Why We Wrote This Guide

Music Business World reported in 2016 that neighboring rights account for over $2 billion in revenue per year. In today’s music industry, it is vitally important that songwriters, music publishers, record labels, recording artists, and featured artists familiarize themselves with neighboring rights.

Contents

What Are Neighboring Rights?
Terrestrial vs. Digital Public Performance
Background / History
Royalty Distribution for Neighboring Rights
Black Box Money
Critical Relationships

What are Neighboring Rights?

Neighboring rights refer to the right to publicly broadcast a sound recording outside of the United States. They are legally recognized in foreign copyright laws. Record labels and performers (sound recording owners) outside the United States collect neighboring rights royalties whenever their sound recordings get “performed” via traditional broadcast: on terrestrial radio, on television, or in a bar, restaurant, nightclub, shop, etc. It is important to reiterate that neighboring rights do not currently exist within the U.S.—that is, sound recording copyright owners do not receive any royalties from the broadcast of sound recordings in the United States.

The neighboring rights attached to a sound recording metaphorically neighbor the performance right attached to an underlying composition. They are two sides of the same coin, so to speak. Each right accompanies the exact same type of usage. A broadcast of music via terrestrial radio, for example, will exploit both the neighboring right and the performance right. The crucial separation between the two lies in the type of copyright exploited: neighboring rights refer to the sound recording, while performance rights refer in this context to the underlying composition.

Neighboring rights are still considered a performance of the sound recording; however, to avoid confusion with the performance right associated with the underlying composition, the music industry calls it “neighboring rights” to distinguish between the two. The right to collect on the public performance of sound recordings (“neighboring rights”) is also sometimes called “related rights” because the right is related to the performance right for underlying compositions.

To summarize: In countries outside the U.S., where public performances compensate the songwriter or music publisher when their song is broadcasted publicly, neighboring rights compensate the recording artist or record label associated with the sound recording of the song.

Terrestrial vs. Digital Public Performance

It is important to distinguish between public performance through digital platforms (think Internet and satellite radio) and traditional broadcast platforms (think radio, TV, and music venues).

The Digital Performance Rights in Sound Recordings Act of 1995 requires that public performance royalties are paid to sound recording copyright owners for non-interactive digital transmissions. This means that owners of the master, typically recording artists and record labels, are paid when their work is publicly performed on satellite radio, Internet radio, or some other form of non-interactive streaming. The organization that collects and distributes these royalties on behalf of these parties is SoundExchange.

The United States does NOT require payment for terrestrial neighboring rights when copyrighted sound recordings are publicly performed on traditional broadcast platforms. Radio broadcasters and public venues are only required to pay public performance royalties for the composition, which are due to songwriters and music publishers. They are NOT required to pay royalties to artists and labels for the use of the master recording. Thus, U.S. terrestrial broadcasters do not pay royalties for neighboring rights but foreign broadcasters do.

Royalties from the Public Performance of a Sound Recording
Outside the U.S. In the U.S.
Non-Interactive Streaming (satellite radio, Internet radio) Yes Yes, royalties administered by Sound Exchange
Terrestrial Broadcast (radio, TV) Yes No
Music Venues, Bars, Restaurants Yes No
Interactive Streaming Yes Yes, royalties based on several factors including music service revenue
  • Royalties from the Public Performance of a Sound Recording OUTSIDE THE U.S. are considered royalties based on the neighboring right attached to the copyright.

Background / History

In 1961, a total of 91 parties and 26 signatories joined together at the multinational Rome Convention for the Protection of Performers, Producers, Phonograms and Broadcasting Organizations. The various countries met in order to address the rapid evolution of sound and image reproduction technologies and their impact on copyright law. Previously, multinational agreements like the Berne Convention (1886) had been crafted to manage the creation, protection, and distribution of print materials. However, inventions like tape recorders made it clear that it was time to reinvent and expand upon previous intercontinental copyright treaties.

