Making Money via Music Licensing
Music Licensing is a proven pathway for making money in the music industry. OK, so you’ve paid your dues and have written some original music. After spending the amount of time and resources to gain a music education and applying what you have learned to creating new music, your music, it’s time to think about how you are going to earn a living doing what you love to do, making money making music. Music Licensing is a fantastic way to go when putting out the effort for accomplishing this goal.
Learning about and utilizing music licensing as a means of producing an income allows you to continue to write/compose music with a promise of composing on a full time basis. In order to license music you need to own or control the copyright for the music when licensing it to others. Assuming that is the case, then you are free to pursue locating potential licensees who in turn will use your music in a specific application. In this way you begin or continue to earn money from your creations.
Before beginning our presentation about music licensing it is important to understand that the governments within the countries of the world vary on the meaning of what a copyright is and what provisions are required and possibly, what is necessary to be included in the transfer or licensing of the rights embodied in the copyright. Copyright law, as provided for under the US Constitution and additionally written in US Copyright Law, copyright is a bundle of rights exclusively granted to the owner(s) of the copyright for a specified period of time to allow for exploitation, in a commercial sense, of the newly created work. In other words, a composer or songwriter is given rights and the time to try to sell or earn an income from the creation of the music.
The US Copyright may or may not protect you or your copyright interests due to differences in the laws of different Countries. It is therefore and by which that we strongly urged you to seek legal counsel when involving yourself in the transfer of your rights through a music license agreement and even more so for International matters. A reminder of this point is placed later in this document.
Briefly, in the United States, under the Copyright Law and as related to music, the copyright is form of legal protection. A song becomes copyrighted when it is either written down or recorded, put in a tangible form. Copyright law does not prevent the theft of original works however within the law it provides for additional and favorable remedies in copyright infringement cases. In a more positive view, Copyright Law also provides for the right to make the musical work available to others interested in the reproduction of a given musical work through a contractual agreement between two or more parties and where some form of compensation is provided to the original or current copyright holder of the song.
Bundle of Rights
The idea of transferring the use of a piece of music to someone other than the copyright owner/holder involves making some distinctions as to which rights are being transferred. Due to the fact that the copyright includes a bundle of rights rather than a single right it is important to provide for which specific rights are being transferred in a license agreement.
Copyright – Bundle of Rights
The following are the primary rights included in the bundle of rights. Each focuses in on a specific type of public exposure or method of reproduction of music.
Synchronization Rights – synchronizing music to other mediums such as film or TV
Mechanical Rights – The reproduction of a physical product
Performance Rights – the act of performing music
Broadcast Rights – for “airing” or broadcasting of music such as in radio
Grand Mechanical License – For granting permission to use and to replicate, modify and/or amend the content under the copyright.
In all cases of use, a license is required under US Copyright Law is the device allowing for and stipulating the complete understanding between the licensor and the licensee, and it is the contractual agreement which conveys from the licensor to the licensee the permission(s) to use the materials included in the copyright. Also, In order for a contract to be valid as provided for under US Contract Law, it is required to include within the body of the license the provision of fair compensation to the copyright holder(s).
Music Licensing Fees
With the previous groundwork laid out for you, you may very well be saying that I am already in information overload. For purposes of this paper we will be limiting our focus and the ensuing information on basic information about the licensing of music. Although there are many possible arrangements which can be included in a license our focus is to provide a base foundation for which you can get the big picture regarding music licensing. Your continued research about this subject matter can and should include a more in depth study of the standard music industry practices of the use and licensing of music.
Two Primary ways to Earn Money Through Music Licensing
With that said, there are two primary ways to earn through the licensing of your music, first through upfront licensing fees and secondly through earned royalties. The legal instrument (read document or contract) which is your main form of solidifying your license with a user of your music is called a license agreement. Within this document the details of your agreement are written and agreed to by affixing the signatures of all parties involved and stated within the document. Although their names are included in the opening paragraphs of the license agreement, their signatures usually appear at the end of the document. The three key and critical points about the license agreement are that it is written down, it is signed and dated and that compensation is provided making it a legal and binding contract.
Music Licensing Agreements and your Earning Potential
As a reminder, the intent and purpose of the license agreement is to grant your permission to someone to use your music in any of the various applications and uses of music and to use it for a specified period of time. The licensing agreement is the most commonly used document or vehicle used for granting the right to use your copyrighted music in the context in which the licensing agreement provides for.
