Wednesday, 01 April 2015

The great South African needletime debacle – Part 1

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by Nick Matzukis
Advocate of the High Court of South Africa and Lecturer in Music Law,
Academy of Sound Engineering

At the Moshito music conference this year, as you would expect, a session was held on the highly controversial topic of South African Needletime Royalties. (Naturally, needletime featured prominently at previous conferences as well.) The session at this year’s conference was, to say the least, heated, especially because presentations were given by two parties who currently happen to be in litigation with each-other.

The discussion showed just how far away we are from a solution, and prompted me (as a result of the clear confusion to be seen amongst the delegates) to write an update for you about the current state of needletime in South Africa. It is clear that people simply do not understand this topic, and they most certainly do not understand what the litigation is all about.

This is a highly complicated legal matter, but it affects every recording musician in the country so I will try, in this article, to simplify and explain it all for you. Parts of this article may make heavy reading for the layman (especially the parts about the legislation), but I urge you to read and absorb it all, from beginning to end. I would also prefer it if you read it all in one sitting, but if the publishers decide to break it up into weekly parts, you will need to read the previous weeks’ articles again in order to recap them so as to understand the one you are reading this week. Everything you will read in this article as a whole (even the legal content) is vitally important for the performing musician.

Let’s start with a recap:

There are two main copyrights that apply when a piece of music is recorded: a) the copyright in the composition and b) the copyright in the recording. They are distinct and different copyrights, and may be owned by different persons.

a) The copyright in the composition is the right flowing from ownership of the creative work – the concept and origination of the music and lyrics. In a nutshell, when a piece of music is written, a legal right to it, called a copyright, comes alive and vests in the songwriter. Thus the copyright in the composition relates to the creation or genesis of the song, its idea, lyrics, melody, structure etc. This copyright gives rise to several rights, including mechanical rights (the right to make copies) and performance rights (the right to publicly perform, broadcast or diffuse the song. The royalties flowing from these rights are known as publishing royalties and are paid to the songwriter (or his publisher if he has one). Thus, every time the song is broadcast, a performance royalty becomes payable to the songwriter, due to the fact that it stems from the copyright in the composition. Despite the fact that this is called a performance royalty, no royalty is due to the performers from this copyright – only to the songwriter.

b) If that piece of music is later recorded (by anyone, including the songwriter himself), a totally separate and distinct copyright then comes about, called the copyright in the recording. The copyright in the recording, as its name would suggest, is the right flowing from the ownership of the actual recording of a performance of the song/s (or the master), as opposed to the composition. As stated above, this is a different copyright, and usually vests not in the songwriter, but in the record company (or whomever facilitated/paid for the recording.) If this happens to be the songwriter as well, only then does the copyright in the recording also vest in him.) You have to understand this distinction to carry on.

There is one more little complication to understand before we continue: when a song is written with lyrics (this is the case in South Africa but not all countries, eg America is different), two separate copyrights in the composition come about – one in the lyrics and another in the music. (In America the position is that the musician owns part of the copyright in the whole composition, the lyricist the other part of the same copyright in the whole composition, and the two cannot be separated.) So in South Africa, if Zakk wrote the music and Zebadiah wrote the lyrics to a song, these two separate people can own two separate copyrights in the composition – Zebadiah owns the copyright in the composition of the lyrics, and Zakk owns the copyright in the composition of the music. (If they were in America, each would own half of the single combined copyright in the composition). But the record company still owns the copyright in the recording – a third copyright. If you understand this, we are now on the road to understanding needletime.

As stated above, performance royalties are collected and distributed to song composers and their publishers for the public performance of songs. But until the 2002 amendment to our law, there was no legal provision for performers, producers, or record companies to collect any royalties for the broadcast performance of the recordings of these songs.

Needletime (also called “Pay for Play”) is therefore the calculation, collection, and distribution of royalties to the performers and owners of the recording for the public performance of the recording. (The copyrights vested in the sound recording are sometimes called “phonographic rights” and overseas are often indicated by the symbol ℗.) In essence, needletime offers recording musicians an additional revenue stream beyond that of live performances and sales royalties paid by record companies, without infringing on or detracting from the rights of composers and authors.

