Copyright in the music industry – how music translates into money: the infrastructure The music industry in Israel - how music turns into money

One of the most essential questions that bother music creators is how to generate income from their music (what is called monetize). Getting to know the income channels from music is not just a matter of enrichment, but essential information for every creator, because it is the one that allows creators to sustain themselves financially from their work and allow them to continue creating. Therefore, it is very important for creators to know the existing and possible income channels from their music and to understand the mechanisms behind them.

The problem that makes it difficult to dive into the depth of this field is that it is a complex and complicated issue, and when it comes to creators who also work abroad, it gets much more complicated.

In order to understand what types of rights exist in a musical work, who owns them, which uses of the work are required to obtain permission, which are required to be paid, and how the payment comes to the owner of the rights, one needs to be familiar with a branched system of laws, agreements, entities and mechanisms for collecting and distributing royalties. When it comes to uses of a work in foreign countries, the level of complexity increases, because then each use is subject to a different legal system, bodies operating in that country and the existence of agreements with those bodies.

This international system is the beating heart of the international music industry, it is the one responsible for injecting “oxygen” that will allow the continued activity and prosperity of this industry. Unfortunately, this cumbersome system is not without its failures. Of the tens of billions of dollars it generates every year, hundreds of millions of dollars due to the creators are not transferred to them due to various defects in the chain of documentation. These unallocated funds, mostly intended for independent creators, are ultimately transferred proportionally to the most popular rights holders, so that in fact, the rich only get richer and the independent creators do not get what they deserve.

The good news is that independent creators have the power to take control and properly manage their rights to ensure they get more of what they rightfully deserve (let’s be realistic, we’ll never get to 100%), but that requires an understanding of the system and how it works.

In this article and the series of articles that will follow it, we will try to present in an orderly and simple manner (as much as possible) the legal infrastructure, bodies, mechanisms and practices within which the music industry operates in Israel and in the world, in order to give you, the creators, the opportunity to know how to maximize the economic potential inherent in your music.

The starting point: copyright law

Before diving deeper, you need to know the legal infrastructure on which the whole system is built. This infrastructure is based on a system of laws centered on copyright law.

Since this article is addressed to Israeli creators, the starting point for discussing copyright is the Israeli law – Copyright Law, 2007. This law applies to any work first published in Israel or whose creator was an Israeli citizen or lived in Israel at the time of its creation. However , this law is largely influenced by foreign legislation (mainly Great Britain and the USA) and many of its sections are based on international treaties to which Israel is a member, which creates a uniform infrastructure for the protection of works worldwide and for the coordinated activity of rights management bodies (we will get to them shortly) in most countries of the world.

One song – two rights (or actually three)

The first and most important point that every music creator should recognize in copyright law is the distinction between two types of rights that the law grants to musical works. As will be explained shortly, this distinction is critical because each right has different characteristics: it can have different owners, it has a different duration of protection, different clauses apply to it, and it is handled by different bodies and mechanisms.

The first type is the musical work itself, the melody and accompanying lyrics (if any). Copyright law states that copyright exists in any original musical work fixed in some form. By “original” it is meant that the work was born with some investment of effort and creativity and that the origin of the work is its creator (as opposed to a work based entirely on components originating from another work or in the public domain). “Fixed” refers to any way in which a musical piece can be fixed, whether by recording or in writing (notes/tabs). It is important to understand that the requirement of fixation is intended to serve as a basis for defining the work and proving the very existence of the work (since it is impossible to prove the existence of a work that is in the head of the creator), but the protection of the musical work is not necessarily limited to the specific way in which it is fixed.

The second type is a specific recording of a piece of music. Every time a musical work is recorded, a new right is created in that recording of the work.

That is, a musical work that is fixed for the first time in a recording creates at the same time two separate rights: a right in the musical work itself (the melody and the words) and a right in the recording – what is called in legal parlance a “record”, or in professional parlance a “master” (in other words, recording = master).

While the right in the musical work is owned by its creator, unless it is transferred to another party, the right in the master is owned by its producer. The meaning of the producer is the party or the person who initiates the recording, when traditionally, the producer of the recording was the record company.

As can be understood, since the musical work is protected by copyright in itself, and since the recording of a musical work is considered a use reserved for its creator, the very act of making the recording requires obtaining the permission of the creators of the musical work, the composer and the lyricist. Indeed, the basic condition existing in the classic agreement between a creator and a record company is the granting of permission by the creator to the record company to record the musical work and to receive the recording rights. It follows that in order to use a recording of a musical work, permission must be obtained both from the owner of the right to the musical work and from the owner of the right to its recording.

