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VOLUME 6 | NUMBER 1 | SPRING 2019

The Systematization Of Podcast Law: Bringing Structure Into Chaos

Jonathan Larr


Jonathan-Larr-photo
Jonathan Larr is a music attorney at Icarus Law, a full service Entertainment law firm. Jonathan received his law degree from the University of San Diego and his undergraduate degree from Tufts University. He is a recovering artist manager and has over a decade of experience in the music industry. The photo to the left might look familiar because he is also the editor of this Journal. You can reach him (me) at JonathanLarr@icaruslaw.com.





In 2018, approximately 73 million people were monthly podcast listeners. This was an increase by 1.8 million from the previous year. 1 Podcast advertising revenue in the United States rose 87% to $314 million from 2016 to 2017. In spite of this immense popularity, podcast related law is still in its infancy. There are no universal set of legal customs or practices surrounding podcasts. This article pulls together pieces from my practical experience in film, TV, music, and podcast law in order to begin forming a coherent body of regulations.

The first step towards bringing together the disparate pieces of podcast law is understanding the basic structure of the podcast business. Creating a podcast requires nothing more than a microphone and an idea. Once the podcast is recorded there are three major types of podcasting companies you need to be familiar with: hosting companies, advertising companies, and podcasting networks. After a podcast is recorded it needs to be uploaded, or hosted, somewhere. One of the largest companies that exists solely to host podcasts is called LibSyn; their podcasts had 4.6 billion downloads in 2016. A hosting company should be a neutral place that offers varying levels of service and costs based on storage requirements, features, and available data. Hosting companies do not distribute podcasts. If a podcaster wants to put their podcast on Spotify, they need to upload it to a hosting service and then submit the podcast URL thereby distributing it themselves. Some hosting companies require the use of their in house advertising services while others give you a choice between their services and the use of third parties.4, 5  If they do not offer advertising, there are companies like Midroll that solely exist to place advertising in podcasts.6   If the podcaster does not want to deal with handling their own distribution and advertising they can sign a deal with a podcast network, like Earwolf, that offers hosting, advertising, and distribution.7 These three types of companies have similar contractual issues but the rights that are appropriate to grant each company depends on the services being offered. Before examining the specific contractual provisions, however, a more general contractual issue needs to be considered.

The most basic problem in any contract is negotiating power. Hosting companies do not generally allow for negotiation because they have a standard list of terms and conditions that must be agreed to. This gives them all the power. While it is not realistic for a hosting company to negotiate with everyone who uses their service, it is also not fair for all podcasters to be forced to have the same hosting deal.

A practical solution would be to allow for renegotiation of the terms of the contract once a podcast reaches a certain level of success. This could be measured by ad revenue or number of downloads or another metric that the parties agree to. The ability to renegotiate would give podcasters a better deal. It would also benefit the hosting company as it would prevent successful podcasts from leaving for other companies that offer more services.

In practice, a hosting companies’ terms and conditions are often ignored or selectively enforced. This means that a podcaster does not know if these regulations will be applied to them. Some hosting companies’ terms and conditions state that they do not allow third party advertising. In spite of this, often podcasts that they host do use such advertising. Allowing renegotiation would resolve this selective enforcement because the parties can negotiate the applicable provisions and decide if they should be left in the contract. Advertising companies and podcast networks are better about allowing room for negotiation, especially regarding licensing of intellectual property. The first specific provisions that we will examine concern a podcast’s intellectual property.

A podcasting company should never permanently own any piece of a podcast’s intellectual property. Intellectual property is a broad term that, “refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce.”8 There are several aspects of intellectual property that are important to a podcaster. The first is the right of publicity. This is the ability to, “prevent the unauthorized commercial use of an individual's name, likeness, or other recognizable aspects of one's persona,”and it is protected in California.10 This means that a company cannot use someone’s name or image to endorse its products without their permission.11

The second important aspect in need of protection is trademarks. A trademark is, “a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of others.”12 Among other uses, trademarks protect the name and logo of the podcast. It isn’t necessary to register a trademark to be protected but if it is registered then the owner will have additional legal rights.13

Copyright is the final important piece of intellectual property. This protects the actual sound recording as well as any other art that has been, “fixed in any tangible medium of expression.”14 This phrase means that the idea has been permanently recorded or drawn or written down. One can also register a copyright for additional protections.15 If a podcaster understands what rights a company is asking for and what is being offered in return, they can figure out if what the companies want is appropriate.

