixth Circuit’scontrary holding in Bridgeport”

• See also, German Constitutional Court and Kraftwerk (2016)case – freedom of the creator to sample

40

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