Music Licensing 2020 and Beyond

By Jeff Brabec and Todd Brabec

In the Music Business, rates, fees and values are determined in a number of different ways as well as in a number of different venues- these include Negotiation between individuals, entities and industry organizations, Rate Courts, Copyright Royalty Boards and Tribunals, Statutory licenses, legislation, anti-trust and civil litigation, industry practice, government intervention, mandatory arbitration, mediation, organization governing documents, payment schedules and internal policies, competition, foreign country laws and practices, among other factors and considerations. Regardless of how royalties and rates are negotiated and/or set and by whom, the end result is a royalty or fee paid to the music publisher, the songwriter, the composer, the label and the artist. The following Income Chart illustrates many of the types of income that can be generated from specific types of music uses. 

Potential Songwriter/Publisher/Recording Artist Gross Income

$ U.S. single sales (downloads)

  U.S. album sales (downloads and physical
       Interactive streaming mechanicals
       Streaming performance royalties

  U.S. radio, broadcast television and cable performances 
        Foreign single sales
        Foreign album sales
        Foreign radio, television and streaming royalties
        Sheet music, folios and print
        Commercial
        Television series all media excl. theatrical license
        Motion picture use
        Foreign theatrical film royalties for songs
        Broadway show
       Video game synch fee 
       Video game royalties plus advance
       Holograms
       Ringtones and Ringbacks
       Lyric reprint in a novel
       Toys, dolls and greeting e-cards 
       Karaoke
       Motion picture scoring fee
       Foreign theatrical score royalties
       U.S. television score royalties
       Miscellaneous

$ Total writer and publisher royalties
        
Motion picture sound recording master use
        Recording artist royalties (digital/physical sales)
        Interactive Streaming royalties
        SoundExchange artist royalties
        SoundExchange producer royalties

$         4,115,375           Total gross income

 

 Sources of Income:

As you can see from the Income Chart, there are many areas where songwriters, composers, music publishers, artists and record companies generate income. Three  of the primary ones for songwriters, composers and music publishers are Performances (ASCAP, BMI, GMR, SESAC, foreign societies/collective management organizations, direct or source licenses, etc.), Synchronization (“synch” licenses) and the various configurations of Mechanicals.

Performances:

The Performance Right is one of the most important rights of Copyright both in  the U.S. and in foreign countries and represents over 50% of U.S. publisher’s income. Songwriters, composers and music publishers join or affiliate with performing rights organizations (PROs) which in turn negotiate music licenses  with the users of music, collect the license fees and distribute them to the writers and publishers who have works performed in specific media. They also have reciprocal agreements with collective management organizations (CMOs) in foreign countries for the representation of U.S. works “overseas” as well as the representation in the U.S. of foreign writer and publisher performed repertory.

The four primary PROs in the U.S. are the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music Inc. (BMI), Global Music Rights (GMR) and SESAC. These organizations collect in the area of 3 billion dollars annually with ASCAP and BMI in the area of 1.3 billion dollars each and the remainder split between SESAC and GMR. Of the 3 billion dollars of revenue, approximately 2.2 billion dollars comes from domestic music licensing (radio, broadcast, satellite and cable television, audio and audio-visual streaming services, general licensing-concerts, bars, restaurants, colleges, etc.) with the remainder coming in from foreign countries.

License fees are arrived at through voluntary negotiations between each PRO and an individual user or an industry wide negotiating committee (e.g. the Radio Music License Committee for terrestrial radio). If an agreement cannot be reached in the case of ASCAP and BMI and any user, Federal “Rate Courts” (Southern District Federal Court in New York) pursuant to Consent Decrees with the government dating back to 1941, determine “reasonable” license fees, terms and what is actually licensable. In the case off SESAC, license fees are arrived at through voluntary negotiations but due to anti-trust settlements  with the local radio and local television industry, mandatory arbitration takes effect for those two media if voluntary negotiations fail. As to GMR, all license fee negotiations are voluntary as there is no Consent Decree, Rate Court, mandatory arbitration or other dispute resolution procedure other than copyright infringement litigation.