Companies often need to use intellectual property for various reasons but it is vital to make sure they are using it appropriately. Licensing should be on a non-exclusive, royalty-free worldwide basis and should stay in place for a limited period of time. The type of licenses and the rights allowed depends on the services that the company is offering. A company which is distributing content should have a license to do so. A hosting company should not require any of these rights unless they are also offering additional services. If they are not providing anything beyond hosting then they have no legitimate reason to license your intellectual property. An advertising company should be given the non-exclusive right to use the podcast’s name, voice, likeness and trademark because they need them to promote the podcast.

While there are numerous potential podcast revenue streams, such as premium subscriptions and live events, advertising will likely be the primary source of income. Podcast advertising consists of a specified number of ads of a certain length which are inserted at agreed upon points in the podcast.16These terms are pretty standard throughout the industry: pre-roll ads are placed before the podcast, mid-roll ads occur during it and post-roll ads are afterwards. Often the pre-rolls are 20 seconds, the mid-rolls are 60 and the post-rolls are 30. Sometimes the host will do a live read of the advertising content but other podcasts insert ads that the host read ahead of time. All ads must meet certain elements required by the advertiser. These include calls to action, specific offers, and using legally mandated language, especially in regards to medications or herbal supplements. One particularly important type of advertising is cross-platform promotion.17 This is one of the biggest advantages to working with a podcast network and an important contractual issue. If a smaller podcast can reach a larger audience by advertising on a more popular podcast it can significantly boost its popularity. Cross platform promotion should not be mandatory but is often useful.

Companies that offer advertising will bring a list of potential advertisers to the podcaster. Advertisers are found through demographic research18 and companies have sales teams in place to locate sponsors.19 Some companies use an advertising management system (“AMS”) to match podcasts with advertisers. If a company is using an AMS, its usage and the podcaster’s associated responsibilities need to be specified in the contract. These requirements should consist of uploading the spots within a day of recording and responding to any requests from the system or the company in a timely matter. There should also be a morality clause that allows the podcaster to reject any ads if they have a reasonable moral objection.

Additionally, while ads are typically baked into podcasts and unchangeable, there are companies that go back and insert new ads into previously recorded podcasts after a certain period of time. NPR has been doing this for years20 and this raises further contractual issues. A contract with a company that inserts new ads needs to specify how long a certain ad will remain in that episode. This is usually based on a specified length of time or a total number of downloads.21, 22

Each podcasting company apportions advertising and other revenue differently but a revenue share is the most typical. Similar to licensing, the share a company takes and what gets removed from the net revenue before the split depends on the services the company is offering. Since most of these splits involve a percentage of net revenue, the definition of net is crucial and needs to be defined in the contract. Net costs are the gross, or total, revenue the product brings in minus specified costs. The contract needs to lay out exactly what gets taken out before the split. It is common for a company offering advertising to take out costs for marketing and promotion. However, unique to podcasts, advertising commissions and hosting costs are also usually taken out and should be capped at 5%. It is vital to make sure this clause is in your contracts. It is a giant red flag if they are not. If there are premium subscriptions, the split and what gets taken out from this should be similar to the advertising revenue split. If a company pays for distribution and bandwidth this can be taken out as well because they are spending this money up front.

The podcasting industry has yet to settle on exactly what percentages of revenue they should take. Libsyn takes 50% of the net revenue the podcast generates.23 In the contracts I’ve seen, podcast advertising companies, like Midroll, take a percentage of revenue from net advertising receipts received after applicable sales commissions and fees are removed. Podcasting networks, like Earwolf, typically take no more than 50% of net revenue. There is often a minimum guarantee which will be taken out of this revenue as well. The revenue share percentage for advertising companies and podcast networks is wildly variable and therefore highly negotiable. There is no typical range for these percentages like there are for royalties in a record contract. As the industry matures one will likely emerge but figuring it out now would clear up a lot of confusion as to what are fair percentages.

