Digital Jukebox Licensing 101

This is the first in a series of posts that will attempt to remove some of the mystery around licensing music for digital jukeboxes.

By Bob Cooney – Senior VP of NSM Music Inc.

The most frequent and complex dialogue I have with people about NSM’s business, and the digital jukebox business in general, is around licensing.  Most casual observers of the industry cannot possibly comprehend the complexity of music licensing.  It’s not their fault either; it’s perhaps the most complex set of business arrangements I’ve ever been involved in.

I’ve personally overseen the licensing efforts of NSM Music in the U.S. for the last two years.  Before that I was peripherally involved with Ecast for 7 years.  All-in -all I’ve conducted content licensing for 20-years now.  I have licensed intellectual property for various amusement and entertainment uses, ranging from major motion pictures to patents, such as:

• Stargate from Le Studio Canal+ and X-Men from Marvel Comics, for Laser Tag Arenas
• Tiger Woods PGA Tour Golf and numerous other video games for arcade versions from EA, Activision and others
• The Patent that covers Roland’s D-Beam Infra-Red Motion Sound FX Controller built into almost every Roland Keyboard and Drum Set

But none of these deals was anywhere near as complex as the music licensing efforts for NSM’s digital jukeboxes.

Music licensing for digital jukeboxes is like a chair.  You need all four legs, or your chair wobbles or falls over.  The first leg of the chair is masters use Licensing, which is done through the record labels.  The other three legs (public performance, mechanical and sync) fall under the Publishing category, but they require distinctly separate efforts.

Master Use Licenses –Digital jukeboxes require a master use license giving permission to use a fixed recording of the track, which is typically owned by the record label. This is the actual performance of the song (not to be confused with a songs “public performance” rights, as explained below). This is different than the mechanical rights, which covers the reproduction and distribution of the music composition and lyrics of the song and is typically owned by the composer and their music publisher.  Master use licensing is the one most people think of when they consider the licensing of music for digital jukeboxes. And while it’s critical and expensive, in reality it’s much simpler than publishing.

Public Performance Licenses – The copyright owner of a song has the exclusive right to perform his or her song in public. Therefore, no one can play a song in public (such as in clubs, at live concerts, on the radio, on television, for background music in retail establishments, or on a digital jukebox) unless they receive permission to do so from the copyright owners, who delegate this right to Performing Rights Organizations (PRO’s) such as ASCAP, BMI and SESAC, who are in turn responsible for issuing licenses to and collecting money from entities who want to play music in public spaces. These organizations are involved only in the public performance aspect of the publishing industry and are not traditional music publishers.  Think of them as collection agencies for songwriters. The PRO’s have fairly standardized deals for digital jukeboxes so these licenses tend to be straightforward.

So far, it’s pretty straightforward.  Here’s where it gets interesting…

Mechanical Licenses – To use a copyrighted work on a digital jukebox, one must usually obtain a license that is negotiated with the copyright owner. These rights go back to the days of sheet music and player piano rolls.  In the early days before recorded music, artists monetized their works by selling sheet music. Then with the advent of the player piano, music was encoded onto rolls of paper that would be fed through piano.  That’s actually where the term music publishing came from. When recorded music was moved to records and then CD’s, a physical copy of the recording was made and sold, and the mechanical copyright translated to record sales as well.  In the digital jukebox realm, it has been legislated that mechanical copyrights apply to even digital copies of songs.

And to further complicate things, publishing rights change hands all the time.  One of the most famous transactions was when Michael Jackson purchased The Beatles catalog in 1985.  That story was on the front page on the newspapers.  But those types of deals happen on a smaller basis almost daily. and there is no central repository for that information.  Luckily, there are some companies that do a good job of attempting to track publishing rights data, like the Harry Fox Agency (HFA), which is why HFA was one of the first companies NSM signed a deal with for its US digital jukebox business.

On top of the complexity in tracking mechanical publishing ownership data, there are oftentimes many different songwriters attributed to a single track.  Consider a popular hip-hop track that might sample one or two other songs.  Each of those sampled songs could have multiple credited writers.  So the new song could have 10 or more writers, and each of those could be with a different publishing company.  Now apply that to 10-tracks on an album.  And times tens of thousands of albums on a digital jukebox.   And those rights are literally changing hands every day.  Despite the fact that nobody really keeps track of it all, you still have to report usage and pay the right people.

Hopefully this makes sense, and removes some of the mystery around music licensing for digital jukeboxes. In the next post, I will delve into Sync Licensing, MFN’s and the JLO, and then try to explain why your favorite artist might not be available on your favorite digital jukebox. Read the second post in the series now…