How Music Licensing Works

Recording song in a professional music recording studio Michael Kai / Getty Images

Let's say you are reading Rolling Stone magazine, and you find an article about an ad campaign that Phillips has launched. The ads feature the Beatles hit "Getting Better". In the article you read this:

But according to the licensing expert, the company no doubt "paid a fortune" for the Beatles hit: an estimated $1 million. The source suspects Gomez made no more than $100,000.

This ad campaign is using the Beatles song as the theme music. It is also using the voice of the lead singer of the band named Gomez laid on top of the Beatles original. The speculation is that Philips paid $1 million to use the song, and that Philips paid the band Gomez $100,000.

This is the world of music licensing -- a world where the rights to use music are bought and sold every day. This world is most obvious to us in a case like the one described in this example. A popular song that everyone knows gets embedded in a TV commercial or a popular movie.

It turns out, however, that music licensing is something that happens constantly, all around us. When you listen to music on the radio, that music is licensed. When you hear music in a restaurant, that music is licensed too. In this article, you will have the chance to learn about all the different forms that music licensing can take.

The Basics

Music licensing in the United States is made possible by the protection that U.S. copyright law provides for artists. According to this article from the U.S. copyright office:

The copyright code of the United States (title 17 of the U.S. Code) provides for copyright protection in sound recordings. Sound recordings are defined in the law as "works that result from the fixation of a series of musical, spoken, or other sounds, but not including the sounds accompanying a motion picture or other audiovisual work." Common examples include recordings of music, drama, or lectures. Copyright in a sound recording protects the particular series of sounds "fixed" (embodied in a recording) against unauthorized reproduction and revision, unauthorized distribution of phonorecords containing those sounds, and certain unauthorized performances by means of a digital audio transmission. The Digital Performance Right in Sound Recordings Act of 1995, P.L. 104-39, effective February 1, 1996, created a new limited performance right for certain digital transmissions of sound recordings.

So a sound recording is just that -- a recording of sounds.

There are several things that can be copyrighted in any sound recording for a song.

There are the actual sounds themselves -- the performance of the work.
There are the notes that the musicians play to create the song -- they could be embodied in sheet music.
There are the lyrics for the song -- they can be written down on a sheet of paper.

**According to the the U.S. copyright office, copyright protection extends to the contribution of the performer(s) whose performance is captured.**

For example, let's say I sit down and I write a piece of music and entitle it "Electric Snik". I record it onto a tape using an electronic keyboard:

Click here to hear Electric Snik

Let's say that I also come up with lyrics for a song called "She's So Incredible" that I sing to the melody of "Electric Snik". Now I play "Electric Snik" and I sing "She's So Incredible" while recording it on a tape recorder. If I send the tape to the U.S. copyright office with the proper forms and the registration fee, I will own copyrights for the song, the lyrics, and the actual performance recorded on the tape.

Technically, the registration process with the copyright office is not officially necessary in order for me to own the copyright. I actually own the copyright as soon as I create the song and write it down. However, to enforce the copyright in court, registration is required.

Once I have the copyrights, I can sell rights to the song if I choose to, and I can also prevent anyone else from using the music, the lyrics or the actual performance of the song. I "own" the whole song and all the rights to it. I can license the song in any way I choose.

Licensing the Song

In the case of a "real song", like something you would hear on a top-40 radio play-list, there are several different parties involved with the song:

The label owns the actual sound recording -- the performance of the song as recorded in the label's studio.
The publisher works on behalf of the song's composer (the person who arranged the music) and songwriter (the person who wrote the lyrics). The composer and songwriter probably own the actual copyrights for the song, and the publisher represents them in all business dealings.

If you want to use a song for any reason, you have to somehow obtain rights at least from the publisher, and possibly from the label as well (if you are planning to use a specific performance). Here are just a few examples of when you need to obtain rights:

You own a radio station and you want to play a song on your station.
You own a restaurant and you want to play songs as background music.
You are making a commercial and you want to use a song in the commercial.
You are making a toy and you want it to play a song when a child pushes a button.
You are making a video production and you want a song as background music.

Perhaps half a billion dollars trade hands every year through licensing fees.

**With each of these American Idol contestants performing hits from famous recording artists, obtaining music rights must be a big concern for the folks at FOX.**
Photo courtesy FOX

ASCAP and BMI

If you own a radio station or a restaurant and you want to broadcast or play music, what you need are public performance rights-- the right to play music that the general public will hear in one way or another. Obviously, if you own a radio station playing 300 or 400 songs every day, you would go insane if you had to obtain public performance writes from every label and publisher. Therefore, public performance rights licensing is now handled by two very large companies named ASCAP (American Society of Composers, Authors and Publishers) and BMI (Broadcast Music Incorporated) that simplify the process. Each one handles a catalog of about 4,000,000 songs.

A radio station will typically purchase from ASCAP and BMI what are called blanket licenses to broadcast music. A blanket license lets the station play anything it likes throughout the year. ASCAP and BMI decide how to divide up the money among all the rights owners.

Any establishment that wants to play music that will be heard by the general public needs a license as well. If you go to the Forms section of the BMI Web site, you can find a list of dozens of forms to cover every different type of establishment that you can imagine.

Let's consider this example -- a skating rink that wants to play music for its skating patrons needs to fill out this form. The schedule of fees is right on the form. If you own a rink that has 15,000 square feet of skating area and you charge customers $5.00 to skate, you own a class 6B establishment and you need to pay BMI $205 every year. You would need to do the same thing for ASCAP.

