In 1971, Congress passed a long-overdue and very significant amendment to the copyright act that recognized for the first time a new copyright protection for what it calls “sound recordings.” Record companies had been urging Congress to secure copyright protection for sound recordings repeatedly since the 1909 Copyright Act, and many laws to do so were proposed in Congress, but it took until 1971 for such an act to become law. This new right created a bifurcation in the copyright scheme, between songs and recordings, a distinction that creates continual confusion among those who aren’t trained in the intricacies of copyright law. Students studying this book are urged to continually keep this distinction in mind: there are TWO distinct copyrights involved in popular recordings: 1) the copyright in the song itself (the composition), and 2) the copyright in the particular recording of the song.
The 1971 Sound Recording Act provided that only the copyright owner of a sound recording made on or after February 15, 1972 could “duplicate the sound recording in a tangible form that directly or indirectly recaptures the actual sounds fixed in the recording.” The primary goal of this act was to prevent the sale of pirated recordings duplicated without permission. However, it soon became clear that this right, like the song copyright, could be licensed to allow for permitted duplication and performance, and royalties collected from those licenses.
A simple example will help clarify this important distinction: In 1973, the Jamaican reggae band The Wailers recorded the song “I Shot the Sheriff,” written by their lead singer, Bob Marley. Bob Marley, as the songwriter, owned the copyright to the song. However, the copyright to the recording of the song on the Wailers’ Burnin’ album was owned by Island Records, the record label that released the recording. As discussed in the chapter on record contracts, nearly all recording contracts specify that the rights to the so-called “master” recordings are owned by the record company rather than the artist. However, in 1974, Eric Clapton released his own version of this song (the one most Americans heard first on the radio) on his album 461 Ocean Boulevard, released by RSO Records. Clapton’s recording thus constitutes a separate sound recording copyright (master), owned by RSO Recordings. The song copyright associated with Clapton’s recording is still owned by Bob Marley, which is why Marley’s name appears in parentheses underneath or next to the song title on the list of tracks on the Clapton album. Eric Clapton had no copyright ownership on either this song (owned by Marley) or on the recording (owned by RSO Records). Clapton certainly received sound recording royalties from sales of the recording (after he repaid the advance), but only so much as provided by his record contract — the underlying master was owned by the record company.
Because the 1971 Sound Recording Act only covered sound recordings made on or after February 15, 1972, those recordings made before that date were not covered by a federal copyright until 2018, when the Music Modernization Act of that year extended copyright protection to those recordings. Before 2018, pre-1972 recordings were sometimes protected under “common law” (that is, non-statutory case law) in some state laws, but that protection required costly lawsuits and uncertain application of previous case law.
The 1971 Sound Recording Act also provided that the sound recording copyright does not “extend to the making or duplication of another sound recording that is an independent fixation of other sounds, even though such sounds imitate or simulate those in the copyrighted sound recording. . . .” (emphasis added). Thus, the sound recording copyright only extends to a particular recording (as instantiated on some physical or digital medium) and not to the sound of a particular recording. One could use the exact same instruments, same musicians, same recording studio, same microphones, etc., to make a recording that sounds exactly like another recording of the same song and that perfect imitation recording would not violate the copyright of the original sound recording because they are, in fact, two separate recordings.
This bizarre hypothetical actually sometimes occurs in the real world. For example, sometimes a musician will lose control over the copyright to her original recording (which is usually owned by the record company) and then decide to re-record a popular song so that she will then be able to re-release the song as a recording over which she now owns the copyright. For example, in 2020, Taylor Swift began to re-record some of her extremely successful early recordings after her previous record label refused to sell back to her the copyrights to those recordings. As of early 2023, Swift has re-recorded and released three of her earlier albums, which now compete successfully against the original recordings — the difference being that Swift owns the master rights to the new recordings, so she earns all the licensing revenue from their sales and streams.
No Performance Royalty for Sound Recordings.
The 1971 Sound Recording act by its language only protects against unauthorized duplication of a sound recording, confirming that the intent of the statute was primarily to deal with the issue of piracy involving unauthorized duplication of recordings. However, that left open the question as to whether the copyright conferred on sound recordings might also be extended to performances of those sound recordings in the same manner as performances of song copyrights had been protected since 1897. Record companies and musician unions had urged Congress since 1965 to provide for a sound recording performance right and corresponding royalty, but Congress did not put such a right in the 1971 act. In 1975, Congress held further hearings about the need for a sound recording performance right, but Congress again declined to provide for such an extension of the sound recording copyright in the major 1976 Copyright Act. In 1978, the U.S. Register of Copyrights urged Congress to provide a sound recording performance right, but Congress again declined, demonstrating the political power of the nation’s radio broadcasters, who had been free from paying royalties to record companies since the inception of the industry.
