Session 2Session 2

Royalties, Licensing Royalties, Licensing and and

Income StreamsIncome Streams

Before you can make a buck from something, it’s not a bad idea to know what it is. According to law, you can copyright :

• Literary works• Musical works• Dramatic works• Pantomime choreographed works• Pictorial, graphic and sculptural works• Motion picture and other audio visual works• Sound recordings• Architectural works

The music business is concerned with these copyrights:

• Musical works

• Sound recordings

• Motion picture and other audio visual works

Publishing is the part of the business that exploits these rights to maximize their value.

Before you try to realize any income from your copyrights, make sure they are in order. Here is a quick look at the U.S. copyright process.

The music publishing business offers music users the right to use recordings and/or musical works from music creators in exchange for a fee.

The fees are collected by a variety of means including performance rights organizations (PRO’s) like:

These companies collect money for public performance (radio, television, major live venues) of their members music and then distribute it to the member writers and publishers.

Other companies collect money for other types of uses like satellite radio, internet radio, cable TV radio, cover versions of songs by other artists, etc.

The term “Royalties” can have a lot of different meanings.

• Mechanical Royalties, are paid to the writer of a song when someone does a cover version of their song. These royalties are usually collected by the Harry Fox Agency (HFA) and distributed to publishers, who then give a percentage to the writers.

• Performance Royalties are collected by PRO’s, ASCAP and BMI, for public performance of a work (radio, TV) and then distributed to publishers and writers directly by the PRO.

• Record Royalties from sales of CDs or other forms of music are typically a percentage of adjusted MSRP paid to the artist after the record label has recouped all their expenses and deducted everything you can imagine. The percentage is typically between 10% and 20%.

Just for fun (and to see why we need to find a better way) let’s look at that last one a bit more, which we will cover in greater detail in Session 4.

$1.02By 10% Royalty Rate

$10.20By 85% Payment Base

$12.00Less 25% packaging discount

$15.95MSRP

So if a label spent $250,000 to make and market a recording, all of which is recoupable, and the recording sells about 250,000 copies, you and your band mates have earned about $5,000 to split however many ways. Better hold off on buying that yacht.

Licensing is another term that has a variety of meanings. The term refers to the business of granting or receiving licenses to use a musical work.

A Licensor has a product and is the grantor of the license (the creator).

A Licensee is the entity to whom the license is granted (the user).

In recordings (audio only) there are several types of licenses:MechanicalMasterPerforming

In audio visual works (film, TV, videos):SynchronizationMechanicalMasterPerforming

Income streams in the music business come from the granting and using of these licenses and rights, and the different payments are derived from these uses.

You can make money in the business from all of these sources (most of which involve some or all of the previously mentioned rights and licenses):

• CD sales• Downloads• Satellite radio• Cable TV Radio• Internet Radio• Streaming• On-Demand• On-premises licensees (Muzak, DMX, PCM)• Music for films• Music for TV and Cable• Corporate Videos• Product Tie-ins• Live performances• Sponsorships and endorsements• Music and Sample Libraries• Teaching, blogging, websites, information• Playing guitar and putting a cup on the sidewalk

Yay! Back to good news. Let’s talk about some of these…