Better Know Your Neighboring Rights — A Simple Guide to a Confusing Income Stream (Guest Column)

Most songwriters understand the importance of affiliating with a performing rights organization (PRO), like ASCAP, BMI, GMR or SESAC in the United States — a critical step in making sure they can collect the royalties from public performances of songs they’ve written or cowritten. Even when signed to a publishing deal in which the publisher collects most revenue generated by songwriting, songwriters can still rely on collecting the writer’s share of public performance income from their PRO directly.

Is there an equivalent for artists who are signed to record labels? Enter neighboring rights!

“Neighboring rights” is simply the term used to refer to the public performance rights associated with a sound recording, which generates public performance royalties for artists and the sound recording copyright owner(s). The term comes from the concept that these rights are related to, or “neighbor,” the performance rights of songwriters. If you have performed on a sound recording (or are the owner or licensee of sound recording copyrights), you are likely eligible to receive “neighboring rights” royalties from the performance/broadcast of your recording around the world. This is where SoundExchange enters the conversation, but more on that below.

Here, we will detail what neighboring rights are and how artists can maximize their royalties collections both domestically and abroad to make sure they aren’t missing any money they are owed.

Music Copyright Primer

A short primer on music copyrights may be helpful before we dive into neighboring rights. Remember that any given musical work is comprised of two separate but equal components (each part receiving its own copyright): (i) the musical composition (i.e., the music and lyrics) and (ii) the sound recording of a musical composition. With neighboring rights, we are only looking at the recordings — more specifically, the contributions of the artists who performed, as well as the owners of the recordings.

Once a sound recording is created, the featured performers and the owner (or eventual licensee) of that sound recording are entitled, by laws in various countries around the world, to receive public performance royalties when the recording is publicly performed or broadcast. These are neighboring rights royalties.

While the U.S. does not recognize the full suite of neighboring rights in other countries (more on that below), there is a limited performance right in sound recordings that was established in the U.S. by the 1998 Digital Millennium Copyright Act. That limited neighboring right entitles performers and sound recording owners/licensors to neighboring rights royalties when their sound recordings are publicly performed via “noninteractive digital streams” (e.g., Pandora, SiriusXM and others where the listener doesn’t choose the order of recordings played).

What Are Neighboring Rights?

The term “neighboring rights” is one that confuses musicians and their representatives alike, but as stated above, it simply refers to the public performance rights that accompany a copyright for a sound recording. For the beneficiaries of neighboring rights (artists who perform on sound recordings and the owners of the sound recording copyrights), royalties are generated when a sound recording is publicly performed or broadcast (i.e., not sold) via terrestrial radio (e.g., an FM station), web radio (e.g., SiriusXM), television, digital streaming platforms, and public venues like restaurants and clubs.

Neighboring rights are derived from the 1961 Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations, where various countries negotiated how to compensate performers for exploitation of their sound recordings that they did not directly agree to. The Rome Convention provided that signatory countries (excluding the U.S., which is not a party to the Rome Convention) must establish their own rules and regulations governing the performance of sound recordings, including royalty rates, the types of uses that qualify and the transferability of performance rights. As a result, the rules and regulations surrounding neighboring rights vary from country to country because they are determined by local statutes.

However, most countries that recognize neighboring rights (if not all of them) require a royalty to be paid to both the featured performer and the owner of the copyright each time that sound recording is publicly performed or broadcast. Similar to how public performance royalties for musical compositions are split into the separate “writer’s share” and “publisher’s share,” in practice, the total pot of neighboring royalties is split 50-50 between the featured performer (and the non-featured performers), on one hand, and the rightsholder, on the other hand, with these halves being the so-called “featured performer’s share” and “label’s share” of neighboring rights royalties. In this way, neighboring rights complement the performance right for songwriters.

Under U.S. law, only certain performances of a sound recording via what are called “non-interactive digital streaming services” generate these neighboring rights royalties. In other words, the performance of a sound recording in a bar or restaurant in the U.S. does not generate the same royalties that a performance of that sound recording in certain foreign countries would, but, featured performers on sound recordings or a sound recording rightsholders in the U.S. may still be entitled to collect neighboring rights royalties from performances abroad.

What About SoundExchange?

As mentioned above, the U.S. only provides an exclusive right to publicly perform sound recordings via noninteractive digital streams, meaning that not all digital streams are equal. The key difference is whether a stream is interactive or noninteractive. For example, a stream of a sound recording on a platform like Pandora is noninteractive because the user does not get to choose much beyond the radio station that they listen to. However, streaming a sound recording on a platform like Apple Music is interactive because the user can choose how, when and how long to listen to that given sound recording. Therefore, a sound recording streamed on Pandora can earn digital performance royalties in the U.S., whereas a sound recording streamed on Spotify cannot. (Note: Spotify pays all rightsholders a license fee. It just isn’t obligated to also obtain a digital performance license from SoundExchange.)

SoundExchange is the only entity authorized by U.S. Law to administer, collect and distribute sound recording performance royalties. This means that if a platform like Pandora wants to obtain the rights to digitally stream sound recordings in the states, which would require the payment by Pandora of neighboring rights royalties to the applicable artists and sound recording owners, it has to go to SoundExchange for a license. Those license fees will make up the neighboring rights royalties generated in the U.S. and are payable by SoundExchange to the featured (and non-featured) artists and sound recording owners.

How Do I Collect Neighboring Rights Royalties?

Now that you know what they are, how do you actually collect these monies?

There are a few ways that featured performers and/or rightsholder in the United States can collect neighboring rights royalties abroad.

SoundExchange International Mandate. SoundExchange has collection agreements with its counterpart organizations abroad that allow it to collect neighboring rights royalties outside of the U.S. All the artist or rightsholder needs to do is register as a member and opt into the international mandate. This is the easiest and quickest option, and an added benefit is that SoundExchange pays out monthly.

Neighboring Rights Administration Agreements. There are several companies that specialize in neighboring rights administration and collection (e.g., Premier, Downtown) with which an artist or rightsholder can enter into a neighboring rights administration agreement. The artist or rightsholder authorizes the administrator to collect royalties on their behalf, and then it affiliates the artist or rightsholder with each society worldwide and collects neighboring rights royalties directly from all societies in exchange for an administration fee that gets deducted before the administrator pays out. Typically, neighboring rights administrators account quarterly or semiannually.

Affiliating Directly Abroad. Another option is for the artist or rightsholder to affiliate directly with the various neighboring rights societies in each territory abroad and authorize those societies to collect on their behalf in the applicable territory. Alternatively, in a manner akin to the SoundExchange international mandate, an artist or rightsholder could affiliate with one society in one territory and have that society collect worldwide. With either of these options, there would be no (or a small) administration fee, but the process for the former option entails a lot of work.

W. Joseph Anderson is a partner and Suna Izgi and Alex Spring are associates in Manatt, Phelps & Phillips, LLP’s Los Angeles office. Manatt is a multidisciplinary, integrated national professional services firm with more than 60 years of experience in the entertainment industry, representing a broad spectrum of creators and companies across music, film and TV, games, sports, and more.