Mechanicals Dues and RightsFlow

The digital age of music has introduced new legal forms of music consumption that do not correlate clearly with the previous licensing laws. These old laws were created at a time when the recorded music industry revolved around physical sales and traditional radio play.

They do not address, however, services like Rhapsody, where streaming audio is not public performance, nor is it a transaction of ownership. In some cases, these gray areas have allowed royalties to slip through the cracks, never reaching the hands of the rightful copyright owner.

Music Collections Redefined
Over the last five years, the Copyright Royalty Board has attempted to set rates and regulations to clarify the dispute over how new media royalties and licensing should be handled. In 2006, after a lengthy debate between webcasters and copyright owners, the board ruled that non-interactive webcasts would pay royalties on a per listener basis, while ringtones would have a hefty statutory rate of 24 cents. A decision on royalty compensation regarding interactive streaming was issued in 2008, which paid royalties on a per-play percentage of a blanket royalty rate. These steps were integral in the birth of the independent, non-profit performance rights organization, SoundExchange. The organization is responsible for collecting digital royalties from non-interactive streaming, internet radio, cable TV and music channels and distributing these royalties to artists and master recording owners.

In addition, the digital age has created changes in the ways that artists go about obtaining mechanical licenses. Organizations like the Harry Fox Agency have begun to enter the online forum with services like Songfile, which radically eases the process of obtaining mechanical licenses. With Songfile, an artist can shop through HFA’s entire database of publishers, select a song, and obtain the license in minutes from the comfort of their own home.

Enter RightsFlow

On the other hand, since Songfile is a Harry Fox service, its possible mechanical licenses are limited to HFA catalogues. Fortunately, a company called RightsFlow is rapidly gaining momentum, offering a similar service that boasts a much larger catalogue. Founded in October of 2007 by intellectual property and copyright specialist Patrick Sullivan and partner Ben Cockerham, the company acts as a middleman between those seeking licenses and those that do the licensing.

In addition to mechanical licenses for physical and digital distribution, RightsFlow also does the licensing for ringtones, online subscription services, and limited download services. The company clears the licenses and assures that the royalties accrued from copyright use are accurately accounted for and paid to the proper recipients. The RightsFlow service is segmented into four separate branches: Limelight, Limelight Professional, RightsFlow Enterprise, and RightsFlow Music Service. Each one provides the same basic licensing service, but tailors the approach to fit the needs of its varying clientele.

RightsFlow’s Limelight

Limelight is currently RightsFlow’s fastest growing brand, providing independent musicians with unlimited accessibility to affordable mechanical licenses on a user-friendly platform. The service is available to anyone who can cough up the meager $15 service fee plus the statutory reproduction costs. It also provides complete assurance that 100% of the behind-the-scenes paper work regarding legalities and royalties will be handled.

In years past, independent artists had to endure a far less accommodating process in order to obtain a mechanical license. Until Limelight, an artist’s only option started with acquiring a compulsory mechanical license directly through the US Copyright Office. However, the regulations and requirements involved with obtaining (not to mention maintaining) this license were excruciatingly time consuming and, at times, rather expensive. Monthly audits by an accountant and royalty due dates on or before the 20th of every month were required or the license would be revoked. The only other option was to negotiate a license with the publisher directly, yet this was a complex legal process that many small artists would not have been privy to.

The barricades that prevented an unknown artist from receiving the proper license not only discouraged them from further pursuing the issue, but in many cases also meant that covers were recorded and distributed without mechanical licenses at all. More often than not, this was not a question of whether or not an artist wanted to pay; it came as a result of not knowing how.

With Limelight, the process of clearing a license through the online website songclearance.com is simple. The service takes the information on the song intended for use, such as the title, songwriter and publisher, as well as information on how the client intends to use it. Then, the number of intended copies (or digital downloads/ringtones) as well as the length of the song is used to calculate the statutory rate applicable and total the sum of royalties owed to the publisher. Once the projected royalties are computed, a $15 dollar fee is tacked on for service. For frequent users, the fee is incrementally reduced with each purchase.

As of right now, Limelight claims to be able to clear licenses for any previously recorded song. RightsFlow works with the Harry Fox Agency and an assortment of smaller independent agencies and publishers to obtain mechanical licenses for the majority of songs requested. With some of these companies, a blanket license is negotiated for Limelight users, while others have agreed to a rolling schedule license, where additional compositions can be added to the license with publisher’s approval. If the publisher cannot be reached, compulsory mechanical licensing is utilized and RightsFlow takes on the arduous accounting and legal tasks that go along with that.

It is important to note that while copyright law only requires mechanical royalties to be paid once a physical album is printed (or a digital/ringtone download is purchased), Limelight demands all royalties to be paid upfront. What is interesting about this upfront payment process is that it is completely up to the user to honestly report the number of intended copies, as Limelight has no real way of tracking how many copies are actually printed and sold. Traditionally, when obtaining a mechanical license, whether negotiated or compulsory, detailed royalty statements had to be presented to the publisher. With Limelight, it is assumed on good faith that the artist will notify Limelight if they wish to sell any more copies of the covered song than originally expected.

This may seem to be a rather open ended policy, leaving many concerned that adequate mechanical royalties will not get paid to the writer. It is reasonable to conclude, however, that the average Limelight customer utilizes the service because they actually want to pay the right mechanical royalties to the respective artist. It is also worth noting that services like Limelight are actually bringing in royalties on copyright use that would have otherwise been pirated by making the process so much more accessible. As recording technology becomes less expensive and more available, an unprecedented number of independent artists are recording and distributing music – thus, expanding the market for services like Limelight.

More Limelight Services

RightsFlow aims to ease the mechanical licensing process on all levels of the music industry. Limelight Professional, which caters to independent record labels, and RightsFlow Enterprise, intended for major labels and distributer’s, both operate on the same basic concept as Limelight, but on a larger scale. Contrary to Limelight however, Professional and Enterprise both provide accurate and detailed royalty reports and earnings statements for their clients to accurately track the use of licensed copyrights. RightsFlow’s fourth branch, RightsFlow Music Service, delves even further into data tracking by supplying licensing reports for major online music services like Rhapsody. This program determines to whom, and how much the employing company owes royalties whilst supplying monthly, quarterly and annual royalty statements. So far, after only 5 years in business, RightsFlow has accumulated a sizable list of well-known partners including companies like EMI, CdBaby and Muzak.

Market Potential and Risks

With the largest catalogue of mechanical licenses available, and a well-tailored service for users of all kinds, RightsFlow has certainly created a very lucrative market for itself. Having handled over 1 million licensing transactions in its short history, the company is well on its way to establishing itself as an industry standard. Yet, when one is in the business of dealing with such complex legalities, there is enormous opportunity for problems to arise. For instance, an issue could stem from copyright law’s requirement that a song covered by a compulsory mechanical license cannot change the “fundamental character of the work”. With a bulk licensing system, there is no way to ensure a writer that their music’s “fundamental character” will remain in tact, perhaps leading a string convoluted legal complications. These are just a few of the countless potential “honorary slipups” that could arise in a licensee’s copy report. Nonetheless, RightsFlow’s innovations in mechanical licensing are still moving the industry in a very positive forward direction.

By Trish Hosein

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