in literary and dramatic works in several ways.

Perhaps the most important is that there are

two different kinds of copyrights that involve music.

The more traditional of the two are copyrights in musical compositions.

As you can see, section 102 (a), refers to these

as copyrights in musical works, including any accompanying words.

These have been around for a very long time.

The second type, which was added to the federal copyright statute only in 1972,

consists of copyrights in sound recordings.

As I mentioned earlier, in most countries

legal rights to sound recordings are known as neighboring rights.

In the United States, however, they are referred to as copyrights.

The legal rights associated with these two types of copyrights

and the complex business models that capitalize on those rights

are perhaps best seen by tracing the life

history of a typical piece of popular music.

I'm going to tell this hypothetical story using a slide.

As you'll soon see, the narrative is complicated.

Don't be discouraged if not all features of the story are clear right now.

We'll return to it several times during this lecture series.

Imagine that I'm a pretty good composer, but not much of a musician.

I compose a song.

It has a memorable melody and some conventional sentimental lyrics.

I wrote it down on some sheet music, so I satisfy the fixation requirement.

I thereby, as you know, acquire a copyright in my composition.

I could if I wanted retain ownership of my copyright, but as a typical composer

I lack the business skills or time necessary to exploit it effectively.

So instead, as is now customary in the United States, I sign all of my rights

to a music publisher.

There are tens of thousands of these in this country.

From this point forward in the story, the publisher

will retain the copyright and the composition.

In other words, the publisher will not assign it further.

Rather, the publisher will make money for itself and for me

by issuing licenses to a variety of other organizations--

in other words, permissions to engage in activities

that otherwise would violate copyright.

The most important of these licenses consist

of the right to make so-called mechanical copies of the composition.

Typically such a mechanical license will be

issued to a record company, which is interested in making and selling

sound recordings of my composition.

The independent rights of the musician who actually makes that recording we'll

discuss in a minute.

Back to the narrative, the publisher could in principle

enter into such a license with the record company on its own,

but it's customary in the United States to use

the services of an intermediary, namely the Harry Fox Agency.

If the CD and other products embodying the recording of my song

is commercially successful, the music publisher, who as we saw now

holds the copyright in it, will begin to exploit other licensing opportunities.

For example, the publisher will likely issue a reproduction license

to one of the four major sheet music printers

in the United States, which will then print and sell

sheet music, which in turn will be purchased by amateur guitarists who

want to learn how to play my song.

If the song is sufficiently popular and evocative that a movie studio wants

to include in the soundtrack of a movie, then the music publisher and the studio

will negotiate a so-called synchronization, or sync, license.

If there's demand for my music in other countries,

the publisher will likely issue a so-called sub-publishing license

to a similar publisher in one or more other countries.

The terms of these several contracts will vary,

but it's typical for the music publisher to turn over to me half of the license

revenues it earns from these various sources,

keeping the remainder, of course, for itself.

So now let's return to the musician, the performer,

whose recorded rendition of my song is crucial to the success

of my composition.

As I mentioned earlier, the creative contributions of the performer

will generate a second independent copyright in the sound recording.

It's possible that the performer will have

to share that copyright with a sound engineer,

but we'll put that nuance to one side.

As was true of the composer, it would be possible for the performer

to retain that copyright, but at least until quite recently,

it was customary for performers to enter into so-called recording

contracts with record companies.

Such recording contracts also have many complex terms, some of which

are likely to be onerous which we'll discuss in a few weeks.

The central term, however, is straightforward.

The performer assigns his copyright in the sound recording

to the record company.

By now I hope the color scheme of this chart is apparent.

The blue figures represent artists, the people

who make creative contributions to the finished product.

These are the folks who, in the rhetoric of copyright law,

are commonly referred to as creators.

Red designates an assignee of a copyright.

Purple designates a licensee, and yellow designates an intermediary.

Arrows signify transfers of legal rights.

As you can see, the legal position of the record company is the most complex.

For the reasons I've sketched, the record companies

occupy two legal positions-- it's the assignee of the sound recording

copyright and one of the licensees of the musical composition copyright.

That's why it's shown in the chart as half red and half purple.

We're not done yet, however.

The music publisher, which to repeat holds the copyright

in the original composition, enjoys one additional valuable entitlement, namely

the exclusive right to authorize so-called quote,

public performances, end quote of the composition.

Such performances include playing the song at a park or a theater

and more importantly, broadcasts of recordings of the composition.

If the recording distributed by the record company is popular,

several companies are likely interested in making such public performances.

They include radio stations, perhaps television stations, restaurants

that play music in the background, and nowadays webcasters.

The publisher could in principle negotiate individual licenses

with these companies, but that would be time consuming and inefficient.

So instead, the publisher will almost certainly

use an intermediary to manage its public performance rights.