Synchronization Licenses

The fastest growing area of the business is synchronization. In its simplest terms, a “synch” license is a negotiated agreement between the copyright owner of a composition and an audio visual producer whereby the producer is given the right to place (“synch”) the composition into the audio-visual production.  If you’re a songwriter, writer/artist, music publisher, or record company it is essential that you know the type of email or call that you will receive from a music supervisor or licensing clearance person representing an audio visual production that is considering using your song or master. As a starting point, following are a few examples from the areas of film, television, video games and advertising commercials of what the request may contain and some of the issues involved. 

Television :

  • Identity of Production Company
  • Identity and Nature of Program (dramatic, music/dance centric, late night, morning, etc.)
  • Episode Number
  • Synopsis of Series
  • Identity of Composition
  • Scene Description
  • Use of the Composition in the scene or scenes (visual vocal, background vocal, instrumental, theme, change of lyrics, etc.)
  • Duration of the Use (30 seconds, full usage, 20 seconds plus 15 seconds in multiple uses, etc.)
  • Territory (world or universe, U.S. and Canada, Internet, additional territories to be added on an option basis, etc.)
  • Term (life of copyright, 2 years with options to extend for longer periods, etc.)
  • Media Rights Requested (worldwide all media including downloads and streaming, U.S. and Canada television with options to extend into additional media, out-of-context, etc.)
  • Fee ($500, $5,000, $12,000, $25,000, $50,000, etc.)

Motion Pictures:

  • Identity of Production Company
  • Identity of the Film
  • Synopsis of the Film
  • Identity of Composition
  • Scene Description (what is actually occurring in the scene where the song is being used)
  • Use of the Composition in the scene or scenes (visual vocal, background vocal, background instrumental, visual instrumental, theme, change of lyrics, etc.)
  • Duration of the Use (30 seconds, full usage, 20 seconds plus 15 seconds in multiple uses, etc.)
  • Territory (world or universe in most cases other than film festival or step deal licenses)
  • Term (life of copyright of the song in virtually all cases other than in film festival or step deal licenses)
  • Rights Requested (worldwide all media is the norm/sometimes known as “broad rights” which includes home and personal video, out-of-context trailers, etc.)
  • Fee ($500, $5,000, $12,000, $25,000, $75,000, $100,000, $250,000, etc. The fees depend upon bargaining power, the music budget, the importance of the song to the project, and the use, among other factors.)
  • Opening Credit Use
  • Closing Credit Use
  • Whether It is a Major Film Company, Indie Company or Documentary

Video Games:

  • Identity of production company
  • Identity of the video game
  • Synopsis of the video game
  • Identity of composition
  • Use of the composition in the scene or scenes (visual vocal, background vocal, instrumental, theme, etc.)
  • Duration of the use (up to full usage, multiple uses, etc.)
  • Territory (world or universe)
  • Term (life of copyright, 7 years, 10 years, etc.)
  • Effective date of term (many times with a tentative date)
  • Rights requested (all gaming platforms, operating systems, devices or methods of distribution with options to edit, cut, loop or otherwise excerpt portions of the composition as required for gameplay features, downloadable content (“DLC”), etc.)
  • One-time fee ($500, $5,000, $12,000, $25,000, etc.)
  • Royalty based games (music and dance centric games) 1¢, 2¢, 3¢, etc. per unit
  • Advance where applicable (on 500,000 units, 1,000,000 units, etc.)

