Week 11 - Music Licensing

11TH Class - MUSIC LICENSING

I. Music Licensing- Introduction:

To appreciate the importance of Music Licensing, let us start by considering the range of commercial uses of music currently in evidence: Internet, film, radio broadcasts, radio commercials, television commercials, video games, television shows, motion picture soundtracks, elevators, stores, novelty toys, juke boxes, records, tapes, cds, clubs, arenas, telephone answering systems, computers, software, cell phones, opera, plays, karaoke, and more! 

Music Licensing is the process by which these users of Music secure the permission from copyright owners (and their authorized representatives) to use the music in the desired manner.

More specifically, Music Licensing refers to the granting of a non-exclusive privilege to use a Sound Recording (Master) of a musical composition, or the underlying Musical Composition . Both are copyrightable under the U.S. Copyright Act and reserve to the copyright owners the exclusive rights to:

A. Make copies of the work

B. Publicly perform the work

C. Prepare Derivative or Adaptive works using the original

II. First Step: Who Owns the Copyright?

Before a Master or musical composition can be licensed, the copyright owner must be identified. If the record/composition has been registered with the U.S. Copyright office, a search of their records can confirm the current owners of record. A search of ASCAP, BMI, and SESAC can usually turn up the current owner or administrator of the copyright to the composition.

Practically all popular recordings which are licensed were originally owned by record companies. Publishing companies, large and small, typically own the copyright to the underlying musical composition. There are a number of musical rights clearance organizations who can research the current owners or administrators of a particular master or musical composition.

If you are the owner of the master recording or composition, as the Licensor, you will be expected to warrant that you have the rights necessary to grant the requested license and indemnify the party requesting the License (The “Licensee”). Where a copyright is owned and administered by more than one party, the best practice is to obtain agreements with all of them. However, there is authority in the copyright act for one owner to grant a binding, non-exclusive U.S. license as long as they account to the other co-owner for their share. If a particular musical composition has fallen into the public domain, no license is required.

Creative Commons.org has thousands of musical compositions and master recordings whose owners have pre-designated licenses which enable others to use their works as long as credit is given and the use is consistent with the license selected by the copyright owner. This makes it very easy to find interesting works that can be used legally with no paperwork to execute.

III. Common Types of Musical Licenses

In practically all instances where a recorded Master is licensed, a license from the owner of the Musical Composition embedded in the Master is also required. There are instances where a Musical Composition license is required but not a Master License for the sound recording. For Example, if you merely want to reprint sheet music in a book, only a license from the Music Publisher is required since no use of the sound recording is being made. Similarly, if a sample is re-played, and no portion of the original Master is used in the resulting recording, then no license from the owner of the sound recording is needed.

There are rare cases where a sample of a Master recording was held to be sufficient in a sample situation where no license was obtained from the owner of the musical composition. In the James Newton vs. Beastie Boys case, the court ruled that the part of the sound recording sampled by the Beastie Boys written by James Newton contained elements that were not part of the musical composition. Such circumstances are rare however, and in most cases where a Master recording is used, prudence will dictate obtaining a license from the owner of the Musical Composition as well.

A. Musical Composition Licenses

1. (a) Mechanical License

As we have mentioned above, a mechanical license authorizes the licensee to make a mechanical reproduction or recording of a musical composition in a physical form. Every record company must have such a license from the owner of the musical compositions featured in the commercial recordings (physical or digital) they manufacture and sell to the public. A of January 1, 2009, the compulsory mechanical royalty rate is 9.1¢ per composition and 1.75¢ per minute for songs over five minutes(the latter timing royalty being sometimes referred to as the "long song" rate).

(b) DPD License (Digital Phonograph License, also known as a Digital Mechanical License)

This is the term used for a license to digitally record and sell a composition. It can be thought of as a digital mechanical license. The initials DPD stand for either Digital Phonograph License or Digital Permanent Download. The license is specifically authorized under Section 115 of the Copyright Act. The rate of the license is tied to the statutory rate for the Mechanical License. There has been controversy over whether or not the compulsory license provisions under the copyright act apply to digital sales.

2. Synchronization License

A synchronization license authorizes the use of the musical composition in connection with the soundtrack of a motion picture, television program, or video, whether or not in timed synchronization to the action. The cost of such licenses varies from a few hundred dollars to thousands of dollars for a use of a particular composition over the title or ending of a major motion picture. Whether the song is used in the background or actually performed in the film is also a factor. There are no standard rates and often independent labels and unsigned artists permit the use of their sound recordings and compositions for nominal or no fees for the promotional value of having their work in a particular film.

3. Sampling License

Sampling licenses authorize the composer of another composition to use a portion of the musical composition in their work. Such licenses can be in the nature of a flat fee or a royalty based on a percentage of the income or copyright derived from the new song.

4. Print License

A Print license authorizes someone to make a re-print of all or a portion of the lyrics to a musical composition in books, magazines or advertising.

5. Software, Videogame, or Multi-Media License

A multi-media license authorizes the use of all of a portion of the musical composition in a computer software program such as a Video Game. It may contain both a mechanical license to cover the individual copies of the program to be sold, as well as a synchronization license to cover the use of the composition in connection with text or visual material. The fee can be a per unit amount which is either a flat fee or a percentage of the retail or wholesale price of the item.

6. Performance License

Publishers of recorded compositions generally authorize either ASCAP, BMI, or SESAC to license broadcasters such as radio stations, night clubs, and other places where music is publicly performed.

7. Videogram, Karaoke, and Music Device licenses

These licenses authorize the manufacturers to manufacture the above devices which in turn contain a musical composition belonging to the Licensor.

