Reprinted from "Entertainment Law & Finance"
Music licensing offers ancillary income in a music business that lately has seen decreases in sales of recorded product. Even the Internet, which has negatively affected record sales, offers music licensing opportunities. In the following interview, New York entertainment attorney Steve Gordon discusses the practical considerations involved in the licensing of music. Next spring, Gordon will teach a course on digital music law and business models at New York University and present a seminar at Columbia University on the future of music on the Internet. Gordon's contact information, information on the course and seminar, and his previously published articles can be found at Steve Gordon Law.
[Question] What kinds of projects do you work on?
|MusicDish Network Sponsor|
Steve Gordon TV, movies, documentaries, compilation albums, DVDs and Internet-based projects. I recently worked on several interesting jobs in cooperation with Universal Media Inc. [a company specializing in finding footage and music]. These projects included a documentary on Latin jazz for the Smithsonian Institution, a companion record album for Smithsonian Folkways Recordings, a network TV special featuring the music of Elvis Presley, and a PBS special featuring Frank Sinatra's duet performances from his old TV series, to be released as a home video and on foreign TV.
Currently, I'm working on an independent movie about a serial murderer who targets punk rock fans, containing more than two dozen songs and masters. I also represent a publicly traded Internet content provider that is continually securing rights in all kinds of content, including music, videos and computer games.
[Question] What is the process for securing copyright clearances?
Steve Gordon The process is basically the same for any kind of project. Research the songs, strategize with the client, negotiate the terms and review or, in certain instances, prepare the licenses. In regard to the last item, music publishers and labels will usually provide their own licenses. However, occasionally a small label, publisher or unsigned artist will request that you draft the license.
With respect to research, the kind of material to be cleared will dictate the nature of research to be performed. For instance, for musical compositions, the ASCAP and BMI databases are excellent sources for identifying the writers and music publishers. Each of these databases may have to be explored because each performing-rights organization provides information only on the songs in its own repertory. SESAC also administers certain songs that will not be included on the ASCAP or BMI sites. In addition, the Harry Fox Agency provides information concerning songs that it represents (see Songfile.com).
If your client is using musical recordings, the packaging and liner notes can supply information such as the name of the record company and artist, and the release date. If the client is using excerpts of TV, movie or video footage, someone should view the credits from the original TV program, movie or music video to determine the TV service, studio or record label that controls the copyright in the footage. The musical artists, actors and other persons (or their estates) appearing in the footage may also have to be cleared depending on various circumstances, including whether there is a musical performance in the footage.
Once you have identified those who control rights in the material to be used, you are almost ready to approach the owners and negotiate terms. (See sample clause below.) But first you must strategize with the client. This conversation should include what rights will be required, that is, media, territory, duration, what you think it will cost and what to propose to the licensors.
This process is the real "art" of licensing. With knowledge of the applicable business practices and pricing, you can advise your client on the approximate amount of money he or she will have to pay for clearances; alert him or her to potential problems, such as material that may be too expensive and may have to be replaced; and develop a letter addressed to the owners accurately reflecting the precise rights that your client needs and proposing the lowest reasonable fee or royalty. The proposed payment, which obviously must be approved by the client, should be as low as possible and include a cogent explanation of the reasons that the owner should accept such a rate. At the same time, the proposal should not be so out of whack with standard business practices that the owner feels insulted.
The negotiation process involves a discussion with the copyright owner or its representative about the project, plus continual follow-up. Many of the projects on which I work will not make a great deal of money for any individual copyright owner. For that reason, many of these requests usually are low-priority items to the people from whom I am seeking permission. To do this work, therefore, a combination of courtesy and persistence is recommended.
Ultimately, if the licensor doesn't accept your terms, you will have to negotiate compromises or even advise the client to drop the desired music. For instance, trying to get a hit song for an independent movie may not happen because the song owner may not like your client's project, or may not wish to license it to anyone at any price, or may propose a fee well beyond your client's ability to pay.
Finally, the owner will send the license, and it is my responsibility to make sure that the terms in the license exactly match the understanding between my client and the owner.
[Question] What issues arise specifically in the case of independent movies?
Steve Gordon From a clearance point of view, the most important difference between an independent film and a major studio production is that an independent producer usually has a lot less money to spend on anything, including music. Therefore, an independent filmmaker may have to curb his or her desire for securing "name-brand" talent. For instance, if your client wants to use "Satisfaction" under the opening credits, that is going to cost big bucks indeed, unless he or she happens to be a personal friend of Mick Jagger, and even then, don't assume a huge discount.
Even if Mick Jagger is your client's best friend, the people who administer the Stones' copyrights may never have heard of your client. Music publishers and labels generally will adjust their rates downwards based on the size of a movie's budget. But don't expect to pay a nominal fee for a hit song just because your client's budget is modest. Independent film producers should also understand that no matter how popular or recognizable the music in a movie is, people don't watch movies to listen to music. A lawyer or clearance person can work with a savvy producer to create a great soundtrack without busting the budget.
