Over the weekend, Radiohead frontman Thom Yorke his super producer buddy Nigel Godrich took to Twitter to explain why they pulled their most recent project, Atoms For Peace, from Spotify. Yorke piled on and pulled a bunch of his solo work as well, in what’s only the latest example of artists publicly criticizing hugely popular online music services like Spotify and Pandora. Exhibit B: Pink Floyd’s recent editorial in USA Today.

Spotify currently boasts 24 million active users, while Pandora reports 200 million subscribers; it’s probably safe to say that very few of these people want musicians to get screwed over by these services. We understand artists need to get paid for their work — otherwise, they can’t make music, right? But for most of us the process looks like this:

Press Play on our favorite app or service [Internet voodoo happens here] Artists get paid!

The reality is more complex, and it’s made that way by the complicated, convoluted system of royalties. So how do music royalties work (at least, in the U.S.), and why does everyone seem to feel screwed?

Music copyright basics

We think of a “song” as a single thing, but a typical song has at least two copyrights that are often held by different people or groups.

A song’s copyright initially belongs to its writer(s): maybe that’s one person, maybe it’s a couple members of a band. The songwriter copyright is exclusive: once it’s established, no one else can get a songwriter copyright on the same tune.

Simple enough. However, the songwriter copyright applies only to the composition: the fundamental melody, musical structure, and lyrics (if any). Any recordings of the song have a separate copyright, and there can be any number of these individually copyrighted recordings.

Now you know why Weird Al Yankovic is a genius.

In the United States, mechanical licenses apply to downloads and physical copies, and a compulsory rate is set by the Copyright Royalty Board: currently 9.1 cents per copy for songs five minutes and under, or 1.75 cents per minute (or fraction thereof) for songs over five minutes. That’s the standard deal; if I don’t like that rate, I could try to negotiate a better one directly with the copyright holder, but they can say no. (Most songwriter/performers agree to far lower rates from their labels – that’s another topic.) If I didn’t pay for a license at all, Daft Punk can come after me for copyright infringement.

Most mechanical licenses go through the Harry Fox Agency, which been at it since Tin Pan Alley days, though outfits like Limelight, RightsFlow, and Easy Song Licensing are gaining a foothold in the business as well.

I could get around all this by making my cover a poultry-themed parody called “Get Clucky.” Thanks to 2 Live Crew, it would be exempt from copyright under the fair use – no permissions needed, no royalties to be paid. And now you know why Weird Al Yankovic is a genius.

The rights stuff

So far, so good: songs have a songwriting copyright, and each recording has a separate copyright of its own. Oh, but we’re just getting started …

Performing rights are a license to play a song in public. If that’s by live musicians, a royalty is owed to whoever administers the songwriting copyright. (In a neat twist, for live music the venue owes the royalty: the musicians are off the hook.) Public performance includes live or recorded music in shops, bars, nightclubs,restaurants, and some forms of online performance (hold that thought).

Synchronization rights are a license to play (sync) a music recording with another medium, usually film or television but also video games, advertisements, audiobooks, and even phone messages. Syncing requires a license both to the recording and the composition. If someone wants to put my version of “Get Lucky” in a movie, they need to license the recording from me (for one kerzillion dollars!) and also get a mechanical license from Daft Punk (via Harry Fox or a similar clearinghouse.)

Publishing rights are primarily about sales of printed sheet music, but also applies to some instructional materials.

How do people deal with all this?

If all this seems like too much for performers and songwriters and venues and services to handle, you’re right. Mostly, they don’t.

Songwriters almost always work with publishers by granting (“assigning”) them their copyrights. At that point the publisher owns the compositions and their job is to collect royalties and promote the material, leaving the artists free to be … artsy. Publishers usually register copyrights, arrange for print publishing, and try to get songs placed with other artists, television, and movies. In exchange, they usually keep half the royalties. So when I cover a song, in theory the royalty goes to the songwriter’s publisher, who later credits some of the money to the writer. For “Get Lucky” specifically, Pharrell Williams and Nile Rodgers are credited as writers alongside Daft Punk, so they get cuts too – actually, their publishers (Sony/ATV and EMI) get cuts, and Pharrell and Nile get a cut of those cuts. See?

However: songwriters and publishers don’t collect most royalties. Instead, performance rights organizations (PROs) do a lot of the legwork. In the U.S., that’s ASCAP, BMI, and SESAC, some of those acronyms you’ve probably seen in song credits. Their job is to monitor performances, broadcasts, and (some) online uses of material, collect licensing fees from radio stations, music venues, and the like, then disperse royalties. (They also sell blanket licenses to broadcasters, webcasters, venues, etc., among other things.) Performance rights organizations usually take 10-15 percent off the top for their expenses. So, when someone plays my version of “Get Lucky” in a bar, in theory a songwriting royalty eventually gets to BMI, which represents Daft Punk, Nile Rodgers, and Pharrell. BMI takes a cut, and sends the remainder to Imagem, Sony, and EMI, who each take a cut.

But, when my version of “Get Lucky” gets played in that bar, I get paid too, right? Nope! In the United States, recording copyright holders receive no performance royalties from plays on radio, in venues, or on some Internet services. The idea is that recording artists receive significant promotional benefit from public performances: after all, when folks hear “Blame It On The Rain,” they almost always think of Milli Vanilli, not songwriter Diane Warren. There can be tremendous value to music played on radio or in the right clubs: it spurs sales and raises an artist’s profile.

What does this mean for Internet streaming?

There are two basic kinds of Internet music services: interactive and non-interactive. Non-interactive services work like traditional radio: everyone hears the same thing, and listeners don’t control the content – think Live365 or RadioIO. Interactive services are an on-demand thing: listeners determine what they hear, like the customized playlists on Spotify, Google Play, and Rhapsody.

But, when my version of “Get Lucky” gets played in that bar, I get paid too, right? Nope!

Right now, digital broadcasters pay differing royalty rates. Cable music pays 15 percent of their revenue and satellite radio pays 7.5 percent. Internet radio pays either $0.02 per listener per hour or 25 percent of their revenue, whichever is greater. (Terrestrial radio still pays nothing. Promotion, remember.)

But! These rates apply only to non-interactive services. (Pandora’s custom stations count as non-interactive, by the way.) Interactive, on-demand Internet music services are a total grey area: the PROs are not collecting songwriter royalties, and SoundExchange isn’t collecting performance royalties. So far, all deals covering interactive services like Spotify and Slacker have been individually negotiated with record labels rather than mandated by legislation and regulation. The result? Artists have reported earnings in the neighborhood of three tenths of a cent per play … if they see any earnings at all.

So who’s getting ripped off?

Internet music service likes Pandora and Spotify don’t (yet) have the reach of terrestrial radio, but they might arguably engage people better: custom streams and playlists are less likely to be “tuned out,” and interactive formats make it easy to learn about artists (and buy their music) with just a few taps or clicks. Does that potential value outweigh artist royalties, like terrestrial radio’s promotional value supposedly outweighs them? If you run one of these services, the answer may be yes. If you’re an artist, you probably feel differently – Thom Yorke, Nigel Godrich, and Pink Floyd obviously do.

Healthy discussion and debate are always good – and the music industry clearly needs many fixes. But if there’s been one constant in the American music business it’s that virtually no one claims songwriters and artists are overpaid, and no one claims the publishers and record labels are underpaid. A second contant? If artists can’t earn a living with their music, everybody loses.

I mean, imagine your life without “Get Clucky” – am I right?

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