It is very important to understand that there is a bundle of rights exclusive to a copyright owner. This bundle of rights includes the right to reproduce, distribute, and perform copyrighted material. Furthermore, these rights can be exercised by anyone that the creator or original owner of the copyright authorizes to do so. Usually, to authorize others to use a copyright, the owner of the copyright will enter into some type of licensing agreement. As far as the music industry goes, the most common types of licenses are performance licenses, mechanical licenses, synchronization rights, and print licenses.
Performance licenses are usually granted to radio, television, concert venues, businesses, and other places so that they can play your songs publicly. The money you receive from these licenses is commonly referred to as a royalty. And we all know what that means: mailbox money! There are a lot of songwriters out there who will never have to work again because some songs they wrote a very long time ago are still raking in the money due to licensing and exploitation of those copyrights.
In other words, when you hear a song on the radio, in a club, or some other venue, the performing rights societies (BMI, ASCAP, and SESAC) have negotiated a blanket license with that radio station, club, or venue so that these venues can play your underlying musical work as recorded music. A blanket license is merely a flat fee or pro rata fee that is charged by the licensing organization so that the copyrights in their catalogue can be performed publicly. The money from these blanket licenses is collected by the performing rights societies and paid both to the publishers of the music and the writers of the underlying musical works who are members of these societies, based upon a specialized formula from licensing organization to licensing organization. That is designed to pay out money to copyright holders based upon chart positioning, record sales, and a number of other factors.
When you go into the grocery store or are on an elevator and you hear the latest song by a new artist being covered by an elevator music band, the company that releases that elevator music is charging money for that elevator or grocery store to play its music. In turn, that music company has to pay a royalty to the writer of the underlying musical work for playing his songs. Furthermore, since Muzak and similar companies are creating derivative works, they have to obtain permission from the copyright owners. If you are an affiliated member of one of the licensing organizations as a songwriter, your performing rights organization will collect those performance license fees and pay the pro rata share to the writer and publisher of the songs. Your performing rights organization will also collect all other performance royalties from concert venues, businesses, and the like, and pay you and/or your publisher based upon the computation and pay schedule that your performing rights organizations uses.
Mechanical licenses are granted for the right to make mechanical reproductions in the form of sound recordings of the underlying musical work. They are usually granted to your record company or other artists so they can reproduce and distribute other versions of your underlying musical work on CDs, cassettes, and the like. These companies or individuals that make copies are required to pay the writer or copyright owner a percentage of the sale price for each mechanical copy that they sell. The amount that is due depends when you make the copies. The publishers and music industry negotiated a flat rate in 1998, and as of 2004 the rate is 8.5 cents per copy. In 2006, the rate will go up to 9.21 cents per copy, but the requirement to pay is statutory, and unless negotiated again, Congress will set the rate. Mechanical royalties are due monthly as you sell CDs, and failure to pay these royalties could cause any license you may have to be terminated, and worse, could make you subject to copyright infringement and all of the problems that can create.
There is also something called the compulsory mechanical license that you should be aware of. The compulsory license was introduced under the 1909 Copyright Act to prevent publishers from having a monopoly on reproductions of music. The 1976 Copyright Act also made provisions for compulsory licenses, and the basic premise is that once a song has been released in a phonograph (or other reproduction), anyone has the right to reproduce or make a cover recording of that composition. It also provides that the copyright owner has the absolute right to control the first recording of that song. However, after the song has been released, the copyright owner cannot prevent anyone else from releasing his or her own version of that song. It’s important to note here that the compulsory license only applies to non-dramatic musical works. If you want to release a cover song, you must obtain a compulsory license. To do so, you must file a Notice of Intention with the original copyright owner and with the Copyright Office. You must also pay the statutory mechanical royalties as set out previously. However, if you change the music substantially, that will be considered a derivative work and you will have to obtain permission from the copyright owner to do so.
It is important to note that many record companies do not want to have the accounting hassles of having to pay out money each month to the copyright owners, as provided for in the Copyright Act for compulsory licenses. Therefore, they will negotiate a mechanical license with the copyright owners so that they may make payments quarterly, and also so that they pay only royalties on actual records sold, and not just records made or shipped. They may also make provisions for reduced rates for record clubs or controlled compositions clauses.
Finally, many record companies, publishers, etc., actually use a mechanical licensing agency to collect mechanicals for them.
Synchronization rights are paid out as a percentage, but more often as a negotiated license fee for use of music in television, film, or commercials. It can be extremely lucrative to have your song placed in these markets. For instance, the theme music of a very popular television show can be a tremendous earner for the songwriter. But even if you have one of your songs played in the background in a movie, it is still a moneymaker and can give a tremendous amount of exposure to your band or your songs. For instance, let’s say that the actors in the scene are walking down the street past a bar that has music blasting out of it. Rest assured, that song has been licensed, or they could not use it without being made a party to a copyright infringement suit.
Any use of your music in film, television, or commercials will bring you money in the form of royalties. Print licenses are obtained for companies that produce sheet music or songbooks. Most of us musicians started out practicing with a songbook with the music and words printed out, so that we could learn the songs. Even though the chords and music are often changed from the original version or the tablature is not exactly perfect, the companies that produce this printed material still have to pay a royalty for every copy that they sell throughout the world. So whenever you see printed sheet music, lyrics, and chords, they represent money to the songwriters. It may not be a killing, but you can bet that it’s still a good deal of money, especially if the song that is printed is an extremely popular one that is sold to schools, churches, music stores, and the like.
Of course, there are a lot of other ways that your song could earn money. If a portion of your song is put on a tshirt, you can negotiate a royalty for that. In fact, if your song or even a portion of your song is used in just about any medium, you have the right to be paid for it.