For instance, many music publishers, labels and managers may be eager to place new songs written by "baby bands" that will be more reasonably priced than songs written by established acts. Another alternative is a "stock" music house. Generally, these firms can license both the song and the master, and therefore offer one-stop shopping as well as low prices.
Finally, a composer or songwriter/producer can be hired to write music for specific scenes, or a complete score. There are many talented but hungry songwriters who would be happy to work on a client's project for a credit and a reasonable fee.
Another way to work within a client's budget is to set up the quote request as a series of options. Generally, a film festival license can be secured for a small fee because music publishers and labels recognize that festivals are not commercial enterprises. Additional rights such as theatrical, free TV, cable and home video can be requested as options. Each one may be exercised by paying a specific fee. "Broad rights"-which include theatrical, TV and home video-can be expensive. In case your client does not succeed in securing commercial theatrical distribution, these options will allow him or her to gain exposure for the movie (on cable TV, for instance) for a reasonable fee without paying for unnecessary rights. Next month, Steve Gordon will address such topics as deal points, "most favored nations," penalties for the failure to secure copyright clearance, and the role of a music supervisor.
[Question] Please describe the deal points (e.g., term, territory, royalties or fees).
Steve Gordon The term will vary depending on the nature of the project. Of course, you always would like to secure perpetual rights for your client. But that may not always be possible. For instance, in regard to a TV project, music publishers and labels will customarily limit the term to three to five years. A longer period will cost a lot more money. One way to accommodate future uses is, again, to set up options. The original term can be three years, with an option for another three. That way, your client doesn't have to pay the additional fees unless he or she actually exploits the program for a longer term.
Movie and TV producers will generally seek worldwide to maximize the audience for, and income from, their projects. Producers of album compilations, on the other hand, may wish to target the U.S. and Canada market only. So the scope of the territory provision will depend on the business interests of your client. Of course, the most important item in virtually all clearance licenses will be the money. Generally, flat fees will be required for TV and movies because that is the standard business practice.
On the other hand, if you license a song or master for an album or a home video, you can expect to pay a penny rate per unit. How much you pay will depend primarily on the nature of the project. In regard to a compilation album, although there are exceptions, the owner of the track (generally a record company) will require a per-unit penny rate against an advance. If the penny rate is 10 cents, then an advance payment of $1,000 may be required, with a "rollover" payment of another $1,000 for sales exceeding 10,000, and additional rollover payments after that for each block of 10,000 units. The underlying song will be subject to a statutory mechanical license, currently 8 cents per unit, although it may be possible to secure reductions from such rate in certain circumstances (if a charitable purpose is involved, for example).
Clearing music for a motion picture is a whole different ball game because there is no compulsory license for use of musical compositions in audiovisual works. The money demanded for even a never-quite-famous song can easily reach six figures for a movie to be distributed by a major studio. The owner of the master, usually the record company, probably will want at least an equal amount for the master recording.
[Question] What is meant by the phrase "Most Favored Nations"?
Steve Gordon Also referred to as "MFN," this is a business practice than can affect all the terms of a license. It means that you cannot treat the owner or licensor of content less well than any other owner or licensor of content used in a similar manner. The practice is very common in regard to concert TV programs featuring a dozen full-length musical performances. No one who licenses any song for such a program wants to get less money or give more rights than any other licensor. MFN also plays a big role in audio compilation albums. It exists but is less common in regard to clearing music for movies, because in a movie each piece of music is often used in a different way. For instance, one song may be used over the credits, another song may be used for only a few moments in the background of a scene, and another song may be heard as a theme throughout the movie.
[Question] What are some reasons that a copyright clearance cannot be secured?
Steve Gordon Money is the most common reason. In regard to a movie, although some baby bands, composers or songwriters may love the exposure that your client can create, established artists and bands may not need the exposure. They already have it. Therefore, the price can be prohibitively high. To give a recent example from my own practice, we could not get the price of a Bee Gees song down for an independent movie. So we replaced it with a new song composed by my client. Another problem is that the copyright owner, or his or her representative, may not wish to be associated with your client's project for whatever reason. I once had a problem with getting permission to use "Macarena" for a Chipmunks video. Apparently, the composers did not relish the idea of their song being performed by cartoon characters.
[Question] What are the possible penalties if copyright clearances are not secured?
Steve Gordon Perhaps the worst-case scenario is an injunction, which is available as a remedy for copyright infringement. Your client's project could be shut down completely. If it's yanked out of distribution, not only are potential profits lost, but there also could be serious expenses incurred in retrieving the product from warehouses or retail outlets (as there would be if a DVD were involved). Of course, copyright owners have other remedies available to them, including statutory damages and attorney fees, if they properly registered their works. Therefore, the price of using a copyright without permission can be quite steep indeed.
[Question] What is the role of a music supervisor?
Steve Gordon A good music supervisor can identify music that could enhance your client's project. But due to budget constraints, experienced music supervisors make their living working with big studio productions. When they can be afforded, they have knowledge and contacts that could prove valuable, especially when it comes to finding new, cutting-edge music. The client can't depend on lawyers or clearance people to be his or her "ears." Depending on the budget, therefore, the client may have to be his or her own music supervisor, although a knowledgeable lawyer with good industry contacts can be very helpful.
