Archive for category Smart Artists
Andrew Orlowski has an excellent article in The Register about proposed changes to the UK intellectual property laws regarding “orphan works” entitled “The ‘Google Review’: Opt in for your rights“.
The important thing about this is that it coincides with a renewed interest in orphan works in the US due to the failure of the “Google Books” case which was ruled improper by a U.S. District Court judge in New York earlier this year (2011). (See the “Mass Digitization Discussion Document” at the U.S. Copyright Office website.)
The concerns in the creative community (especially the visual artist community) is best exemplified by the Google Books case–give them an inch and they take a mile. Orphan works legislation was not ever intended to permit the mass digitization of entire libraries and was intended to present a method for potential users to find creators to seek a license. What the Google Books case clearly establishes (after Google scanned 15 million books and counting) is that care must be taken in crafting orphan works legislation not to create a de facto compulsory license.
This is the reference to “opt in to protect your rights” in the Orlowski article–the copyright law does not require creators to comply with particular registration requirements or other “formalities” (which are in fact prohibited by international treaty).
A quick read and highly informative for artists who want to understand their rights in the online world.
(The “Google Review” is a tounge-in-cheek reference to a UK government report that many believe was prompted almost entirely by Google due to the influence of Rachel Whetstone, head of worldwide communications for Google who is married to a close advisor to the UK Prime Minister.)
Written by Chris Castle
New artists often think that the first person they need on their team is a “manager”. They’ve all heard the stories of the “big” managers who can snap their fingers and make something happen for their clients.
The reality is that when an artist is just starting out, those first 1,000 to 10,000 units are just as hard to sell for the new artist using Internet based tools as it is for the big manager with the major label backing. When I say “sell”, I mean that literally—get someone who you don’t know to pay money for your record. I don’t mean some promotional gimmick or getting a retailer to take some units they can later return for full refund. That’s not a “sale.” Real sales have always been hard, and they are just as hard in the current environment as ever, and actually given the levels of theft, much harder.
So getting a manager may not be your first move in assembling your team. Let’s talk about what a manager does and what a manager does not do.
Not A Manager
Not a Personal Assistant: A manager does not walk your dog, pick up your laundry, pay your bills or tie your shoes. A manager also does not remind you to do any of the foregoing, nag you to wash your dishes, or loan you money. This person is usually called a personal assistant, kind of a cross between a gofer and a parent. Good managers will not do any of that stuff.
Not a Booking Agent: Strictly speaking, a manager does not get you work (a/k/a “procure employment”), particularly not in California. However, most new bands have the expectation that if they do not have a booking agent, a manager will get them shows. This is a problem for the manager, because anyone other than a licensed booking agent (which usually means licensed by the State where they reside) is not supposed to book shows. There are a lot of reasons for this, but think “casting couch” and some will become clear. It is also true that a booking agent is a specialized employment agency, and employment agencies are highly regulated. Even so, it is not unusual to hear that managers are booking “pump priming” shows, usually at clubs or festivals for low or no performance fees, in order to showcase their band for agents. This can go on for a while, including after the band is signed to a major label.
Another reason a manager is not a booking agent is that most booking agents are “franchised”, meaning that they have signed an agreement with the American Federation of Musicians or possibly other unions. That franchise status is very important because without it, the agent will not be able to book union members—which is essentially all touring artists. The franchise agreement has limitations on how much commission the agent can charge, usually 10%. Managers charge more.
Not a tour manager or roadie: Most managers will do not go on tour with their bands, at least not for all of the shows. They do not hump gear, they do not settle or argue about the value of towels (usually), they do not drive the truck, van or bus. They may have done all those things in other lives, but they do not do those things now.
Personal managers typically will say that they give career advice. Of course, they do much more than that, but given the things they don’t do, you can see that if you think of “career advice” in the very broad sense and then you add in shopping a record deal, booking agent, publishing deal, setting up co-writes, finding a producer and negotiating the deals for all of these people in concert with your booking agent or lawyer, you begin to get the idea.
