What Makes Licensing Music So Complex?

What Makes Licensing Music So Complex?

February 20, 2017

updated September 4, 2017

Remedy Entertainment recently stated it was removing its popular psychological game Alan Wake from Xbox and PC platforms because the developer's rights to the licensed music in the game's soundtrack is expiring. [Note 1]  What happened?  The answer lies in the labyrinth-like world of music licensing.

You hear music around you every day — while at a restaurant or sporting event, as a ringtone, in a video game, movie, or TV commercial, or while you’re listening to a radio, an Internet streaming service, or an airplane’s music channels.

Copyrights and Licensing

Almost all of the music you hear is protected by copyright, which gives the party that owns or controls the copyright certain exclusive rights to the music (we'll call this party the "rights holder").  These exclusive rights relate to different uses of music (such as reproducing, or making copies of, the music), and the rights holder, generally, is the only party that can use, or permit others to use, the music subject to the rights holder's copyright.

This means that in most instances the party using copyrighted music must obtain a license from the rights holder for the particular use.  With respect to music, a license is permission to do something that would be unlawful without the license; for example, using music in a movie typically requires a synchronization license.  

Licensing in general is a familiar activity and usually is a simple process.  You’re probably licensed by your state to drive a car, and the process to obtain a regular driver's license is not complicated.  But licensing drivers also illustrates some possible complications with licensing.  For example, if you want permission to drive for certain purposes, such as to chauffeur other people around for pay, or to drive a large truck, you’ll probably need other types of licenses and vetting in addition to a standard driver's license.

Licensing music, unfortunately, is much more complex than, say, getting a driver’s license. In fact, even when compared with licensing other entertainment content, such as movies, music licensing is in a world of its own.

More and more individuals and companies are discovering this, often to their chagrin.  Services ranging from cable TV networks, to airlines, to Internet streaming services have a huge demand for content (and, in particular, music content), and almost all of that music content is controlled by third parties.  These services, therefore, must license the music they need from the rights holders in order to maximize their service's offerings, and these services are finding that doing so is not so easy.

Why is the process of licensing music so complicated?  A full explanation could be the subject of its own book, but in general you should know that the unique complexity of licensing music derives from four main reasons:

Two Distinct Products

First, musical product is comprised of two distinct “products”, each of which is protected by its own copyright: the musical composition (or song), and the audio recording that contains a performance of a musical composition.

When you want to use third party music, you (or more likely your legal representative) therefore must first determine which of these two products are being used — a musical composition or a recording.  Using a recording means using that recording and the composition contained in the recording, so most uses of a recording require licenses for both the recording and the musical composition in that recording.  On the other hand, using just a third party composition requires a license for that composition only.

Multiple Rights Holders

The second complicating factor derives from the fact that multiple rights holders often control the copyright to a recording or musical work:  The copyright to a particular recording or musical composition might be controlled by two or more rights holders throughout the world, or by different rights holders in different parts of the world, or an arrangement might exist that combines both of these alternatives. And sometimes, different rights holders control different rights under copyright in one or more countries.

The first situation – where two or more rights holders control the copyright – is common with musical compositions. This is because most compositions are co-written by two or more persons, and, typically, each co-writer (or his or her music publisher [Note 2]) controls a part of the copyright in the co-written composition.

For example, of the five compositions nominated for the 59th annual GRAMMY award for “Song of the Year” (presented in February 2017), two compositions had four co-writers, one composition had three co-writers, one composition had two co-writers, and one composition had one writer. [See note 3]

The second situation – where different rights holders control a copyright in different parts of the world – might exist when one party gets exclusive rights to a recording or musical composition for a limited group of countries (such as the United States and Canada), and another party is given exclusive rights to the same recording or composition for a different limited group of countries (such as the United Kingdom, Ireland, France, Germany, Spain, and Italy).