[Question] What is involved in licensing music for Internet-based projects? How is it or other new technologies an emerging area for clearances?
Steve Gordon New technologies, including the Internet, have created new uses for all kinds of content. New business practices and forms of licensing have also emerged. The issues and rules can be quite complex, depending on what you are trying to do (e.g., webcasting, streaming or downloading) and the kind of content you are trying to clear (interactive games, music, etc.). Perhaps the fastest-growing areas of music licensing are interactive webcasting and video on demand. Already, satellite systems and digital cable modem services are offering content on demand. Concert specials accommodate themselves beautifully to these new technologies.
Eventually, concert videos may also be available on the Web on an on-demand basis. Therefore, in addition to clearing a concert special for TV and home video, clearance people will find themselves clearing for on-demand uses. This will entail educating the licensor as to the new technologies and, in the case of webcasting, assuring copyright owners that your client will protect the owners' copyrights with encryption technologies to prevent piracy.
Sample Clause for Synchronization License
License # (Basic Cable Television)
Effective Date: In consideration of the terms and provisions of this agreement as hereinbelow set forth, we hereby license to you, nonexclusively, the right to record the musical selection set forth in Paragraph "2," below, in synchronization or timed relationship with the single television production known as________________________in the territory and for the purposes hereinbelow described.
This license shall apply and be limited to the musical composition and type and duration of usage set forth below, and as compensation therefor you agree to pay and we agree to accept the sums indicated:
TITLE: COMPOSER(S): TYPE OF USE: PERFORMANCE RIGHTS SOCIETY: FEE: SHARE REPRESENTED:
(1) This license herein granted is limited superficially to use in connection with the origination, transmission and public exhibition of said production by means of satellite (DBS) and basic cable television over such facilities as you may determine may be otherwise restricted hereunder, provided, however, that production will not be exhibited by so-called pay, subscription or commercial television, or similar method and will not be recorded or exhibited on audiovisual cassettes or any other sight and sound device, without our prior written consent, it being understood that such usages shall require licensing and payment of additional fees to be negotiated between us. No sound recording shall be manufactured, sold, licensed or used separate or apart from said film or videotape.
(2) Basic Cable Television shall mean exhibition throughout the Territory of the Program performing the Compositions by means of cable television, whether such programming is transmitted by wires, cables, satellite or other communication channels, for which members of the public may pay for the transmission service provided by the cable system, but do not otherwise pay a premium for the programming transmitted by such cable system.
(3) The license herein granted is a license to synchronize and record only and does not authorize or permit any other use, it being understood that performing rights licenses must be secured from any performing rights society or other entity having the legal right to issue such licenses as the owner of or on behalf of the owner of such rights in any licensed territory in which the music as recorded hereunder may be performed. All rights of every nature and description not herein expressly licensed to you are reserved by us for our use and benefit.
(4) You shall have the further right, but at your sole cost and expense, to edit, arrange and rearrange the music and lyrics for purposes of recording hereunder, provided that no substantial music or lyric changes shall be made without our prior written consent. This license shall not be deemed to include any right to parody the original music and/or lyrics of the songs. Any new arrangements hereunder shall be made only by persons acting as "employees for hire," but at your sole cost and expense, and all copyrights therein and all renewals, extensions and reversionary rights interests thereof throughout the world shall be deemed assigned to and owned by the copyright owner of the underlying composition, subject to your use under this agreement.
(5) The license herein granted shall be for and limited to the territory of ___________.
(6) Your rights for use covered by this license shall commence on the effective date of first broadcast in ____ for a period of two years.
(7) On expiration of such term, all rights licensed hereunder shall revert to us without further notice and in their entirety.
(8) On completion of production, you shall furnish to us two copies of the music cue sheets for said production (if such a cue sheet has not been furnished previously with regard to the production).
(9) No warranty or representation is made in connection with this license except that we warrant that we have the right to issue this license subject to the terms and conditions hereof. In any event, our total liability under such warranty is limited to the amount paid by you hereunder.
(10) This license shall run to you, your successors and assigns, provided that you shall remain liable for the performance of all the terms and conditions of this license on your part to be performed, and provided further that any disposition of said film or videotape of any copies thereof shall be subject to all the terms hereof.
(11) SPECIAL PROVISIONS: License also includes Foreign Television. Term of three years from initial airing in each country. All television media excluding pay-per-view. World outside United States and Canada. Fee _____.
(12) License will become null and void if payment not received within 60 days of dated license.
(13) This is the entire agreement between the parties with respect to the subject matter hereof. No modification, amendment, waiver, termination or discharge of this agreement shall be binding unless in writing and signed by the party to be charged. No waiver of any provision shall be a continuing waiver thereafter. This agreement shall be deemed to have been made in the state of New York and its validity, construction, performance, breach and operation shall be governed by the laws of the state of New York or, if applicable, the United States copyright law.
Steve Gordon is an entertainment attorney and consultant based in New York. Telephone: (917) 912-3400; e-mail: firstname.lastname@example.org. He formerly served as director of business affairs for Sony Music Entertainment.