Music Licensing Fundamentals - Chapter 6 of The Future of the Music Business

Chapter 6:  Music Licensing Fundamentals

This chapter is designed to provide an overview of music licensing. Songwriters, composers, labels, and artists can make significant income from licensing music for audio compilations, television, motion pictures, and other media. We will outline the fundamentals of music licensing for:
• Audio compilations

• Home Video including Documentaries, Concerts, Old TV Series and Wedding Videos

• Television

• Motion pictures

• Advertising

• Musical Theatre


AUDIO COMPILATIONS

Compilation albums usually contain songs that have been previously released such as “Best Of” collections (i.e. The Very Best of Elvis Presley). Other compilations can be genre based and can be a lucrative way of selling old music in new packages. Time-Life, for instance, sells hundreds of different compilations with themes designed to attract baby boomers and their parents such as Legends, The Ultimate Rock Collection or The Ultimate Love Songs Collection. Other compilations are collections of songs that were used in a movie or TV show. Recently, for instance, I licensed a dozen songs for a CD compilation; each song had originally been included in a documentary called Airplay that focused on the history of American DJs. The licensing of compilations is fairly straightforward.

Songs: If a compilation consists of songs that have previously been released, they are subject to the compulsory mechanical license. As we discussed in Chapter 1, the Harry Fox Agency (“HFA”) is set up to issue mechanical licenses that incorporate the statutory mechanical rate of 9.1 cents for songs five minutes or less or 1.75 cents per minute or fraction thereof over five minutes. All you need to do is fill out forms provided by Fox, which are now available online, indicating the names of the songs, the writers, and the publishers. Here are the requirements:
• Song title

• Songwriter’s name(s)

• Publisher name

• Playing time for each selection (especially if the song is over five minutes in length)

• Release date

• Artist name

• Title of album

The form can be filled out and sent to HFA online. They will generate a contract that can be signed electronically. You never even have to print out the licenses. HFA, as we pointed out in the first chapter, also has a database, www.songfile.com, that you can use to find the writers and publishers, as well as ASCAP, BMI, and SESAC for their respective songs. Upon securing a license, the distributor can pay after the record is released. In the rare occasion that HFA does not represent a song, you will have to go to the publisher. If the publisher does not respond you can acquire a mechanical license through the Copyright Office. However, the procedures required under the compulsory license provisions in the Copyright Act are burdensome such as the requirement of monthly, rather than quarterly accounting and notice conforming to strict regulation. Of course, if the song is in the public domain, as most of the classical repertoire is, you will not need permission. However, new arrangements of PD songs may be protected by copyright, and in that case you will need a license. Check for an arrangement credit on the packaging of CD, cassette, or vinyl record from which you derived the music.

Masters: You must negotiate with the owners of the masters for compilations. There is no “compulsory” rate. The standard rate is 10 to 12 cents per track. The labels may request a percentage of the retail price of the compilation such as 10 percent plus a floor of 10 cents or more. In addition, they will seek advances. For instance, an advance of 10,000 units is commonly required. Sometimes a more difficult problem than establishing a fair rate is getting a license at all. Record companies are extremely reluctant to license tracks that are still selling well. They fear the compilation may compete with their own albums or “best of” records. Since there is no compulsory license for use of masters, they can just deny permission, and frequently do. Finally, each record company will usually ask for Most Favored Nations protection. As we discuss in more detail below, this means that if label X insists on more money than label Y agreed to accept, and label Y conditioned its consent on MFN treatment, you would have to pay Y the additional amount.


HOME VIDEO

I am often called upon to clear the following types of audiovisual programs for home video:

- Music based documentaries

- Audiovisual recordings of music concerts

- Old TV shows (such as old episodes of music based shows such as Soul Train, or episodic comedies such as “Marcus Welby, M.D. which used excerpts of music in some episodes)

- Instructional videos (for instance a DVD on how to play guitar)

- Wedding videos (use of music in DVDs of weddings or other special events)

As we shall discuss later in this chapter, when music is cleared for a motion feature, usually the licenses are for “broad rights,” that is, all media including home video as well as theatrical release and all forms of TV.

The words “home video” generally refers to DVD’s although downloading is now generally perceived as another form of “home video” and most copyright owners will include downloading as another form of home video distribution. They will not charge additional fees, although a few music publishers still try to extract an additional payment for downloading. On-demand streaming is not considered to be a form of home video and a separate fee must be negotiated.

Generally the music publishers, who administer the licensing of home video rights on behalf of their writers, will require a “penny rate” for each song in a program. That rate is generally 10-12 cents. Sometimes a publisher will accept a lower penny rate if, as in the case of a music documentary, only a brief excerpt of a song is used. Music publishers will also usually require an advance based on units, generally 2500 to 10,000. So for example, if there are 12 songs in a music concert program and each is licensed for 10 cents with an advance of 5000 units, the amount to be paid for each sold will be $1.20. However, the advance of $500 for each song means that that no royalty will be paid on the first 5,000 units.

Generally the producer of the program will be responsible for the initial advance and they will negotiate with the distributor that the distributor shall pay for any units over that. However, who pays for the music will be subject to negotiation in each case between the producer and the distributor and occasionally the distributor will agree to pay the advances as well as the royalty payable if sales exceed the advance.

Some music publishers will insist on a “roll-over” payment if the number of units sold exceed the advance. For example if the royalty is 10 cents and the advance is $1,000 for the first 10,000 units, if 1 unit in addition to the 10,000 is sold, another $1000 shall be become due. Other publishers will allow for periodic accounting so that royalties will be payable for the exact number of units sold.