The actual use rights that you are granting can be for any type of usage or application of your music such as for radio airplay, placement in an advertisement in any form of media. Other examples of music applications include but are not limited to use in video games, television, films, movies or films. Music is frequently licensed for use also commercially for such applications as business and private websites, PowerPoint™ 1 presentations, corporate information and training videos, etc. There are many possible uses for music and there are just as many options to consider when you find yourself negotiating the licensing of your music.
Four Important Factors of Value When Licensing Music
The licensing agreement will include many provisions which designate and specify several factors which have the power to add monetary value to a license agreement. Some, in particular, are specific details or provisions which are related to time and frequency2. These are not the only factors adding value to the agreement as there are many others too. Do not confuse the definition of the phrase time and frequency with the meaning and definitions used in music composition, specifically, time signatures and note values.
Music licensing – The Time Factor – Of primary importance to time is the duration of music in terms of clock time or the length of the audible music, such as in 5 seconds, 15 seconds, 3 minutes or 45 minutes. The longer time frame usually increases the amount of royalties earned when the duration of the music exceeds approximately 6 minutes of clock time. This idea can be a negotiable factor in determining the value of the license agreement. Typically, music with less than 6 minutes of clock time has little bearing on the amount of royalties which can be potentially earned, however the use or application will have a bearing on the value of the license agreement simply due to accepted fee schedules within different media outlets or in different markets, for example.
The second aspect of time related factors is the duration in terms of calendar time. Generally we think of this as days, weeks, months or years. In some cases it can be a lifetime. In all cases the stipulation is placed within the license agreement designating the period of time the contract is legal and binding.
Both time and frequency play a role in determining the value of a license agreement. Let’s take a brief look at an example to clarify the meaning of this duality. If you were negotiating a license for the use of your music for a TV ad that has a requirement for a piece of music 15 seconds long, and the company desiring the license or the licensee wants to use it for a period of 6 months then both of these details are listed and included in the license agreement. Another example would be a 5 second TV ad running only one week for a period of three weeks. The actual monetary value of these two examples will definitely be different. The license which designates a longer piece of music, in terms of clock time and the longer period of calendar time may or may not earn considerably more than a license for a short piece as we shall see.
Music Licensing – The Frequency Factor – The number of times your music is “aired” or “played” within the specified license term is another factor related to time in so far as the designated amount of days, weeks, months or years the agreement lasts. This is a provision which can add a greater value to the license in the following way.
It is not only the length of the music in clock time or the number of days, weeks, months or years of calendar time that your music is being used to determine the total economic value of the license. It is also determined by the frequency or the number of times the ad will appear within the designated calendar time frame. A 15 second ad may run 5 times per day for 6 months or it may run for 30 times per day for three months, following our previous example. Again the latter will earn more income and possibly command more of an initial fee for the license.
Music Licensing – Professional Value and Marketability – Another factor involved in determining the value of a license agreement is based upon you as a professional composer or singer/songwriter. Who you are and how well you are known in the music market, greatly influences the value of a music license. Simply and directly put, an “A” list or famous composer or singer/songwriter will be able to negotiate the terms of the license agreement at a value considerably higher than one who is not.
You value is something you have created. It begins with the quality and character of your music. Further, writing music and playing a local bar scene or writing in your home studio for example has one economic value. Playing on a regional level or composing for various media outlets and within various genres of music has quite a different impact on your economic value in the marketplace, and so it goes.
It is wise to keep a balanced and clear understanding of your value especially when you begin to license your music. No one will pay “A” List fees to a novice composer or to a professional singer/songwriter with years of exposure, a large following, etc. It’s not about what you think you’re worth but rather what someone else will pay which determines the actual value of your work. Just like your day job in many ways.
Music Licensing – Product Placement – Venue – Placing your song in any one of many venues for marketing, distribution and use plays a key role in adding value to your music products. For example, if you place one of your songs with a movie production company to be used in an upcoming film, the actual earned moneys from that placement will be determined first on the success of the film, second on the negotiated license particulars and where in the film is your music being used.
As mentioned earlier, if your music is the main theme of the movie versus played as background music in a single scene or used during the credits roll, each has a different value to the producers of the film. The amount of possible upfront fees is directly related to the placement and use of the song in film.
Comparing that to gaining airplay of your music which is valued by the number of times your song is actually played and reported. With new music being created on a constant basis, unless you are placing well on the charts, win a Grammy Award or other major award, you may find that your music will be played for only a short period of time.
Also, it is more likely that there will be no upfront fee paid for the license to broadcast your music on the radio. The royalty earnings may be your only source of earnings in this venue. I should add that the royalties may be high if played a lot but keep in mind it better be super good music to stay on the air.
