From: acquiredfm
Understanding how music licensing works is crucial for comprehending the music industry [00:00:06].
Purpose of Copyright Law
The fundamental purpose of copyright law, across all forms of intellectual property like trademarks and patents, is to spur innovation and creativity [00:00:20]. This core principle should be kept in mind when evaluating how these laws are applied [00:00:31].
When a piece of music is created, two distinct copyrights come into existence [00:00:41]. Different uses of music may require approval from one or both of these copyright holders [00:03:57].
Sound Recording Copyright (Master)
The first type of copyright is the sound recording copyright, also known as a master recording or “master” [00:00:50]. This copyright applies to the literal recording of the music as it was captured in the studio and heard by the audience [01:00:00].
Historically, this copyright is owned by the record label [00:00:55]. Labels traditionally assume ownership of these masters in exchange for taking on the financial risk associated with distributing and promoting an artist’s work [00:01:09]. This model can be compared to the venture capital industry from the 1970s-90s, where investors took a majority stake in companies for providing initial funding [00:01:21].
Musical Composition Copyright (Publishing Right)
The second type of copyright is the musical composition copyright, or the publishing right [00:02:05]. This copyright covers the written lyrics and the melody of the song [00:02:10]. It represents the “idea” of the song, something that could be put down on sheet music, before it’s actually played or recorded [00:02:19].
Traditionally, musical composition copyrights are held by the songwriters themselves, often managed through music publishers [00:02:13].
Role of Publishers
Music publishers deal with composition copyrights similarly to how record labels manage masters [00:02:40]. Historically, publishers would take 50% of the royalties generated from the composition copyright [00:02:50]. However, today, their share is often significantly less; larger songwriters might pay a fixed fee for back-office services, effectively owning their musical composition copyrights directly [00:02:56].
Publishers once held immense power, particularly in the era before recorded music, when publishing rights (like sheet music) were the primary source of revenue [00:03:21]. At that time, artists and recording labels were dependent on publishers who owned the sheet music rights, as singers and songwriters were often different individuals [00:03:37].
Co-Writer Negotiations
Songwriting credits and the associated economics can be split in any way, as they are privately negotiated among co-writers [00:04:33]. For certain licensing approvals requiring the publishing license, multiple co-writers may need to sign off [00:04:43]. Revenue splits can vary wildly, from 50/50 to 90/10, or even a flat fee, depending on the contributions and bargaining power of each songwriter [00:04:53].
Licensing Mechanics and Economics
When licensing music, whoever owns the sound recording master right and whoever owns the publishing right both have a veto right for use cases that require both [00:04:05]. The income splits generated from music usage can vary significantly depending on the specific application [00:04:20].
Economic Splits and Recoupment
Compared to publishing deals, where writers might keep 50% of songwriting economics, the splits with record labels on the master side are historically less favorable for artists [00:05:27]. When an artist signs a distribution deal where a record label provides an advance to make an album and then owns the master, the artist’s royalty stream is typically 10-15%, potentially reaching 20-22% for very big artists [00:05:35]. The vast majority of these economics go to the record label [00:05:51].
A key concept in these deals is recoupment [00:05:58]. Artists only begin to participate in revenues after the upfront advance provided by the label has been recouped [00:06:03]. For example, if a label provides a 500,000 in generated revenue is kept by the label before the artist receives their percentage [00:06:13]. This system is likened to a VC preference stack on a cap table [00:06:36].
This Byzantine structure originated from an era when producing an album and securing distribution and promotion involved significant financial outlay [00:06:46]. The perceived “predatory” nature of these deals is explained by the high failure rate of new artists; like startups, most artists will not succeed [00:07:01]. The economic splits are designed so that the success of winning artists can more than compensate for the financial losses incurred from those who fail, mirroring the model of a venture capital fund [00:07:27]. This historical context of high upfront investment is what has now “completely changed” in the modern era [00:07:39].