The duration of most penny rate home video license is usually 7 years. The territory is generally U.S. and Canada. In other territories usually there is an industry wide agreement in place between music publishers and distributors. For instance in England the rate is 6.25% of PPD (publisher’s price to dealers, i.e., the wholesale price) and in Japan the rate is 5% wholesale. These payments are usually made to collection societies who turn around and pay the music publishers. For instance in England the fee is payable to MCPS and in Japan to JASRAC. So if a video is sold in England for 4 pounds sterling, the distributor will have to pay 6.25% of 5 pounds for all the music in the program. With programs with a great deal of music such as music based documentary or concert, this system is much more favorable than a penny rate. For instance if a concert video has 15 songs and each one costs 10 cents for a total of $1,.50 per unit, then the royalty due will be $1.50 per unit. If the wholesale price for that program is 10 dollars, 6.25% would be 62.5 cents , but American publishers generally refuse to accept this kind of formula.

Occasionally a producer will try to secure a “buy out” instead of a royalty. A buy-out means that no royalty will be payable after the buyout fee is paid. Most publishers will insist that the buyout fee is greater than the normal advance as quid pro quo for waiving a royalty. Therefore, a producer who wants to pay a buyout fee is making a “bet” that sales will justify a greater upfront payment. Suppose for instance a publisher will accept a $1500 for home video buy out. If the same publisher would have accepted a 10 cent penny rate, then the producer will come out ahead if he sells more than 15000 units. The following chart demonstrates this point.

Penny rate at 10 cents

7,500 units $750
15,000 units $1500
30,000 units $3000

Buy out for $1500

7,500 units $1500
15,000 units $1500
30,000 units $1500

The duration of a buyout license will usually be 5 to 10 years. After that if the distributor wants to sell units, he must go back and negotiate new licenses.

Most Favored Nations: One of the most important concepts in clearing home video rights is “Most Favored Nations” or “MFN”. In international trade, MFN means that the country which is the recipient of this treatment must receive equal trade advantages as the "most favored nation" by the country granting such treatment. In regards to music clearances, MFN refers to the clause in most publishers’ contract which states that if any other publisher is treated more favorably, then that publisher will be treated equally as well notwithstanding the terms in the agreement. For instance if there are 10 different publishers who control songs in a program, and 9 agree to 10 cents, but one insists on 12 cents, then the MFN rate is 12 cents. The following is a typical MFN clause:

It is hereby agreed and understood that if Licensee shall pay to any third party a greater royalty and/or advance payment than those paid to Licensor hereunder with respect to any musical composition performed in the Product, Licensee shall pay to Licensor such greater royalty and/or advance payment, retroactive to the date of the agreement.

MFN can produce harsh results. Some music documentaries can include dozens of small excerpts of music and if one publisher insists on a higher rate, the impact on clearance costs could be catastrophic. For instance, if a doc includes brief excerpts of 50 songs and the publishers all agree to accept 6 cents for each excerpt then the per unit fee will be $3. But if one publisher wants 12 cents then the per unit fee will be $6 and this may make it impossible for a distributor to make profit since they also have to pay for manufacturing, packaging and shipping. There are various methods of avoiding the harsh results that MFN can sometimes produce. The easiest way of doing it of course is to clear the songs before the program is made. If a song comes in too high it can be excluded.

Masters: So far I have been discussing what music publishers charge for use of songs in a program. Sometimes it is necessary to clear a record label as well. This happens when the original master is used. For instance a documentary about an artist may include music from an album. In that case it would be necessary to secure a license from the owner of the album, usually a record company, as well as a license from a music publisher for the underlying song. The license for the song is referred to as a “synch” license. The license for the master is referred to as a “master use” license. Usually the record company will accept the same terms as the music publisher has accepted. Live concerts do not require clearing masters because they are not being used in the show as the artist is performing live. However, if the artist was merely lip synching or “performing to track” then it would be necessary to clear the master. In documentaries, a producer will often use footage containing a live performance. For instance, a documentary about Elvis Presley may include an excerpt of performing a song on the old Ed Sullivan show. In that case, you would not need to secure a license from the record company because the license for the footage will include the right to use the sound in the footage.

Wedding Videos: I receive a number of calls from professional videographers or family members who want to use music in a video of a special occasion such as wedding or birthday. They tell me that they only want to make a few dozen copies and whether they need permission. The answer is that they do – if they use copyrighted music and even if they give the videos away for free. And many owners of popular songs will not want their music associated with someone’s event. On the other hand I have had success in licensing some popular songs for fees around $500 for limited run of copies. This is particularly doable for “non-approval” songs. These are songs that music publisher can license without the permission of writers or their estates. The more recent and commercially successful the song, the more likely it will be subject to approval. If the original recording is desired, then it will also be necessary obtain the approval of the owner of the master, usually a record company. Those who want to use music in a wedding video should consider a music library from whom they can license or buy music in all kinds of genres for a limited fee.


TELEVISION

There is a basic distinction in licensing music for documentaries and concert programs for television and licensing music for network and cable shows. Let’s discuss documentaries and concert programs first.

Documentaries and Concerts

In clearing music for these programs there are a number of variables to be considered including the fee, duration, and territory.

The Synch Fee: The fee payable for the use of a song in a concert or documentary can be from a few hundred dollars to well over a thousand depending on the rights requested. For instance if a producer asks for “all forms of TV” the price will be higher than if a specific form of television is requested such as “basic cable.” Therefore, I advise my clients to ask for the specific rights they absolutely need. For instance, if the show will only air on a specific television service such as A&E, I will ask for the right to air the show on A&E only in order to get the lowest price.

Foreign TV Rights: Usually foreign TV rights will be negotiated as an option. This is because many of my clients have no deal for foreign TV until after the show airs in the U.S. If we request foreign TV rights as an option then we don’t have to pay for those rights until we license the show for foreign broadcast. The fee for foreign rights usually is approximately equal to the fee for U.S. rights. For instance I recently cleared 12 songs in a documentary on a pop singer for $750 for U.S. cable and $750 for foreign TV.