Another venue application is the stage, Broadway for example. The license value in this example will most likely be considerably different than our previous two examples. Again however, the total value of the license will be determined by the length of the performances in terms of calendar time and the number of times your music is being presented within the performance. Again, you must think of this question, is your music the main theme or one of several subordinate pieces within the performance?
What is important to think about is the value of the license is indirectly tied to the venue or the placement where your music and several other factors will influence its actual value, including what someone is willing to pay you for the use of your song.
These four specific aspects of value as related to music licensing are part of the total list of factors or considerations and they are always considered when negotiating a license agreement. However, these four will provide to you a basic understanding of the types of considerations which are part of the negotiations and which are important factors for determining the actual market value and monetary value of a license agreement. There are many possible other factors as well but these four items should never be overlooked when negotiating your licenses.
Music Licensing – The License Fee
As noted above, there are two primary fees in a license agreement. The first is the initial or upfront fee. To clarify this distinction, the actual license designates the provisions for the use of your music as well as detailing the licensing fees and royalties you can earn from the use of your music.
The license fee is generally an upfront fee which can be valued at just a few dollars per song to many thousands or tens or hundreds of thousands of dollars for a single piece of music, based upon the factors of perceived and real value presented earlier, among others.
In the early stages of your music career you may elect to waive the initial fee or offer it at a lower amount in order for you to gain music credits and to further advance your knowledge about your craft, the music license itself and the processes involved in music licensing as well as other things about the business side of music. Later on and as your real value grows as a result of demand, you will find your license fee growing too.
Quantity of Music Licenses – Over time and with repeated song placements your perceived value increases especially if you are writing really great music, think John Williams for example.
Once you have many songs “out there” you will have also increase your value based upon the number or quantity of licenses you have in the marketplace. The idea here is simply compound value or an ever increasing quantity of revenue streams, meaning songs or composition and he greater the number of licenses the greater your potential earning will be.
Imagine having 50 songs out there where each earns $1,000 per year in revenue from license fees. Yeah, really! That’s a whopping $50,000 per year in income. Each individual song is not earning you a living rather each is earning a little and when you have many out there working for you, in this earning class, it doesn’t take a thousand songs to earn a descent living. Yes, some will earn more and some will earn less, that’s part of the game but keep in mind the compound earning potential of many songs earning just a few dollars per year will give you staying power.
After gaining some favorable placements you will have the chance to negotiate a higher license fee potentially raising it significantly as a result. Rather than $1,000 per song you might be able to get $2,000 per song, etc. I believe by these examples that you can see the compound factor that influences your overall earning potential.
Caveat – Keep in mind that the fees used in these examples are only used to provide a basis for understanding the idea of compounding your earnings through music licensing by increasing the number of licenses you have working for you. The fees presented are only for example and they do not imply that you will successfully negotiate at these levels.
Music Licensing and the Exclusive License – Remember, each time you license a song the initial fee is paid to you. There are two types of licenses, an exclusive and a non-exclusive license.
An exclusive license is generally between two primary parties such as Company A and Company B (you). It is of vital importance that you understand very well that under an exclusive license agreement you are and/or will be restricted from licensing to any others for the duration of the exclusive agreement. When working with music licensing and selecting an exclusive license agreement it is very important to have a reversion clause so that when the music license term is over 100% of the copyright “rights” involved in the license reverts back to you in full.
I repeat, you can only make one exclusive agreement, within any designated time frame as stipulated in the license agreement and it is only to one party or company, in this case Company A until such time as provisions within the agreement are fulfilled. After that you can license your music again to another or the same company.
Another significant point to make about exclusive licenses is that the license fee is generally higher than that for a non-exclusive license. I’ll bring this point up again shortly.
Music Licensing and the Non-exclusive License – A non-exclusive license can be made from Company A and Company B for any duration of calendar time, even eternity for that matter. In the case of a non-exclusive license, you are free to license your music to other parties as well. That is why you can place your music on as many social or music related websites as you wish, in fact all over the Internet as many do, without breaching any otherwise exclusive music license terms.
How many times have you read the following; “…a worldwide, non-exclusive license…” when you joined up for these sights? All it is saying with that phrase is that you are free to license to others the same content you have licensed with them under the terms of a non-exclusive license agreement. Your value is diminished when you do this as how much have you earned by placing your music on all of these sites from initial license fees or royalties? Don’t get me wrong, you may have earned some but typically not from the initial license fee under a non-exclusive license arrangement. Again, music licensing is a tricky business and I strongly suggest getting and retaining good council if you go this route.
