Making Money Through Music Licensing

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, 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 on a full time basis. In order to license music you need to own the copyright for it. Assuming that is the case you are then free to pursue locating potential licensees who in turn will use your music. In this way you begin to earn money from your creations.

The License Agreement – An Overview

The licensing agreement is the document which ties together two or more parties with hopeful anticipation of mutual benefit. It is also, the vehicle used for granting the right to use, distribute and sell your music in the context of the terms and conditions stated in license agreement. In the context of this article, the composer (or songwriter’s) side  and the user side of the license agree to fulfill their portion of the terms and conditions included in the agreement. They come together in a meeting of the minds, if you will.

The composer agrees to grant to the user the rights to use, sell and distribute their music. This enables the user to proceed doing business in the marketplace. They also place a monetary value in the form of compensation which is also based upon the terms of the agreement.  In that sense, a license agreement is a binding contract between two or more parties.

Administration of Licenses

Licenses fall into several main categories. When licensing music it is important to know which category of rights you are negotiating for. The main six categories of music licensing are tied to the kind of use the music is planned for. The bundle of rights is broken down into several categories each of which are listed below along with a brief explanation.

Bundle of Rights

Master Use Rights – of or related to the right to reproduce an existing sound recording of music

Mechanical Rights – of or related to physical products – the production, marketing, sales and distribution of them.

Performance Rights – of or related to the performance of music.

Print Rights – of or related to the manuscripts, notation books and other forms of music in print.

Sync Rights – of or related to synchronizing music to film, television, presentations, etc.

Digital Rights – of or related to digital products.

It is quite common to have licensing of music administered by a third party. The most well known mechanical licensing and administration organization is HFA or the The Harry Fox Agency. HFA acts like a clearing house for mechanical licensing of music making it much easier for the  administration of these rights.

The actual use of your music can be for any purpose or type of usage such as radio airplay, placement in an advertisement in any form of media and further, for use in video games, television, films and movies even for use commercially for websites, 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. You must do due diligence when negotiating a license agreement and clearly define which classification or category of rights you are negotiating for.

The Music License – General Provisions

Within the actual license text, provisions are usually included which (simply put) covers the use, sale and rental of your music. Other license provisions may include details about the production, reproduction, distribution, sub-licensing and other associated digital and physical product sales contingent upon the scope of the license agreement. You are a brand with value. All things related to you, your music and your business are merchantable and thereby they are all products through which you can financially gain for your creative efforts. These provisions are of utmost importance. They do after all transform into the fruits of your labor.

Two Types of Licenses

From a global perspective, there is a major distinction which needs an immediate explanation before proceeding to additional information about music licensing. This distinction has many colors but most frequently two types of licenses are possible between different parties. The first is an exclusive license and the second is a non-exclusive license. Let’s take a look at each type.

The Exclusive License - Each time you license a song the initial fee is paid to you so the type of license in terms of exclusivity is also a determining factor of value as well. If you secure an exclusive use license the upfront fee is usually higher than a non-exclusive use license of your music. An exclusive license is generally between two primary parties such as company A and Company B (you). You are restricted from licensing to others in an exclusive license agreement. I repeat, you can only make one exclusive agreement within any designated time frame and it is only to one party or company, in this case Company A until such time as the calendar time factor or calendar time provision is met. After that you can license your music again to another or the same company.

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. In the case of a non-exclusive license, you are free to license your music to other parties as well. The actual amount of each non-exclusive agreement is always a negotiable figure. Consequently, your skills at negotiating the upfront fee for the licensed use of your song is contingent upon and tied directly to your negotiation skills and your perceived value in the marketplace. Also, in a non-exclusive license agreement you can license to any number of other companies for the use of your music.

Four Key Factors Adding  Value

The licensing agreement will include many provisions which designate and specify many factors which add monetary value to a license agreement. Some, in particular, are specific details which are time and frequency related. These are not the only factors adding value to the agreement as there are many others too.

Clock Time Factor – Of primary importance to time is duration in terms of clock time or the length of the music, such as 5 seconds, 15 seconds, 3 minutes or 45 minutes. How long, in terms of calendar time, the license will run is another factor such as when placing a musical work in a TV advertising spot planned for use over a span of three weeks versus six months.

Calendar Time Factor – For example, if you were negotiating a license for the use of your music for a TV ad that has requirement for a piece of music 15 seconds long, and the company desiring the license or 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.

Frequency Factor – To further your understanding of time factors influencing a licensor’s value, you will want to think in terms of frequency.  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 which determines 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 demand more of an initial fee for the license.

Fame Factor – Another factor involved in determining the value of a license agreement is based upon who you are and how well known you are as a composer or singer/songwriter. 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.

