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Sound Advice

Neighbouring Rights Royalties: Canadian Studios’ Secret Weapon for Attracting American Artists

Matt WhibleyBy Matt Whibley

The following article is not meant to substitute for legal advice.
For legal advice, seek the advice of a lawyer directly.

As the music industry continues to search for new revenue streams, one major source of income often goes unexploited – particularly by American recording artists and record labels. They’re called “neighbouring royalties.” Interestingly, American recording artists, Canadian record labels, and Canadian recording studios could all benefit if they produce recordings falling within the qualifying parameters of neighbouring royalty rules.

Neighbouring Royalties

When a song is played on terrestrial radio in Canada, four parties are paid: the songwriter, music publisher, recording artist, and record label.

The royalties paid to the recording artist and record label, also known as “neighbouring royalties” or “equitable remuneration,” are administered by the copyright collective organization Re:Sound. Almost all of the major music markets around the globe, such as Germany, the U.K., France, Holland, Italy, Spain, Brazil, and Japan, pay these neighbouring royalties through their own performance organizations.

The American Rule

The U.S. is on a short list of countries that do not pay neighbouring rights royalties for terrestrial radio spins. U.S. copyright law dictates that U.S. terrestrial radio stations are only required to compensate the songwriter and publisher. U.S. radio stations purchase blanket licenses from the country’s three performing rights societies – ASCAP, BMI, and SESAC – which in turn pay songwriters and publishers.

Interestingly, this rule negatively impacts American labels’ and artists’ ability to collect neighbouring royalties from other countries. Most of the countries that do pay neighbouring royalties refuse to pay American artists and labels for spins in their countries. This is because national copyright laws work primarily on a quid-pro-quo basis, meaning that because U.S. terrestrial radio does not pay neighbouring royalties, Canadian and foreign performance organizations refuse to pay neighbouring royalties to U.S. artists and labels for airplay in Canada.

Put another way, the U.K. copyright act essentially says, because American radio stations do not pay neighbouring royalties to The Rolling Stones, U.K. radio stations will not pay neighbouring royalties to Aerosmith. This sentiment is repeated by almost all of the neighbouring rights organizations around the world.

The Canadian Work-Around

Notably, thanks to a complex system of international copyright treaties, there are workarounds for American artists that may qualify them for neighbouring royalties from most of the performance societies around the world. Two of these workarounds are particularly important for Canadian record labels and recording studios.

First, if an American artist records in Canada,  then the artist and label are eligible to receive neighbouring royalties in many, if not most, neighbouring royalty countries around the world – including Canada. Second, if the entity that paid for the sound recording (i.e. the record label) is headquartered in Canada, then the artist is again eligible to receive neighbouring royalties in most neighbouring royalty countries around the world.

So, to reiterate:

Example 1: An American artist signed to an American record label records an album in a Toronto studio. The artist and record label are entitled to neighbouring royalties on that album in several countries around the world, including Canada and most major music markets.

Example 2: An American artist signed to a Canadian record label records in either the U.S. or Canada. The artist and record label are entitled to neighbouring royalties in several countries around the world, including Canada and most major music markets.

Example 3: An American artist signs to an  American record label and records an album in New York. The artist and record label are not entitled to neighbouring royalties.

Bottom Line

Many American artists and record labels are unaware that they are eligible for neighbouring royalties if they fall within the guidelines set out above. These royalties can generate hundreds, thousands, and even millions of dollars for successful recordings. American artists and record labels would be wise to consider recording in Canada or signing to a Canadian record label to access these royalties in most major music markets. As such, Canadian studios and record labels can consider this a valuable tool in attracting business from south of the border.

Matt Whibley, Southwestern Law School 2014, Summa Cum Laude.

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