Once a podcast is successful, additional revenue streams will become available, such as from performing live podcasts. Live podcast contracts I have seen are a mixture of regular podcast contracts and live music touring deals. These podcasts have their own compensation structures and ways of handling ads. Like regular, pre-recorded episodes, these podcasts will have commercials inserted into them that are read by the hosts. However, while a podcast usually has multiple advertisers, live podcasts are often sponsored by one company. The number of pre-roll and mid-roll ad reads for these companies must be specified as well.

The grant of rights for live podcast contracts are unique because the podcast is often filmed, which means there are video and audio licenses. The purpose of these recordings is two-fold. First, they allow people to watch the live podcast. Second, they can be used for advertising purposes by both the organization putting on the event and the sponsor. However, it is crucial to limit how much of the video can be used for promotion. 10% strikes a good balance between the needs of the promoter and the sponsor for advertising while still allowing the podcaster control over their intellectual property.

Compensation for these events often consists of a revenue share or a pay per view (“PPV”) structure. The PPV structure has several elements. First, the podcaster generally gets a percentage of the sales or a dollar amount for each purchaser of the broadcast. Second, the podcaster should get a minimum guarantee which is taken out of this amount. This guarantee means that the podcaster will make some money regardless of the success of the broadcast and lessens the damage that may result from any potential abuse in the calculation of net profits. In regards to the actual broadcast, there are the live video and audio only streams of the show, then there is a window of premium availability after the event. Under PPV, the podcast will only be available for a fee during both of these periods. The premium period is usually a month. After that the rights to the video should revert the podcaster. Again, no company should have an exclusive, perpetual license for any of this material.

Similar to a music touring contract, there is often a blackout period where the talent cannot perform within a certain radius of the venue within a specified time period of the event. Since podcasters are often also comedians or do other live performances, the contract needs to specify that they are allowed to perform in this capacity during the blackout period. Two weeks is the most common period I have seen in music touring contracts and that amount of time makes sense here as well. The podcaster must also agree not to upload their own recording of the podcast during this period. Other than the blackout period limitation, the podcaster needs to have the sole rights to the audio version of the podcast. Live event rights as well as everything I have mentioned up to this point has been outlined in contracts that I have dealt with. However, there are numerous issues that I’ve never seen addressed that need to be considered in order for the podcast industry to keep developing.

The first issue that I have never seen concerns performance royalties. When music is played in a public space, like a coffee shop or a bar, that venue pays a blanket licensing fee for the rights to use that music. These are known as performance royalties.  Non-interactive streaming services like Pandora also pay performance royalties.24 Podcasts could soon become popular enough that they are played over the sound system in businesses and they are currently available on Pandora.25 Consequently, a framework for performance royalties for podcasts needs to be put in place. The easiest way to handle this would be for podcasters to sign up with performance rights organizations (“PROs”) like ASCAP or BMI. These companies could track how often and where these podcasts are being played and then pay out royalties based on this data like they do with music. The performance royalty rates would need to be negotiated and should be set on a federal level just like in the music industry.26 The easiest solution would be to make the rates the same as the royalty rates that are used for music since recorded music is the most analogues to a podcast.

In order for performance royalties to be paid, PROs need to know who owns what part of a recording. The music industry handles this with a split sheet. This is a document that lays out who contributed what to a particular song. These contributions are broken down into percentages. An even split between the band members is common but it can be more complicated if one member writes all the lyrics and others handle the music. If a structure is put in place to pay performance royalties to podcasters, as it should be, there needs to be a way to know who contributed what to each podcast recording. This gets more complicated as podcasts often have on air talent as well as producers and editors. It would make sense to give the producer half and the talent half. The talent could split their half evenly or decide on another breakdown that works for them. Often podcasts have guests and they would need to figure out what piece they would get. This is all complicated but important to decipher.

