Copyright 101: Licenses Required for Common Uses of Music on the Internet

January 17, 2010 by Mobile Beat Staff Writer

This post discusses some of the common ways in which music is used on the Internet and the types of licenses required.  Please see my earlier post describing common music licenses.  A chart summarizing the licenses required for Internet uses is avaliabe here.

Music Downloads

Music downloads, which result in copies of the music being transferred to end users, implicate the copyright owners’ rights to reproduce and distribute the copyrighted music.  An example is iTunes.  Music downloads require master use licenses to cover the sound recordings and mechanical licenses to cover the musical works (the mechanical license could be secured through the Section 115 compulsory license exception).

Music publishers have taken the position that music downloads also constitute a public performance and, therefore, require a performance license.  However, on April 25, 2007, the U.S. District Court for the Southern District of New York ruled that music downloads are not public performances but, rather, just reproductions of the original song.  See U.S. v. ASCAP, 485 F. Supp. 2d 438 (S.D.N.Y. 2007); see also In re Cellco Partnership, 2009 WL 3294861 (S.D.N.Y. Oct. 14, 2009).

Recently, music publishers asked Congress to revise the copyright law to clarify that digital downloads implicate the public performance right.  Not only could this affect music downloads, but it also could affect downloads of movies and television shows.  This could be particularly significant given the potential shift of the public’s viewing habits from television (for which significant public performance fees are paid) to on-demand downloads to iPods and laptops (which are not now considered public performances). 

Podcasting

Music “podcasting” is a hybrid of streaming and music downloads.  Typically, “podcasts” are full-length radio programs that the end user downloads (either automatically or on demand) to their computer or mobile device, such as an iPod, MP3 player, or “smart” phone.  Like streaming, music “podcasts” can include multiple songs within the “podcast.”  But, unlike the transient nature of streaming, “podcasting” results in the end user having a copy of the entire program, including all music included in the program.  Because “podcasting” results in a copy, master use and mechanical licenses are required for “podcasting” songs.  In lieu of negotiating with the publisher, a mechanical license for the podcast of a musical work can be secured using the Section 115 compulsory license.  A master use license for a podcast must be voluntarily negotiated.  The performing rights organizations (ASCAP, BMI, and SESAC) have taken the position that “podcasting” involves a public performance, and, therefore, they offer “podcasting” licenses (but see U.S. v. ASCAP above).

Non-Interactive Internet Streaming (Internet Radio)

Unlike music downloads or podcasts, streaming does not result in permanent copies of songs being transferred to the listener.  Rather, streaming is transient and any resulting copies are typically only temporary cache or buffer copies (also known as “ephemeral” copies).  As such, master use and mechanical licenses are generally not required for streaming copyrighted music.  In general, all a non-interactive webcaster needs to stream copyrighted music are public performance streaming rights.  Streaming rights could be negotiated for each and every song to be streamed on a website.  However, “clearing houses” make the licensing process simpler for streaming.  In general, music publishers in the United States are members of ASCAP, BMI, and/or SESAC (collectively “PROs”), which offer public performance licenses (and collect and distribute royalties) for songs owned by their members.  As for the record companies, Section 114 of the Copyright Act provides a statutory (or “compulsory”) performance license that is automatically granted by operation of law, provided certain conditions are satisfied.  The statutory license is administered by an organization called SoundExchange, which collects and distributes streaming royalties to record companies and performers.  Licenses from ASCAP, BMI, SESAC, and the SoundExchange statutory license, unlike master use and mechanical licenses, are known as blanket licenses.  So, once these licenses are obtained, a website operator can stream most copyrighted songs without having to get individual licenses for each song.

ASCAP, BMI, and SESAC streaming licenses can be obtained directly from each PRO.  Standard on-premises PRO licenses that many establishments may already have generally do not cover streaming—rather, specific streaming licenses must be secured.  For permission to stream the widest possible catalog of music, webcasters should secure licenses from all three PROs.  Fees for these licenses are generally based on the number of listeners to the Internet stream and/or revenue generated in connection with the website.  For purposes of calculating fees, ASCAP, BMI, and SESAC licenses typically require periodic reporting of playlists, listenership data, and financial data.

