Revenue Earning Rights in Music: The Hottest IP Trend of the Moment

Two hundred million dollars — that’s what Warner Music Group paid David Bowie’s estate for the late recording artist’s music catalog. Earlier in 2021, Bob Dylan sold his songbook for a reputed $400 million. And then Bruce Springsteen, not to be outdone, sold his for $500 million. Even America, with just one classic song — A Horse with No Name — sold theirs for $40 million.

As you can see, revenue earning rights is definitely a new trend among artists, and it shows no sign of slowing down.

What is going on?

It may be a cliché, but it is true: music forms the soundtrack to our lives. We associate personal experiences and eras with popular songs from a specific time. For instance, when the movie Animal House wanted to establish its late 1950’s setting, it did so by using as background a popular song from that period: Sam Cook’s (What A) Wonderful World. Francis Coppola used the same mechanism in Apocalypse Now by featuring The Doors’ recording of The End.

But these musical standards do not just operate as historical markers. Even though we’ve heard them many times, they have managed to remain ever-popular.

Streaming services, like Spotify, report that there is more air-play for older songs now than ever before. This is particularly true of music from the 1960s to the early 2000s. These songs’ classic status makes them popular and valuable in the financial sense.
When these songs are played and performed, the owners of the copyrights earn royalties. And there are two sets of revenue earning rights that are relevant here – the copyright in the compositions and in the recordings.

Understanding Copyright in Music Compositions

First, there is the composition – the sheet music. Take a song like Simon & Garfunkel’s Mrs. Robinson. The composer is Paul Simon and he owns the composition. Every time the music is played on the radio or over the Internet, the owner of the composition gets a performance royalty. When the song is played at your local pool hall or for a wedding, they are entitled to (but don’t always receive) a performance royalty.

This is where the Performing Rights Organizations (“PROs”) step in. The best known are ASCAP and BMI. Their job is to collect these royalties on behalf of their members. Royalties are generally generated through subscriptions from commercial users, like radio stations, hotels, and bars, and also by going after unauthorized users — the infringers.

The PROs use an algorithm based on samplings of playlists from various sources that help them determine what music is being played and what the individual composers are entitled to from the royalty pie.

Mechanical Royalties for Composers

Furthermore, every time a copy of the recording is sold, the owners of the composition earn what is called a mechanical royalty, a fee for each copy. These mechanical rights are generally managed by mechanical rights organizations. The most famous is the Harry Fox Agency. Harry Fox licenses the use of members’ compositions and artists or their record company pay a royalty for each copy sold.

Revenue from Syncopation Fees for Composers

And when the song is used in conjunction with images, as in a movie, the owners of the composition earn what are called syncopation fees. These synch rights are negotiated on a case by case basis. To use a famous song like Mrs. Robinson in a blockbuster movie could easily command a fee of several hundred thousand dollars, and maybe even more.

Understanding Copyright in the Recordings

So much for Paul Simon, the composer. What about Simon & Garfunkel, the performing duo? After all, it’s their sound recording of Mrs. Robinson that is iconic!

Because of shenanigans between members of congress and the radio industry, even though songwriters get a royalty when their compositions are played over the air, the owners of the sound recording get nothing. The rationale is that by merely playing the song on the air, record sales are generated, and these are a sufficient reward for the performers. But with record sales in free-fall, this record sales argument no longer makes sense.

Moves are afoot to change the law so that owners of the sound recordings also get a royalty for over the air play — but that would require Congress to agree to pass the requisite legislation.

Revenue from Streaming Platforms for Performers

The owners of the sound recording do get royalties when the music is played through streaming services such as Apple Music and Spotify.

Readers may recall that, a few years back, Taylor Swift refused to stream her music on Spotify. She argued the owners of Spotify were getting rich on subscriptions driven by her music, while she and artists like her were receiving virtually nothing.

Spotify and others have since changed their model to give artists a bigger share of the pie. Today, Spotify says that 70% of all revenues go to the composers and musicians. These streaming royalties are administered by SoundExchange, a performing rights association for online streaming.

Revenue Based on Record Sales for Performers

Performers also earn income based on record sales. These are negotiated with the record company on a case by case basis.

Because they have no clout, new bands, even during the heyday of the record industry, typically earned a pittance on record sales. It wasn’t until records #3 or #4 that the bands started to earn money.

At one point, an established artist at the height of their career could easily have expected to earn one or two dollars for every album sold.

Revenue from Syncopation Fees for Performers

And then there are the sync rights when the sound recording is used in a movie or in conjunction with images. As with compositions, these are negotiated on a case by case basis. Again, for a well known song like Simon & Garfunkel’s recording of Mrs. Robinson, the fee for using it in a movie might also be in the high six figures, or more.

Revenue Streams Breakdown

Because there are so many different platforms, here is a summary of the two types of copyright and the platforms that pay royalties for them:

The Role of the Label In Music Copyright

While the above discusses the ownership of compositions and the sound recordings as though they belong to the artists, the reality is that these rights have usually been negotiated away to a publishing company or to the record label the artist works with.

The publisher helps make the song popular and the record company pays for the studio time. In return, they bargain for an ownership interest in the work. It’s more likely to be these than the actual artists who are the principal beneficiaries of the rush to buy megastar music catalogs.

Indeed a story is told about how John Fogarty, the songwriter and lead singer for Creedence Clearwater Revival, to get out of a contract, assigned all his rights to his manager in the CCR catalog. Bad Moon Rising and Proud Mary remain a standard, Fogarty gets no royalties for it, and he never wrote another hit.

The Benefits of Artists Owning The Copyright to Their Compositions and Recordings

Artists like Bowie, Dylan, and Springsteen managed to retain ownership and control of the copyright to their compositions and recordings.

In the case of Springsteen, back in the mid-1980s, a time when Japanese cars were taking over the U.S. market, Chrysler wanted to use music to underscore its American heritage. Lee Iacocca, the CEO, approached Springsteen and offered him $10m to use the Born In The U.S.A. in Chrysler’s commercials. But because Springsteen owned the rights, it was his call, and he refused.

Many thought Springsteen’s rejection of Iacocca’s offer was nuts. But based on the events of the past few months, it is clear Springsteen is not crazy. He is a genius. He has just bagged $500m. That’s why they call Springsteen the Boss!

At IpHorgan, music copyright is just one part of our overall IP expertise. With fifteen attorneys, we always have someone on hand who is knowledgeable and experienced to address and answer any particular intellectual property conundrum or challenge. Reach out to us with your questions!