Some believe that needletime will effectively activate the fundamental goals of intellectual property by finally enabling musicians to make a living from their music.

The first point to note is that needletime relates to the copyright in the recording. As at time of writing, needletime is still regarded by some as a ‘new’ royalty stream in South Africa, because it only re-entered our law in 2002, and the regulations for its administration and distribution were only passed in 2006. Its actual administration only began in 2008 and still, in 2010, no needletime royalties have been distributed to labels or musicians.

In fact, needletime it is not really a new royalty, because it did exist in South Africa in the sixties but was removed for various reasons (particularly broadcaster interference.) It is therefore not some strange new right, as some artists seem to believe, but is simply the re-activation of the performance right relating to the copyright in the recording (as opposed to the performance right relating to the copyright in the composition.) In law at least, needletime is back, and this is potentially very good news for musicians who may not have written the songs they helped record), for music producers and, of course, for the record companies (and advertisers) who own the recordings. Needletime was reintroduced after much lobbying from ASAMI (now RiSA), representing the labels, and MUSA (now CWUSA), representing the performers. Their point was that the owners of the copyright in the recording, and the performers who contributed to the recording should share in a new royalty to be derived from a new and additional license fee to be paid by users broadcasting, diffusing or otherwise communicating the recorded work.

As indicated, needletime did previously exist in SA, but was removed from South African copyright legislation in 1965 due to pressure from the broadcasters. Recent amendments to the Copyright Act of 1978 and the Performers Protection Act of 1967 have resulted in its re-introduction into South African legislation. Under the old legislation, performers enjoyed no copyright protection – this right was confined to composers and authors. This lack of protection for performers was out of keeping with international trends, in which needletime royalties are increasingly the norm. South Africa’s non-membership of the Rome Convention (which dealt, inter alia with needletime) showed how far behind we have been in this matter, for some time. The absence of needletime legislation for so long has been seen by some as one of the key hurdles to the development of local music and the music industry.

Yet the re-introduction of needletime was controversial. On the one hand it was argued that the reintroduction of needletime would extend the scope of intellectual property rights of performers and would give performers greater protection. On the other hand, it was argued that the imposition of needletime would simply place unnecessary additional, onerous burdens on broadcasters and users and make music performance and broadcast too expensive.

I agree with the former view. Under the concept of needletime, recording artists, background singers, instrumentalists, and anyone who contributed to a recording that is getting airplay (performance) should and will be compensated for use of their work when it is performed or communicated to the public. It is also important to note that needletime is a sub-category of performance royalties – just one that stems from a different copyright. The vital thing about needletime is that the musicians who played on a recording will now for the first time in decades be paid a performance royalty even though they did not write the song. This is an important gap that needed to be filled. Of course, the owner of the recording will not be left out of this new royalty stream – far from it (and in most cases that is, naturally, the record label.) Yet there are skeptics.

As pointed out by Tim Kraft, some professionals, such as respected advertising music producer Rob Schroder, feel that the administrative burden, the inefficiencies in the industry structures and the complexities of collecting the information required for the fair distribution of needletime royalties, will effectively cancel the financial benefits. Schroder may well be correct as things stand (just look at all the litigation and red tape currently going on), but in my opinion it is up to us, as the industry, to solve these issues and get needletime working smoothly – there is simply too much money at stake not to do so.

Needletime does not replace or get deducted from any other existing royalty stream. It is paid by the user in addition to the other licensing fees listed above. So where does this extra money come from? Quite simply, from the music users (broadcasters, retailers, clubs etc) who must now pay more every year for the music they use, in order to cover this new royalty.

The main object of needletime is to fairly remunerate and recognize the musician, producer and owner of the recording copyright for their contributions to the recording. This is a good thing, because it can only help to build a more healthy South African music industry, but it cannot be done without an additional license fee. Ask yourself: why shouldn’t a drummer who did not write the song but played a great back-beat, leading to significant airplay, not be rewarded for this (especially if, despite the airplay, album sales were low)? And why shouldn’t the label that owns the recording receive a performance royalty every time its recording is used or broadcast to the user’s benefit?