In recent decades, a significant change has taken place in this aspect. The development of technology has created convenient and relatively cheap means for high-quality home recording, which has created access for creators to record at a professional standard without needing the resources of the record companies. As a result, many creators forgo the services of record companies and choose to record their music and release it independently.

This choice has significant legal and economic consequences for those independent creators, since they are also the producers of the recordings of their musical works, they own both rights, the right in the musical work and the right in the master. That is, while the use of a recording belonging to a record company requires the payment of a license fee to the creator for the use of the musical work and a license fee to the record company for the use of the master, the use of a recording by an independent creator who owns the rights to it gives him the right to receive a license fee both for the use of the musical work and for the use of the master.

However, while on paper this sounds very simple, the reality is a bit more complex. In practice, many creators are not aware that they have an additional right that can generate an additional source of income for them, and they do not perform the necessary actions to realize it.

One of the problems that contribute to this is the fact that these are separate rights that are managed differently by different bodies through different mechanisms. It should be noted that even in the law there are various differences between the rights and the conditions that apply to them, for example the duration of protection – while a musical work is protected for 70 years from the death of the creator, the master is protected for 70 years from the date of its publication.

As hinted in the title of this part, another type of rights is embodied in the song besides the right to the musical creation and the right to the recording – the meaning is the right of the performers. Since this right is not included in the copyright law and its scope is different from the rights derived from this law, I will refer to it separately later.

The types of actions reserved for the rights holder

Now that we know the two types of copyright in the world of music, we will explain what ownership in them gives to its owner.

Copyright law establishes seven types of actions in a work that are reserved exclusively for the owner of the copyright (whether in a musical work or in a recording): copying, publishing, public performance, broadcasting, making the work available to the public, making a derivative work, and renting (the latter is only relevant to recording).

Copying means making a copy of the work of any kind, including making a physical or digital copy of a recording, even a temporary one, including a recording of the musical work.

Publication means the first publication of the work, the release on the air, the publication.

Public performance means a live performance of a musical work in front of an audience, and in the case of a recording, playing anywhere the public can hear it, including any business that receives an audience.

Broadcasting means playing on the radio or broadcasting on television or live streaming of a recording or a live performance of a musical work.

Making it available to the public means making it accessible in a way that allows the public to listen to it from anywhere and at any time of their choice, for example uploading to YouTube or streaming platforms such as Spotify or Apple Music.

Making a derivative work means making a new work that is substantially based on the protected work, including translation or adaptation. For example, creating a cover in a new arrangement for a musical piece or sampling significant parts of a recording as part of a new recording.

Rent means exactly as it sounds. In the digital age, this action no longer has meaning.

These types of operations cover all known uses that can be made of a musical work and the recording of a musical work. As will be explained later, the various uses of a musical work have unique classifications and terms that are accepted in the music industry all over the world, but these overlap with the types of actions defined in the copyright law.

It is important to note that the law states that the exclusive right to do these actions in a work applies both to the work in its entirety and to a “substantial part” of it, so that doing one of the actions specified in a substantial part of the work also requires obtaining permission from the owner of the rights, or at the very least gives the owner of the rights the right to receive royalties for Such an action (in the case of a compulsory license which we will refer to shortly).

We will not delve into the meaning of the term “essential part” here, but I will point out that there is no predetermined definition for which part of a song is considered an essential part (that is, the urban legend that using a certain number of notes or a number of seconds from each song is considered copying does not reflect the situation in reality). In fact, it is not possible to know in advance with certainty whether a certain part of a certain song is essential, because this is a determination reserved for the court at the end of the procedure, which usually also includes a musicological opinion. One can only know that the determination depends on a combination of several characteristics such as the importance of the part to the whole work, the length of the part and its uniqueness in relation to other works in a similar style. According to the law, the inclusion of a substantial part of another song (either from the musical work itself or from its recording – the so-called sampling) within a new song requires the consent of the owner of the rights to the other song (and its recording, if used), and such inclusion without her consent would constitute a violation of copyright its.