The personal manager often—and usually—comes up with most of the marketing plan for your band, then runs interference to make sure that all the people involved can actually execute that plan on time and in concert as a team. You could call this an “uber product manager”—a manager of managers. The better the artist’s personal manager is at that, the better off the artist should be.
by Chris Castle
Artists will eventually come into contact with either a co-writer, or a co-writing producer, who is themselves signed to a major publishing company. When co-writing with such a person, artists need to be careful that they are not getting the benefit of a terrific co-writer, only to find themselves locked into a relationship with a business partner who has none of their best interests in mind.
I’m as leery of “exposure” opportunities as anyone, and fully recognize that this is usually bull. But–there actually are such opportunities that really do benefit the artist—and therefore the writers if the promo use stimulates sales of royalty-bearing tracks. As long as the use is prominent and there truly is commensurate marketing and promotional value, then the artist should be able to grant a free or reduced rate license for their recording of the song. This is particularly true when the co-writer was invited into the artist’s writing sessions or was hired as a producer—the co-writer was given an opportunity to work with the artist, not have their publisher hold the artist up.
I assume that the co-writer has already agreed to any “controlled compositions” clause that the artist is subject to under the artist’s record deal. This is the minimum that an artist should expect who invites a co-writer to write songs on the artist’s album.
One caveat to the following points is that every now and then a new artist will get to write with someone who truly is an “A” list writer and who does not intend to take a reduced rate mechanical. That’s fine, I understand that, and if that’s the deal, then let’s get that understanding up front. But if an “A” list writer is writing with a developing artist, that logic does not translate to other promotional type uses that the artist wants to take for the greater good.
Let’s take a few examples of how this tension manifests itself: iTunes downloads of the week, promotional video channels, artist website or sponsor website uses and film/TV/commercial licenses with more promotional benefit than dollars for up front fees. It’s very difficult to stomach someone who does nothing to help promote the sales of records in which they have an interest sitting back and trying to dictate terms to an artist who is trying to make something happen.
iTunes Download of the Week: If an artist is lucky enough to be selected for an iTunes download of the week, the artist/writer must grant a free mechanical license. If you co-wrote the song, you may find that your co-writer’s publisher won’t grant the free
mechanical license. That means that you don’t get the opportunity, or, worse yet, the publisher may expect someone else to pay the mechanical on the free download. (Most of these online promotions are limited by time, not by the number of downloads. It is a real pain to write a rule set that will count the number of downloads rather than a rule set that allows unlimited downloads during a certain period of time.)
Promotional Video Channels: Some video channels, e.g., Channel One, want royalty free licenses. Some major publishers won’t grant that license as a matter of policy. They don’t care whether it benefits the artist to get the exposure, they are more concerned with enforcing their “policy” in general rather than any particular issue.
Artist Website or Sponsor Website Uses: When an artist uses their own recordings on their artist website or wants to grant a free license to their sponsors to use a recording on the sponsor’s website, it is very difficult to explain why a co-writer’s publisher refuses to grant a free license for those uses. The fact that the sponsor paid a fee to the artist that the artist used to defray touring expenses to promote the sales of their record (generating mechanicals for the co-writer) and did not share the sponsor fee with the co-writer or their publisher seems like the tail wagging the dog—or like the artist asking for a share of the co-writer’s advances from their publisher.
Film/TV/Commercials: Publishers will often tell you that they are better able than you to get big money for licenses because (a) they’ve been doing it longer, (b) they are bigger than you, (c) they have the relationships, etc. This is also known as “blowing the deal.” If this condescending swagger were limited to opportunities brought to the writers by the co-writer’s publisher that the publisher actually developed, that would be one thing.
It hardly ever is.
This is mostly because it is the artist’s recording of the song that is used as the marketing tool and that is being promoted generally to the public. Most of the time, the opportunity came because the artist answered the phone, it’s part of an overall sponsorship that the artist developed, or because the artist has a placement agent (or label) who went out and developed the licensing opportunity.
In these situations—again, when the license is also for the artist’s recording which the publisher had nothing to do with creating—the artist should be able to make the call on fees. This is not a “cover” of an existing song—it is a co-write by invitation.
Suggested language: While this sounds complicated, and it certainly can be if you try hard enough, the following language would likely do the trick, to be inserted into a collaboration, split or producer agreement:
“Artist shall have the right to grant any non-exclusive license with respect to 100% of each [co-written song or “Subject Composition”] if such license relates to the license of a recording of the Subject Composition featuring Artist’s performances, all on such terms as Artist, in Artist’s sole discretion, may designate or approve, provided that the terms applicable to Artist’s share of the applicable Subject Composition shall be no less favorable than the terms applicable to Producer’s share thereof.”
