In the seventh edition of the book Music, Money and Success, published in 2011, Jeffrey Brabec and Todd Brabec wrote, “In recent years, the greatest area of income growth for both ASCAP and BMI has been the royalties received from foreign performing rights organizations.” They also noted that “In 2009, ASCAP received approximately $302 million from foreign societies for the foreign performance of its writers’ and publishers’ works” whereas it only had collected $50 million in 1987 (ch. 10). In fact, even in the 1980s, royalties from foreign countries accounted for a significant part of the publishers’ income. A 1984 Billboard article about sub-publishing noted, “Handled wisely, sub-publishing can bring in 20–40% of an American publisher’s income” (Morris 64).
Given that royalties from foreign countries have been an important part of American publishers’ income and are getting more important, the role of sub-publishers — foreign representatives of domestic publishers — can’t be neglected in the music business.
According to the book mentioned above, the role of sub-publishers can be divided into two elements, namely administration, and promotion. More specifically, sub-publishers’ responsibilities include “registering songs with the local mechanical and performance collection societies”, “collecting royalties”, and “auditing royalty statements from record companies”, which fall into the category of administration, as well as “promoting new use,” such as getting the songs recorded by local recording artists. When choosing a sub-publisher, publishers should consider that some sub-publishers are better at administrative tasks and others at promotion (ch. 14).
As Helen Gammons pointed out in her book The Art of Music Publishing: An Entrepreneurial Guide to Music Publishing and Copyright for the Media, Film and Music Industries, “The world of music publishing is structured with an interwoven network of collection societies” (34). Each territory has different collection societies that collect royalties according to local laws, and are connected to each other via international treaties. Therefore, U.S. publishers can receive performance royalties and mechanical royalties through the reciprocal network of collecting societies even if they don’t have their own foreign representatives.
For example, if the U.S. publisher is a member of The Harry Fox Agency (HFA) and filed a Notification of Foreign Activity form, HFA will receive mechanical royalties from foreign collection societies on behalf of the publisher. However, Steve Winogradsky wrote in his book Music Publishing: The Complete Guide, that “HFA does not undertake royalty examination in foreign territories, so the U.S. publishers must rely on the information and payments made to HFA by the foreign society without the ability to audit their books and records.”
In the presence of a sub-publisher, mechanical royalties collected by foreign collection societies will be collected by the sub-publisher. The sub-publisher will then “deduct its share of the mechanicals for a particular song ‘off the top’” (182). According to J. Brabec and T. Brabec, “The standard fees fall within the 10% to 25% range” but it “may be as low as 5%” depending upon the guaranteed income from the songs and how much promotion is needed.
Similarly, performance royalties collected by foreign collection societies can be paid to the publishers and songwriters through ASCAP, BMI, or SESAC. In fact, according to J. Brabec and T. Brabec, regardless of the presence of a sub-publisher, the writer’s share “is remitted by each local society directly to ASCAP, BMI, or SESAC and is not paid to the foreign sub-publisher.” The publisher’s share can be either collected by the sub-publishers or forwarded to ASCAP, BMI, or SESAC.
In their book, J. Brabec and T. Brabec pointed out that “A U.S. publisher that does not have a foreign representative … takes an unwise risk that all monies earned in a foreign country will not be remitted to the U.S.” (ch. 14). Sub-publishers have the right to monitor and audit the foreign collection societies. That is to say, as Winogradsky wrote in his book, “having local representation acting on behalf on the publisher can make a big difference in the timeliness and amount of royalties collected” (178).
Regarding timeliness, “Royalties will normally be accounted for twice a year, with semiannual payments and statements sent to the U.S. music publisher between 45 and 90 days after December 31 and June 30 of each year” (J. Brabec and T. Brabec, ch. 14).
Randall Wixen wrote in his book Plain and Simple Guide to Music Publishing, that “Music publishing, as a field, is filled with intricacies and complications” (116). Understanding sub-publishing can be filled with more intricacies and complication, since “each foreign country has its own rules and its own distinct way of licensing music, collecting royalties, and protecting copyrights,” according to J. Brabec and T. Brabec (ch.14).
For example, as Winogradsky pointed out, some of the major territories have “the concept of a ‘broadcast mechanical,’ which does not exist in the U.S.” (184). Another example is that in the United States, sound recordings don’t generate performance royalties except from non-interactive digital streaming, but in many other countries, sound recordings are subject to performance royalties as performers’ rights are internationally protected by the Rome Convention of 1961.