Another revenue stream for podcasters that hasn’t been addressed is mechanical royalties. A mechanical royalty is a fee that a company pays to use a recording copyright.27 It is easiest to explain this using the physical distribution of CDs. Record labels have to pay a federally mandated amount per song to manufacture and distribute physical media. They are required to pay this because they are using someone else’s intellectual property. This concept has carried over to digital downloads and streaming. Mechanical royalty rates for permanent downloads are the same as the rate for physical distribution.28 Royalty rates for interactive streaming are different and more complicated. Mechanical royalties are convoluted and a full explanation is beyond the scope of this article.29 However, the relevant part is that this is an additional revenue stream for podcasters that has not been sorted out. Any podcast contract that involves distribution needs to contain a section regarding mechanical royalties and how they are to be handled. In some ways, like performance royalty rates, it might be easiest to carry over the same mechanical royalty structure from music contracts. On the other hand, that structure is a mess and starting over from the ground up might be better long term.

Another legal issue that has not been addressed is the use of copyrighted music in podcasts. The legalities of using someone else’s music in a podcast are the same as a musician wanting to do so on a recording. When a song is recorded, there are two copyrights. The first copyright covers the lyrics and the music and the second covers the recording itself. Technically speaking, any artist can re-record any song they like and release it through a compulsory license which is a legal structure that ensures the proper copyright holders are paid.30 In practice, it is always better to obtain permission before recording someone else’s music. If a podcast wanted to record their own version of a popular song then legally it would be considered the same as a musician doing so as long as they obtained the appropriate licenses. However, if a podcast wanted to play someone else’s recording of a song they need to obtain permission from the copyright holder. Regardless of whether they use all of a song or just a small part, the podcaster has no right to use that particular copyright without a license.

Another area of legal uncertainty is podcast advertising. There are no regulations specifying what guidelines apply to podcasts. Federal regulations relating to advertising of wine, liquor, and malt spirits do not mention podcasts or anything similar. 27 CFR §5.61 states that unless the applicable regulations are followed, no one can “publish or disseminate or cause to be published or disseminated by radio or television broadcast, or in any newspaper, periodical, or any publication, by any sign or outdoor advertisement, or any other printed or graphic matter, any advertisement of distilled spirits, if such advertising is in, or is calculated to induce sales in, interstate or foreign commerce, or is disseminated by mail, unless such advertisement is in conformity with §§ 5.61 through 5.66 of this part."31 Sections §5.61 through §5.66 deal with various advertising regulations and specifications. It is unsettled whether this applies to alcohol advertising in podcasts. If it does, then podcasters need to be aware of how to comply with these regulations.

Similarly, while radio does not allow marijuana advertisements, several podcasts have marijuana sponsors.32 In California, the Business and Professional Code states: “[a]ny [marijuana] advertising or marketing placed in broadcast, cable, radio, print, and digital communications shall only be displayed where at least 71.6 percent of the audience is reasonably expected to be 21 years of age or older, as determined by reliable, up-to-date audience composition data.”33Assuming that podcasts fall under digital communications, there are a number of issues that need to be sorted out. The first issue is deciding who is responsible for providing this data and, second, what state or country’s laws should be followed. Litigation will likely be required to decide if these laws apply to podcasting. Until then, the smartest move for a podcast advertiser would be to adhere to these regulations as closely as possible. The podcast industry should lay out its own set of advertising regulations before a judge or legislator does so.

The numerous issues discussed here demonstrate how difficult it is to neatly build a new area of law. The law is always years behind technology and the rules and regulations that emerge surrounding something new are a hodgepodge of customs, pieces from related areas of law, and the results from litigation. These customs are also often obfuscated. This article hopes to be the start to a better approach. Ideally, this article will allow every party to a podcast contract negotiation to be on a level playing field. Further, lawsuits and legislation can take years to resolve and are prohibitively expensive. Self-regulation will allow for a more coherent, streamlined set of procedures that will keep the industry growing exponentially.



[1] George P. Slefo, Spotify and Pandora Duke It Out For Podcasting Prominence, AdAge, (Jan. 23, 2019), https://adage.com/article/tech/spotify-pandora-duke-podcasting-dominance/316311/.

[2] U.S. Podcast Ad Revenues Reached Landmark $314 Million in 2017, Marking 86% Growth Year-Over-Year, According to IAB and PWC Research, Interactive Advertising Bureau, (June 11, 2017), https://www.iab.com/news/us-podcast-ad-revenues-2017/.

[3] Libsyn, https://www.libsyn.com/about/ (last visited April 11, 2019).