After all, the broadcasters are earning advertising revenue from the use of the recording, and the recording was not only created by the author who penned the composition – it was also created by all who contributed to the recording.

Thus, needletime was re-introduced to our law with the passing of the Performers Protection Amendment Act of 2002, and the promulgation in June 2006 of the Regulations under the new Act. This new legislation finally provides for the right of remuneration to performers and record companies for the public use of their recorded performances and audio recordings.

The Copyright Amendment Act, No. 9 of 2002 amended section 9 of the Copyright Act No 98 of 1978 and provides the legal framework upon which needletime royalties can be collected in South Africa. It also provides for the possibility of means to control the various uses of a sound recording. It is this legislation that has re-introduced needletime to our law, but it is also true to say that the legislation is to some degree the cause of the current problems, since it could have been drafted in a more precise manner.

Section 9, as amended by s.2 of Act 9 of 2002, now reads as follows:

Nature of copyright in sound recordings
9. Copyright in a sound recording vests the exclusive right to do or to authorize the doing of any of the following acts in the Republic:

(a) Making, directly or indirectly, a record embodying the sound recording;
(b) letting, or offering or exposing for hire by way of trade, directly or indirectly, a reproduction of the sound recording;
(c) broadcasting the sound recording;
(d) causing the sound recording to be transmitted in a diffusion service, unless that service transmits a lawful broadcast, including the sound recording, and is operated by the original broadcaster;
(e) communicating the sound recording to the public.
Section 9 (a) is of particular importance to record labels and producers of music for commercial release, and clauses (b) through (e) are relevant to producers of commercial music that is not destined for mechanical reproduction and resale (including digital streaming, radio and television broadcasts, public performance, diffusion and other communication by users to the public).

In the case of piece of advertising music, ownership in the sound recording may still vest in the advertiser, since the production of the sound recording would ordinarily be considered a work for hire.

Section 9A, which covers the royalties payable, makes the important new provision for the “performer”. Thus, the Act now makes a distinction between the performer and the owner of the sound recording, and refers to “an agreement” between the parties concerning the amount of the royalty to be paid to each. It reads as follows:
9A. (1)
(a) In the absence of an agreement to the contrary, no person may broadcast, cause the transmission of or play a sound recording as contemplated in section 9(9), (d) or (e) without payment of a royalty to the owner of the relevant copyright.
(b) The amount of any royalty contemplated in paragraph (a) shall be determined by an agreement between the user of the sound recording, the performer and the owner of the copyright, or between their representative collecting societies.

Now here is the important part for performers: Section 9A (2) provides that performers on the sound recording are entitled, by law, to a share of the royalties earned by the owner of the sound recording. According to the legislation, this share will be determined by agreement between the owner and the performer or their representative societies.

The section reads as follows:
9A (2)
(a) The owner of the copyright who receives payment of a royalty in terms of this section shall share such royalty with any performer whose performance is featured on the sound recording in question and who would have been entitled to receive a royalty in that regard as contemplated in section 5 of the Performers’ Protection Act, 1967 (Act No. 11 of 1967).
(b) The performer’s share of the royalty shall be determined by an agreement between the performer and the owner of copyright, or between their representative collecting societies.

Section 1 (2) of the Performers’ Protection Act is also worth noting. It reads:
“…any reference… to the doing of an act in relation to a performance… shall be taken to include a reference to the doing of that act in relation to a substantial part of the performance.” With regard to the words “substantial part”, this has not yet been tested by our courts, but our copyright legislation and case law often follow English precedents, and the English courts have decided that the meaning of the legal term “substantial part” could involve either a qualitative or a quantitative measure, or both, depending on the facts of each case. This means, in my view, that if an agreement between a record company and an artist provides that they will split performance royalties equally, one or more session musicians, backing singers, group members or studio producers can claim a share of the contracted performer’s share of the needletime royalty that the record company collects from the user, so the performers will have to split their share, while the copyright-owner (the label) retains its half-share. (This certainly seems to be the accepted practice overseas, at any rate.)