Because Congress had never provided for a performance royalty for sound recordings, to this day traditional radio broadcasts (known as “terrestrial radio”) do not generate any revenue for holders of sound recording copyrights. Thus, when a terrestrial radio station plays Eric Clapton’s “I Shot the Sheriff,” it does not have to request permission from the record company or Clapton, or pay either of them any royalties for that use of the recording. To be thorough, we should note that the radio station playing “I Shot the Sheriff” will have to pay royalties to Bob Marley (or rather his estate, since Marley died in 1981) because there is no terrestrial radio exception for the performance of a copyrighted song, but those royalties will be covered by the blanket license the radio station pays to ASCAP (which administers the rights to Marley’s songs).
The record industry has long argued that they should enjoy the same performance royalty that songwriters and publishers enjoy, and have repeatedly lobbied Congress to change the law to provide for it. In November, 2019, legislation was introduced into the U.S. Senate by Marsha Blackburn of Tennessee which would create a performance royalty for sound recordings played over terrestrial radio similar to the performance royalty for musical works. The act is called the “Ask Musicians for Music Act,” resulting in the acronym “AM-FM.” (This has to be the most awkward attempt to create an acronym from a legislative title that I can remember.) Similar legislation was introduced into the House of Representatives by Rep. Jerrold Nadler (NY). As of the date of this writing, this legislation has not advanced beyond being referred to committee and, given the gridlocked state of the U.S. Congress it seems unlikely that such a bill will become law any time soon.
Digital Performance Right in Sound Recordings Act of 1995 (DPRA).
The rise of digital audio and the internet in the 1980s and ‘90s finally compelled Congress to provide for a limited performance right for sound recordings. However, again a testament to the power of the traditional radio broadcast industry, Congress specifically excluded “terrestrial radio” broadcasts from the obligation to obtain a license or pay royalties for this new performance right. The Digital Performance Right in Sound Recordings Act of 1995 granted sound recording copyright holders the exclusive right to perform those recordings publicly, but only limited to “digital audio transmission” and explicitly exempting traditional “over the air” radio broadcasts (even if they are broadcast digitally). The technical legal reasoning behind this separate digital performance right is that Congress is providing for a license of what it calls “ephemeral” copies of the original digital file that is the sound recordings. In other words, this is not actually a “performance” of the sound recording, but rather the duplication of the sound recording for a short time in order to transmit (broadcast) the copy electronically to the user. After the transmission (streaming), the “ephemeral” copy of the computer file is erased from the user’s computer and cannot be further replayed, copied, or transferred. This right to make an “ephemeral” copy of the digital file is what the copyright owner is licensing (for a fee) rather than the right to “perform” the sound recording publicly. Though technically this license is for the making of “ephemeral” copies, it is often referred to as a sound recording performance right. This license is sometimes referred to as a “Section 112” license because it is provided by Section 112 of the Copyright Act, titled “Limitations on exclusive rights: Ephemeral recordings” because the license scheme is a limitation on the exclusive rights of sound recording owners to control the duplication of those recordings.
The DPRA created a three-tier system of licenses for this new digital transmission right, with the three tiers distinguished by the likelihood that the transmission might negatively impact record sales:
Tier 1: Transmissions that occur through an interactive digital service (that is, one in which the consumer chooses which music to listen to, such as Spotify) have only a discretionary (negotiable) license from the owner, who can refuse to provide a license. This first tier, because the consumer could choose which music to listen to, was perceived to pose the greatest threat to record sales, so the license was made discretionary.
Tier 2: Non-interactive subscription digital transmissions, such as satellite radio (Sirius), subscription internet radio (such as Pandora, now owned by Sirius), and webcasts, were determined to be less of a threat to record sales because the consumer could not choose the music that was played (thus, non-interactive). Therefore, for this second tier, the DPRA provides for a compulsory statutory license at a rate determined and published in the Federal Register by a “copyright arbitration royalty panel” or a different rate negotiated between the owner and the licensee. Because the owner cannot deny an applicant a license for this use, it is considered compulsory. The DPRA further specified that non-interactive subscription digital services could not publish their playlists in advance, to prevent listeners from making duplicate recordings of particular songs.
Tier 3: The third tier of digital sound recording transmissions are those non-subscription and non-interactive transmissions that require no license. These include digital retransmissions of terrestrial radio broadcasts.