Duration: The producer’s deal with a particular television service such as a basic cable service or network may require the producer to acquire a minimum number of years. Networks generally require at least a year but basic cable services usually require a minimum of three years.

Usage: Use of an excerpt of a song may cost less than use of a full performance. Also, if a song is heard but no one is seen performing it (“background use”), the song may be cheaper to license than if someone is depicted singing or playing an instrument (“visual vocal” use).

Promotional Use: Producers generally want the right to use a song that is included in the documentary or concert to advertise the program in a commercial or on-line promo. Many publishers will limit promotional use to “in context” promotion. This means you are allowed to use the music to promote the program only by using excerpts of the program including the music—you can’t strip the music and use it in a different way than it is actually used in the show.

Most Favored Nations: All the considerations that we discussed in the home video section of this chapter above apply to concerts and documentaries on TV. Basically, the publishers insist that if you pay one other publisher more money than they have agreed to accept, you must pay them the additional amount. However, sometimes, MFN can be used as a way of securing all the music in a program on reasonable terms. Suppose a publisher controls a number of songs in the program and grants a favorable rate, that rate can then be used to secure the same rate from the other publishers. On the other hand, if one publisher demands more than all the others, you may have to pay more for all the other songs or delete the high-priced song.

Masters: All the rules above apply to masters. Generally the owners of the master will insist on MFN treatment with the owners of the songs. As we previously discussed, concerts generally do not require master clearances because the music was performed live unless the artist lip synched the song. If a producer of a documentary used music from a record, then a master clearance will be required and just as with home video, the record label will usually accept the same fees and terms that were negotiated with the music publishers.

Special Rule for Public Broadcast Stations: The Copyright Act provides for special rules for use of copyrighted materials, including music, on public broadcasting stations. Generally, producers are not obligated to clear songs or masters for programs produced for PBS or other public broadcasting stations as defined in the act. The relevant Sections of the Act are 114 and 118.

In regard to songs, Section 118 provides for a statutory license subject to federally prescribed rates. PBS, on the producers’ behalf -- with funding from the Corporation for Public Broadcasting -- will pay the federally prescribed fees to the copyright owners. But, Section 118 does not provide for a statutory license with respect to the use of the songs in the home video distribution of the program or for foreign TV. So producers have to acquire synch licenses for these uses.

In regard to masters, Section 114(b) reads in relevant part:

The exclusive rights of the owner of copyright in a sound recording . . . do not apply to sound recordings included in educational television and radio programs . . .distributed or transmitted by or through public broadcasting entities . . . Provided, that copies or phonorecords of said programs are not commercially distributed by or through public broadcasting entities to the general public.

Therefore, no payment is required for use of masters in programs on public television. But note that the
last sentence quoted above means that if the program is released as a DVD, the producer will have to secure master-use licenses if music from records was used in the program.


Cable and Network Shows

Licensing music for popular TV shows has become a lucrative source of income for the music business. The price for a song on a popular network, say HBO or Showtime, usually ranges from $2,500 to $10,000, depending primarily on the identity of the song. It's a pretty good bet that a Lady Gaga song or Rolling Stones’ hit will be lot more expensive than a song by a relatively unknown band. Another important consideration is how much the producer wants the song. For example, I recently licensed an very little known song for $12,500 to a program on HBO. The program was a docudrama that focused on historical incidents and included a scene about the musical comedy in which the song was originally performed. HBO wanted the song to make the docudrama more authentic.

In addition to being a source of income, TV shows can also help promote a song or an artist. For instance, the band Death Cab for Cutie became much more popular and sold a lot more records after their music was featured on The O.C. In his book Ripped, Greg Kott noted that "shows such as Six Feet Under, The O.C. and Grey's Anatomy turned into a cottage industry to breaking new bands." More recently, the band One Republic achieved mainstream success thanks largely to having several of their songs featured on Gossip Girl. Specifically, the song “Apologize,” featured on one episode of Gossip Girl, later went on to sell 3 million digital downloads and more than 1 million ringtones. Other One Republic songs that got a boost from being on Gossip Girl include: “All the Right Moves,” “Stop and Stare,” and “Secrets.”

Another way that popular shows can promote new music is through the Web. Such music intensive series as Gossip Girl and The Hills include track listings on their websites so fans can identify each song in each episode. The sites also include links to iTunes where fans can buy the tracks featured in the shows. A leading music supervisor in the industry and for shows such as Gossip Girl and Grey’s Anatomy, Alexandra Patsavas, has been quoted as saying:

“What ‘The OC’ did for indie rock, we’d like ‘Gossip Girl’ to do for pop. I’m relying on old favorites while exploring current pop music… and since the show revolves primarily around high school students in New York, we’ll definitely be using some New York based bands. But these kids listen to the radio too, so there will be that music, too.”

Needless to say, promotion of music on TV shows has become a phenomenon, and artists heavily rely on these shows to advance their careers.

It should be noted, though, that licensing music for TV is not a panacea for new bands. The truth is that most new music in shows such as Gossip Girl and The Hills are already signed with labels and music publishers who have close ties with music supervisors who select the music for these shows. On the other hand, there are companies such as Love Cat Music (www.lovecatmusic.com) that will represent unsigned bands and submit their music on their behalf. Also lawyers with relationships with music supervisors can sometimes be helpful in shopping music for TV and movies.

