Copyrights give authors exclusive ownership interests in their creative works. Put simply, U.S. copyright laws convert creative works into business assets that artists can exploit economically through sale, license (e.g. for use in a TV commercial), or even as collateral for a loan. The right to create, and get paid for copyrights comes directly from the United States Constitution, the most powerful document in our culture. In this post, we will describe specifically how music copyrights are different from the rest, and how they work.
First, why does the U.S. Copyright Office grant two distinct copyrights for the song playing on your iPod, radio, or computer, instead of the single copyright granted for other creative works? Well, the copyright office recognizes that within one sound recording are multiple works of artistic expression worthy of a copyright.
Think about the creative expressions that go into the song playing on your iPod. First, there is the underlying song, the musical work. Let’s say the song playing on your iPod is “All Along the Watchtower”, written by Bob Dylan. As the songwriter, Bob Dylan has a copyright in the musical work. Every time “All Along the Watchtower” is broadcasted on the radio or internet, performed publicly, recorded by others and reproduced into consumer copies, Dwarf Music, Bob Dylan’s publishing company, is paid. In this context, it makes no difference which version of the song is being disseminated. Whether it’s the original version from the John Wesley Harding album or a cover version by another artist – Bob Dylan is paid as the songwriter.
Let’s say the version of “All Along the Watchtower” you’re listening to is not performed by Bob Dylan. Rather, it’s the arguably more famous version of the song performed by Jimi Hendrix on Electric Ladyland. We give Hendrix his own copyright, distinct from Dylan’s, in the sound recording of “All Along the Watchtower” because his performance of Dylan’s song, in and of itself, is artistic expression worthy of reward, and protection. The mere fact that Dylan’s live performances of his own song were influenced by Hendrix’s version after hearing it, illustrates why such performances are copyrightable. Thus, there are two copyrights in one sound recording.
It is in this latter copyright, sound recordings, that record labels predominantly invest. Pursuant to traditional recording agreements with artists, the record labels own the physical recordings (i.e. the original recording you can physically hold in your hand) as well as the sound recording copyright. So, effectively, artists sell their sound recording copyrights in exchange for the financing of recordings and compensation in the form of advances (money paid up front) and royalties (profits derived from the label’s exploitation of the copyright). In return, the record label now has the exclusive right to reproduce, distribute, and license the sound recording. Thus, owning the sound recording copyright and exploiting these rights by making consumer copies (e.g. CDs, mp3s, etc.) and distributing to the masses is traditionally how record labels make their money. However, since the record label does not own the musical work, it must pay Dylan for every consumer copy of Hendrix’s “All Along the Watchtower” it makes.
What’s more, the producer of Hendrix’s “All Along the Watchtower” may share in their sound recording copyright because the producer too delivered a work of expression worthy of an interest in the sound recording copyright. In the present case, Jimi Hendrix produced the recording himself. Generally, the producer’s role varies considerably from one recording to another but in many cases, a producer may provide significant creative input, particularly with regard to how the recording sounds. That’s when producers get “points,” or a percentage interest in the sound recording they helped make.
Since a producer may be a co-owner of the sound recording copyright, records labels contract with producers to either buy them out (work-for-hire fees) or compensate them in the same way they compensate artists in recording agreements. Although a producer often makes less on a particular sound recording than the artist, they are neither obligated to tour or promote the finished product nor bound by exclusivity agreements. Thus, producers can work with multiple artists and produce multiple albums, something most artists could never do; as a result, successful producers often make more money and stay in the music business longer than most artists.
So, there are three categorical ways in which a person can contribute creatively to a sound recording in order to get ownership in a copyright asset, first by writing the song, second by performing the song on a recording, and third, by producing the song. These various ways of getting ownership in a copyrighted work developed in order to create monetary incentives to generate great works of art. Without effective ways to exploit copyright ownership, many artists, whether they are musicians, producers or songwriters, have limited means to generate income for their works. This is one of the most important problems our society faces today.
 See “Bowie Bonds” (http://en.wikipedia.org/wiki/Bowie_Bonds) as an interesting and unique exploitation of a copyright.
 In order for the U.S. Copyright Office to grant a copyright, the work must be (1) original and (2) fixed in a tangible medium of expression (e.g. sound recording, sheet music, etc.). Registering a work with the U.S. Copyright Office is not a guarantee that that work will be protected by U.S. copyright laws. See www.copyright.gov/ for more details.
In the U.S., songwriters must decide whether to self-publish their works, sign with a publishing company, or employ a publishing company to administer collections on their behalf. Music publishers are effectively collections agencies that collect earnings on behalf of songwriters in exchange for a share of profits. Copyrights provide a bundle of exclusive rights and as a result generate multiple revenue streams, making collections a full-time job for popular songwriters. If one is considering self-publishing, it is worthy to note that international publishing royalties may only be collected by publishers. Thus, at the very least, a self-publisher must employ a publisher to administer their international royalties in exchange for a administration fee (usually between 5% and 15%).
 Dylan has described his reaction to hearing Hendrix’s version: “It overwhelmed me, really. He had such talent, he could find things inside a song and vigorously develop them. He found things that other people wouldn’t think of finding in there. He probably improved upon it by the spaces he was using. I took license with the song from his version, actually, and continue to do it to this day.” In the booklet accompanying his Biograph album, Dylan said: “I liked Jimi Hendrix’s record of this and ever since he died I’ve been doing it that way… Strange how when I sing it, I always feel it’s a tribute to him in some kind of way.” See http://en.wikipedia.org/wiki/All_Along_the_Watchtower
 Most of the “major” record labels also own publishing companies. For example, Warner Music Group owns not only a variety of record labels, like Atlantic or Elektra for instance, but also Warner Chappell, one of the largest music publishers in the world.
 In recent times, record labels have explored other types of agreements with artists including, joint venture deals, licensing agreements, and “360 deals” which add revenue streams such as merchandising and touring that were not traditionally incorporated into recording agreements. Generally, the more popular the artist, the greater leverage he may have in determining what kind of agreement a record label is willing to make. For instance, the Ray Charles biopic Ray documents nicely one of the first examples of an artist with enough leverage that his recording agreement provided that ownership of his recording would revert back from the record label to him after a term of years.
 These payment obligations are called “mechanicals.” The term refers to the mechanical manufacture of each new copy of the sound recording.
 Traditionally, producer royalties come out (or are deducted) of the artist’s rate. Thus, artists who produce their own recordings usually pay themselves a fee for their producer role or waive it altogether (producer fees function as an advance in these cases and must be recouped before royalties are paid) rather than grant themselves a producer royalty. However, producers may recoup costs quicker than artists because they are usually need only recoup recording costs, whereas artists need to stand behind additional costs such as marketing, promotion, and publicity.
Nowadays, renowned producers often demand a percentage of copyright in the musical work as well as the sound recording. Further, it is worthy to note that traditionally, producers royalty is deducted from the artist’s royalty rate. Thus, the greater the producer rate is the smaller the artist rate becomes.
 With the exception of artist agreements in the jazz genre, nearly all recording agreements prevent artists from recording for other record labels or even performing on the recordings of others.