How do rights, fees and royalties flow among industry entities when a musical work is used?
What is often called the “flow” of rights and royalties for music creators refers to how rights holders in a musical work grant licensees the performing rights and/or mechanical rights in the work in exchange for back-end or “downstream” revenue in the form of performance royalties and/or mechanical royalties.
For the purposes of this resource, the general flow may be depicted and described as follows:
- Once a musical work is created and automatically under copyright, the creator may choose to assign that copyright to a music publisher, by way of a publishing agreement, to administer it on their behalf. (Alternatively, they may opt to self-publish.)
- The publisher registers the work with a performing rights organization (PRO) in their territory, enabling it to administer performing rights. (Music creators have the ability to register works with PROs as well, but it’s usually the publisher’s responsibility to do so.)
- The publisher also registers the work with a reproduction rights organization (RRO), enabling it to administer mechanical rights. (Music creators do not have the ability to register works with RROs unless they are self-published.)
- The PRO grants a performance licence to a licensee (music user) in exchange for a performance licence fee, and the RRO grants a mechanical licence to the licensee in exchange for a mechanical licence fee.
- Based on their respective distribution rules and the royalty rates in place when the musical work was used, the PRO calculates the performance royalty and the RRO calculates the mechanical royalty generated, depending on how the licensee has performed and reproduced the work.
- The PRO pays the performance royalty to the music creator and publisher (if applicable) based on the division of shares identified when the song was registered.
- The RRO typically pays the entire mechanical royalty to the publisher, who then pays the music creator their share as outlined in the publishing agreement. (If the music creator is self-published, they will receive the mechanical royalty directly from the RRO.)
The Importance of Membership
A music creator must first become a “writer member” of SOCAN—Canada’s sole PRO—before they can begin receiving the writer’s share of performance royalties. This will also allow them to receive the publisher’s share of performance royalties if they’re self-published (they do not need to create a separate publisher account). However, to receive mechanical royalties, the self-published creator must become a client of either the CMRRA or SOCAN RR, the two Canadian RROs.
Both SOCAN/SOCAN RR and the CMRRA distribute royalty payments on a quarterly basis (on the 15th of November, February, May, and August for SOCAN/SOCAN RR, and on the 15th of March, June, September, and December for the CMRRA). SOCAN/SOCAN RR’s minimum payment threshold is $0.25, while the CMRRA’s is $15. Further, while the distribution schedule is quarterly, calculating and processing payments for performances and reproductions is not immediate. For example, it takes SOCAN eight to 10 months to pay royalties for most domestic performances. However, royalties derived from satellite radio performance and digital performances of any kind can take an additional three months to process, and payments from international collection may take two or three years
While the diagram and description above provide an overview of the movement of rights and royalties between the most common players in the music-revenue ecosystem, there are many variables that dictate which entities are ultimately involved, what their specific roles are, and how the flow may be affected as a result. Here are some examples:
Variation: Live Performances
Depending on the type of live public performance and who’s presenting it, the related rights and royalties flow a little differently.
- For a “classical music concert,” the licensee is the arts organization (e.g., a symphony orchestra, chamber ensemble, choir, etc.). And since the musical work is simply being performed—not reproduced in any way—the organization need only pay a performance licence fee (annually or per concert) to the PRO. Reproduction rights and royalties are not a factor.
- For a “popular music concert,” again, only a performance licence fee needs to be paid to the PRO. But in this case, the licensee is either the venue (e.g., a restaurant, club, stadium, etc.) or, for some larger scale concerts, the promoter (e.g., Live Nation Entertainment).
Therefore, assuming the music creator is not self-published, the flow of rights and royalties for most live performances may be depicted as follows:
It should be noted that, for all types of live performances, a Notification of Live Music Performance (NLMP) form—providing all concert details including the repertoire or set list—must be submitted to SOCAN along with evidence that the performance actually took place (in the form of a program book, ticket stub, contract, etc.). Music creators have up to one year from the date of the concert to submit the NLMP form, which can be found in the members section of the SOCAN website. There, creators can also search for “Unidentified Concerts”—which are performances registered with SOCAN that are missing set lists—and add their works as applicable.
Variation: Traditional TV Broadcasts
While the movement of rights and royalties associated with traditional radio broadcasts follows the general flow quite closely (with the radio stations being the licensees), traditional TV broadcasts follow a somewhat different flow due to the involvement of production companies.
When an original musical work is required for a TV production, the production company will hire a music creator to write and produce one. The details of the agreement are outlined in a production contract (also called a “composer agreement”), which establishes, among many other points, the upfront fee the creator will receive to write the work (and, usually, to engineer, produce, perform, record, and mix it) and then either license it to the production company or assign the copyright in it to the production company.