With regard to the terms for licensing for popular shows there is lot less flexibility than licensing music for documentaries and concerts. There are two reasons for this. The first is that over the years the networks and cable services have perceived a market for their shows not only in reruns, but for home video and foreign territories as well. And now there is the dream of making big money from the shows on the Web through services such as Hulu or Netflix. Therefore, the networks and cable services want all rights and media – they do not want to be limited to just television; they want buyouts. The licenses are generally usually unilateral and demand all media and all territories for a minimum of ten years. The second reason that licenses for music in popular TV shows are much less subject to negotiation than for documentaries and concert programs is that generally the latter are created by independent producers with less money and therefore less leverage than networks and cable services,


MOTION PICTURES

The price of clearing music for movies will be primarily determined by the budget and the potential audience for the film. For instance, publishers and labels know that student or “art” films with budgets in the thousands of dollars and a potential audience of thousands of people or less cannot afford to pay a great deal of money for music. Of course, they may decide not to grant a license at all, but if they do, the price will be commensurate with the budget and potential audience. The cost of including one song in a major motion picture, on the other hand, can and often does exceed six figures. The price gets higher depending on the identity of the song with hit songs demanding the highest fees and the use that is made of the music with use of music over the credits whether the opening or end credits fetching highest amounts. Even with a student or independent art movie, the publishers and labels may include a clause that requires additional payments should the movie actually generate a substantial amount of income. For instance, the fee for a popular song in a movie with a budget of a million dollars could be $10,000 but if box office exceeds $250,000 another payment of $10,000 may be required.

Rights: Even before popular TV programs were asking for buyout, producers of major motion pictures and major studios were demanding buyouts for all media. With regard to licensing music for movies, this practice is referred to as acquiring “broad rights.” As discussed above, broad rights generally refers to all rights including theatrical distribution, all forms of TV throughout the world, home video, and the Internet. From the perspective of indie producers who are less well financed than their Hollywood cousins, acquiring broad rights even for an obscure song or master for can be prohibitive. For independent movie makers, using options can significantly save money.

Options: Suppose you are an independent producer who is still looking for a theatrical distributor for your film. You may or may not find it. Perhaps the only form of distribution you will be able to find is home video. Obviously you will not need broad rights. You need only the rights in the music that are necessary for the method of distribution you actually use. You can structure the license to give you options for each of these media -- for instance, home video including downloading, Internet streaming, foreign TV, U.S. cable TV, etc. You only have to “exercise” the option, that is, pay for the rights, once you have secured your deal. So you can save a lot of money by negotiating options instead of paying for rights you may not need. I know a producer who made deals for broad rights for all the music in his movie. Sadly, he never got a deal for distribution. He paid close to $50,000 for music for a movie that is still sitting in his loft.

Festival Licenses: Most music publishers and labels will give producers the right to show their movies at festivals for $250 or less for each song or track. When you secure a festival license you can save time by negotiating options for other rights.

MFN: A record company will usually insist on MFN treatment with the owners of the song embodied in the master. The music publisher of a song will also usually insist on MFN treatment with the owner of the master of that song. But producers can usually avoid MFN treatment between different songs and masters. Both labels and publishers recognize that the use of a song or master over the credits, for example, is much more important and therefore should be more expensive than other uses of music in the movie. It is just as well recognized that the use of monster pop hit such as a classic Rolling Stones song is a lot more valuable than a song by an unknown artist.


ADVERTISING

A Brief History of Music in Advertising: Prior to the 1980s, music in television advertisements was generally limited to jingles and incidental music. I grew up with catchy product-related jingles like “See the U.S.A. in your Chevrolet” and Coke’s “I’d Like To Teach the World to Sing.” Ads like these revolved around the music which was written by writers who were on the payroll for advertising companies. Companies looking to boost product sales would commission these writers to produce a jingle on a “work-for-hire” basis.

This system eventually faded away during the 1980s and was replaced by a commercial landscape in which advertisements were supplemented by popular pre-recorded music. The use of previously-recorded pop songs in television advertisements began in earnest in 1985 when Burger King used the original recording of Aretha Franklin’s song “Freeway of Love” in an on-air ad for the restaurant. Then, in 1987, Nike used the original recording of the Beatles’ song “Revolution” in an advertisement for a new line of sneakers. The flood gates for using pop music in television ads had been opened.

In 1995, audiences around the country were used to hearing some of their favorite songs in television ads. But, it still made news when Microsoft paid the Rolling Stones a rumored $9 million for the use of “Start Me Up” in their Windows 95 campaign. The Microsoft campaign was one of many examples of a commercial not only borrowing interest from music, but also borrowing our interests, milking our memories and desires, and selling them back to us.

Of course, “Start Me Up” was licensed by Microsoft because it was a popular tune. What’s happening now is that unknown songs by emerging artists are becoming hits overnight as a result of their association with these national ad campaigns. Think, for instance, of the iPod Touch commercial featuring Cansei de Ser Sexy’s “Music is my Hot, Hot Sex.” Eighteen-year-old Nick Haley posted a homemade iPod advertisement to YouTube using the song. Apple executives caught wind of the video, were instantly enamored by the music, and contacted Haley to rework the ad for television. The teenager says his inspiration came from the lyrics “My Music is Where I’d like You to Touch.” The band’s guitarist, Ana Rezende, told Spinner in October 2007, “How he found our song, I have no idea, but we’re really happy that he did.”

Using Ads to Promote Music: Getting your music licensed for commercials can be extremely financially rewarding (as in the case of the Rolling Stones’ deal with Microsoft), but artists are generally eager to ink this kind of deal for more than just the money. In the summer of 2007, Volkswagen licensed the right to use all the songs in a brand new album by alternative rock band Wilco for use in its new television ad campaign.

Here is what Wilco posted on its Website in reference to the deal:

As many of you are aware, Volkswagen has recently begun running a series of TV commercials featuring Wilco music. Why? This is a subject we’ve discussed internally many times over the years regarding movies, TV shows and even the odd advertisement. With the commercial radio airplay route getting more difficult for many bands (including Wilco) we see this as another way to get the music out there. As with most of the above (with the debatable exception of radio) the band gets paid for this. And, we feel okay about VWs. Several of us even drive them.