Technically, anyone performing music publicly anywhere has to pay:

If you are in a marching band playing in a parade and the song you are playing is an ASCAP or BMI song, the band or the parade organizers have to pay.
If you are an aerobics instructor using music in a class, you have to pay.
If you are a street musician, you have to pay.

If you do not pay and you get caught, you can be sued. Beware, the fines are pretty steep -- sometimes thousands of dollars.

Music, May I?

Here are just a few examples of the establishments covered in the forms section of the BMI Web site:

Airport
Amusement/Theme Parks
Athletic Clubs/Dance Classes
Bowling Centers
Colleges and Universities
Competitions/Shows
Eating and Drinking Establishments
Festivals/Special Events
Hotel / Motel
Local Governmental Entities
Local Television
Meetings, Conventions, Trade Shows, and Expositions
Musical Attractions - Promoters/Presenters
Radio Station Interim
Retail Establishments
RV Parks and Campgrounds - Multiple Use
Shopping Center
Skating Rink
Symphony Orchestra
Web Site

Commercials and Film

If you want to use a song in a TV or radio commercial, you need a Master Use license from the label (unless you are re-recording the performance) and a Synchronization license (TV) and/or a Transcription license (radio) from the publisher.

According to the book "All you need to know about the music business" by Donald Passman, "The fees for synchronization licenses are really all over the board, and they vary with the usage and the importance of the song." For example, Passman's book mentions some fee ranges:

Low-end TV usage (e.g. -- music is playing from a jukebox in a scene, but no one in the scene is paying any attention to the music) -- free (for exposure) to $2,000 for a 5-year license. In a film, the fee would be $10,000 in perpetuity.
A more popular song is worth more, perhaps $3,000 for TV and $25,000 for film.
A song used as the theme song for a film might get $50,000 to $75,000.
Commercials fetch even more money: "a song can command anywhere from $25,000 to $500,000 plus per year. The typical range for a well-known song is $75,000 to $200,000 for a one year national usage in the United States, on television and radio."

Generally you would obtain the licenses you need through some sort of clearing organization that handles licenses on a daily basis. For example, see LicenseMusicNow.com.

**With songs from Faith No More, the Violent Femmes, David Bowie and The Clash, the music licensing fees for the film "Grosse Point Blank" and its CD soundtrack were probably fairly pricey.**
Image courtesy Amazon.com

The tale of "Happy Birthday to You"

The song "Happy Birthday to You" is an example of just how interesting the world of licensing is. Think about this song -- it is only 6 notes. Yet it is one of the best known songs in the world. It was written in 1893 by Mildred and Patty Hill and first published with the words, "Good morning to you".

The words "Happy Birthday to You" were first seen in print in 1924, although the author is unknown. Copyright was registered in 1934 in a court case involving a musical called "As Thousands Cheer" by Irving Berlin. The Clayton F. Summy Company became the song's publisher in 1935. Through a series of purchases and acquisitions, the song now belongs to AOL Time Warner. ASCAP represents the song for public performance licensing.

The copyright to "Happy Birthday to You" should have expired in 1991, but the Copyright Act of 1976 extended it, and the Copyright Term Extension Act of 1998 extended it again, so the song is protected until 2030 at least.

"Happy Birthday to You" brings in about $2 million per year in licensing fees according to this article. If you ever hear the song in a movie, TV show or commercial, a licensing fee has been paid. Any manufacturer making a toy that plays the song pays a licensing fee. The manufacturer of any musical card playing the song pays a licensing fee. And so on... This 6-note song is big business!

Other Licensing Scenarios

There are many other situations where you need a license to use music. Here are several examples:

You want to create a new song that uses samples of other songs. Even if you are using just a few notes, you need to obtain licenses through an organization like LicenseMusicNow.com. Otherwise, you will end up paying even more in penalties when the song is played in public.
You want to play music in your lobby, elevator, restrooms, etc. You either need to obtain performance licenses from ASCAP and BMI, or you need to contract with a company like Muzak, which handles all the licensing for you.
You want to play music in your small restaurant. You have three choices. Technically, you can play the radio. But in that case your customers will be listening to all the commercials, which they may not appreciate. You can play tapes or CDs. In that case you need to file with ASCAP and BMI for blanket licenses. Or you can contract with a commercial music services firm like Muzak.
You are making a yearbook DVD for school, a wedding video, etc. and you want background music. You cannot legally use songs off a CD for these purposes. That forces you to look for production music -- music produced by companies specifically for these applications. The simplest example of production music is the kind of music you get when you buy sound effect files and music clips on a CD. A place like Music Box offers complete songs in many different styles.

To see how particular things can get, consider this example:

Let's say you have a cheerleading squad at your high school and you buy a CD from a place like Power Music for your practice sessions. Now you want to play the CD while your squad performs at a basketball game. The school should have waivers for ASCAP and BMI for that, but you need to make sure. If a local TV station wants to broadcast the game, there is a problem if you perform to the music because that is a retransmission of the music. Then if you want to video tape your squad performing to the music and sell the video tape, you have the same sort of retransmission problem. There are so many problems, in fact, that Power Music offers a FAQ on it. In the FAQ it says, "Over the years our writers and producers have created hundreds of songs that are available for video license. Since we own the recordings and the compositions we can grant you the license to manufacture videos with music from our catalog."

In other words, about the only time you do not have to pay to use music is when you are sitting in your home or automobile listening to the radio with your family. And in that case, the radio station paid for you to hear the music with blanket licenses from ASCAP and BMI, and you pay by listening to the station's commercials. Every other possible use of music legally requires the payment of a licensing fee.

For more information on music licensing and related topics, check out the links on the next page.