The 2006 Regulations promulgated under the 2002 Act were effectively Regulations of Collecting Societies for Needletime and declared Cipro as an accrediting authority since June 2006. Cipro has the power to supervise Collecting societies for governance purposes. Under these regulations CIPRO accredited SAMRO, SAMPRA and SARRAL to administer needletime (but has subsequently withdrawn SARRAL’s accreditation.

Now that we have understood what the new needletime legislation says, let’s go back and place it in context to the industry, the royalty collection societies and to the other royalties that are already payable:

Performance Royalties
These publishing royalties are SAMRO’s primary function, and have been for many decades. Modern methods of communication like radio and TV broadcasting can use a single recording to entertain an audience of thousands or even millions. This considerably limits the sales of recordings, and therefore the sales royalties earned. As a result of these developments, for many composers, the principal source of livelihood today is the performing right royalty, a fee payable to the composer by anyone who performs his/her music in public. SAMRO controls this right in Southern Africa.

When a composer/artist becomes a member of SAMRO, he must assign to SAMRO the performing, broadcasting and diffusion rights in all his works. SAMRO issues blanket licenses to music-users throughout its territory – banks, broadcasters, cafés, concert promoters, hotel proprietors, retail stores, night clubs, restaurant owners and others – to perform any music of its members against payment of proper fees. SAMRO also has Agreements of Reciprocal Representation with similar organizations in more than 100 countries throughout the world, with which it remains in continuous contact. It authorizes those organizations to administer the rights of its members in their respective countries, and, conversely, they authorize SAMRO to administer the rights of their members in Southern Africa.

SAMRO has an active body of Licensing Representatives who visit all establishments in which music is likely to be performed in some manner or other, in order to ensure that all such performances are properly licensed and that the appropriate fees are regularly paid to SAMRO for subsequent computation of royalties and distribution to its members and affiliated societies. Thus far, the overlaps seem large, and it is no surprise, therefore, that SAMRO has formally expressed its intention to administer needletime.

Mechanical Royalties
In late 2006, SAMRO also decided to start administering mechanical royalties, despite the fact that this has traditionally been the domain of SARRAL and later NORM. The reason for this is the steady demise of SARRAL over the last few years, culminating in an order for SARRAL’S liquidation after being sued by Colin Shapiro, and CIPRO’S subsequent de-accreditaton of SARRAL. The decision to administer mechanical royalties makes SAMRO a very dominant and powerful organization, but the move may well prove to be good for our industry, due to SAMRO’s good financial standing and record of transparency.

SAMRO has thus far been successful in this diversification, and is clearly moving towards becoming a “one stop shop” for composer musicians to use as their sole agency for all royalties, especially since it now also wishes to administer needletime – see below.|

Since needletime is a type of performance royalty (albeit one that relates to the copyright in the recording rather than the copyright in the composition, which has until now been SAMRO’s traditional domain), it makes sense that SAMRO would wish to be involved in the administration of this royalty. It does, after all, have an existing strong infrastructure in place to police the users. SAMRO’s decision to administer needletime was announced in late 2008. Since needletime administration was re-introduced with new regulations in 2006 (see above) and implemented by SAMRO in 2008, musicians now theoretically should be able to receive payment for the exploitation of their recorded performances through SAMRO, particularly if they are composers as well. The performers to benefit from this include lead vocalists, backing vocalists and instrumentalists. Where such people happen to be the songwriters as well, the value of existing performing and mechanical rights will not be affected, and SAMRO should be able to administer both on the same statement. Bearing in mind this landscape, it would seem to make absolute sense (at least from the performers’ point of view) that SAMRO should somehow be involved in the administration of needletime for performers (perhaps even those that are not songwriters.) Indeed, SAMRO has set us POSA (Performers Organisation of South Africa) for this very reason. More about this later.

Author: guest