So, licensing your music in advertising gets you paid but it also, perhaps more significantly, gets you nationwide exposure which could help increase your record sales significantly. It also promotes your brand-ability and, as we know, merchandise sales can amount to a significant portion of an artist’s overall income.

It’s important to note the apologetic tone in Wilco’s statement. For an alternative rock band, Wilco worried that its involvement in corporate advertising would be regarded as “sell-out” behavior. But, Wilco has maneuvered its career with savvy and done what any emerging artist should do: take advantage of the outlets available for distribution. Other major artists have done the same. Some examples include Sting licensing to Jaguar, Iggy Pop to Royal Caribbean, Bob Dylan to Victoria’s Secret, Led Zeppelin to Cadillac, and Aerosmith to Buick and Dodge.

Apple commercials are a good example of how advertising can promote an artist. Since 2003, commercials for Apple’s products have propelled the careers of many bands and music artists. For example, the band Jet went on to sell 3.5 million copies of their album, after one of their songs was used in the iPod commercial between 2003 and 2004. Feist had similar success after her single “1234” was used in an iPod commercial in 2007. Digital sales of “1234” doubled after the song was used by Apple, and hits on YouTube increased by 1000% from the previous month.

Also in 2007, CSS’s song “Music is my Hot, Hot Sex,” was featured on an iPod touch commercial and went on to sell many singles. It should be noted that there was no such response when the CSS single was played on a Zune commercial a year earlier. CSS’s agent, Tony Kiewel, was quoted as saying, “This is one of those rare instances where we can point to a single event and say, this is for sure what’s driving all of our record sales.”

In 2008, singer Yael Namin, an unknown artist from Israel, was able to get her album launched in the U.S. thanks to Apple’s use of her song, “New Soul”, for their MacBook Air commercial. “New Soul” later reached number 7 on the Billboard Hit 100 Chart. Apple also launched the career of the band the Ting Tings when an iPod commercial included their now popular song “Shut up and Let me Go.” After the song was used in the commercial, “Shut up and Let me Go,” hit #1 on the Billboard’s Hot Dance Club Songs chart.

These are all examples of how advertisers can make a huge difference in an artist’s career. However, it is important for an artist to have their music used by the “right” advertiser, not just used on any commercial. Apple has been the “right” advertiser for a lot of these artists because of the innovation and creativity of their commercials that sets a platform for these new artists to be heard, as well as their association with iTunes.


License Fees

Fees for Contemporary Mega-Hits. As one may expect, the highest quotes, or fees charged, may be for recent smash hits. There may be little room for negotiation here, because once a song is licensed, its value to another sponsor is radically reduced. Therefore, the copyright owner, who is usually either the publisher and/or the writer, may hold out for the highest royalty price, assuming that the writer is even willing to license the song for a commercial use. The only meaningful leverage is to solicit lower quotes for comparable songs. In any event, the going rate for such hit songs may be a million dollars or more.

Fees for Catalog Songs. An advertiser may be willing to settle for a song that may be recognizable but not currently on the charts. Of course one can expect to pay less for a catalog song than for a contemporary smash hit, but a routine call to a publisher asking for the “standard fee” for use of such a song in a national television campaign may well precipitate a response such as: “We will not license any song in our catalog for less than $150,000 to $250,000 for a one-year period” (a typical duration for a license of music for a television campaign discussed below). A pop standard such as “Strangers in the Night,” or “Wicked Game” (which was used in a television campaign by Jaguar), may garner prices well beyond the “standard” range. The bottom line is that the more popular the song, the more it will be in demand for commercial use, and the higher the demand, the higher the royalty price. On the other hand, there are many songs in the catalogs of major and smaller publishers alike that, although recognizable when originally released, have neither received significant television or radio airplay nor have been used in movies or commercials for some time. The fee for such songs, which are of proven quality and which may work perfectly for a client’s product, may well be negotiated lower than the standard range. The bottom line is that an offer, even if less than the publisher’s standard, is better than no money at all. A publisher may also be hopeful that the advertising campaign will rekindle interest in its song. For instance, the Gap’s use of K.C. and the Sunshine Band’s “Get Down Tonight” revived catalog sales for the band’s records. In addition, the tips that appear in the last part of this section may be helpful in getting the lowest possible rates for songs in this category.

I was recently called upon to license a couple of R&B hits from the 70's for a major insurance company. The client wanted to use the songs in national TV commercials and was seeking to use the songs to connect with baby boomers to sell them life insurance. For a three month window the price was $100,000 for each song. That was just for the songs. The company re-recorded the masters and so did not have to clear the record companies. The same client wanted to use another monster hit from the late 60's for a TV spot plus a greeting card to include a chip that would play the song when the recipient opened the card. The total price was $700,000 including the song and the original master: $350,000 to the publisher and $350,000 for the song.

There are also certain sections of a publisher’s catalog composed of jazz, new-age, and R&B songs that are catchy but which have never had any real commercial success. The publisher may be eager to make a deal for these underutilized songs. Although the songs never received a great deal of public play and would not be recognizable to the consumer, they may fit the spirit and texture of an advertising campaign quite well. These songs may be secured for substantially less than the standard range. However, one can still expect to pay more taking this approach than by going to a music library or “jingle” house and licensing or commissioning a work specifically for a commercial.

Fees for songs by Baby Bands: Publishers also represent songs by unknown artists. They may want to use a national advertising campaign to gain exposure for such baby bands (just as they may wish to gain exposure for older songs that have not been popular for years). If this is the case, one has a reasonable chance to negotiate a deal well below the standard range.

Other Terms: In addition to the identity of the song itself, there are several factors that will be key ingredients in the quote provided by the publisher. As in any negotiation, the initial quote will probably start on the high end. If any of these factors favor the advertiser, however, they may be used to reduce the initial quote.