In addition, the rules regarding royalty collection are also constantly changing in each country. Especially, in the Asian market, there have been a lot of changes in the past few decades. In fact, it has not been long since collection societies in some Asian countries started to collect mechanical royalties according to a statutory rate. In those countries, mechanical royalties started being collected based on the Memorandum of Understanding (MoU). According to a 1996 Billboard article, “Implemented in 1994, the MoU was designed to tackle the fact that the concept of mechanicals was unrecognized in a number of the region’s music market and that there were few national collection agencies to handle the task” (Burpee 3). According to another Billboard article written in 1999, “The 1994 MoU established the principle of mechanical royalty payment in markets such as Taiwan, the Philippines, Indonesia, Thailand, and South Korea, in addition to enforcing existing accords in Hong Kong, Singapore, and Malaysia.” The article analyzed “multinational label and publishing executives contend that more than $50 million has been collected in mechanical royalties in Asia since the original MoU was introduced.” The MoU is said to have “greatly assisted the growth of music publishing business” in Asia (Billboard Staff 97).
It is notable that the statutory rate is “based on a percentage rather than set dollar rates for download and record sales” as J. Brabec and T. Brabec pointed out (ch. 14).
In South Korea, “a formal framework for collecting mechanical royalties” was made for the first time in 2000, when Korea Music Copyright Assn. (KOMCA) and Korea Entertainment Producers Assn. reached the agreement that the local record labels would pay just over 9% of PPD as mechanical royalties (McClure 67).
Royalties coming from digital sales have also been subjected to change in South Korea. On June 20, 2018, the South Korean Ministry of Culture, Sports and Tourism (MCST) decided to raise the music creators’ share of the streaming service revenue. Before this announcement, the collection societies were receiving 60% of the revenue, but starting from January 1, 2019, this will be increased to 65%. This share includes the money that goes to songwriters, performers, and record labels. However, in this case, KOMCA, which collects the money for songwriters, will only receive 10.5%, whereas RIAK collects 48.25 % of the total revenue for record labels. FKMP, which collects money for performers will receive only 6.25% of the total revenue (Hwang).
Regarding online downloads, 70% of the revenue is collected by the collection societies to be distributed to songwriters, performers, and record labels. In South Korea, digital service providers (DSPs) have provided a huge discount for consumers who buy dozens of mp3 files in a month. For example, if a customer downloads 150 mp3 files in a month and signs up for automatic renewal, the price per track gets as low as 187 KRW, which is equivalent to approximately 0.16 USD. For this calculation, it was used the yearly average exchange rate of 2017 provided by the IRS, which is 1178.585 KRW per 1 USD. However, on June 20, 2018, MCST also decided that the DSPs should abolish the bundle pricing until 2021, and DSPs will sell each mp3 file at a price of 490 KRW, which is equivalent to approximately 0.42 USD (Lee Y).
Furthermore, the legal basis to collect performance royalties for the music played in coffee shops, pubs, and gyms was only established in 2017. The South Korean copyright law basically allows non-commercial public performance, with some exceptions. Paragraph 2 of Article 29 of the Copyright Act states the following:
It shall be permissible to play and perform publicly any commercial phonograms or cinematographic works made public for commercial purposes for the general public if no benefit in return for the relevant public performance is received from audience or spectators. Provided that the same shall not apply to the cases as prescribed by Presidential Decree (Jeojakgwonbeop).
Before the amendment in 2017, the exceptions provided in Article 11 of the Enforcement Decree of the Copyright Act only included businesses such as karaoke, horse racing venues, and hotels. The amendment included coffee shops, pubs, gyms, and large retail stores in the exceptions and it took effect on August 23, 2018
The performance royalties are collected by KOMCA and distributed to the songwriters, and the amount is decided by the nature of the business and the footprint of the store. For example, in the case of coffee shops, the minimum amount of performance royalty is 2,000 KRW, which is applied to stores with a surface of 50 square meters or more but not exceeding 100 square meters. 2,000 KRW can be approximately translated into 1.7 USD. For the coffee shops that are bigger than 1,000 square meters, the monthly royalty is 10,000 KRW, which is equivalent to 8.5 USD, approximately.
Other collection societies, namely the Federation of Korean Music Performers (FKMP) and the Recording Industry Association of Korea (RIAK) collect the identical amount of money in total and distribute it to the performers and the record labels (Chu).
Those changes — the gradual increase of the mechanical royalty rate, the increased streaming royalty rate, the abolishment of the bundle pricing, and the extended application of public performance royalty — are all made in line with the efforts to meet the international standards. They all affect the amount of money collected through sub-publishers from the South Korean market. Still, there is room for further growth. For example, according to the interview of Hong Jinyoung, the current chairman of KOMCA, the biggest television networks are only paying 0.65% of their gross revenue to the collection societies for their music usage. He pointed out that the number is significantly lower compared to other countries and said that KOMCA’s goal is to increase it in order to meet the global average. If the number increases by 1%, the royalties collected by the Korean collection societies from the three biggest television network will increase by more than 25 million USD since the total annual revenue generated by the networks is over 3 trillion KRW, which is equivalent to more than 2.5 billion USD (Lee E).