An example of the third situation – where different rights holders control different rights under copyright – is another situation common with musical compositions:  Customarily a rights holder of the copyright to a musical composition (usually the music publisher) controls all of the rights under copyright other than the right known as the public performance right, and this public performance right is controlled by a performing rights organization, or PRO (most countries have one PRO; the United States currently has three:  ASCAP, BMI, and SESAC).  (One example of a public performance is when music is broadcast by a radio station)

So, the primary rights holder of a musical composition does not grant public performance licenses, but may grant all other licenses for that composition, and a PRO cannot grant any licenses for that composition other than a public performance license.

The Uses to be Licensed

The third music licensing complexity lies in correctly identifying the uses to be licensed so the proper licenses can be obtained. United States copyright law actually provides a total of six exclusive “rights”, so the user needs to know which “right” is involved with the particular use and which must be licensed under U.S. copyright law. 

For example: When a terrestrial radio station broadcasts music via “over the air” transmission, the radio station publicly performs both musical products -- the recording and the composition contained in the recording.

In the United States, that radio station needs a public performance license to broadcast the musical compositions contained in the recordings the station broadcasts, but does not need a public performance license to broadcast the actual recordings that it broadcasts (Unlike the copyright laws of most countries, U.S copyright law does not include a right to perform sound recordings publicly by means of analog broadcast).

In contrast, satellite radio (such as Sirius XM) and music streaming services need public performance licenses for both the musical compositions and the sound recordings they transmit as part of their services.  (A streaming service, generally, also needs a reproduction, or mechanical, license with the license fee depending on the functionality the service offers its users.)

A synchronization license is another common type of license, and is needed to use a recording or composition in a motion picture or other audiovisual production.  This license permits reproducing the recording or composition in the audio soundtrack of the production. (The recording or composition is reproduced “in synchronization” with the visual images of the production.)

As another example, in the United States using a composition in a ringtone (the sound heard by the party that is called) requires a reproduction license (to reproduce, or store, the composition on the cellphone), but ringtones are not considered public performances and so ringtones do not require a public performance license.  Using a composition in a ringback tone (the sound heard by the calling party), though, is considered a public performance and therefore does require a public performance license.  

Taking this one step further, if a company selling ringtones offers audio previews of these ringtones from its online store (allowing consumers to hear a ringtone before buying it), then that company needs a public performance license to make these audio previews available from this online store.

The Range of Fees

Finally, a fourth source of music licensing complexity is attributable to (i) the enormous range of fees attached to various forms of distribution, reproduction, and public performance and (ii) the fact that some licenses are compulsory (set by statute or by a governmental panel, currently the Copyright Royalty Board) and others are voluntary (meaning the rights holder is not required to give the license, so the license is subject to business negotiations).

For example, in the world of streaming at least ten rates currently exist for the different types of services available.  Thus, one rate applies to standalone non-portable services accessible only on desktop computers when a live Internet connection exists, a different rate applies to services accessible through portable devices, such as cellphones, and another rate applies to free, non-subscription services that are advertising-supported.

In Closing

In sum, just about anyone that wants to use music must license that music, and doing so is complex. It requires a command of copyright law and of the intricacies of the licensing process, an understanding of customary deal terms and of market practices, a careful attention to detail, effective negotiating, and, sometimes, detective work to identify the parties around the globe who control the rights needed.

 

Note 1: Chaim Gartenberg, "Alan Wake is getting removed from digital stores due to expiring music licenses", May 12, 2017, https://www.theverge.com/2017/5/12/15631624/alan-wake-digital-stores-expiring-music-licenses-steam-sale (accessed August 2, 2017)

Note 2:  music publisher is a company that engages primarily in acquiring and administering the copyrights in musical compositions

Note 3:  The five nominated compositions were:  (1) “Formation”, written by Khalif Brown, Asheton Hogan, Beyoncé Knowles, and Michael L. Williams II; (2) “7 Years” written by Lukas Forchhammer, Stefan Forrest, Morten Pilegaard, and Morten Ristorp; (3) “Love Yourself”, written by Justin Bieber, Benjamin Levin, and Ed Sheeran; (4) “Hello”, written by Adele Adkins and Greg Kurstin; and (5) “I Took A Pill In Ibiza”, written by Mike Posner.

Recent Insights