How Music Licensing Works

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.