Obviously, consult with your own lawyer. (Also note that the “controlled compositions” concept is usually limited to US and Canadian sales as well as certain gratis licenses beyond the US border.)
The short answer is: Talk to your CPA.
The longer answer is, it would appear that Kickstarter money is taxable. If the Kickstarter money is being paid to a non-profit corporation that has received tax exempt status from the IRS (or is under an umbrella organization that allows the non-profit to raise funds on a tax-exempt basis), you know who you are and you need to talk to your non-profit accountants and lawyer to be clear on your status. (If you search for “tax” in the Kickstarter “help” section, you will find a couple references to how nonprofits can work with them.)
If you are not a non-profit, then the chances are pretty good that the money is taxable. First, Kickstarter money is typically not money given in exchange for a security, which would likely violate a number of state and federal securities laws both in the offering of the “security” and the sale of that security. (Also, no future benefit or ability to sell or transfer an interest.) Kickstarter says: “Rewards, not financial incentives. The Kickstarter economy is based on the offering of rewards – copies of the work, limited editions, fun experiences. Offering financial incentives, such as ownership, financial returns (for example, a share of profits), or repayment (loans) is prohibited.”
You may also want to ask your tax advisor whether “rewards” are actually sales subject to state or local sales tax in your state. By setting a “reward” for a specific dollar amount, particularly involving a CD or another good that would typically be subject to sales tax, the “reward” starts to look a lot like a “price”. If there is a sales tax payable, the burden would likely fall on the artist and not Kickstarter–however, the IRS or state tax authorities may decide that Kickstarter should be collecting sales tax particularly since there is probably hundreds of thousands if not millions of dollars due in sales tax because if Kickstarter projects. Also–I’m referrring to “Kickstarter”, but the same issues will probably come up in almost any “crowdfunding” situation.
But I think the Kickstarter relationship between artist and funder could be fairly described as a contract–the Kickstarter “deal” is a promise to do something if certain conditions are met. This is most likely going to be viewed as a “unilateral contract” and not as a gift. It’s also not like “panhandling” in that there seems to be a future promise to perform under a unilateral contract. So the payor says if I give you X then you will do Y. The payor also gets some “rewards” bling in most instances (which appears to be a fairly well defined fair market value (aka a price) based on the contribution level required to get the “rewards” bling). That looks taxable to me, although I’m not a tax expert.
Another question for your CPA is whether you need to pay self-employment tax on the Kickstarter revenue. I think there’s a pretty good argument that you do. There’s also possible that if you spend the entire Kickstarter payment on business expenses, you may not owe any income tax. You may, however, owe self-employment tax. This is a situation that is specific to every individual, so you need to get your own tax advice to see what your exposure might be.
If I’m correct in the analysis, not only would the Kickstarter income be taxable for the recipient, it would not be deductible for the payor. You should also take a close look at the instructions for IRS Form 1099-K which will be required starting with the 2011 tax year. I looks to me like Kickstarter (or more likely their payment processor) will need to report Kickstarter income to the IRS beginning with the 2011 tax year. Update: See this page on Amazon Payments dealing with Amazon Payments filing the IRS 1099-K for Kickstarter projects (I wonder if the “K” stands for “Kickstarter”). Looks like the IRS is paying attention.
Don’t forget—this is not legal advice, and you should not rely on it. Talk to your CPA about your own situation, but be aware that these are real issues.
The difference between tax avoidance and tax evasion is that you wear stripes for tax evasion. And I don’t mean pin stripes.
So if you are thinking about using Kickstarter (or any other crowdfunding source), make sure you talk to your tax advisor about how to deal with any tax issues that may arise. If you’re thinking of raising a sum of money because that is what you need to accomplish your project, you may need to raise more than you think depending on what your tax advisor says. (Note that this article is directed toward US taxpayers. Local tax laws may differ.)
And by the way—if you find a discussion of this issue on the Kickstarter site, please send us the link. We weren’t able to locate it.