In most countries there's only one such intermediary, but in the United States

there happen to be three.

They are known as BMI, ASCAP, and SESAC.

They're called Performing Rights Organizations, or PROs.

Whichever PRO the publisher selects will issue so-called blanket licenses

to all of the companies that I mentioned earlier.

The reason these are called blanket licenses

is that instead of paying a small fee for each song it plays,

the licensee pays a flat fee-- typically a small percentage

of its gross revenues-- to perform any of the compositions in the PRO's

repertoire.

The PRO then pays to the music publisher a slice

of the total amount of the license fees it

collects, a slice roughly proportional to the relative frequency

with which my song is played.

And the publisher in turn gives half of that slice to me.

The net result-- the more popular a song,

the more money flows to the publisher and to the composer.

Notice again the color scheme.

Yellow indicates an intermediary.

Purple indicates a licensee.

Do the radio and television stations, restaurants, and webcasters

shown in the lower left of this chart have

to pay license fees not just to the music publisher at the top

but also to the record company in the bottom right?

In most countries, the answer would be yes.

After all a radio station when it plays a song

is performing not just the composition whose copyright

is held by the publisher, but also the recording of a particular rendition

of the song whose copyright, otherwise known as a neighboring right,

is owned by the record company.

It would seem to make sense for the radio station

to pay both copyright owners, and in most countries it must.

Nevertheless, in the United States radio stations

engaged in traditional analog broadcasting do not make such payments.

The reason is that in the United States, the owner

of a copyright in the sound recording, unlike the owners of copyrights

in other sorts of works, does not enjoy an exclusive right

of public performance.

You'll recall, I hope, that I discussed this unusual feature of US law

briefly in lecture number one and the tensions

it creates between the United States and the member countries of the Rome

Convention.

The principal reason for the anomalous position

of the United States on this issue is that in 1972, when

sound recordings were first given federal copyright protection,

broadcasters in the United States had considerable lobbying power,

and they successfully blocked adoption of a public performance right

for sound recordings.

That political explanation is buttressed by a plausible policy argument.

The broadcasters argue that they shouldn't

have to pay license fees to the record companies

because they argue broadcast of songs help the record companies by bringing

those songs to the attention of potential purchasers of records, CDs,

and so forth.

In other words, the promotional benefit of broadcast

substitutes for a license fee.

Record companies not surprisingly disagree.

In 1996 and 1998, the record companies succeeded

in obtaining from Congress a partial modification of this longstanding rule,

specifically by securing an amendment to the copyright statute that gave them

public performance rights for their sound recordings.

However, that amendment was limited to performances

that occurred in the form of a digital audio transmission.

The upshot is that today, when webcasters perform recorded music

digitally over the internet they must pay license fees to the record

companies.

How those license fees are calculated we'll discuss in lecture number eight.

For the time being, you need to know only that this legal relationship is

managed by yet another intermediary, the organization SoundExchange.

Record companies have not been satisfied by this adjustment to the statute.

They want full-blown public performance rights,

which would enable them to charge traditional radio

stations, large restaurants, and so forth who make use of their recordings.

Congressmen sympathetic to their position

periodically introduce bills that if adopted would have that effect.

The name of the most recent version of this proposed legislation

is the Performance Rights Act.

Shown on your screen is the press release

by the trade association of the recording companies welcoming

the introduction of this legislation.

Notice the reference to the difference between the situation in the United

States and the situation in most countries.

The broadcasters, for their part, continue to push back.

Set forth on screen is their own summary of their stance.

Notice that they continue to emphasize the quote, free promotion, that they're

providing record companies.

And notice also their strategic characterization

of the proposed legislation as a tax.

Finally, you'll see that they too have a group of sympathetic congressmen.

For better or worse, this is a reasonably good illustration

of the way in which lobbying over copyright typically works.

For more details concerning the still ongoing negotiation

over this particular issue, follow the link

shown on the left-hand side of these two slides.

So that in brief is the pattern of legal rights in the US recorded music

industry.

The arrows, as I've indicated, show transfers of legal entitlements.

For the most part, money flows between organizations through the channels

cut by the legal rights, with one exception.

For a long time, record companies have paid radio stations

significant amounts of money, known informally

as paola, to induce them to play the record company's

recordings over the airwaves, lending credence to the broadcasters'

contention that radio play serves as an effective form of advertising.

At its peak, roughly $100 million a year flow through this channel.

Legal impediments to such payments have been slowly increasing for decades,

and enforcement of those legal impediments has also been increasing.

For a while, record companies evaded these tightening rules

by using third-party intermediaries, known confusingly as indies,

to make their payments, but this loophole is also shrinking.

Today much

less money is flowing through this channel

than was true 40 or even 10 years ago, but the river