Licensing a Musical Work to a Production Company
When the musical work is licensed non-exclusively to the production company, the music creator grants the company the freedom to exploit the copyright by performing, reproducing, and otherwise using the work in the ways negotiated under the agreement—and only those ways. Generally, the more the company wishes to use the work, the more they’ll need to pay. Full ownership and control of the copyright remains with the music creator (and/or music publisher, if they’ve partnered with one—although creators often self-publish musical works written for AV productions).
The production company exercises the rights they’ve been granted by embedding the recording of the work in the AV production, which they and/or a distributor, in turn, license to a TV broadcaster or streaming service. While the music creator does not usually participate in the licence revenue paid by the broadcaster to the production company, they typically do receive performance royalties when the production airs, since the broadcaster pays performance licence fees to the creator’s PRO. In certain cases, the creator and/or publisher of the work may also receive mechanical royalties (i.e., broadcast mechanicals) deriving from the mechanical licence fees the broadcaster pays to the duly authorized RRO.
Assigning the Copyright in a Musical Work to a Production Company
When the music creator assigns ownership of the copyright in the musical work to the production company, that company becomes the music publisher, and it may choose to either administer the performing and mechanical rights itself (as depicted in the diagram above) or contract another publisher to do so, by way of an administrative agreement. In both cases, the production company is entitled to receive a portion of the publisher’s share of performance and mechanical royalties.
It should be noted that, while, in this scenario, the music creator gives up the copyright in the musical work, the production contract will often include a list of rights the creator retains. The right to receive performance royalties is typically among them. A creator’s negotiated rights to revenue participation may also include participation in mechanical rights and the right to receive a portion of any mechanical royalties generated, which the production company (as the publisher) or its RRO would distribute to the music creator. However, producers of Canadian AV productions frequently require music creators to relinquish, via buyouts, most, if not all, of the reproduction rights in the musical works created for their productions.
While the rights and royalties associated with musical works created for AV productions distributed via OTT platforms (e.g., Netflix) follow essentially the same flow as those related to traditional TV broadcasts, there are notable differences in the business model that often affect music creator compensation. Read more about royalties in the digital age.
Know Your Cue Sheets
While PROs are usually able to determine when a particular film or TV show is screened, broadcast, or streamed, there’s no way for many of them to know what musical works are used in that AV production—and therefore no way for them to pay out performance royalties—without a document called a “cue sheet.”
International royalties can comprise a substantial amount of back-end revenue for rights holders, which is why Canada’s PRO (SOCAN) and RROs (CMRRA and SOCAN RR) have reciprocal agreements with collective societies in hundreds of foreign territories. When a musical work that’s been registered with a Canadian collective society is performed in another country, the designated partner organization in that country will administer the rights and collect the royalties on the Canadian organization’s behalf—and vice versa. (In certain instances, a music publisher may choose to partner with a sub-publisher to engage with the foreign collective society directly, in which case a Canadian collective society is not involved.)
Music creators should be aware, however, that copyright laws and distribution rules often differ from country to country, so the public performances and reproductions that generate royalties in one territory may not in another. For example, while both the CMRRA and SOCAN RR distribute broadcast mechanicals for the creation of incidental copies of musical works for radio broadcasts, US PROs do not. Currency exchange rates and withholding taxes in certain territories may also affect the total revenue music creators receive from international collection.
Furthermore, when a musical work is used in a foreign territory where there are multiple collective societies that administer the same rights, in order to avoid conflicts, the music creator should indicate to their Canadian society which foreign society they would like to affiliate with. As an example, SOCAN has reciprocal agreements with three US PROs—BMI, ASCAP, and SESAC. So when a musical work is performed in the US, the music creator should direct SOCAN to authorize one of these three organizations (usually BMI or ASCAP, since SESAC membership is by invitation only) to administer the performing rights there. For AV productions, this information can be included on the cue sheet.
If a Canadian music creator believes they haven’t been paid for an international performance or reproduction, they should follow these steps:
- Check that the foreign territory distributes royalties for the type of performance or reproduction in question.
- Confirm that the musical work has been registered with all applicable Canadian collective societies.
- Consider the length of time it’s been since the performance or reproduction took place (international royalties may take two or three years to collect and distribute).
- Ensure that all required documentation (e.g., the cue sheet for an AV production, the Notification of Live Music Performance form for an in-person concert, etc.) has been submitted to SOCAN.
- Contact the Canadian collective society directly if all of the above has been completed but no international royalties have been received.
Because it’s in their best interests—and the interests of their members—collective societies are continually exploring ways to make information-sharing between organizations as efficient, accurate, and equitable as possible. Much of this work is being done by the International Confederation of Societies of Authors and Composers (CISAC), which counts among its members more than 225 collective societies across the globe. Some of CISAC’s initiatives include CIS-Net (an international database of creative-work registration information) and an effort to standardize cue sheets across countries and organizations.