In addition to these recent developments, one noticeable feature of the current South Korean market is represented by the strong sales of physical albums. According to the Gaon Chart provided by Korea Music Content Association, in the first half of 2018, the biggest-selling physical album was BTS’s Love Yourself: Tear with more than million copies sold. The sum of the sales of the top 5 biggest-selling physical albums was more than 3.91 million copies in total. According to Nielsen’s US Music Mid-Year Report 2018, the biggest-selling physical album in the U.S was The Greatest Showman: Original Motion Picture Soundtrack and approximately 0.39 million copies of it were sold during the first half of 2018. The sum of the sales of the top 5 biggest-selling physical albums was more than 1.35 million copies in the United States (25). Considering the size of other sectors in the two countries, the sales of physical albums in South Korea is remarkable. Furthermore, it suggests that there are potential mechanical royalties to be collected if sub-publishers work to get songs recorded by popular local artists.
As discussed above, the royalty collection system of South Korea works somewhat differently from the way it does in the United States. However, it is noticeable that the South Korean system has been moving towards meeting international standards and the amount of money collected is also expanding. Still, there are many sub-categories of royalties that are under constant negotiation, so it seems that royalties collected from South Korea will keep expanding for a while. Therefore, the roles of sub-publishers are anticipated to gain more importance, in both administration and promotion sides.
Works cited
Billboard Staff. “Asian Mechanical Royalty Memorandum of Understanding Signed.” Billboard, 26 June 1999, books.google.com/books?id=CQ0EAAAAMBAJ&pg=RA1-PA92.
Brabec, Jeffrey and Todd Brabec. Music, Money, and Success: The Insider’s Guide to Making Money in the Music Business. Kindle ed., 2011.
Burpee, Geoff. “Pioneering Pact Paying Off for Publishers in Asia.” Billboard, 7 Dec. 1996, books.google.com/books?id=uAkEAAAAMBAJ&pg=PA97.
Chu, Inyoung. “Keopisyop·hopeujip·helseujang deungdo eumak sayongryo naenda…choeso wol icheon won” 커피숍·호프집·헬스장 등도 음악 사용료 낸다…최소 월 2000원 [Coffee Shops, Pubs, Gyms, and Etc. Will Pay for Music Use — 2,000 KRW Minimum Monthly]. JoongAng Ilbo. 26 Mar. 2018, news.joins.com/article/22476456.
Gammons, Helen. The Art of Music Publishing: An Entrepreneurial Guide to Music Publishing and Copyright for the Media, Film and Music Industries. 2011.
Gaon Chart. Korea Music Content Association, 2018, www.gaonchart.co.kr/main/section/chart/album.gaon?nationGbn=T&serviceGbn=&termGbn=year&hitYear=2018&year_time=1.
Hwang, Jiyoung. “Melloni ulsang?…changjakjadeul, yuksibo peosenteu eumwon jingsugyujeong hyetaek mu” “멜론이 울상?”…창작자들, 65% 음원 징수규정 혜택無 [‘Is Melon Crying? ’… Creators Don’t Benefit from the New Royalty Collection Rules], JTBC News, 22 June 2018, news.jtbc.joins.com/article/article.aspx?news_id=NB11654008.
Jeojakgwonbeop [Copyright Act], Art. 29 (R.O. Korea), elaw.klri.re.kr/kor_service/lawView.do?hseq=42726&lang=ENG.
Jeojakgwonbeop Sihaengbeopryong [Enforcement Degree of the Copyright Act], Art. 11 (R.O. Korea), elaw.klri.re.kr/kor_service/lawView.do?hseq=43052&lang=ENG.
Lee, Eunjeong. “Eumakjeojakgwonhyeophoe hongjinyeong sinimhoejang ‘jeojakgwonryo ocheoneogwon sijang mokpyo’” 음악저작권협회 홍진영 신임회장 ‘저작권료 5천억원 시장 목표 [New Chairman of KOMCA ‘100 Billion KRW Royalty Market is Our Goal’]. Yonhap News, 28 Mar. 2018, www.yna.co.kr/view/AKR20180119074900005.
Lee, Youngmin. “Eumwon jeonsongsayongryo jingsugyujeong gaejeong seungin” 음원 전송사용료 징수규정 개정 승인 [Approval of Amendment to Music Transmission Royalty Collection Rule]. 20 June 2018, www.mcst.go.kr/web/s_notice/press/pressView.jsp?pSeq=16742.
McClure, Steve. “First-Ever Mechanical Deal Struck in Korea.” Billboard, 22 Jan. 2000, books.google.com/books?id=sA0EAAAAMBAJ&lpg=PP1&pg=PA67.
Morris, Edward. “Subpublishing Pointers Offered.” Billboard, 6 Oct. 1984, books.google.com/books?id=MyQEAAAAMBAJ&pg=PT81.
Nielsen Music Mid-Year Report U.S. 2018, 6 July 2018, www.nielsen.com/content/dam/corporate/us/en/reports-downloads/2018-reports/us-midyear-music-report-2018.pdf.
Winogradsky, Steve. Music Publishing: The Complete Guide. 2014.
Wixen, Randall D. The Plain and Simple Guide to Music Publishing. 2005.