(Hat tip to Nikki Rowling of Titan Music Group [and co-founder of Austin Music Foundation] for raising this issue)
See also When Co-Writes Go Wrong: Artist Promotional Requirements in Co-Writer or Producer Deals
A great video about integrating Topspin.
Webcasting Royalties and SoundExchange
by Chris Castle
When a record is played on “terrestrial” broadcast radio in the United States (i.e., over the air), who makes money? Since a radio broadcast is a “public performance” of the song in the record under the U.S. Copyright Act, the songwriters and publishers make money through their performing rights organization, whether ASCAP, BMI or SESAC. But does the artist? Does the session drummer? Does the record company?
Not in the United States.
If the same record is played in Canada, the United Kingdom, Japan, or any one of a host of other countries, not only do the songwriters and publishers get paid a royalty through their PRO, but the artists, session players and copyright owner of the recording also get paid through a sound recording PRO.
But—due to changes in US law in the 1990s–if the same record is played in the U.S. online (like Pandora or Sirius-XM Radio), not only do the songwriters and publishers get their royalty, but the artists, session players and vocalists and record companies also get a royalty through a new PRO for sound recordings.
Weird, you say? True. But no stranger than the tax laws. Just like the tax laws, our copyright laws are the result of deals cut in Washington between interested parties, and the deal that cut out sound recordings from a performance royalty was made a long time ago between the broadcasters and the record companies. The goal of the recording community is to bring the U.S. in line with the laws of most other countries–the broadcasters oppose that goal because it makes the music they play more costly, and they have had the clout to win the issue in Washington, just like so many other changes in the laws that have created the most severe media consolidation in the world. If you were a cynical person, you might say that’s because there is a radio station in every Congressional district, but record companies in only a few.
Congress amended the Copyright Act in the 1990s to establish a limited public performance royalty for digital transmissions of sound recordings. “Digital transmissions” includes satellite radio like Sirius-XM, webcasting (or “Internet radio) like Pandora, and the Internet broadcast (or “simulcast”) of terrestrial radio stations like when your favorite radio station simulcasts its broadcast signal over the Internet. Although this limited performance right is a small step forward, it is a huge victory against the broadcasters, particularly as the industry moves toward digital radio.
These new laws established what is commonly called a “statutory” or “compulsory” license to stream sound recordings as long as the music being streamed complies with the restrictions on the license limiting the use to public performance, sequencing, and a few other restrictions. This statutory license does not include on-demand streaming or downloads (such as an on-demand subscription service). The statutory license eliminates the need to get a separate license from each copyright owner as long as you comply with the rules and pay the royalty. (We already have a compulsory license for mechanical royalties paid on songs when a digital or physical record is sold.) The statutory license only applies to streaming, not to downloading or any other interactive use of music that involves the user choosing which specific tracks they want to listen to.
These amendments to the Copyright Act divided statutory sound recording royalties among four groups: copyright owners (50%), featured artists (45%), nonfeatured musicians (2.5%) and nonfeatured vocalists (2.5%). “Copyright owners” typically means record companies, but independent artists, or any artist who owns their own recordings, qualifies as a “copyright owner.” It does not include songwriters or music publishers, although their right to public performance income requires no change in the law.
The Act also established the first sound recording PRO in the U.S. called SoundExchange. SoundExchange is a non-profit organization with a board of directors divided equally between artist and sound recording copyright owner representatives.
SoundExchange collects royalties from the subscription satellite radio providers, webcasters and radio simulcasters, and pays that money out to the four groups. The nonfeatured musicians and vocalists, also known as session players and singers, have their money paid to trust funds established by the American Federation of Musicians and the American Federation of Radio and Television Artists. Featured artists and sound recording copyright owners are paid directly by SoundExchange.
While the Congress established how the pie was to be split in 1995, they only set a rate for certain satellite radio providers but didn’t establish any other rates. That started a long process of negotiation which culiminated in the Webcaster Settlement Acts that allowed SoundExchange greater flexibility in negotiating rates with service providers and is a very positive step in the evolution of the PRO.