The digital transmission right created by the DPRA enabled owners of sound recording copyrights to earn performance royalties from both interactive and non-interactive streaming, which now account for the vast majority of record company earnings. However, the limitation of the royalties to only digital internet streaming, as opposed to terrestrial radio broadcasts, preserves an inequity in the industry that is difficult to justify. Why should internet radio non-interactive streaming services pay royalties while terrestrial radio does not? The radio broadcast industry argues that their radio plays of recordings provide valuable promotion for the record companies, driving record sales, and they should therefore not have to pay royalties on those recordings. However, aren’t the same arguments true for satellite and internet radio? One other argument available to terrestrial radio is that internet and satellite radio are able to charge subscription fees for their services, whereas radio is free to the consumer so terrestrial radio must rely on advertising revenue, which disrupts the consumer’s enjoyment of the broadcast.
Administration of the Section 112 License; SoundExchange
As described above, Tier 2 (non-interactive streaming and webcasting) of the three-tier scheme provided by the Digital Performance Right in Sound Recordings Act of 1995 is subject to a compulsory statutory license (the Section 112 license referred to above). This license is administered by a the SoundExchange company, and has been since the license went into effect on June 1, 1998. SoundExchange is a non-profit collective rights management organization, similar to ASCAP, except that it collects, administers, and distributes sound recording performance royalties rather than song performance royalties.
The Copyright Act requires the Copyright Royalty Board to determine the fees for obtaining a blanket license for non-interactive digital transmissions every five years, with the latest such period beginning January 1, 2018 (expiring at the end of 2022). For this current period, the Copyright Royalty Board has set the fee for a Section 112 license (non-interactive digital transmission) at 7.5% of the gross revenue earned by the licensee from their digital music transmissions of this kind.
SoundExchange allocates the Section 112 performance royalties it collects (after paying its own administration costs of approximately 5%) in accordance with the Copyright Act as follows:
- 50 percent of the receipts are paid to the copyright owner of the sound recording (typically the record company).
- 2½ percent of the receipts are deposited in an escrow account managed by an independent administrator jointly appointed by copyright owners of sound recordings and the American Federation of Musicians or any successor entity) to be distributed to non-featured musicians (whether or not members of the American Federation of Musicians) who have performed on sound recordings.
- 2½ percent of the receipts are deposited in an escrow account managed by an independent administrator jointly appointed by copyright owners of sound recordings and the Screen Actors Guild-American Federation of Television and Radio Artists (or any successor entity) to be distributed to non-featured vocalists (whether or not members of the American Federation of Television and Radio Artists) who have performed on sound recordings.
- Forty-five percent of the receipts are paid directly, on a per-sound-recording basis, to the recording artist or artists featured on such sound recordings (or the persons to whom rights in the artists’ performance on sound recordings have been subsequently conveyed).
In 2019, SoundExchange distributed over $908 million in royalties collected for non-interactive, subscription streaming services (representing over 3,000 licensees), and it claims to have distributed approximately $7 billion dollars since its inception in 2000.
Interactive Streaming Royalties
As noted above, the Digital Performance Right in Sound Recordings Act of 1995 provided that interactive streaming (Tier 1), in which the consumer chooses which song to listen to from a catalog of works (such as on Spotify), are licensed fully at the discretion of the rights holder (typically the record company). In other words, the record company (or the artist, if not affiliated with a record company) has the sole discretion as to whether their recordings are available for interactive streaming on any given service, and what royalties they will demand from that service per play. This is why, when talking about interactive streaming, we can only talk about an average per-stream rate paid to recording artists (not songwriters, who earn the mechanical royalty) on any given service. There is no rate set for such streams by any copyright royalty board. The rights holder names their own price, and can refuse to allow their songs to be streamed on the service if an agreement is not reached.
The current method by which record companies, and in turn the artists they represent, are compensated for interactive streams is through a process of total subscription fees divided by the number of streams per artist. Under this this system, subscription fees are aggregated and then distributed to artists on that system proportionately to their percentage of overall streams on the system.
There are some who feel that this aggregated subscription fee system unfairly favors major artists and does not allow independent artists who have smaller fan bases to benefit from the subscription fees paid by their fans who listen mostly to these independent artists. Put another way, a fan streaming only independent artists ends up disproportionately supporting the major artists, even if they never listen to them. The subscription fees of all fans go primarily to the most-streamed artists, even of those who never listen to those artists. This is why some independent record companies, and at least one streaming service (Deezer) have proposed a different model of payment, by which a user’s subscription fee will go only to those artists actually streamed by that user. This would bring more money to independent artists, and give users a sense they are directly supporting their favorite artists, rather than indirectly supporting other artists they don’t care about. As of September, 2019, the streaming company Deezer has begun shopping this idea around to record companies and claims to have come up with the technology to apportion streaming royalties using this new system, which it calls a “user-centric payment system.” As you might expect, the smaller independent record companies have eagerly embraced the idea, but the large record companies (who benefit most from the current aggregated system) have yet to agree to it.