Unlike PRO licenses, SoundExchange generally does not offer or negotiate a license agreement.  Rather, a webcaster just has to file a “Notice of Use” with the U.S. Copyright Office along with a $20.00 fee before it starts streaming.  Upon filing, a website is automatically entitled to the Section 114 statutory streaming license, provided the webcaster complies with the statutory conditions, including the following:   

  • For a nonsubscription-based stream, the primary purpose of the webcast must be to provide to the public audio or other entertainment programming.
  • The webcast cannot be interactive (that is, songs cannot be played “on demand” and songs cannot be played within one hour of a request or at a time designated by the listener).
  • The webcast must include the information encoded in the sound recording by the copyright owner, such as the title, featured, artist, and other related information.
  • The webcaster cannot, during any 3-hour period, play more than 3 sound recordings from one album (and no more than 2 songs played consecutively) or 4 sound recordings from the same artist or from any set or compilation.
  • The webcaster cannot publish an advance program schedule or make a prior announcement of when specific songs will be played.
  • The webcast cannot be part of an archived program of fewer than 5 hours duration, an archived program of 5 hours or greater in duration that is made available for a period exceeding 2 weeks, a continuous program fewer than 3 hours duration, or an identifiable program in which songs are played in a predetermined order (other than an archived or continuous program).
  • The webcaster must file a “Notice of Use of Sound Recordings Under Statutory License” with the Copyright Office prior to commencing its transmission service.
  • The webcaster generally must file monthly “Reports of Use of Sound Recordings” with SoundExchange containing certain information on all sound recordings performed during the month (referred to as “census” reporting).
  • The webcaster must make monthly payments to SoundExchange at the statutory rate determined by the Copyright Royalty Board (which varies depending on the type of service provided).  SoundExchange, after deducting operating costs, disburses 50% of the collected royalties to the copyright owner (typically the record company), 45% to the featured recording artists, and 5% to the non-featured musicians and vocalists.  The statutory license fees were most recently established for the years 2006 through 2010 and have been very controversial, as they are significantly higher than the pre-2006 fees and are based on a model that drastically increases the cost of streaming music.  A new rate proceeding launched in 2009 will establish streaming fees for 2011 through 2015.  In lieu of the statutory license fees, SoundExchange has entered into settlement agreements/licenses with different groups of webcasters, including certain larger webcasters, noncommercial webcasters, college broadcasters, traditional over-the-air radio broadcasters, and certain “small webcasters.”  For example, the “small webcasters” license could be an attractive option if a website (and any of its affiliates in a media- or entertainment-related business) has total annual revenues of $5,000 or less and annual expenses of not more than $10,000.  In this case, the annual license fee is $500, and the webcaster can pay an additional annual fee of $100 to be exempt from having to file song usage reports. 

Streaming technology requires copies of sound recordings to be made on computer servers for purposes of facilitating a streaming transmission.  Such copies are generally covered as ephemeral recordings under the Section 112(e) compulsory license.  The royalty for Section 112(e) copies is included in the Section 114(d)(2) royalty (discussed above).

Server copies made in connection with streaming also include copies of musical works.  In light of The Cartoon Network LP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008), some take the position that such temporary copies are not “copies” under the Copyright Act and thus do not require a license.  Relevant parties agree that non-interactive, audio-only streaming services do not require reproduction or distribution licenses from musical work owners. 

Interactive / On-Demand Streaming

Interactive or on-demand streaming services allow the listener to select and play any song on-demand.  Rhapsody and MySpace are examples.  Public performance and mechanical/master use licenses are required for these services.  With respect to the musical works, public performance licenses can be obtained from ASCAP, BMI, and SESAC, and mechanical license rights can be secured using the Section 115 compulsory license (while mechanical licenses are not required for non-interactive streaming, they are required for interactive streaming).  With respect to the sound recordings, the Section 114 public performance compulsory license does not apply, so both public performance licenses and master use licenses must be secured directly from the owners of the sound recordings. 