The Role of SoundExchange
Persons using the statutory license, such as Pandora or Sirius-XM Radio, must account and pay royalties to SoundExchange. SoundExchange must then account to individual members of the four groups. Establishing the databases for Sound Exchange to track plays and pay royalties is a monumental undertaking. Because the compulsory license is unlimited in scope, SoundExchange effectively must be prepared to account for every recording in the history of recorded music, both U.S. and foreign repertoire. SoundExchange has received massive downloads of label copy and accounting data from its record company members to establish its own database for accounting. This means that whatever information that an artist’s record company has in its accounting system is likely now in the SoundExchange database, which is updated periodically.
It is important to note that featured artists who are signed to record companies are paid their webcasting royalties directly—regardless of whether they are recouped in their accounts with their labels.
Independent artists, however, may not have been included in the SoundExchange database. You can confirm whether you are listed in the database by signing up for a free account on the “PLAYS” system and also checking if SoundExchange is holding money for you. Remember, if you are a “featured artist”, that just means that you are the artist who is featured on the recording, not that you have to be signed to a record company, so independent artists qualify for webcasting royalties, too, and probably qualify as copyright owners as well. Also–you do not have to be a US citizen or resident. SoundExchange collects for everyone, so go to the site to see if they have money for you or to register.
The Price of Liberty is Eternal Vigilance
It would be a very unusual result indeed if every piece of data in the SoundExchange system was exactly correct, and I frankly don’t think it’s fair to expect perfection under the circumstances. I will say that I believe that the SoundExchange staff are committed to running a tight ship and giving people a straight count. I would strongly suggest that everyone with a stake in this royalty pool check to confirm if you are in the SoundExchange system, and if you are that your information is correct. You can do this by yourself by getting a PLAYS account and looking up your recordings. If you haven’t registered yourself with SoundExchange, you should assume that there’s something incomplete or incorrect about the data and you need to review it to make sure it’s complete and correct. If it’s incorrect, the SoundExchange staff will work with you to correct it. In my practice, the two most common problems are absence of information, or someone incorrectly claiming copyright ownership. Absence of information is often providing the missing link on data that is in the database, or inputting data for the first time.
The trickier problem is the problem of the incorrect copyright owner. Most of the time I believe this to be innocuous and innocent mistakes. For example, if a major label distributes an independent label—and only distributes, i.e., takes no ownership interest—they are not entitled to the copyright owner’s share of royalties because they are not the copyright owner. Yet very often the distributor ends up being reflected in the SoundExchange database as the copyright owner.
The more insidious problem—and let’s just call it a head scratcher without casting aspersions or assigning blame—is when a content aggregator is reflected as the copyright owner when the artist is not registered. This means that the SoundExchange database recognizes that independent artist Joe Smith is the artist for Joe’s Song but has no contact information for Joe Smith. However, Joe Smith has done a digital distribution agreement with one of the aggregators to represent his catalog and SoundExchange reflects the aggregator as the copyright owner and pays the copyright owner’s share to the aggregator. No aggregator agreement should ever allow an aggregator to do this, or to have anything to do with SoundExchange in my view. It’s not really SoundExchange’s fault, either, as they can only do so much to police the information they are provided in the first instance. At the end of the day, its up to each interested party to make sure that their business is organized and that they are correctly registered with SoundExchange, just as they would expect to be correctly registered with ASCAP, BMI or SESAC.
Foreign Royalty Collection and the Future
SoundExchange collects hundreds of millions of dollars in statutory royalties in the US, and has begun collecting foreign public performance royalties for their members. (You don’t have to actually join SoundExchange, but membership is free and has benefits–review the SoundExchange website for details. If it were me, I would join.) The total performance royalties in the European Union alone are in excess of $500 million annually. SoundExchange has reciprocal agreements with some of its counterparts in the United Kingdom, Mexico and the Netherlands and that list is groing.
But the real significance may arise when and if Congress passes legislation that extends these royalties to regular radio (that is, over-the-air broadcasts) and television broadcasts. (There has been legislation in the U.S. Congress to establish this right, see MusicFIRST Coalition and the Performance Rights Act.)
SoundExchange will very likely be the administrator of these royalties, and that will be real money. So it’s a good idea for artists to get their business straight with SoundExchange now.
Copyright 2003-2011, Chris Castle. All Rights Reserved.
(A version of this article first appeared in the December 2003 issue of Music Connection and has been updated. Information in this article may become out of date, so do not rely on it without checking with SoundExchange at www.soundexchange.com)