Manner of Use: If one only needs a song to play in the background while, for instance, a spokesman is making a pitch, one can argue for a reduced rate. In addition, sometimes the lyrics to a song are not needed. Since, in effect, one is only using half of the song, one may be able to negotiate a reduced rate.

Branding: Publishers may start off with a quote that includes the concept that an advertiser will use no music other than the licensed song to promote the product or services. This is sometimes referred to as “branding.” If an advertiser will actually use different music for different commercials, this should be emphasized as a possible way of reducing the fee.

Radio and Other Media: A publisher will often demand an extra 5 percent to 15 percent for use of a song in radio spots. This charge is usually negotiated as an option to run concurrently with the television advertisement. However, for obscure, catalog, or baby-band songs, it may be possible to include radio without an additional charge. This may provide the song with some much-needed publicity and public-performance income. (See the conversation of public-performance income in the first Practical Tip below.) This may be used as leverage to get as many media as possible (such as theatrical use preceding movies) without an extra charge. Securing Internet rights however, particularly when one is not willing to pay additional fees, may be more difficult (see the conversation on clearing music for new media in the next chapter).

Territory: The quotes Mega-hits, Catalogue songs and baby bands set forth above assume that the territory for an advertising campaign is limited to the United States, its possessions, and territories. Of course, one can dramatically reduce the initial fee where an advertisement is targeting a specific geographic market. For example, a very low fee may be negotiated for use in just one geographical market. Sometimes, an advertiser may wish to start a commercial in specific cities, and if the commercial proves to be successful with viewers, expand the commercial to the entire country. In that case, one may structure an option for the entire United States for a one-year period after the initial limited run.

Publishers will generally try to negotiate an additional 10 percent to 20 percent charge for the use of commercials in Canada. If a song is less than a major hit or a pop standard, it may be possible to negotiate Canadian rights into the basic fee, or at least reduce the standard increase.

Options for Extending the Term: The quotes referred to above are also based on the assumption of a one-year license. This gives an advertiser time to roll out its campaign and generate momentum. Of course, those fees may be negotiated down for a shorter period. Options generally cost 5 percent to 15 percent for each additional period. For instance, if the fee is $10,000 for a 13-week period, a publisher may ask for $11,000 to exercise an option for the next 13 weeks. Or the additional charge may be avoided by paying, for example, $20,000 up front.

Master Use: Sometimes publishers will make a recording of a song for the purpose of licensing the music. In that case it may be possible to include the right to use the master produced by the publisher for no additional payment. Generally, the master will be controlled by a record company. In that case, one may expect that the record company will insist on a fee equal to that of the publisher. For the use of popular recordings by big-name artists, this could double an already substantial payment. Use of and payment for the master can be avoided by rerecording the song.

Practical Tips: The publisher, and the writers it represents, will get paid twice if an advertiser uses a song; first by the advertiser when the ad is produced, and then by the publisher’s performing-rights society (ASCAP, BMI, or SESAC) when the ad is broadcast. The societies pay the publisher and writer based on public performances of the songs on television and radio, as well as in other public venues. The income generated by these performances can be substantial when the commercials appear on network television and in television syndication. If a publisher does not license the song, it has that much more to lose, so it is important to reaffirm what it has to gain when negotiating a deal.

Give Them a Budget: Some publishers will work with you if you let them know how much you or your client is willing to spend. As discussed above, ask a publisher for a standard range for a catalog song and the publisher will start with $150,000 and up. If you suggest $50,000, the publisher may suggest songs that are in your or your client’s price range. In fact, the publisher may give you CDs containing those songs to listen to and choose from.

Consult the Experts: There are music-clearance professionals who are very experienced in negotiating these deals. You may wish to avail yourself of that expertise.

Approach the Writer: If you know the writers or composers, it may be better to approach them first. Writers may be more eager to make a deal for a song than publishers who represent many other writers whose work may bring in higher fees. In certain cases, the writer may be able to make a deal without the publisher’s consent, but even if the publisher is the exclusive agent for making the deal, the writer may be your advocate for a reasonable rate.

Don’t Focus on the Number of Spots, Unless You Are Producing Only One: The publisher may ask for more money for the use of a song if it focuses on the fact that the producer plans to make more than one version of a commercial containing the song. You may want to avoid the issue and hope that the license provided by the publisher will not limit your right to use the songs in more than one television spot. If you focus the publisher on the notion that you want to make a dozen different spots using the publisher’s song, the publisher may ask for more money. Of course, the more sophisticated publishers will bring up this point during the course of negotiations. If you only wish to use the music in one spot, however, it is to your advantage to emphasize that in an attempt to reduce the fee.

Consider Using Stock Music or a Jingle House: If you are not looking for a recognizable song, you may be better off not approaching a music publisher at all. There are many music libraries and jingle houses that may be able to provide music composed on a work-for-hire basis that will work for your commercial. They are also more likely to control the masters as well.


MUSICAL THEATRE

With the success of Jersey Boy and more recently American Idiot, more and more producers are dreaming of bringing a musical based on pop hits to Broadway. Over the past year I have been called on to clear songs for two music theatre pieces. One is a based on the life and music of a famous artist from the 1960’s and the other a musical based on a comic book about debutants from Texas. In the first case I received a couple of rejections of songs where the music publisher did not want to be part of play. This is a reminder that sometimes it’s just not possible to get all the music you would like for a certain project.

However, if permission is given the standard financial arrangement is much more favorable for a producer of musical theatre than it is for a producer of documentary, feature film or TV program: There is no upfront cost. That standard business practice for clearing music for theatre is to pay the publishers a percentage of box office gross receipts without any upfront advance. That percentage is usually 5% of box office. The sweetest part is that 5% is the total that has to be paid. Each publisher is paid a prorated portion of that amount depending on the number of song used in the show. For instance, if there are ten songs each song is credited with 0.5% of gross box office.

