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

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

WEDNESDAY, FEBRUARY 8, 2017

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

Today’s faculty features:

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

Steve Gordon, Founder, Steve Gordon Law, New York

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For additional information about continuing education, call us at 1-800-926-7926 ext. 35. Program Materials FOR LIVE EVENT ONLY

If you have not printed the conference materials for this program, please complete the following steps: • Click on the ^ symbol next to “Conference Materials” in the middle of the left- hand column on your screen. • Click on the tab labeled “Handouts” that appears, and there you will see a PDF of the slides for today's program. • Double click on the PDF and a separate page will open. • Print the slides by clicking on the printer icon. INTRODUCTION TO MUSIC CLEARANCES STEVEGORDONLAW.COM [email protected] 212 924 1166 BASIC CONCEPTS AND DEFINITIONS

“MUSIC CLEARANCES” 6 MUSIC CLEARANCES

• MUSIC CLEARANCES = SECURING LICENSES TO USE PRE-EXISTING SONGS AND MUSIC RECORDINGS FOR VARIOUS PROJECTS

• MUSIC CLEARANCES DOES NOT PERTAIN TO CREATING NEW MUSIC (e.g., HIRING A MUSICIAN OR A COMPOSER TO CREATE ORIGINAL MUSIC)

7 EXAMPLES OF MUSIC CLEARANCE PROJECTS

• “ELVIS BY THE PRESLEYS” –DOC AIRED ON NETWORK TV—SECURED LICENSES TO USE DOZENS OF SONGS RECORDED BY ELVIS

• “FRONT AND CENTER”—TV CONCERT SERIES ON PBS FEATURING VARIOUS BLUES ARTISTS—SECURING LICENSES TO USE THE SONGS THAT THE ARTISTS PERFORMED IN THE SHOW (e.g., BUDDY GUY PLAYED SONGS BY HENDRIX, DYLAN AND OTHERS) 8 “MUSIC CLEARANCES” VS “MUSIC LICENSING”

“MUSIC LICENSING” IS SOMETIMES USED TO REFER TO MUSIC CLEARANCES, BUT IS ALSO USED TO REFER TO THE “SYNCH BUSINESS”

9 NUTS AND BOLTS

MUSICAL COMPOSITIONS (“SONGS”) VS MUSIC RECORDINGS (“MASTERS”) VS FOOTAGE CONTAINING MUSIC

(“FOOTAGE”) 10 11 SONG

SPANISH HARLEM BMI Work #1393049

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

Publishers Current Affiliation CAE/IPI # ABKCO MUSIC, INC. BMI 56388746 SONY/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 footage including 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 due to copyright expiration

15 PUBLIC DOMAIN/MASTERS

Date of Fixation/Publication Duration of Copyright Fixed prior to 15 Feb. 1972 Subject to state statutory and/or common law protection. Fully enters the public domain on 15 Feb. 2067 15 Feb. 1972 to 1978 95 years from publication. 2068 at the earliest 1978 to 1 March 1989 70 years after death of author, or if work of corporate authorship, the shorter of 95 years from publication, or 120 years from creation. 2049 at the earliest

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

16 MFN

Most Favored Nations: In the event Licensee grants more favorable terms including, without limitation, additional consideration in any form, to the co-publisher(s) of the Composition or the party granting rights to use the master recording thereof (if applicable) in the Motion Picture, Licensee shall notify Licensor thereof, and this Agreement shall be deemed amended to incorporate same as of the date when such higher fee is paid or such more favorable terms are granted to such third party, and to continue for the duration of the period which such more favorable terms are granted.

17 PBS Special Rules for Public Broadcast Stations are Favorable for Producers Songs Section 118 provides for a statutory license subject to rates negotiated by PBS and publishers. PBS, on the producers’ behalf—with funding from the Corporation for Public Broadcasting—will pay the federally prescribed fees to the copyright owners. (But Section 118 does not provide for a statutory license for any other windows including home video.) Masters Section 114(b) The exclusive rights of the owner of copyright in a sound recording . . . do not apply to sound recordings included in educational television and radio programs . . . distributed or transmitted by or through public broadcasting entities . . . Provided that copies or phonorecords of said programs are not commercially distributed by or through public broadcasting entities to the general public. (Again, clearances are required for other windows.)

