The exposure that artists receive from having their songs playing in stores, restaurants and other businesses is dramatic. From increased Shazam numbers, to an uptick in social media chatter, to just getting consumers to hear a song, the value of in-store play is well-founded. In-store music is provided by any one of a number of providers who generally provide both playlists (either custom-curated or genre-based programs) and devices/audio equipment. These providers typically cover retailers for all the licensing needs that arise from in-store music. The licensing of music is quite complicated and is driven by what type of technology is utilized when delivering music to each store. Labels, publishers and artists are often confused and, as an important partner for the music business, we often get asked about how it works. So, we decided to publish this primer on in-store music licensing, to help clear the waters. Thanks to Gary Greenstein of Wilson Sonsini Goodrich & Rosati for some editorial suggestions.
First, just a refresher that every song consists of 2 separated copyrighted works – the master (the sound recording) and the composition (the musical work). And so in every licensing scenario, both need to be addressed.
MUSICAL WORK PERFORMANCE:
Let’s start with the universal license needed whenever a piece of music plays in a store: the public performance license for compositions. Regardless of how a piece of music arrives at a store, anytime it plays and the ears of the public can hear it, there is a performance right of the musical work copyright owner that gets implicated. Organizations like ASCAP, BMI, SESAC and GMR in the US or PRS (UK), APRA (Aus) and others collect for the public performance of the composition. Therefore, every store needs to have a license with these PROs (Performing Rights Organizations) to play music. Whenever a store hires a provider (companies like Mood Media, PlayNetwork, Custom Channels, Imagesound, Stingray, Retail Entertainment Design, etc.), the provider (at least in the US) generally pays those fees and registers the store as being covered with the appropriate PROs. The fees for this license are established by negotiation (occasionally, by litigation) between the PROs and the providers with costs being included within the fees charged to store owners. For providers, it generally amounts to either a per location fee or a % of the revenue they collect for providing the music service to the retailers. (There are certain types of business locations that are not able to secure performance rights from a provider and therefore must obtain a license directly from the PROs.)
SOUND RECORDING PERFORMANCE:
Sound recording copyright owners have no right of public performance for masters played within or to a business on a noninteractive basis. So, if a store owner cannot choose what music is being played within the store, then the copyright owner of the sound recording has no right to be paid royalties for the public performance of the sound recording. But if the music is played on an interactive basis (think of a Jukebox) then the sound recording copyright owner is entitled to be paid royalties. General overhead in-store music is typically noninteractive.
In addition to performance rights, there are also rights of reproduction that need to be considered. These are occasionally known as mechanical, dubbing or ephemeral rights, depending on whether you are referring to a musical work or a sound recording.
REPRODUCTION RIGHTS – MUSICAL WORKS / MECHANICALS:
If a song file gets copied from a server and is stored on a local device in the back of a store (which is often the case for in-store music), then a mechanical license is required. Organizations like Harry Fox Agency or Music Reports Inc., often administer those rights and in-store providers may outsource this license to them. Some in-store providers administer their own mechanical licenses which means they need individual licenses with each music publisher that owns an interest in the song. In some cases, the provider may use a song as long as they have a license with at least one publisher that owns an interest in the song (under the concept of 100% licensing) but this is not the norm for in-store music. If a song is broadcast (via the airwaves) or transmitted (via satellite or Internet stream), than there is technically no duplication (aside from the buffered/ephemeral copy), thereby no music work duplication license is required however a reproduction license may be required for the head end server copies.
REPRODUCTION RIGHTS – SOUND RECORDINGS (EPHEMERAL COPIES):
Similar to the reproduction of musical works, if an MP3 or WAV file is stored on each store device, than a reproduction license is required for the sound recording as well. In the United States, there is no central body that can collectively license these rights. Therefore, in-store music providers require direct licenses with each master holder (major labels, indie labels, independent artists, etc.) in order to use the sound recording. In some countries, these rights are collected by PROs (ala PPL in the UK.) (An aside, Shoplifter administers this license on behalf of unsigned artists and many indie labels.) The major labels generally require significant advances before they will grant this type of license while most indie labels do not. (There are, of course, exceptions to that rule.) The royalty rates is often calculated as a percentage of revenue that the provider collects from the retailers. These rates can vary widely from a high in the mid-20% range to a low of 3%. There may also be per location fees. If a provider is transmitting in-store music via a noninteractive stream to a retailer location, as opposed to having the device play the music from locally stored files, then they may license with SoundExchange for those the ephemeral copies.
So, taken as a whole, there are 4 different rights that need to be analyzed before a provider can deliver music to business establishments (i.e. in-store music.) Those rights trigger modest additional revenue streams (from PROs, mechanicals, SoundExchange and direct licenses) as well as significant promotional value. While not a guarantee, Shoplifter clients often tell us that they break even with our fees by the revenue that comes back 12-15 months down the road. We hope this intro is simple yet detailed enough to pull back the veil of this topic. Of course, this is not legal advice and is intended purely for educational purposes.