Here we already enter the fascinating field of musical copying (plagiarism) which from time to time receives media exposure when it comes to disputes concerning famous songs. I will not elaborate on this topic here, but those interested in delving into it are welcome to read my comprehensive article on it published in 2014 in the DePaul Journal of Art, Technology & Intellectual Property Law here.

Organizations for joint management of rights

Naturally, the meaning of the rights holder’s exclusive right to make uses of his work is that he can license any party to use his work in exchange for payment. This is the point where the artistic value of the work translates into economic value. Under free market conditions, the price the creator would charge for using the work would be determined in direct negotiations with the party requesting to use it, and the payment would be transferred directly from the user to the creator. However, the nature of the music market would have made this conduct clearly ineffective in most cases, since most users (mainly radio stations, television channels and businesses) make use of a very large amount of works by different creators every day, and the need to negotiate with each and every one separately and arranging the payment directly with them would simply paralyze their activity and lead to the fact that many of them would prefer not to use the music at all (or do so in an infringing manner).

Therefore, from the beginning of the 20th century, organizations for the joint management of rights (what are called Collective Management Organizations, or CMO for short) began to operate in many countries around the world. The structure and mode of operation of these organizations varies from country to country, but in general the idea is:

(1) The creator transfers the rights in his work to such an organization (usually the largest or the only organization operating in his country).

(2) That organization, which holds the rights to the works of most or a significant part of the creators in that country, conducts negotiations on their behalf with the “serial” users (broadcasting bodies, usually with each radio station and television channel separately, and with representative organizations of various businesses, for example, the association of the owners of the halls and event gardens) on the amount of payment for a license to use all the works represented by that organization. Of course, this negotiation is conducted periodically with all users regardless of the joining of new members in the organization.

(3) The organization and every broadcasting body/organization will present decisions on the cost and conditions of the license for the given period. The license is what is called a “blanket license” – each user actually gets a limited time (let’s say X hours a day) during which he is allowed to use any work from the entire repertoire represented by the organization. He can broadcast the same song in a loop or broadcast all the songs in the repertoire one after the other, and the payment will be the same.

(4) Once a period each user submits to the organization a detailed report on the works played during the period, detailing the date and time of the broadcast, and the duration of the playback from each work. In practice, the report is received only from the largest users (broadcasting bodies and uses at large events), and some of them are required to provide only a sample report of the works played.

(5) The organization takes all the payments received during that period, takes management fees from them, and distributes the rest as royalties to the members of the organization, the creators, in a manner that should be proportional to the scope of use of their works from the total scope of use of the organization’s repertoire of works.

It is important to note that the handling of each type of rights – the musical creation and the recording – is done by different and completely separate bodies. That is, all the steps described above – the negotiation, the license agreement, the collection of license fees and the distribution of royalties – are carried out separately for each of the two types of rights by the organization that handles that type of rights.

The largest, oldest and, in fact, the only organization that works in Israel to represent owners of rights in musical works is the Association of Composers and Publishers – AKUM. In the USA, for example, there are several competing bodies that perform the same function, including ASCAP, BMI and SESAC.

As for the representation of rights holders in recordings of musical works, the largest body that operates in Israel is the Israel Record and Cassette Federation, but at the same time operates the Federation for Israeli and Mediterranean Music – the Pil. As for the representation of performers, the main representative organization is Eshkolot.

The International Mechanism for Rights Management

The protection of rights in musical works and recordings is based on international conventions (the Bern Convention of 1886 and the Geneva Convention of 1961, respectively). In accordance with these treaties, for each of these two types of rights there is at least one organization operating in every country in the world in accordance with the relevant treaties. In order to collect royalties for the use of works in a foreign country, each of the organizations has a set of agreements with its corresponding organizations in the world (what is known in the ICU as “sister associations”) so that in fact the organization also serves as the representative of the rights holders who are members of the corresponding organizations in the same country in which it operates That is, the repertoire of Akum also includes millions of works by creators who are members of more than 100 parallel organizations around the world. The usage license that Akum grants to broadcasters and businesses in Israel also includes the use of these foreign works, only that the proportional part of the license fees received from Akum for the use of the foreign works, Akum transfers proportionally to each of the corresponding organizations (depending on the scope of use of the repertoire of the works of that organization in Israel), then each of these organizations in turn distributes the funds received from it to its member creators in proportion to the scope of use of their works.