Commercials:

  • Identity of the Advertising Agency
  • Identity of the product or service being advertised
  • Synopsis of the commercial
  • Identity of the composition
  • Commercial description
  • Storyboard of the commercial (many times the agency will request that you sign a non-      disclosure (confidentiality) agreement before the storyboard is sent)
  • Use of the composition in the commercial (visual vocal, background vocal, instrumental, etc.)
  • Duration of the use (30 seconds, 20 seconds plus 10-15 second edits, etc.)
  • Whether there will be a change of lyrics
  • Whether a pre-existing master recording (and its identity) will be used or a re-record
  • Territory of the campaign (U.S., U.S. and Canada, Internet, additional territories to be added on an option basis, world, etc.)
  • Term (1 week, 1 month, 6 months, 1 year, 1 year with options to extend for longer periods, etc.)
  • Rights Requested ( television, radio, Internet, client meeting, award shows, conferences with options to extend into additional media, etc.)
  • Fee ($500, $5,000, $25,000, $100,000, $250,000, %750,000, etc.)
     

Mechanical Licenses (2018-2022):

The owner of a musical work under the U.S. Copyright Act has the exclusive right to make and distribute phonorecords of the work (i.e. copies in which the work is embodied, such as CDs, vinyl and other physical copies, downloads, limited downloads, interactive streaming, digital files, etc.). This “mechanical ‘ right is subject to a compulsory statutory license under Section 115 of the Act.

Downloads  and Physical Recordings:  Composition statutory rates for physical recordings and downloads are 9.1 cents or 1.75 cents per minute for musical works over 5 minutes.  

Interactive Streaming:  The real area of present and future growth which is continually being shown in year end and monthly royalty income reports is the mechanical income earned from the interactive streaming services (e.g., Spotify, Apple, Amazon, Google and, to some extent, Pandora) where the listeners are allowed to select the specific track/composition that they want to hear.

Interactive mechanical streaming rates (which apply to audio only streams and not to audio visual streams)  are based on a number of factors including a percentage of the revenue of the digital music service, a percentage of the fees that the service pays to license and use the master recordings (these two prior items being the starting point of the royalty calculation), the number of subscribers if a subscriber funded service vs. an ad supported service, the type of offering and the amount of royalties that the service pays for the licensing of the performance rights. For informational purposes, the percent of service revenue rates initially established by the Copyright Royalty Board (the “CRB”)  started at 11.4% in 2018 and increased on an annual basis until it reached 15.1% in 2022.  The percent of service total content costs started at 22.0% in 2018 and increased on an annual basis until it reached 26.2% in 2022.

The 2018 CRB decision on interactive streaming rates was appealed by Spotify, Pandora, Amazon and Google (Apple did not appeal) to the U.S. Court of Appeals for the District of Columbia which remanded the case back to the CRB on August 7, 2020 for further proceedings and determinations.

The Mechanical Licensing Collective And Interactive Streaming Royalties:   Pursuant to the Music Modernization Act (the “MMA”), a new not-for-profit organization was established to issue blanket licenses to the digital music services for this interactive mechanical streaming right.  This organization which is called “The MLC” has the responsibility of issuing such licenses, creating a publicly accessible data base of composition information so that royalties will be paid to the correct copyright holders/representatives, collecting the statutory royalties from the services and paying out the royalties on a monthly basis.   Another very important aspect of its mandate is to build a portal so that composition information can be viewed and corrected in the event of errors which will assist in the matching of unmatched works to the correct royalty recipients. The digital music services are funding The MLC so that no fees will be deducted from the royalties that are paid to the copyright owners/representatives.  The operational date for The MLC to begin operations is January 1, 2021.  Substantive information on its role, registration procedures and operation can be found on its website themlc.com.

Conclusion

Though performances, “synch” and mechanicals are primary sources of songwriter, composer and music publisher income, it is essential one continues to be aware of the many other avenues of possible revenue as in today’s world, you need multiple sources to not only “stay in the game”, but be successful.

 

©  2020, Jeff Brabec, Todd Brabec

Additional information on all areas set forth in this article can be found in “Music, Money and Success: the Insider’s Guide to Making Money in the Music Business” (Jeff and Todd Brabec/ 8th edition/ Schirmer Books/ Music Sales/ Wise Music).