Many composers and singer/songwriters go a different route by holding back some of their music to open the door for a paying non-exclusive license or an exclusive license. If you have only written ten songs, for example, and you place all ten everywhere for free, what economic value remains in the songs, from the perspective of the license fee? In essence, there is no value remaining in the near term for songs placed for free on many of these types of websites. Granted, you gain exposure. Think about the answer to this question, at what cost it is to you and to your music for the exposure you gain from them by eliminating the value of the license fee potential for a song or composition? Is short term exposure worth more to you than long term royalty income? This is something to think about when considering the economic impact of placing your music on the internet especially when music licensing offers so much more. Think about it before jumping in.
Yes, it is important to gain exposure and some of your music should be available for public consumption. Just remember to keep some of your music available for the possibility of gaining an exclusive license.
Music Licensing Negotiation – Lastly, regarding both exclusive and non-exclusive licensing, the actual amount of each license fee is always a negotiable figure. Your value should be based upon a realistic assessment of your real value and the real value your music as marketable products. Consequently, your skill at negotiating the upfront fee for a license is contingent upon and directly tied to your current value and potential future value as perceived by those seeking your music (or by the ability of those who represent you to negotiate favorably on your behalf).
Music Licensing – Royalties and Your PRO
The second way of earning a living from licensing your music is through the royalty provisions as designated in the license agreement, (earned royalties).
Each time your music is played you earn cash. Although each “play” earns a small amount the collective number of plays, provides a strong basis for earning a decent living from accumulated royalty earnings. Royalty earnings also continue on through the life (in terms of calendar time and other stipulations) of the licensing agreement. What this means is that if you license a piece of music for a television series for example, and that it is a long series (running for years) which also goes into syndication (for more years). You earn royalties throughout the life of the television series and the life of the syndication, provided the license stipulates this royalty arrangement. This can potentially result in huge earnings for you spanning many years.
An excellent example of this would be the theme music for the long standing movie and television series which went into and continues in syndication (repeat airings of the show after the conclusion of the primary movie and subsequent television series) titled M.A.S.H. For each time the movie is played and for each time an episode is aired in which the theme song is played, cash is earned in the form of a royalty, pretty cool! The same applies for other uses, not limited to movie or television themes only the stipulations called for in the music licensing agreement.
Music Licensing – Ownership and Control – The royalty amount can provide to you, as the copyright owner, ongoing earnings depending upon the licensed use of your music. You must keep in mind that all royalties earned are paid by the PRO or performance rights organization for performances of your music. There is a writer’s share and there is a publisher’s share of the earned performance royalties.
With this in mind, the royalty payments are given to the music publisher who in turn pays the writers share to the author of the music based upon the ownership and control of the copyright and the license agreement details. This is where the disbursement process has the potential of getting complicated as you will soon learn.
Music Licensing and Publishing rights – Publishing rightsare a subset of rights within the total bundle of rights included in the copyright. Publishing rights can be negotiated, bought and sold, or given away (how dare you!) to gain the benefits offered and attained through a music publishing company and their ability to market your music. In both cases the writer and the publisher must join a Performance Rights Organization or PRO, companies such as BMI, ASCAP, SESAC and others. Links to these organizations are provided below.
One of a music publisher’s jobs is to market and sell your music in the open marketplace. This means to sell licenses or to gain placements of your music in any one or possibly many outlets. To “sign” with a music publisher it is necessary that you do due diligence in locating one which will actually promote you and your music rather than put your music in a desk drawer or file cabinet never to be seen or heard from again. This is one of the risks you take when signing an agreement to promote your music via a music publisher.
The goal here is to gain placements and “airtime” for as many pieces of your music as possible which, through the provisions designated in the licensing agreement for the use of your music, pays you a royalty on each song and on each performance of each song. Cumulatively, it is very possible to earn a super decent living just through your earned royalties. The best part about this is, should the license agreement continue beyond your natural lifetime, the royalties continue to be paid to your heirs until the license agreement terminates. This means that it is possible that a license can provide an income for your children and possibly for your grandchildren. Now that is an absolutely amazing thing!
As a reminder, royalties and licensing fees are paid to the writer and to the music publisher. Keep in mind that these fees and earnings are shared by the publisher and the writer as provided for in the publisher’s agreement you have signed with them.
For example, if you are the composer or singer/songwriter and you are also the publisher, then you own 100% of both the writers share and the publishers share and therefore you keep 100% of the total earned income from the performance royalties earned. That’s not only pretty super cool but it is also the easy part of this explanation.
If you, all by yourself, own the writers share and another company owns or controls 100% of the publishers share of earned royalties and licensing fees then the total is split right down the middle, you only get 50% of the total earned income as the writer. The remainder of the earned royalties and license fees, due to the ownership or control of the publishing rights and as designated in the license agreement, is paid to the publisher, in this case 50% of the total earned royalties and licensing fees. The two of you split the pot right down the middle. Still, fair and simple, I think you would agree.
