The Basics of a Music Licensing Deal
In this blog post, we’ll discuss the basics of licensing deals in the music industry.
What is A Licensing Deal?
A licensing agreement is a contract between two parties: the licensee (the person(s) receiving the license), and the licensor (the person(s) granting the license). In this type of deal, a licensor grants the licensee the authority to do something that only the licensor has the exclusive right to do. For example, this deal will grant the use of a brand name, trade mark, patented technology, or in the music industry, a song.
In music, licensing refers to the officially permitted commercial uses of a piece of music (either a recording, a composition or both). A licensing deal ensures all copyright owners are entitled to accurate and fair compensation for the use and exploitation of their music. The ‘licensor ‘in a licensing deal is the owner of a copyright, but may also refer to any party authorized by the copyright owner to act on the owner’s behalf.
Music License Permissions
Typically, music licenses grant permission for the licensee to exercise one or more of the exclusive rights reserved by the licensor. These can include permission to:
- reproduce the copyrighted work
- to create derivative works based upon the copyrighted work.
- to distribute copies of the copyrighted work for sale to the public.
- to perform the copyrighted work publicly, by means of a live performance.
- to “play” the copyrighted work publicly, by means of a digital audio transmission of the master recording.
When a music copyright owner gives permission for a third part to exploit any or all of the above rights, this creates a music license.
Does the Licence Grant Exclusive Rights?
In an exclusive licensing agreement, copyright law affords protection to the copyright owners by allowing them to exercise these rights and to exclude others from doing so. However, your licensing deal might not necessarily be exclusive. See our article on types of licenses here to learn about the differences between sole licenses, exclusive licenses and assignments.
Mutually Beneficial Licensing
When done correctly and fairly, licensing agreements can benefit both the licensee and the licensor financially and in other ways. In a successful license, a copyright owner will get their music exposed to a new demographic of fans they would have not otherwise reached, as well as receive a flat fee and/or pre-determined royalty for each use of the copyrighted material.
Of course, the licensee gains permission to exploit the copyrighted material for monetary gain as they see fit.
Types of License Compensation
There are several different way in which a licensor might be compensated for their grant of a copyright licence. These can include:
- Fixed License Fee: the licensee will pay a one-time lump sum payment to the licensor.
- Compensation based on Usage or Revenue (a “back-end” deal): the licensee will owe compensation based on how much the license is exploited.
- A mix of fixed-fee and back-end – n many cases a mixture is ideal.
A license fee will range from anywhere between 15-50%, depending on the scope of rights being granted, the type of the deal itself (i.e. master licensing agreement, a joint venture agreement, etc.), and whether the licensor is providing ancillary services.
License Limitations
Keep in mind there are certain clauses which limit the scope of the grant of licence. For example:
- Term: licenses may have a time limit, or a Agreements sometimes come with the option to extent.
- Territory: licenses will almost always have a territory or jurisdiction. I.e. a license might apply to North America, the world or even the universe (yes, the universe – and even, the Moon!)
- Exclusivity: licenses can be granted on an exclusive, or non-exclusive basis.
What Contractual Terms Should Be Included in My Licensing Deal?
All licensing deals should include the following contractual terms:
- name and address of the both the licensor and licensee
- The capacity of the licensor (i.e. what claim do they have to the copyright)
- A description of the musical composition and/or recording being licensed
- The grant of rights, and their scope
- the exclusivity of the agreement
- the term, and the territory of the agreement
- licensee fee & revenue sharing (i.e. payment schedule)
- any applicable restrictions on exploitation of the copyrights
Conclusions
Now you know what to expect when entering in a licensing agreement. Still however, it is necessary to have a knowledgeable and experienced entertainment lawyer assist you in negotiating the best possible terms, so that your music is exploited for its maximum potential, and you are compensated fairly for it.