In order to secure a license the following information will generally needed to be provided:

Identity of Producer
Synopsis of the musical
Scene description of music use
Start date
Length of production term
Performance territory
Total number of Scheduled Performances
Theater size (number of seats)
Ticket price (USD)
Duration of music / timing
Version of song used (i.e. live, CD) / Artist recording (if applicable)
Lyric Change (if applicable)
Total number of songs used in project

Publishers will generally limit the term to one year. They want to see that the producer is actually mounting the production and pays them the royalty on a regular basis before granting a longer term. Permission may be hard to get if the producer wants to change the lyrics. If they do agree they usually want to own the copyright in the new lyric. Usually there is no need to clear the record company as the music will be performed live by the cast.


TIPS FOR MUSIC LICENSING

Entertainment Law & Finance, January 2003

I am republishing these tips because they are still relevant in clearing music for any project.

ELF: What kinds of projects do you work on?

Steve Gordon (SG): TV, movies, documentaries, compilation albums, DVDs, and Internet-based projects. I recently worked on several interesting jobs in cooperation with Universal Media Inc. [a company specializing in finding footage and music]. These projects included a documentary on Latin jazz for the Smithsonian Institution, a companion record album for Smithsonian Folkways Recordings, a network TV special featuring the music of Elvis Presley, and a PBS special featuring Frank Sinatra’s duet performances from his old TV series, to be released as a home video and on foreign TV. Currently, I’m working on an independent movie about a serial murderer who targets punk-rock fans, containing more than two dozen songs and masters. I also represent a publicly traded Internet content provider that is continually securing rights in all kinds of content, including music, videos, and computer games.

ELF: What is the process for securing copyright clearances?

SG: The process is basically the same for any kind of project. Research the songs, strategize with the client, negotiate the terms, and review or, in certain instances, prepare the licenses. In regard to the last item, music publishers and labels will usually provide their own licenses. However, occasionally a small label, publisher, or unsigned artist will request that you draft the license.

With respect to research, the kind of material to be cleared will dictate the nature of research to be performed. For instance, for musical compositions, the ASCAP and BMI databases are excellent sources for identifying the writers and music publishers. Each of these databases may have to be explored because each performing-rights organization provides information only on the songs in its own repertory. SESAC also administers certain songs that will not be included on the ASCAP or BMI sites. In addition, the Harry Fox Agency provides information concerning songs that it represents [see www.Songfile.com]. If your client is using musical recordings, the packaging and liner notes can supply information such as the name of the record company and artist and the release date. If the client is using excerpts of TV, movie, or video footage, someone should view the credits from the original TV program, movie, or music video to determine the TV service, studio, or record label that controls the copyright in the footage. The musical artists, actors, and other persons (or their estates) appearing in the footage may also have to be cleared depending on various circumstances, including whether there is a musical performance in the footage.

Once you have identified those who control rights in the material to be used, you are almost ready to approach the owners and negotiate terms. But, first you must strategize with the client. This conversation should include what rights will be required, that is, media, territory, duration; what you think it will cost; and what to propose to the licensors. This process is the real “art” of licensing. With knowledge of the applicable business practices and pricing, you can advise your client on the approximate amount of money he or she will have to pay for clearances; alert him or her to potential problems, such as material that may be too expensive and may have to be replaced; and develop a letter addressed to the owners accurately reflecting the precise rights that your client needs and proposing the lowest reasonable fee or royalty. The proposed payment, which obviously must be approved by the client, should be as low as possible and include a cogent explanation of the reasons that the owner should accept such a rate. At the same time, the proposal should not be so out of whack with standard business practices that the owner feels insulted.

The negotiation process involves a discussion with the copyright owner or its representative about the project, plus continual follow-up. Many of the projects on which I work will not make a great deal of money for any individual copyright owner. For that reason, many of these requests usually are low-priority items to the people from whom I am seeking permission. To do this work, therefore, a combination of courtesy and persistence is recommended.

Ultimately, if the licensor doesn’t accept your terms, you will have to negotiate compromises or even advise the client to drop the desired music. For instance, trying to get a hit song for an independent movie may not happen because the song owner may not like your client’s project, or may not wish to license it to anyone at any price, or may propose a fee well beyond your client’s ability to pay.

Finally, the owner will send the license, and it is my responsibility to make sure that the terms in the license exactly match the understanding between my client and the owner.

ELF: What issues arise specifically in the case of independent movies?

SG: From a clearance point of view, the most important difference between an independent film and a major studio production is that an independent producer usually has a lot less money to spend on anything, including music. Therefore, an independent filmmaker may have to curb his or her desire for securing “name-brand” talent. For instance, if your client wants to use “Satisfaction” under the opening credits, that is going to cost big bucks indeed, unless he or she happens to be a personal friend of Mick Jagger, and even then, don’t assume a huge discount.

Even if Mick Jagger is your client’s best friend, the people who administer the Stones’ copyrights may never have heard of your client. Music publishers and labels generally will adjust their rates downward based on the size of a movie’s budget. But, don’t expect to pay a nominal fee for a hit song just because your client’s budget is modest. Independent film producers should also understand that no matter how popular or recognizable the music in a movie is, people don’t watch movies to listen to music. A lawyer or clearance person can work with a savvy producer to create a great soundtrack without busting the budget. For instance, many music publishers, labels, and managers may be eager to place new songs written by “baby bands” that will be more reasonably priced than songs written by established acts. Another alternative is a “stock” music house. Generally, these firms can license both the song and the master, and therefore offer one-stop shopping as well as low prices. Finally, a composer or songwriter/producer can be hired to write music for specific scenes, or a complete score. There are many talented but hungry songwriters who would be happy to work on a client’s project for a credit and a reasonable fee.