This mechanism happens at the same time with all the organizations parallel to the Akum, and of course in a two-way manner, so that the performances of works by Akum members abroad should lead to the transfer of the relative part of the license fees collected by the organization in that country to the Akum, and then, as Royalties from Akum to its members whose works were performed abroad. A similar mechanism also exists among the organizations around the world that represent the owners of the rights in the recordings.

In fact, the mechanism for the collection and distribution of royalties for each type of rights is based on a huge matrix of agreements and two-way money transfer channels, centered on thousands of agreements between the rights management organizations in the various countries, and in addition to them agreements between each rights management organization operating in a particular country and the broadcasters, businesses and other users in the same country, and the agreements between each such rights management organization and its many member creators.

As complex as it sounds, it’s not even the tip of the iceberg. Theoretically, any reported use in any country should lead to the creator receiving royalties. But the actual situation is different because there are many, many obstacles on the way.

In order for the royalty to reach the creator, there must be a complete and proper chain of documentation, reporting and transfer of payment from the user in the foreign country to the representative organization in that country, from that organization to the organization representing the owner of the rights in the work used, and finally from this organization to the owner of the rights, the creator himself.

In addition, each country has different laws, and each organization has different responsibilities. There are countries where certain uses are not required to obtain a license and pay license fees, or countries where certain users are exempt from this, there are certain users in certain countries for whom a detailed report of the works used is not required but only a random sample, there are countries where there are different organizations that handle different types of uses, and in different countries certain uses are excluded from the treatment areas of the organizations operating in them and require direct contact with the rights holders themselves in order to obtain a use license.

Even in Israel itself the story is not so simple. There are uses that are within the scope of Akum’s responsibility, there are uses that are excluded from its treatment, and there are uses that are within the scope of responsibility but can be excluded at the discretion of the creator. For the uses that are within the scope of Akum’s responsibility, Akum is also the party responsible for transferring the payment to the creator, while that the payment for other uses will come from other parties (usually directly from the party using the work). In addition, there are uses that require the creator’s consent in advance, and there are uses for which the user is automatically licensed without the creator being able to prevent it (what is called a “compulsory license”) but this is subject to payment the royalty that is due to the creator. This is also the case with regard to the use of the recording.

As I mentioned before, in Israel there are also rights for performers of musical works (musicians and singers). These rights are enshrined in the Rights of Performers and Broadcasters Law, 1984, and their recognition stems from Israel’s accession to the Rome Convention Concerning Performers and Producers of Recordings and Broadcasting Organizations from 1961. These rights provide another possible income channel for performers for recording as well as copying, broadcasting and selling a recording of a work they performed. The organizations operating in Israel to manage these rights are Eilam (representing musicians) and Eshkolot (representing singers and other stage artists). However, although there are parallel organizations in the countries that are members of the convention, today the Israeli organizations still do not have agreements with them (similar to the existing agreements between Akum and the Federation for Records to their counterparts abroad), so today there is no possibility for Israeli performers to receive royalties for the use of their performances abroad.

The international terms for rights in the music industry

In this article I will briefly refer to the different types of uses that provide the rights holder with potential income channels, but since there is quite a bit to expand on each of them, I will refer to each of them in detail in a separate article that will be published later as part of a series of articles on this matter.

Even before that, it is important to clarify the interpretation of the terms accepted all over the world for the main rights arising from the right to the musical creation, because these are the basis of the common language between all the organizations and companies in the world working in the music industry. Please note that some of these terms, which are based to some extent on American copyright law, have a different meaning than similar terms under Israeli law.

Publishing right – this is the general name for the right to do any action with a musical work. This is the right arising from ownership in the musical work. Many creators (especially in the USA) transfer the handling of this right to the publisher (music publisher) whose job is to use his connections and experience in the industry to generate revenue from the musical creation in exchange for a percentage of these revenues. The publishing institution was born hundreds of years before the modern music industry, and in the USA it became a central player in this industry already at the beginning of the 20th century, to the extent that registering a musical work in any association for rights management in the USA includes the allocation of half of the rights to the creator and half to the publisher of the piece. Creators who manage their works themselves are required to establish a separate entity that will be defined as the publisher of the work so that they can also receive half of the royalties allocated to the publisher. There are also other standard publisher agreements in which the role of the publisher is less active and is reduced to managing the rights only (publishing administration) and then part of the royalties allocated to the publisher go to the creator in addition to the part already allocated to him. The situation in Israel is more simple in the sense that Akum doesn’t oblige to allocate rights in the work to the publisher and allows the creator to directly hold full rights to his work.