The Harry Fox Agency can be used for a fee to handle negotiation and issuance of most licenses for publishers except for synchronization licenses.

B. Sound Recording Licenses

1. Master License

A Master License authorizes the licensee to manufacture copies of a sound recording. Such licenses are used when one record company seeks to issue a compilation recording featuring another record company's master. They are also used where one record company seeks distribution in a foreign territory and licenses it's Master to the foreign company in that territory for manufacture and distribution. In both instances, the licensee has the responsibility for obtaining and paying the required mechanical license from the owner of the underlying musical composition. Rates for such licenses vary depending on the circumstances. Percentage royalty and penny rates per Master sold are both used.

2. Master Synchronization License

The Master Synchronization License is similar to the synchronization license for the underlying musical composition, except it is granted by the owner of the Master instead. Fees are equal to those paid to the owner of the musical composition.

3. Sampling Licenses for Master Use

Sampling Licenses for Master use are typically issued by record companies to other recording companies who wish to use a portion of the licensing company's master as a part of their new master recording. Such licenses are typically based on a certain number of pennies per new master sold, with an advance up front to cover the first 100,000 or more units sold.

4. Software, Videogame, or Multi-Media License

As in the case of a musical composition, a multi-media license for a Master authorizes the use of all of a portion of the master in a computer software program.

It will also grant permission to sell manufacture and sell copies of the software or video game to the public either for a flat fee or a per unit royalty

Here is an example of a license for use of music in a videogame: video game license

5. Performance License

Currently, the performance of sound recordings over the air via non-digital means does not require a license or performance royalty. The only performance right for owners of Master recordings that currently exists under the U.S. Copyright Act is for the digital transmission or performance of copyrighted Master recordings, usually over the internet. This payment, currently collected primarily by Soundexchange, is to be distinguished from a digital sale via the internet, for example, of a Master recording to the consumer in lieu of a physical copy of the record, which is not technically a performance. At times the distinction between a performance and a outright sale of a musical recording on the internet gets very blurred. Consider when you can only “lease” a digital recording for a period of time and then the license ends. Is that a sale or a performance?

IV. Negotiation of Music License Terms

A. Musical Compositions - Parties in Control

(1) Songwriter Owned Publishing Companies

The songwriter of a composition owns the copyright of original songs written by the songwriter until such time as the songwriter assigns the copyright to that work or administration rights to that work to another party. If the songwriter retains all rights to the song and forms his own publishing company, all decisions regarding licensing the song will be made by that individual.

(2) Major Publishers

Most popular music is controlled by large music publishers such as EMI, Warner Chappell, Windswept Pacific and others. They acquire either partial ownership of the copyright and administration rights or only administration rights by offering advances and royalties to the songwriters. Licensing requests are handled at such companies by experienced staff who are very familiar with the going rate for various types of licenses and terms.

(3) Compulsory Mechanical Licenses

The Copyright Act authorizes a manufacturer of a song which has been released to the public previously to record it based on a statutory license as long as strict statutory conditions are met. Very few record companies rely on compulsory licenses because the statute, among other things, requires monthly accounting, which is not typically found in negotiated mechanical licenses.

In addition, all statutory compulsory licenses have to be paid at the full minimum statutory rate. Record companies often negotiate rates of 75% of this rate when seeking a negotiated mechanical license for physical sales.

B. Sound Recordings - Parties in Control

(1) Small Record Labels

Small Labels and individual artists who finance and record their own material will own and control the licensing of their master recordings.

(2) Major Record Companies

Major companies who sign the artist or the artist's label and finance the recording expenses of the project, usually control the copyright to the recordings. Typically there is a department at the record company that handles all licensing requests for use of their catalogue. Again, such departments are well aware of the going rates and terms for each type of licensing request. Some Artist agreements may contain restrictions concerning what use can be made of their recordings. Use of Masters in political campaigns and sexually explicit films often require Artist consent.

C. General Points to Consider in Negotiating License Terms

The particular details of all the various music licenses are beyond the scope of this outline. For more specific information, other reference books such as "The Art of Music Licensing" by Al and Bob Kohn should be consulted. However, the following are general points that can be made:

(1) Importance of Access to Information Regarding Market Rates for the License being negotiated

If you are representing a copyright owner on an isolated license request, it is very difficult to know how close the compensation offered for the usage compares to the "going rate". I have seen Mechanical License rates as low as 50% of the statutory minimum accepted by attorneys without apparent challenge. For that reason, it is very wise to cultivate cordial relations with individuals at publishing and record companies who can provide examples of compensation in current transactions in order to have a basis for comparison. This is particularly true if you have no prior experience in this area.

(2) Approach to Terms

Description of Rights Granted -

Generally, in terms of rights granted, the Licensor seeks the narrowest possible language and the Licensee seeks the broadest. If the term, territory, or type of usage is narrowly construed, it is wise to add language giving the licensee the option to expand the term, territory, or type of usage upon payment of an additional, pre-determined fee to avoid the uncertainty of future negotiations over such issues.

Audit Rights -

Where per-unit royalties are negotiated, right to audit clauses can be important

Copyright Owner Credit -

Required inclusion of credit information can be an important vehicle to secure additional licenses.

A. Advantages for Artist and Labels Who Control 100% of both sound recording and musical compositions

Since most uses of recorded music require licenses from both the owner of the Sound Recording and the Musical Composition, Labels and Artists that control 100% of both rights to their catalogue have the advantage of being a “one stop shop” in terms of completing the transaction quickly and efficiently.