This presentation was given by Royalty Claim's Founder and Chief Researcher, Dae Bogan, at the Music Industry Research Associations first inaugural MIRA Conference at the UCLA Luskin Conference Center on August 11th, 2017.
2. What is the
“Black Box”?
Answer’ish:
A black box is an escrow fund in which music
royalties are held due to an organization’s inability
to attribute the royalties earned to the
appropriate payee.
3. Black boxes materialize for many reasons, including
but not limited to: the inability to identify rights
holders despite payments made for the use of their
compositions; the lengthy time required for filing
domestic and ultimately international copyrights,
often begun only when a recording is actually
released; multiple claims for the same rights
exceeding 100% of ownership, resulting in indefinite
disputes; international collaborations with less than
all creators asserting their rights; international legal
inconsistencies regarding what type of performances
result in payments (most visible in the fact that
[terrestrial] radio play does not generate royalties for
recording artists in the United States); and the slow
and often manual processes to report usage and clear
payments under international reciprocal agreements.
“
“
Sellin, Derek & Seppälä, Timo (6.2.2017). “Digital Music Industry – Background Synthesis”. ETLA Working Papers No 48.
http://pub.etla.fi/ETLA-Working-Papers-48.pdf (Page 7 - Interview with Dae Bogan)
Generally...
4. EXAMPLE 1: General Licenses
Thousands of businesses, restaurants, coffee shops,
malls/shopping centers, bars and nightclubs, colleges and
universities, etc. pay license fees for blanket public
performance licenses from US PROs to play the PRO’s full
catalog of compositions without reporting back to the PRO
the specific compositions performed.
License Fees
General License and grant
of right to PRO’s full catalog
Unattributed blanket license
royalties are technically black box
until the royalties are distributed
based on unfair market share
distributions that often disregard
emerging and legacy artists.
5. EXAMPLE 2: Unattributed cash advances paid to music
companies.
DSP pays Label an advance.
Label gives DSP access to its catalog.
DSP provides Label usage reports
Label attributes usage to its
artists and pays artists based on
their record agreement.
When the DSP
agreement expires, the
unattributed portion of the
advance is retained by
the Label.
6. United States
Collection
Societies
EXAMPLE 3: International consequence of United
States’ limits on sound recording rights
Composition
Royalties
Foreign Local
Artist
Sound Recording royalties for US artists and copyright owners enter
the black boxes of Foreign Collection Societies because the US does
not recognize a public performance right in sound recordings.*
Foreign
Collection
Society
Foreign Radio
Broadcaster
License fees for
Compositions
License fees for
Sound Recordings
Composition
Royalties
Composition
Royalties
Sound Recording
Royalties
US Artist
*The US does recognize a digital performance right in sound recordings and through SoundExchange, royalties are collected for this type of use.
US Artist Sound
Recording Royalties
7. $?????????
The collective Global Black Box has been estimated to be
valued between $1 billion and $3 billion with as much as $100
million in streaming mechanical royalties trapped in the black
boxes of various interactive streaming services.
8. Speaking of Streaming Services...
...a review of mass filings of “address unknown”
Section 115 NOIs
9. Quick Background:
● Interactive streaming services generally obtain sound recordings from record labels,
distributors, and aggregators.
● Often, the metadata received by services include track and release information (artist and
label), but omit information regarding the underlying composition (publishers and
songwriters; copyright owners)
● US copyright law requires a service to obtain licenses for both the master sound
recording (obtained from label/distributor/aggregator) and the underlying composition
(difficult to obtain if copyright owner(s) are unknown).
● The Copyright Act provides a provision -- Section 115 -- for obtaining a compulsory
mechanical license in the event a prospective licensee cannot locate the copyright owner.
● In 2016 the Copyright Office implemented a solution and guidance for electronically filing
Notice of Intentions (NOIs) under the Section 115 provision for the purpose of obtaining
the compulsory license.
● As a result interactive services have mass filed millions of “address unknown” or
“copyright owner unknown” NOIs on the Copyright Office that must be discovered by the
copyright owners in order for the copyright owner to unlock mechanical royalties that
may become due to them from the interactive service.
10. Section 115 NOI Mass Filing Stats - Licensees
● Amazon Digital Services LLC
● Audio & Video Labs, Inc. (Sound Drop /
CD Baby)
● CMH Records Inc.
● Google, Inc.
● Guvera USA, Inc.
● iHeartCommunications, Inc.
● Microsoft Corporation
● Muzak, LLC
● Pandora Media, Inc.
● PK Interactive LLC (DistroKid)
● re:discover, Inc. (Loudr)
● Real Gone Music, LLC
● Spotify USA Inc.
● The OverFlow.com, Inc
● The Recording Academy
Only 15 digital music services have
utilized the mass filing method.
11. Section 115 NOI Mass Filing Stats - Usage
“Digital music services paid the US
Copyright Office $1,842,719 to
file 16,066,073 NOIs in the first
half of 2017.” - Dae Bogan, Royalty Claim
12. Section 115 NOI Mass Filing Stats - Royalties
“The deferred mechanical royalty
obligation for one stream per NOI
would be about $3k for
ad-supported and $10k for
premium.” - Dae Bogan, Royalty Claim
23. Next...
● Tackle International Black Boxes - There are hundreds of unattributed royalties Black
Boxes around the world. Capturing data from the source will empower DIY musicians and
rightsholders to go after their entitlements.
● Quantify Unclaimed Royalty Funds - Calculate marketplace/consumption data and
reported royalty rates to forecast the true value of payee-identified, but unclaimed
royalty funds (or encourage fund administrators to provide this data).
● “Connect” more partners to Royalty Claim to provide efficiency and transparency to
copyright owners.