18 DOCS (SONGS AND OPTION 1: Basic Cable or Pay Television MASTERS) TERRITORY: United States & Canada Term: 3 Years Home Video FEE: $1,000.00 per song Royalty: 10 cents PBS Pledge only OPTION 2: Foreign Television OR 12 cents for PBS Pledge, TERRITORY: World excluding United States & Canada commercial DVD and downloads of full programs. Term: 3 Years Advance: 2,500 units ($300) with FEE: $1,000.00 per song rollovers every 2,500 units thereafter OPTION 3: Internet Streaming Services (eg. Hulu, Netflix) Territory: U.S. TERRITORY: World Term: 7 Years TERM: 3 Years FEE: $1,000.00 per song OPTION 4: Airplane and Closed Circuit TERRITORY: World Term: 3 Years FEE: $500.00 per song

(Offer same terms for concert programs) 19 FEATURE MOVIES (INDIE MOVIE)

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 $15M worldwide gross receipts based in ALL forms of exploitation (including but not limited to theatrical, all videograms/DVD, all TV media, and Internet streaming and downloading). (Factors in determining price – Identity of song or master; use, i.e., foreground/background or over credits; personalities and approvals)

20 TV 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 of their programs The bands only get ASCAP BMI $ Cable shows will offer a few thousand to a few more thousand for 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 $250,000 for 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 of writer

23 ADVERTISING Price:

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

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

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

• Other terms: Duration – usually no longer than a year; Media – on-line in addition to TV may cost extra; 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

25 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 26 OTHER STAND-ALONE DIGITAL PROJECTS

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 - avoid covers) Ringtones and Ringbacks (26 cents) Video Games (buy-outs) 27 ALTERNATIVES (ESPECIALLY FOR ADS, TV, AND MOVIES)

• Music libraries (“stock music”)

• Commission/Work for hire

28 The Legal Landscape of Digital Music Licensing in a Streaming World

Presented by: Anjan Choudhury February 8, 2017

LOS ANGELES | SAN FRANCISCO | WASHINGTON, D.C.| MTO.COM Nice to meet you!

Anjan Choudhury Partner, Litigation Los Angeles T: (213) 683-9107 [email protected]

Education Harvard Law School (J.D., magna cum laude, 2004) George Washington University (B.A., summa cum laude, 2001)

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

. Importance of Streaming Revenue . Sources of Royalty Income and Licensing . Four Legal Developments that Affect Digital Music Licensing and Royalties

Source: News and Notes on 2016 Mid-Year RIAA Music Shipment and Revenue Statistics 32

Source: News and Notes on 2014 RIAA Music Industry Shipment and Revenue Statistics 33

Source: News and Notes on 2016 Mid-Year RIAA Music Industry Shipment and Revenue Statistics 34

• Publishing License

• Recording Agreement – Master License Provision

• PROs and SoundExchange

• Direct Licenses (DIY) 35

• Direct Licenses – Interactive Services – Non-Interactive Services

• Rate Court Decisions

• Copyright Royalty Board Decisions

• ASCAP and BMI operate under a consent decree and are therefore subject to the judicial oversight of a federal court in New York • Can you withdraw your rights for just digital streaming? • DOJ Decision (August 4, 2016) – Consent decree not modified on partial withdrawals – Full work licensing requirement (rejected/appealed)

• Implication for publishers/songwriters 37

• Non-interactive digital services pay performance royalties for sound 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 every five years • In May 2016, the Judges published the Web IV decision covering non-interactive webcasters (Pandora, iHeartRadio) through the year 2020. • In setting the statutory rates, the Judges relied on direct licenses negotiated to substitute for the statutory rates. • The decision is on appeal to the D.C. Circuit

• Federal copyrights apply to sound recordings that were “fixed” before February 15, 1972 • Does that mean that Pre-72 recordings are unprotected? • Pandora and SiriusXM lawsuits • Class Action settlement depends on CA, NY, FL cases • Why does this matter to post-72 recording artists? 39

• The Madonna “Vogue” case – VMG Salsoul LLC v. Ciccone, 824 F.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 audience recognize the appropriation?

• Los Angeles (9th Circuit) and Nashville (6th Circuit) now operate under different rules: “Because we conclude that Congress intended to maintain the “de minimis” exception for copyrights to sound recordings, we take the unusual step of creating a circuit split by disagreeing with the Sixth Circuit’s contrary holding in Bridgeport”

• See also, German Constitutional Court and Kraftwerk (2016) case – freedom of the creator to sample 40