Performance right – this is the right to publicly perform a musical work. The internationally accepted meaning of this term includes (in addition to what was stated above in the definition of “public performance” under Israeli law) also the broadcast of the work or any recording of it by any means and making the work available to the public on streaming services.

Mechanical right – this is the right to produce copies of a musical work (including a musical work embodied in a specific recording). This right includes the production of records, discs, mp3 files, tapes, ringtones and also playbacks on streaming services (because during such a temporary copy is created on the user’s device). This right also includes the printing of music books and the production of any product that plays the piece (for example, a music box or a musical greeting).

Synchronization right (or Sync right) – this is the right to integrate a musical work into animated content such as movies, series, computer games and advertisements.

Micro-sync right – this is a right similar to the right of synchronization, but it mainly refers to the use of content uploaded by users on online platforms and social networks (such as YouTube, Facebook, Instagram and TikTok).

Grand right – the right of public performance in an unfilmed dramatic work, such as a theater performance, a dance performance or a musical.

Collective Management Organization (or CMO for short) – an organization that holds both the performance right and the mechanical right, and being such, may grant licenses for the use of both rights and is required to transfer royalties to the creator for using both. Akum handles both rights and therefore it is considered CMO.

Performance Rights Organization (or PRO for short) – an organization that only holds the performance right, can grant licenses to use only this right and is responsible for paying royalties for use of this right only. ASCAP, BMI and SESAC in the USA, as well as PRS in England are such bodies (although PRS and the organization responsible for mechanical rights in England manage a large part of their activities jointly).

Mechanical Rights Organization (or MRO for short) – an organization that holds only the mechanical right, can grant licenses to use only this right and is responsible for paying royalties for using this right only. Harry Fox Agency in the USA and MCPS in England are such organizations (but as mentioned, in England a large part of the activities of this organization is managed jointly with the organization responsible for the right of performance).

Master right – this is the bundle of rights reserved for the owner of the right in the recording (=the master) – the producer of the recording, or the label if the recording was released under a standard record company agreement (which states that the right in the recording is owned by the label). As mentioned, these rights are largely parallel to the rights of the creator, the owner of the rights in the musical work.

Neighboring right – the definition of this term varies from country to country, but in most countries it includes rights of performers and broadcasters (as in Israel). In the USA, where the rights of performers and broadcasters are not recognized (the USA is not a member of the Rome Convention), this definition refers specifically to the right of public performance of the recording (as defined under the term Performance right).

The income channels for music creators – where does the money come from?

The last part of the article is actually the introduction to the following articles in the series, because this article is short and each income channel deserves an article on its own. In general, the potential income channels from music can be classified into the following areas:

  1. Broadcasting on radio and television (radio stations and television channels in Israel and abroad);
  2. sales of copies (CDs, records, mp3 files and other products that include the work);
  3. streaming (interactive – like Spotify, Apple Music and Tidal or non-interactive – like Pandora);
  4. Synchronization (integration into animated content: movies, series, computer games and commercials);
  5. micro-synchronization (integration in animated content on online platforms and social networks);
  6. Public performance (playback/screening in businesses, public places and events, concerts);
  7. *** and also merchandising (not related to the use of the music itself).

Each of these uses can generate income for the rights holder. If the creator (the owner of the rights in the musical work) is also the producer of the recording (which makes him the owner of the rights in the recording) the income he can generate from any such use is significantly higher (up to twice that which can be generated by a creator who does not have rights in the recording). If, in addition to that, the creator is also the player or singer who performs in the recording (which makes him the owner of the performer’s right), then the possible income is even higher in some uses.

Of course, there is also a price to be paid for the choice (or the necessity) to be a creator who records and releases his songs independently without a publisher and a label. Some of these entities can posses a wealth of connections, experience and knowledge that can generate a lot of opportunities that the independent creator is unable to generate. This is how situations can arise in which The 50% (for example, the distribution of percentages depends on many variables) coming to the creator from the profits made by the publisher or label will be higher than the 100% he made himself. Therefore, there is no statement here as to whether it is better to release music independently or not.

What we will try to do in the following articles is to give you, the independent creators (as well as labels, publishers and anyone it may be relevant to in the music industry), tools that will help you produce the uses that can generate you income and perform the necessary actions so that this income really reaches your pocket.



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