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How Does Music Licensing Work?

By John Abblett
17th January, 2013


Music licensing is the method used to recoup revenues in payment for the music we buy and, sometimes, publically air. We buy a CD or download an MP3, and the price we pay includes the cost of the raw materials and resources used in processing, packaging and distribution. It also includes a licence fee that enables us to enjoy the music as and when we want in our privacy. The licence fee, or royalties collected, are then distributed back to the following parties:

·         The song writer – the person(s) who created the tune

·         The lyricist – the person(s) who penned the words (if there are any lyrics)

·         The performer(s) – the person(s) who performed and recorded the tune

·         The cover artist – the person(s) who created the artwork (if any)

·         The producers, engineers and other people that helped create the recording (sometimes)

 More often than not, the first three are one and the same person or group. Sometimes, however, they are different people and each of them will want payment for their contribution to the works.

Let’s not debate which of these has more importance than the others, i.e. does the performer have less importance than the song writer? Instead let’s look at ‘how’ they get any revenue at all.

The copyright traits of the music industry are not so different from those of the literary industry. The recording of music up until the late 1800s was undertaken by writing musical score onto paper and printing it for re-sale. So, just like a book, authors (composers) and their publishing houses sought legal rights of ownership to ensure that they benefited from the sales and were compensated for their efforts and investments. They also sought to protect themselves against people copying their music, performing their music or having their music passed off as someone else’s.

Today, the publisher is just as important and is there to support and protect the interests of song writers. They exploit, in a good way, the composer’s music and endeavour to strike deals with record companies, film makers, advertisers, game developers, ring tones and just about anywhere where music can be used. They adjudicate in cases where, for example, an advertiser would like to use a song to promote condoms, for which that song will forever be associated with. This is not be good for a song that has further potential.

More often than not, the publisher is part of a record company. So where a band talks about getting signed to a label, they are actually signed to both the publishing wing and the recording wing. It gets complicated, but the thing to remember is that there is a publishing function involved. Anything that the song-writing arm of the band or soloist produces is likely to be assigned (by licence) to the publisher.  

So, how do the revenues flow?  

Recouping revenues from music sales, including paid-for downloads, is fairly straight forward. The publisher and record company will have a contract with its song writers and recording artists and will have agreed the percentages the performers and writers will receive as part of the contractual negotiations. Via its distribution network and intermediaries (below) it will have the mechanisms in place to collect the revenues and split the monies accordingly.

Where it gets messy is when music is played publically. We are prohibited by the licence applied to our CDs and music downloads from playing these in any public place – in work, in your back garden within earshot of your neighbours, shops, premises, on the beach, literally anywhere where there are members of the public. To do so, we need to be licenced.

In its simplest form, let’s take the band that is playing at the local Pavilions tonight. It informs its publisher of this and also informs them of their play list, which comprises many of their own tunes along with a few cover versions. The venue is quite large and therefore obtains a specific licence (rather than a broad licence) from the PRS (below) to stage the gig. In turn, the band’s publisher will later make a claim from the PRS for both ‘performance royalties’ and ‘mechanical royalties’ for the band’s songs that they performed. That’s royalties for the song writer and the performer, which in this case is one and the same band. The publisher should also advise the PRS that the band played other people’s songs so that the PRS pays mechanical royalties to the appropriate song writers.

Well that seems simple enough. The venue pays the PRS to stage a gig and the performers and song writers apply to the PRS to be paid for their efforts. They often get paid by the venue to turn up too, and that is likely to be the higher of the two revenue streams in most cases, unless it’s a small venue. Indeed, there is more money to be made in live performances than in record sales for signed artists in today’s crazy world. Turn the clocks back to the 90s and it was all about record sales.

I digress. What about the people that use music?

Let’s take a DJ as an example. Mike the DJ makes his living by performing at pubs and clubs. When he does his thing, each of the venues he gigs at must be licenced to play music to the punters that are invited in. The venues therefore apply to the appropriate intermediaries to obtain the licences.

Who are the intermediaries?

The Performing Rights Society (PRS) is the intermediary for the song owners. By this they mean the people who create, write and publish the song and its words. Mike would need to ensure that the establishment where he is performing has paid for a licence from the PRS to ensure that the music owners obtain royalties for their music. This is similar to what happened with the band above, but Mike hasn’t told the PRS what songs he played.

Phonographic Performance Ltd (PPL) is an intermediary for record companies and performers. Because Mike is playing other people’s records (CDs, MP3s, vinyl, etc.), he will also need to ensure that the venue also has a PPL licence. This is starting to get more confusing now because there are two intermediaries doing more or less the same thing. Even though Mike has been perfectly legal and has bought every one of those tracks that he is about to play to his audience, the organisers need to pay both intermediaries for a licence. Some of those tracks may be hot new releases that many of his audience hasn’t yet heard and, after listening and dancing to them, are likely to go and buy the records, but the licences are still required. Again though, Mike hasn’t told the PPL which tracks he played. He just collected £200 from the venue and went home.

Any shop or premises that plays background music to its shoppers or workers must also apply for a licence from both PRS and PPL. Even when many shoppers will ask ‘who is that tune by?’, the shop keeper is required to hold a licence.  When the shop keeper wishes to advertise their shop in the local paper, they have to pay a fee. Here, the shop keeper has to pay for the records and two licences to play music, with the added bonus for the music business of advertising tunes to the shop’s customers. This doesn’t sound at all fair, especially when the shop keeper is never likely to tell either the PRS or PPL which songs they are playing.

Both the PRS and PPL claim that they distribute these fees to their members. So, I’m a song writer and so is Paul McCartney. I’ve had one song published and Paul McCartney has had quite a few songs published. Both the shop keeper and Mike the DJ don’t play Paul’s or my songs. Yet, both PRS and PPL get paid for the right to play music publically. So when Mike the DJ arranges for a licence, how does PRS know how to split the fees? Do I get some of it with my one song? Does Paul get quite a chunk of it because of his efforts over the many years?

Mike is heavily into thrash metal, so can he be sure that the fees paid to the PRS and PPL will go to thrash metal writers and performers? No.

What of the costs of licencing? For a small shop of 5m X 5m where the owner would like to play music from CDs / MP3s, the charge for a PRS licence in 2012 is £156 per year. The PPL licence will cost a further £143 per year.  That’s a total of £299 per year, plus the cost of the CDs/MP3s that are to be played. The licenses also enable the shop keeper to play the radio and TV if required.

So are the intermediaries doing what they claim to do? These are their claims, appealing to song-writers and recording artists from their websites (Jan 2013)…

PRS: “Dealing efficiently with all these rightsholders is our day-to-day work. We hold comprehensive data on millions of songs and monitor when they are used to ensure that registered creators and publishers, or their relevant collecting societies, receive accurate royalties.”

PPL: “Becoming a member of PPL means you can start to collect the money you are owed for your recorded music – and joining us is free. Apart from administration costs, our members receive 100% of the money we collect for them.”

These statements are simply not true. Song writers and performers are being misled. Establishments that use music and therefore must pay intermediaries for a licence are also paying for false claims. The only way that the PRS can be accurate is where they are informed of both the song-writer and the songs that are being performed, as with the band above. It is unlikely that the PPL can pass royalties to its members, as their licence isn’t specific to a given gig or event. Even if the shop keeper plays my songs all day, every day, the PPL wouldn’t know this, and so I would not receive the shop keeper’s royalties.

I think that the PRS and PPL are mis-selling their services with false claims. What do you think?


Artwork by Billy Alexander

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