These four specific factors are the base factors for determining the value of a license and they are only  part of the total list of factors influencing the economic value of a music license. However, these four will provide you a basic understanding of the types of considerations which are part of the negotiations and which are important factors for determining the market value and thus monetary value of a license agreement. There are many possible additional factors as well but these four items should never be overlooked when negotiating your license agreements. As a creator of new music, your livelihood depends on it.

License Fees – Two Types

There are two main types of license fees. The first is the initial license fee and the second is the royalty fee. These are separate fees based upon different sets of criteria. We will first proceed with the license fee followed by the royalty fee.

The License Fee

Typically, there is an initial or upfront fee. Please remember that this license fee is separate from and in addition to the royalty fee.  The licensing fee can be just a few dollars to many thousands of dollars for a single piece of music. The license fee is based upon the factors of both perceived and real value. The licensor determines the value your music is to them and negotiates from this position. You also have the option of determining the fee you are willing to agree to. You may elect to waive the initial fee or offer it at the negotiation table at a price of your choosing. You negotiate from their.

New composers or singer/songwriters who do not have a “name” may need to start at a lower rate especially in the early stages of your career. In some cases your decision to agree on the license fee may be based purely upon gaining music credits. Later on when your perceived value increases, your negotiation skills improve and your knowledge about how selling music works, your income from license fees will increase.

Over time and with repeated song placements your perceived value increases especially if you are writing great music, think John Williams for example. Once you have many songs “out there” you will have increased your value and your income based upon the number of licenses you have in the marketplace. This is where your total earnings can be compounded assuring you an excellent annual income even if the license fees are smaller.

Further, after gaining some favorable and more noticeable placements your perceived value continues to increase. Now you will have the chance to negotiate higher license fees, in fact, you gain the ability to raise them significantly.

The Royalty Fee

The second way of earning a living from licensing your music is through the royalty provision in the license agreement. 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. Earnings also continue on through the life (in terms of calendar time) of the licensing agreement. What this means is that if you license a piece of music for a television series for example, and it is a long series which also goes into syndication. You earn royalties throughout the life of the television series, provided the license stipulates this royalty arrangement. This can potentially result in long term earnings for you.

An excellent example 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, 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 license agreement.

The goal here is to gain as many licenses as possible which, through the provisions designated in the licensing agreement for the use of your music, pays you a royalty on each song played. Cumulatively and again, it is very possible to earn a super decent living just through your royalty earnings. 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 to provide an income for your children and possibly your grandchildren. Now that is an absolutely amazing thing!

Ownership, Control and the PRO

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 performance royalties earned are paid by the PRO or a performance rights organization. The three most common and well known PROs in the US are BMI, ASCAP and SESAC. These organizations collect and distribute monies earned through the performance of the music included in the license agreement.

There are two “positions” involved in the royalty payment process which is based upon any existing contractual writer/publisher agreements. These agreements establish the ownership and control of the copyright. There is the writer’s share and the publisher’s share.

Publisher’s Share – Publishing rights are a subset of the total rights within the bundle of rights included in the copyright. Publishing rights can be negotiated and sold, or given away (how dare you!) to gain the benefits by owning publishing rights. As a music publisher, you must join a Performance Rights Organization or PRO which tracks and pays earned royalties to the publisher of record for music performances.

Writer’s Share – The original creator of new music holds the writers share of the music in total, 100%. Should a composer sell or give away a portion of or the entire the copyright then the original composer receives income based upon the percentage of ownership. Checks in your mailbox from your PRO is a welcomed sight indeed!

The Weird Stuff

Keep in mind that royalties and licensing fees are paid to the writer and to the music publisher and royalties are shared by the publisher and the writer as provided for in the writer/publisher agreement as are the licensing fees as detailed in the license agreement. If you are the composer or singer/songwriter and you are also the publisher, then you keep 100% of the total earned income from your music. 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 though. The remainder of the earned royalties and license fees, due to the ownership or control of the publishing rights as designated in the license agreement, is paid to the publisher, in this case 50% of the total earned royalties and licensing fees. Still, fair and simple. I think you would agree.

Here’s where it gets weird – The ownership can change hands based upon the owners decisions to sell a portion of their rights in the music. In fact, it can get considerably more complicated 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 earned 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 hire a lawyer! I told you it gets weird.

Also, because earned royalties and licensing fees are split according to the license 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 making the decision to self publish.

Legal Support

As presented in this article, licensing music 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 before going into negotiations for securing a license for your music. Otherwise, we also urge that you seek out professional and legal support through a music 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.

Conclusion

In conclusion, licensing music is an excellent way for you to earn a living as a composer or as a singer/songwriter or 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!

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Earn all you can through music licensing!