Making Money from Music Licensing

Whether you compose music or perform it, earning licensing revenue can be challenging. Here's where the money actually comes from, and the key terms you need to know to collect it.

Where's the Money?

Why is it so difficult to understand how to make money from licensing music? Whether you are a composer writing music or a musician performing music, generating licensing revenue from the music you create or perform can be challenging.

To understand where money comes from in music licensing, it is helpful to start with the words themselves. Sometimes a word can have one meaning in everyday use, a different meaning in business use, and yet another meaning in legal use. Let's look at the key terms to see exactly where the money is made.

Words Matter

What do you mean when you say "music"? An important distinction is whether you mean musical notes and lyrics of a musical composition (let's call that a "composition") versus a particular recorded performance of a composition (let's call that a "recording"). There is just one composition, but there can be many different recordings of that composition, performed by many different musicians.

Why does this distinction matter? In the music industry the difference between composition and recording is so important that you will often hear it described as the two "sides" of music. Individuals or organizations looking to get permission to use a piece of music will usually want to acquire a licence for each side. For example, a TV producer who seeks permission to use a piece of music in a TV show will talk about acquiring a licence to use each "side". This means the permission to use the composition in the show (a "synchronization licence") and the permission to use a particular recording of the composition in the show (a "master use licence"). This difference is so important to those seeking music licences that we should also be specific and use "composition" or "recording" when this difference matters.

Which Side are You On? Which Roles do You Play?

You are a "musician", but which side of the music business do you work in? Perhaps you work in both sides: compose music on the composition side and perform as a recording artist on the recording side. That's typical for a "singer-songwriter", for example (think: Joni Mitchell, or Alanis Morissette). Maybe, however, even that doesn't describe everything you do for every composition or recording you work on.

Let's call each separate composition and each recording a "work". On one work, maybe you composed it, but you have not performed the music in any recording of it. On another work, maybe you sang, or played an instrument, but did not compose the music. What exactly do you do and what do others do on every work? This matters for determining the rights in each work enjoyed by each person who performs a legally significant role in the creation of a work.

For each composition (as we defined above), we need to know who the "author" is. We usually hear the word "author" used for writers of the written word, such as books, not music. Why use it here? The main reason is that under the copyright laws of Canada the "author" of a composition is generally the first owner of the copyright in that work. This gives the author, as first copyright owner, a whole list of exclusive legal rights, including the right to use or allow anyone else to use the work and to be compensated for that use.

The Copyright Act does not define the term "author", but court cases have established that the "author" is typically the creator of a work. In the music business this generally means the "composer", who creates and writes the musical notes, and the "lyricist", who creates and writes lyrics. To complicate matters, in the music business lyricists are sometimes also called "authors", but in those cases, "author" is used in an informal sense, not a legal one. As far as the Copyright Act is concerned, both composers and lyricists can legally be an "author" or "authors" of a composition.

For each composition, we also need to know who owns or controls the copyright in that composition. In Canadian copyright law the author is generally the first owner of copyright to a composition and has the right to grant that ownership, or part of that ownership, to anyone else.

You can see that while the author or authors of a composition are established when the work is created, the ownership of copyright in that composition can change from time to time if it is granted to anyone other than the author. In the music business, the person or company who holds the copyright in the composition at any particular time is called the "publisher". This can be the author, if the author retained this copyright.

That takes care of the composition side, now what about the recording side? For this side we need to know who the "performers" in the recording are. This means more than just musicians who may have played a musical instrument but also includes singers or other vocalists.

For each recording, we also need to know who owns or controls the copyright in the recording. The first "maker" of the sound recording is generally the first owner of the copyright to the recording, and this includes the right to grant that ownership, or part of that ownership, to anyone else. You can see that while the performers of a sound recording are set when the work is created, the ownership of copyright in that recording can change from time to time, if it is granted to anyone other than the first maker.

The term "maker" is really a legal term that is not used that often in the music business itself. The Copyright Act defines the "maker" as the person who makes the necessary arrangements for first making the recording. In the music business, this comes closest to the "record company" since they usually make these arrangements and pay for the recordings. This can also be a musician, or anyone else, if they make these arrangements and pay the associated costs at their own expense.