Limited or “Tethered” Downloads

Other services provide limited or “tethered” downloads, in which copies are made to user devices; however, the copies become unusable (or “expire”) after a certain period of time or when the user stops paying a service fee (and the copies may be usable only on certain devices).  With respect to the musical works, mechanical license rights covering the downloaded copies can be secured using the Section 115 compulsory license.   With respect to the sound recordings, licenses for the downloaded copies must be secured directly from the owners of the sound recordings.  Generally, limited or “tethered” downloads do not require performance royalties; however, some disagree (but see In re Cellco Partnership below).

Ringtones

Ringtones are digital copies of songs, typically around 30 seconds in duration, that are designed to be played on a mobile phone in order to signal an incoming call in the same manner as would a telephone ring.  Ringtones come from a variety of sources, but, most commonly, mobile phone customers download ringtones from their service providers, such as AT&T, Sprint, or Verizon.  Ringtones come in two types:  (1) synthesized (either monophonic, which have only a single melodic line, or polyphonic, which have both melody and harmony); and (2) mastertones (which are digital excerpts of sound recordings).  Synthesized ringtones only require a mechanical license to cover the musical work, while mastertones require both a mechanical license and a master use license to cover both the musical work and the sound recording.  In October 2006, the Register of Copyrights issued an opinion holding that both types of ringtones can qualify for the compulsory Section 115 license (to cover just the musical work) dependant upon whether the ringtone is simply a copy of the original musical work or whether the ringtone has recast, transformed, or adapted the original work in a way that takes it outside of the scope of the compulsory license.  See Docket No. RF 2006-1, U.S. Copyright Office, Oct. 16, 2006. 

Recently, the United States District Court for the Southern District of New York ruled that publishers are not entitled to public performance royalties for mobile phone ringtones.  See In re Cellco Partnership, 2009 WL 3294861 (S.D.N.Y. Oct 14, 2009).  For the past few years, publishers have argued that mobile phone carriers should pay copyright performance royalties when ringtones are downloaded and used by mobile phone customers.   The decision is not surprising as it comes on the heels of a 2006 decision by the Register of Copyrights that held that ringtones can qualify for the Section 115 compulsory mechanical license under the Copyright Act, which is only applicable for qualifying “private uses.”  The Register of Copyrights ruled that the primary purpose of ringtones is for private, not public uses.  See Docket No. RF 2006-1, U.S. Copyright Office, Oct. 16, 2006

Website Background Music

To use recorded copyrighted music as background music on a website, you need permission from both the musical work owner and sound recording owner.  Statutory compulsory licenses (such as Section 115) generally do not apply to website background music, since website background music involves incorporation of the music with images (or “synchronization”).  Permissions would need to cover both the required server copy and the public performance of the music on the website.

Web Videos

To use an existing sound recording in a web video, both a mechanical license from the publisher and a master use license from the record company are required.  Since web videos will involve the synchronization of music with images, these licenses should clearly grant synchronization rights.  Performance licenses are also required for videos played on websites, which for the musical works are typically secured from ASCAP, BMI, and SESAC as blanket licenses.  Note that for music videos, publishers typically permit the record companies to sublicense the underlying musical work, so in these cases, full permission to use music videos on a website may be secured directly from the record companies.

This post is the one in a series of posts discussing the basics of music copyright law.  This series of posts can be located by selecting the Blog category “Copyright 101.” 

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Mobile Beat Staff Writer (228 Posts)

This is the general editors account for Mobile Beat Magazine and Website. Who reads Mobile Beat online and in print and attends Mobile Beat events? DJs, VJs and KJs to start with, especially those who own and operate mobile entertainment services. They provide music, video, lighting and a myriad other entertainment choices for corporate events, wedding receptions, dances and innumerable other gatherings.


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