Another way to work within a client’s budget is to set up the quote request as a series of options. Generally, a film festival license can be secured for a small fee because music publishers and labels recognize that festivals are not commercial enterprises. Additional rights such as theatrical, free TV, cable, and home video can be requested as options. Each one may be exercised by paying a specific fee. “Broad rights”—which include theatrical, TV, and home video—can be expensive. In case your client does not succeed in securing commercial theatrical distribution, these options will allow him or her to gain exposure for the movie (on cable TV, for instance) for a reasonable fee without paying for unnecessary rights.

ELF: Please describe the deal points (e.g., term, territory, royalties, or fees).

SG: The term will vary depending on the nature of the project. Of course, you always would like to secure perpetual rights for your client. But, that may not always be possible. For instance, in regard to a TV project, music publishers and labels will customarily limit the term to three to five years. A longer period will cost a lot more money. One way to accommodate future uses is, again, to set up options. The original term can be three years, with an option for another three. That way, your client doesn’t have to pay the additional fees unless he or she actually exploits the program for a longer term. Movie and TV producers will generally seek worldwide to maximize the audience for, and income from, their projects. Producers of album compilations, on the other hand, may wish to target the U.S. and Canada market only. So the scope of the territory provision will depend on the business interests of your client. Of course, the most important item in virtually all clearance licenses will be the money. Generally, flat fees will be required for TV and movies because that is the standard business practice. On the other hand, if you license a song or master for an album or a home video, you can expect to pay a penny rate per unit. How much you pay will depend primarily on the nature of the project. In regard to a compilation album, although there are exceptions, the owner of the track (generally a record company) will require a per-unit penny rate against an advance. If the penny rate is 10 cents, then an advance payment of $1,000 may be required, with a “rollover” payment of another $1,000 for sales exceeding 10,000, and additional rollover payments after that for each block of 10,000 units. The underlying song will be subject to a statutory mechanical license, currently 8 cents per unit [author’s note: the rate is now 9.21 cents], although it may be possible to secure reductions from such rate in certain circumstances (if a charitable purpose is involved, for example). Clearing music for a motion picture is a whole different ball game because there is no compulsory license for use of musical compositions in audiovisual works. The money demanded for even a never-quite-famous song can easily reach six figures for a movie to be distributed by a major studio. The owner of the master, usually the record company, probably will want at least an equal amount for the master recording.

ELF: What is meant by the phrase “Most Favored Nations?”

SG: Also referred to as “MFN,” this is a business practice that can affect all the terms of a license. It means that you cannot treat the owner or licensor of content less well than any other owner or licensor of content used in a similar manner. The practice is very common in regard to concert TV programs featuring a dozen full-length musical performances. No one who licenses any song for such a program wants to get less money or give more rights than any other licensor. MFN also plays a big role in audio compilation albums. It exists but is less common in regard to clearing music for movies, because in a movie each piece of music is often used in a different way. For instance, one song may be used over the credits, another song may be used for only a few moments in the background of a scene, and another song may be heard as a theme throughout the movie.

ELF: What are some reasons that a copyright clearance cannot be secured?

SG: Money is the most common reason. In regard to a movie, although some baby bands, composers, or songwriters may love the exposure that your client can create, established artists and bands may not need the exposure. They already have it. Therefore, the price can be prohibitively high. To give a recent example from my own practice, we could not get the price of a Bee Gees song down for an independent movie. So we replaced it with a new song composed by my client. Another problem is that the copyright owner, or his or her representative, may not wish to be associated with your client’s project for whatever reason. I once had a problem with getting permission to use “Macarena” for a Chipmunks video. Apparently, the composers did not relish the idea of their song being performed by cartoon characters.

ELF: What are the possible penalties if copyright clearances are not secured?

SG: Perhaps the worst-case scenario is an injunction, which is available as a remedy for copyright infringement. Your client’s project could be shut down completely. If it’s yanked out of distribution, not only are potential profits lost, but there also could be serious expenses incurred in retrieving the product from warehouses or retail outlets (as there would be if a DVD were involved). Of course, copyright owners have other remedies available to them, including statutory damages and attorney fees, if they properly registered their works. Therefore, the price of using a copyright without permission can be quite steep indeed.

ELF: What is the role of a music supervisor?

SG: A good music supervisor can identify music that could enhance your client’s project. But, due to budget constraints, experienced music supervisors make their living working with big studio productions. When they can be afforded, they have knowledge and contacts that could prove valuable, especially when it comes to finding new, cutting-edge music. The client can’t depend on lawyers or clearance people to be his or her “ears.” Depending on the budget, therefore, the client may have to be his or her own music supervisor, although a knowledgeable lawyer with good industry contacts can be very helpful.

ELF: What is involved in licensing music for Internet-based projects? How is it or other new technologies an emerging area for clearances?

SG: New technologies, including the Internet, have created new uses for all kinds of content. New business practices and forms of licensing have also emerged. The issues and rules can be quite complex, depending on what you are trying to do (e.g., Webcasting, streaming, or downloading) and the kind of content you are trying to clear (interactive games, music, etc.). Perhaps the fastest-growing areas of music licensing are interactive Webcasting and video on demand. Already, satellite systems and digital-cable modem services are offering content on demand. Concert specials accommodate themselves beautifully to these new technologies. Eventually, concert videos may also be available on the Web on an on-demand basis. Therefore, in addition to clearing a concert special for TV and home video, clearance people will find themselves clearing for on-demand uses. This will entail educating the licensor as to the new technologies and, in the case of Webcasting, assuring copyright owners that your client will protect the owners’ copyrights with encryption technologies to prevent piracy.


BILLBOARD COMMENTARY

I thought it would be appropriate to end this chapter with a commentary that I published in Billboard in November 2009. It explains the value of the work of some of my clients in using the documentary format to introduce music to new audiences, and is an appeal to the copyright owners to consider that value in negotiating rates for their music.  (To read, please click the image below).