Bringing all of this back to the simplest starting point, if you really do everything in music creation and record production (along the lines of a singer/songwriter who also performs and records your own songs), then you can probably list all of your roles as follows:

Making Money from Publishers and Record Companies

Often making immediate and significant money in the music business is over-simplified to "getting a publishing deal" (for your compositions) or "getting a record deal" (for recordings in which you perform). You don't have to contract these roles to other people or companies. You can be your own publisher and record company. The assumption is usually that these companies make the most money in the business and pay musicians the most. That may be true in some cases, but not all.

Keep in mind that these companies generally start every negotiation with contracts that try to obtain as many rights as they can from you and pay you as little as possible within industry practices and customs for these rights. Your success is not assured simply because a company wants to do business with you. It is in your best interest to be well-informed, well-represented by a knowledgeable lawyer and agent, and to be very disciplined to remain assertive, yet practical regarding which rights you grant, which rights you retain, and what your contractual compensation will be. Most companies will seek to obtain all sale and licensing rights to your work for a significant period of time and often for all markets and all territories of the world. If they do not pay you an industry standard share from these critical sales and licences, it can mean the loss of a large part of your livelihood.

In addition, not all publishing companies and record companies are created equal. Some are reputable while others are not. Some are well-run and financially sound while others are badly managed and not well financed. Even great companies can take a wrong turn financially. You are promised payments and royalties, but what if the publisher or record company just chooses not to pay you what you are owed? What if they cease to carry on business or become bankrupt?

Musicians seeking a reliable source of income from music licensing, separate from and often additional to the income from music publishers or record companies, can find it in copyright collectives, especially those licensing public performance rights in compositions and recordings.

Making Money from Collective Licensing of Copyright

Collective licensing of copyright allows copyright owners to form a "collective society" to deal with some right or rights that each member of the collective society has in their own works.

Collective societies license the rights they represent by negotiating licences case-by-case as to rights and price for each licence ("negotiated licences"), or they can establish a set licence fee for the licensed use of set rights to all users of the right within specific categories of users and rights ("tariffed licences"). In Canada, a collective society can only use tariffed licences if both the standard charge to users (called a "tariff") and the collective society are authorized by the Copyright Board under the Copyright Act to do so.

It is helpful to focus on two important categories of tariff-based music licensing in Canada that can pay you directly: (1) public performance and communication rights in compositions, and (2) the neighbouring rights regime.

Public performance and communication rights in compositions are collectively administered by the collective society SOCAN. SOCAN's members include composers, lyricists, and music publishers. Through Copyright Board-approved tariffs and other licensing arrangements, SOCAN licenses uses of music such as radio broadcasts, television broadcasts, live performances, and online music services. SOCAN collects licence fees from users and distributes the resulting revenue, after deducting its administrative costs, directly to the writers and publishers entitled to share in each work.

The neighbouring-rights regime for sound recordings is collectively administered by Re:Sound. Re:Sound represents performers of sound recordings and makers of sound recordings. Through Copyright Board-approved tariffs and related licensing arrangements, Re:Sound collects royalties for certain performances and communications of recordings and distributes the resulting revenue, after deducting administrative costs, directly to performers and makers.

The key point for musicians is that these two systems can operate independently of publishing and record company royalty arrangements. In the case of SOCAN, writers receive their writer's share directly from SOCAN, rather than through a publisher. In the case of Re:Sound, performers receive their performer's share directly from Re:Sound (or through an aggregator cooperating representative Re:Sound member) rather than through a record company.

This distinction is important. Many forms of music licensing income flow first to a publisher or record company and whether these then flow to you are subject to contractual deductions, recoupment of advances, disputes over accounting, breaches of contract, or even bankruptcy of the publisher or record company.

By contrast, royalties distributed through SOCAN and Re:Sound are generally paid directly to the entitled rights holders through those collectives. As a result, these revenues are an important source of income for composers, lyricists, performers, and makers even when other royalty streams are reduced, delayed, or compromised.

Canadian collective societies also collect royalties from foreign territories through reciprocal or affiliation agreements with their counterpart societies in other countries. The operation of collective societies varies from country to country. Each is governed by its own national laws regarding matters such as membership, the rights that may be administered collectively, tariff structures, and royalty distribution rules.

As a general rule, it is worthwhile to identify every collective society that may collect and distribute meaningful royalties for the rights you own or the roles you perform in connection with a work. Where you are eligible and membership is beneficial, you should join the relevant collective society and register your works. It is up to you to determine which collective societies are relevant to your activities and to ensure that your rights and works are properly registered.

The Canadian Music Licensing Flow Chart