[4] Libsyn, https://www.libsyn.com/terms-of-service-website/ (last visited April 11, 2019) (does not allow third party advertising).

[5] Blubrry, https://create.blubrry.com/resources/about-blubrry/terms-of-service/ (last visited April 11, 2019) (allows third party advertising).

[6] Midroll, http://www.midroll.com/advertisers/ (last visited April 11, 2019).

[7] Earwolf, https://www.earwolf.com/about/ (last visited April 11, 2019).

[8] What is Intellectual Property?, World Intellectual Property Organization,  https://www.wipo.int/about-ip/en/.

[9] Publicity, Legal Information Institute, https://www.law.cornell.edu/wex/publicity (last visited April 11, 2019).

[10] Cal. Civ. Code § 3344.1 (2018).

[11] Id.

[12] Trademark, Patent, or Copyright?, United States Patent and Trademark Office, https://www.uspto.gov/trademarks-getting-started/trademark-basics/trademark-patent-or-copyright, (last visited April 11, 2019).

[13] 15 U.S.C. §§ 1051

[14] Copyright: In General, Legal Information Institute, https://www.law.cornell.edu/uscode/text/17/102 (last visited April 11, 2019).

[15] Copyright Basics, United States Copyright Office, https://www.copyright.gov/circs/circ01.pdf (last visited May 27th, 2019).

[16] Definitive Guide to Podcast Advertising, Midroll, http://www.midroll.com/midrolls-definitive-guide-to-podcast-advertising/section04/ (last visited April 11, 2019).

[17] Cross-platform promotion consists of one podcast advertising other podcasts that the listener might be interested in, usually on the same distribution network.

[18] Midroll Insights, Midroll, http://www.midroll.com/midroll-insights/ (last visited April 11, 2019).

[19] Midroll, http://www.midroll.com/about/ (last visited April 11, 2019).

[20] When Will Dynamic Ad Insertion Take Over Podcasting?, Backyard Media, (Jan. 24, 2018),  https://backyardmedia.us/blog/2018/1/24/when-will-dynamic-ad-insertion-take-over-podcasting.

[21] Dynamic Podcast Ad Insertion, Podbean, https://sponsorship.podbean.com/dynamic-podcast-ad-insertion

[22] Supra, note 18.

[23] Terms of Service, Libsyn, https://www.libsyn.com/terms-of-service-website/ (last visited April 11, 2019).

[24] Ken Consor, The 2 Types of Digital Music Streams & How You Can Collect Royalties From Both, Songtrust, (Aug. 4, 2014), https://blog.songtrust.com/publishing-tips-2/the-2-types-of-digital-music-streams-how-you-can-collect-royalties-from-both.

[25] Introducing Podcasts on Pandora, Pandora, http://blog.pandora.com/us/introducing-podcasts-on-pandora/ (last visited May 27, 2019).

[26] Determination of Royalty Rates and Terms for Making and Distributing Phonorecords (Phonorecords III), Copyright Royalty Board, https://www.federalregister.gov/documents/2019/02/05/2019-00249/determination-of-royalty-rates-and-terms-for-making-and-distributing-phonorecords-phonorecords-iii (last visited May 27, 2019)

[27] Understanding Mechanical Royalties, BMI, https://www.bmi.com/news/entry/Understanding_Mechanical_Royalties ((last visited May 27, 2019)

[28] Royalty Rate Calculator, Harry Fox Agency, https://secure.harryfox.com/public/RoyaltyRateCalculator.jsp (last visited April 11, 2019).

[29] However, a more detailed explanation for mechanical royalties can be found in Don Passman’s book All You Need to Know About The Music Business. See, Donald Passman, All You Need To Know About The Music Business Ninth Edition (2015).

[30] This is an oversimplification as there are additional regulations and issues but a complete explanation can again be found in Don Passman’s book. Supra note 5.

[31] 27 CFR §5.61.

[32] E.J. Schultz, Cannabis is Thriving But Brands Like Medmen Still Find Ad Buy A Slow Burn, Adage, (April 3, 2018), https://adage.com/article/cmo-strategy/cannabis-thriving-big-media-outlets-say-no-medmen/312965/.

[33] Cal. Bus & Prof. Code §26150(b).

 


 


             
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