Music Licensing Income:
What Every Composer Should Know
Anyone who has had their music used in television or motion pictures or has had a hit record that received substantial airplay is well aware of the income that is generated through ASCAP, BMI and SESAC for public performances. But whether the music you write is (a) a "work-for-hire" and owned by the production company, (b) controlled by a publishing company under a songwriter contract, or (c) self-published where you own the copyright, there are other uses of this music that are capable of earning substantial amounts of income for the composer.
The ability to license music for use by third parties is one of the exclusive rights given to copyright owners under the Copyright Act of 1976. If you own the publishing to your music, this gives you full control over the use of it and the fees charged for its use. If the music is owned by a publishing company or the publishing affiliate of a production company, they have the right to license this music to others under any terms negotiated and agreed upon by both parties. This right is subject, however, to an obligation to share the revenue earned by these licenses with the composer, who usually receives 50% of the net income.
It is important to remember that what is being discussed here is the licensing of music to third parties. Under most production company composer agreements, the production company has the right to include the music created not only in the production covered by the agreement, but in any other film or television program produced by that company without any further compensation to the composer. In addition, the music may be used in all types of promotion for the production, including other uses such as games, toys, etc. without additional compensation.
An example of third party licensing would be where an independent party wishes to use this music (either the underlying composition only or the actual soundtrack) in another context. This other context may be a phonograph record, television program, motion picture or other visual media or to print sheet music (as that term is broadly defined below). This would include the licensing of a film clip containing your music from the production into a program produced by this third party.
Unless self-published or negotiated as part of the production or publishing contract, the composer has no voice in how or under what terms this music may be licensed. Composers should, however, try to be aware of the uses of their music in order to determine whether they are receiving their share of royalties. For example, if your composer statement from your performing rights society lists the use of music in a motion picture or television program that would require a synchronization license (to be discussed in next month’s column), your royalty statement from the publisher should have a corresponding entry.
The language relating to composer royalties are usually buried somewhere in the middle of a 10 to 25 page contract. As such, many composers are not fully aware of the types of uses and division of income that these agreements cover. In this month’s and next month’s columns, an attempt will be made to explain the various types of licensing and some of the key terms of potential agreements for the use of this music.
Mechanical Licenses
A mechanical license is the type of license used in order to manufacture and distribute audio-only product, such as compact discs and audio cassettes. Of the types of licenses discussed in this article, the mechanical license is the only one where the Copyright Act specifically sets out a method whereby a party may obtain a valid license without the consent of the copyright owner. This is subject to certain procedures being followed, and a statutory rate of payment. As with all other types of licensing, however, it is possible to negotiate the terms of a mechanical license on a basis more favorable to the publisher or the record company.
Section 115 of the Copyright Act provides for a compulsory license to make and distribute phonorecords (audio-only devices, such as vinyl records, audio tapes and compact discs), when:
- Recordings of the music have previously been sold to the public in the United States under a valid license from the copyright owner;
- The party wishing to license the music notifies the copyright owner;
- The statutory royalty is be paid for each copy manufactured and distributed, with royalties paid monthly.
As of January 1, 2006, the statutory rate for mechanical royalties increased to 9.10 cents for a recording up to 5 minutes in length. For recordings over 5 minutes in length, the rate increased to 1.75 cents per minute, or portion thereof.
Not all uses are licensed at the statutory rate, however. The term "controlled composition" refers to any composition written, published or owned by a recording artist. For instrumental tracks on soundtrack albums, the composer is usually the artist. A controlled composition is generally paid only 75% of the statutory rate. However, the royalty paid may be even less if the total royalties on a soundtrack album are higher than what the record company releasing it wants to pay. The record companies have placed a ceiling on the amount of the mechanical royalties they will pay on an album to 10 times 75% of the statutory rate. If some non-controlled compositions are included on a soundtrack album and paid the full rate, the difference will be deducted from the controlled compositions.
Of course, when not dealing with a controlled composition situation, the publisher is free to negotiate any terms it can agree upon with the record company. This may involve a reduced royalty, but it would based upon the mutual agreement of the parties, not an arbitrary decision by the record company. Negotiated royalties are usually paid quarterly, not monthly, and paid on units sold and not returned instead of manufactured and distributed.
Other negotiable terms include the amount of money held back as a reserve by the record company, reduced royalties on record club sales, "free goods" or promotional copies and limitations on the license to the recording actually licensed, not some other recording or compilation.
Print License
The licensing of printed copies of music is the derivation of the term "music publishing". Until the early 1900's, this was the only method by which music could be reproduced and distributed to the public.
A print license allows for the reproduction of printed copies of music such as sheet music, folios, concert arrangements and the printing of lyrics in magazines, advertising and books.
Although not the income producer it once was, print licenses, especially for well known songs or well known songwriters, can still generate substantial income. The print music publishers have become very creative in marketing their material, such as a folio containing all the songs from a hit movie or album, or notation on guitar solos from heavy metal songs.
There is still a large market in instructional music books for people taking music lessons and for educational uses, such as choral, marching band or orchestral scores. For educational uses, it is not uncommon to grant a royalty-free mechanical license for recordings of the arrangement to be made as a promotional tool by the print publisher.
Royalties have become fairly standardized and are usually granted on a Most Favored Nations basis, which means that all parties are paid at the same rate.
A music publisher entering into a print licensing agreement should make sure that the agreement states that the copyright in any new arrangement is owned by the music publisher and that it should be considered a work-for-hire, with the music publisher considered the author of the copyright.
Summary
As noted above, music created for one particular use can be licensed for many other uses, all of which may earn royalties for years to come. Whether composers publish their own music or have their music controlled by other parties, the opportunities for licensing this music to third parties are unlimited. A party who actively seeks out these opportunities can generate a substantial income for both publisher and composer with minimum of effort once the use is secured.