Digital Jukebox Music Licensing by Bob Cooney

This article comes from Highwaygames.com

Bob Cooney of NSM Music has tried to make clear the current difficulties inherent in music licensing for digital jukeboxes over the course of three blogs, and how it is set to become even harder.

Essentially, digital music jukebox licensing is a complex business arrangement that requires four separate licenses with arrangements concerning correct payment going to possibly thousands of different people. According to Cooney, music licensing for digital jukeboxes "is like a chair. You need all four legs, or your chair wobbles or falls over". The first leg of the chair is Masters Use Licensing, which is done through the record labels. The other three legs (Public Performance, Mechanical and Sync) fall under the Publishing category, but they require distinctly separate efforts. After that, you then have to consider the MFN clause and the JLO, which can alter arrangements or make deals unfeasible.

Here's a brief overview of the above licenses, etc:

  • Master Use License - Digital jukeboxes require a master use license giving permission to use a fixed recording of the track, which is typically owned by the record label.

  • Public Performance Licenses – The copyright owner of a song has the exclusive right to perform his or her song in public. Therefore, no one can play a song in public (such as in clubs, at live concerts, on the radio, on television, for background music in retail establishments, or on a digital jukebox) unless they receive permission to do so from the copyright owners, who delegate this right to Performing Rights Organizations (PRO’s) such as ASCAP, BMI and SESAC, who are in turn responsible for issuing licenses to and collecting money from entities who want to play music in public spaces.

  • Mechanical Licenses – To use a copyrighted work on a digital jukebox, one must usually obtain a license that is negotiated with the copyright owner. In the digital jukebox realm, it has been legislated that mechanical copyrights apply to even digital copies of songs and to further complicate things, publishing rights change hands all the time. On top of the complexity in tracking mechanical publishing ownership data, there are oftentimes many different songwriters attributed to a single track. Consider a popular hip-hop track that might sample one or two other songs. Each of those sampled songs could have multiple credited writers. So the new song could have 10 or more writers, and each of those could be with a different publishing company. Now apply that to 10-tracks on an album. And times tens of thousands of albums on a digital jukebox. And those rights are literally changing hands every day. Despite the fact that nobody really keeps track of it all, you still have to report usage and pay the right people.

  • Sync Licenses - When it comes to Karaoke and Music Videos, there is another type of license that is required apart from what is needed for audio-only music. This license from the publishers is called a Sync License – which as the name suggests, covers the use of any use of music synced to visuals in movies, television, television commercials, video games, music videos and Karaoke.

  • MFN’s - Most of the major licensors of music, and this goes for both publishers and labels, demand what is called a “Most Favored Nations” (MFN) clause in their contracts. This essentially means that if I do a deal with Record Label “A” and agree to pay them $X, and then do a deal with Record Label “B” and agree to pay them $2X, I have to go back to Record Label “A” and give them the same deal I gave Record Label “B”.

  • The JLO - The JLO is the Jukebox Licensing Office, which to this day administers the “Jukebox License Agreement” which gives CD and Vinyl jukebox operator’s licenses to virtually any song on a jukebox. This license does not cover any device which: (i) receives and/or sends transmissions (i.e. downloads or streams) of musical works; and/or (ii) employs a hard drive for the storage of digital phonorecords or other recorded musical compositions. So in essence, the JLO and the Jukebox License Agreement are of no relevance to licensing music for digital jukeboxes.

Now we get to answer one of the most common questions about digital jukeboxes: why are some artists not available? With digital jukeboxes excepted out of compulsory licenses for mechanical rights and the Jukebox License Agreement, digital jukebox companies are left having to manually clear all their music manually. This means contracts with major and independent record labels, PRO’s and thousands of publishers. And with no laws or rules governing these business arrangements, each entity can hold out for whatever they believe is a fair deal.

Significant Holdouts

Most music is licensed from the labels and the publishers. There is efficiency in a model that allows a network to license thousands of artists and hundreds of thousands of songs under a single agreement. While the deals tend to require large up-front advances, many times these advance payments are recoupable, meaning that the “per-play” license fees are set off against the advance. So if a network pays $X million to Label “A” no more payments would be made to Label “A” until the per-play fees exceeded the amount of the advance. This arrangement guarantees the label and publisher that they will get a minimum amount in license fees over the term of the contract, making the deal worth their while.

However, some bands retain the rights to their recordings or publishing, and band management can negotiate their deals directly. Sometimes these bands demand advances that are nowhere close to recoupable. Since royalties are often based upon a per-play rate, large advances for small catalogues are unlikely to be recouped. Which means it can be economically unfeasible to do these types of deals in the nascent days of a network’s growth. As networks grow, these deals become more feasible. This is why you see new artists added to networks over time. And why only Touchtunes has The Beatles. They are the only network large enough to justify what had to be a significant advance.

Reclaiming Their Copyrights

A little known impact of the 1978 Copyright Law is that under certain instances, beginning in 2012, performers will be able to reclaim the rights to their recordings from record labels, and songwriters will be able to reclaim ownership of their songs from publishers. According to the New York Times:
When copyright law was revised in the mid-1970s, musicians, like creators of other works of art, were granted “termination rights,” which allow them to regain control of their work after 35 years, so long as they apply at least two years in advance. Recordings from 1978 are the first to fall under the purview of the law, but in a matter of months, hits from 1979, like “The Long Run” by the Eagles and “Bad Girls” by Donna Summer, will be in the same situation — and then, as the calendar advances, every other master recording once it reaches the 35-year mark.
The provision also permits songwriters to reclaim ownership of qualifying songs. Bob Dylan has already filed to regain some of his compositions, as have other rock, pop and country performers like Tom Petty, Bryan Adams, Loretta Lynn, Kris Kristofferson, Tom Waits and Charlie Daniels, according to records on file at the United States Copyright Office.

This stands to have a significant impact on the digital jukebox providers, as more and more artists potentially reclaim the ownership of their works, more and more individual deals will need to be struck. As noted above, sometimes these deals are not economically feasible from an advance payment perspective. And they are always burdensome from a time and effort perspective. So as hard as licensing music for jukeboxes is today, it looks like it’s only going to get harder.

News provided via Bob Cooney of NSM Music.
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