Please read carefully – It can get considerably more complicated than that based upon the number of writers involved and the percentage of ownership controlled by each writer and the ownership percentage and control of the publishing part (and the number of people owning the publishers share) of the license fees and the royalty income. As you can tell it can be pretty complicated at times. I would suggest to you to keep it as simple as you can. In all cases it is best to hire a music attorney!
Also, because earned royalties and licensing fees are split according to the terms stipulated in the license agreement and as per any publishers agreement it becomes apparent that you had better negotiate and retain as much of the publishing as you can. We would like to suggest reading our page about music publishing as this will help you understand even more of the effects of involving your self with an outside existing publishing company or you may take a different road whereby you self publish, keeping all of the earned royalty and license income.
Music Licensing – Legal Support
Music licensing provides a basis of earning money through the use of your music. We strongly suggest that you take whatever amount of time is needed for you to learn all you can about music licensing before going into negotiations for and/or signing a license agreement with another company. Otherwise and it would be to your advantage, we also urge again that you seek out professional and legal support through a music licensing attorney. The attorney will help you to make sure the licensing agreements are fully legal and that they are structured as best as possible in your favor.
Should you hold both the publisher and the writer position it is still best to retain an attorney when it comes to the use of any license agreement. Aside from being of great importance that the agreement is legal in the first place, it is also necessary to utilize their expertise as well as any possible industry contacts that may help you find licensees for placement of your music.
We also recommend that you use due diligence when locating a music attorney. Doing your homework about the attorney will help you to feel secure knowing you have someone on your side. Further, but it will also reduce the chances of getting involved with licensees who may not have your best interest in mind.
In conclusion, licensing music is an excellent way for you to earn a living as a composer or as a singer/songwriter or as a band who writes their own music. We urge that you seek legal counsel at all times. Further, we would suggest you study and/or review as much information about music licensing and copyright as possible. The more you know the better your chances of success!
StringTunes – Music to Soothe Your Soul!
References and Information
1 PowerPoint™ is a trademark of Microsoft and it is being used in this document solely as a descriptive word used to assist in defining the meaning of a type of presentation as referred to herein.
2 Time and frequency are defined herein in terms of clock time and calendar with regards to how long in duration the music is, for how long in days, weeks, months or years is the license valid and in terms of the number of times music is played and countable. These are factors which determine the amount of royalties payable to the copyright owner.
The following links are provided as a short list of important resources for you. The organizations included offer information and additional resources for the music industry. All are involved in the support of their members or those who seek information relative to their specialty.
Music Licensing – Related Links
- U.S. Copyright Office – promoting progress of the arts and protection for the works of authors. A part of the US Library of Congress, offers a vast resource for all things related to copyright as well as the needed forms for filing and or digital filing for a copyright.
- AARC (Alliance of Artists and Recording Companies) – is the leading US organization protecting the rights of featured artists and recording companies in the areas of home taping and rental rights.
- ASCAP (American Society of Composers, Authors and Publishers) – one of the leading performance rights royalty collection agencies. ASCAP protects the rights of its members by licensing and distributing royalties for the non-dramatic public performances of their copyrighted works.
- BMI (Broadcast Music Incorporated) – one of the leading performance rights agencies. BMI collects license fees on behalf of songwriters, composers and music publishers and distributes them as royalties to those members whose works have been performed.
- Harry Fox Agency (mechanical licensing, collection, and distribution agency for music publishers) HFA is the nation’s leading provider of licensing and royalty calculation and distribution services for the music industry.
- AIMP (Association of Independent Music Publishers) – AIMP educate and inform music publishers about the most current industry trends and practices within the area of music publishing.
- RARoyalties.org (AFM & AFTRA Intellectual Property Rights Distribution Fund) The AFM & AFTRA Intellectual Property Rights Distribution Fund was formed for the purpose of distributing royalties from various foreign territories and royalties established by government statute under U.S. Copyright Law.
- SESAC – SESAC was established as one of three leading performance organizations designed to represent songwriters and publishers and their right to be compensated for having their music performed in public.
- SoundExchange – Collector and distributor of digital performance royalties -The Copyright Royalty Board, which is appointed by The U.S. Library of Congress, has entrusted SoundExchange as the sole entity in the United States to collect and distribute these digital performance royalties on behalf of featured recording artists, master rights owners (like record labels), and independent artists who record and own their masters.
Making Money via Music Licensing