Countries that signed the Rome Convention require users of copyright to pay neighboring rights. Only performers who are permanent residents in one of the signatory countries are eligible to receive these royalty payments. Musical recordings created within countries that participated in signing the Rome Convention are also eligible for royalties.

Here is a list of countries that pay neighboring rights.

Royalty Distribution for Neighboring Rights

If a U.S.-based recording artist has a song publicly performed in a foreign country that offers neighboring rights, the recording artist will technically be owed royalties from this performance. However, because the U.S. does not reciprocate neighboring rights to any foreign country’s recording artists, the U.S.-based recording artist will never see these royalties. This concept is known as reciprocity.

For example: If a bar in London plays Janis Joplin’s cover of “Me And Bobby McGee,” her record label is owed royalties as the owner of the sound recording from this exploitation of the neighboring right. On the other hand, if a bar in New York plays Oasis’ “Wonderwall,” their record label is not owed royalties because neighboring rights do not exist in the U.S.

Not only is this royalty owed by the bar—it’s actually paid, too. But Janis Joplin’s record label will never see this money. The United Kingdom, and any other foreign country, refuses to pay U.S. recording artists neighboring rights royalties because their domestic artists do not receive them. The royalties from these public performances go into an entity known as the “black box.”

Black Box Money

In countries outside the U.S., neighboring rights administrators issue public performance licenses on behalf of performers and record labels to those wishing to publicly broadcast music (radio stations, television, bars, restaurants, clubs, etc.) much like U.S. PROs issue public performance licenses on behalf of songwriters and music publishers. The administrators then collect royalties from public performances of the sound recording (neighboring rights royalties) and distribute them to their affiliated performers and record labels.

Black Box royalties refer to money that is earned but never paid out to any copyright holder. Because of the concept of reciprocity mentioned in the previous section, U.S.-based sound recording copyright holders (record labels and recording artists) do not receive any royalties from the public broadcast of their music. However, public broadcasters in countries outside the U.S. are still required to pay the royalty for broadcasting the sound recording of a U.S.-based recording artist. Since these royalties cannot be paid to the proper copyright owners, they are placed in a collective reserve known as a “Black Box.”

If Black Box neighboring rights royalties remain unclaimed for three years, the foreign collection societies responsible for neighboring rights royalties in a particular country will distribute them to affiliated companies (i.e. foreign labels and performers) per their market share.

Critical Relationships

  • Core: Neighboring rights refer to the rights associated with the public performance of a sound recording outside the United States.
  • Royalty Collection: The public performance of a sound recording does not grant the master copyright holder royalties in the U.S. unless this public performance occurs over a digital audio transmission from non-interactive streaming or Internet broadcast. In this case, SoundExchange collects these royalties. U.S. recording artists cannot collect public performance royalties from terrestrial broadcasts within or outside of the U.S.

Sources

https://www.tunecore.com/blog/2012/07/neighboring-rights-what-they-are-why-they-matter.html
https://symphonicdistribution.com/neighboring-rights/
https://www.tunecore.com/blog/2012/07/neighboring-rights-what-they-are-why-they-matter.html
https://www.royaltyexchange.com/learn/what-are-neighboring-rights
https://www.kobaltmusic.com/blog/what-are-neighbouring-rights-and-why-should-creators-care
https://www.ascap.com/help/royalties-and-payment/payment/international
https://blog.songtrust.com/whats-the-deal-with-black-box-royalties
https://www.digitalmusicnews.com/2017/08/03/music-industry-royalty-black-box/
http://blog.sonicbids.com/an-updated-look-at-neighboring-rights-what-they-are-and-why-they-matter
https://symphonicdistribution.com/neighboring-rights/
https://www.slideshare.net/Paperchainio/understanding-the-music-industrys-black-box-royalties-rightstech-presentation
http://blog.sonicbids.com/an-updated-look-at-neighboring-rights-what-they-are-and-why-they-matter

Composed by Luke Evans, Mamie Davis, Jacob Wunderlich, Rene Merideth, Jeff Cvetkovski, & Aaron Davis

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