The Noisey Guide to Deciphering Music Licensing and Contract Terms

The music industry has been set up to benefit corporations and build gates between artists and audiences—gates that are often kept by the same market leaders that control media and technology. The companies in pursuit of music rights usually have entire teams of accountants and attorneys at their disposal, and the only way to level the playing field is to demystify the details behind how the money pie is sliced.

This is a cheat sheet for artists to understand how to build contemporary and competitive deals and for fans to have more of an understanding of the business behind their favorite music.

Recording artists, songwriters, producers, and anyone who breathes life into a song in any capacity are entitled to their piece of intellectual property ownership (also known as “IP”). How writers split their IP, and whether they retain those rights, license them to another party for a limited term, or give up ownership, is their decision.

The two foundational elements of IP in every piece of music are publishing rights and master rights. These two kinds of rights provide the umbrellas under which most revenue is filtered from listeners to artists and songwriters.

• Publishing rights belong to the writers of a song (“songwriters”). If there are multiple songwriters, publishing rights may be split up.

• Master Rights belong to the artists and musicians who create a recorded version of a song. When an artist signs to a record label, they generally grant the master rights to that label for a limited period of time, in exchange for the label’s support releasing the music.

Record Labels are in the business of financing the recording, production, and marketing of recorded songs, in exchange for the master rights, or the rights to the recordings.

This is how it works:

Decent record labels also open creative doors for artists, connecting like-minded musicians in the studio, clearing samples and assisting with production, providing business perspective, and respecting the creative process.

What is the difference between a Master License and Master Ownership?

• A Master License means an artist is signing away master rights to a record label either for a set period, for example, two to five years.
• Master Ownership means an artist is signing away master rights to the record label forever.

In contemporary deals, artists are rarely asked to give away their master ownership. Companies like AWAL advise artists to license their recordings to labels for a limited period of time, rather than giving up their master rights for the life of copyright. But for decades, labels have been able to pen deals with artists swiping control of their recordings in perpetuity.

What are the different ways you can get paid out for a record deal?

• Net Profit Deals are record deals in which the label splits a percent of net profits with artists (after all their expenses and advances are recouped). This may look like “Net50,” or fifty percent of all profits, go to the artist once the label recoups their investment.
• PPD Deals are royalty-based deals seen in traditional recording contracts, and mean the artist is paid on a royalty-per-record basis, in the range of 13 to 17 percent of the “PPD Price” or Published Price to Dealer (essentially the wholesale price).
• 360 Deals are larger scale deals that entitle records labels to portions of every artist revenue stream imaginable, including touring, merchandise, endorsements, sync and other ancillary revenue like brand partnerships.

When sales are substantial and the label’s costs remain low, artists can end up in a better place with net profit deals than with royalty-based deals. However, in net profit deals, some labels deduct an overhead fee off the top in addition to recouping all costs. So, the label is reimbursed for their investments plus some overhead, and what is left is the “net profit” is divided 50-50.

What are the different levels of exclusivity?

Whether a label owns master rights or not, and regardless of the revenue scenario of any particular deal, another red flag to understand is exclusivity.

• Exclusive Recording Agreements are record deals in which the label owns every recording created by an artist during the term of the agreement. Non-exclusive record deals, on the other hand, clearly cover a certain number of album or track recordings and give the artist flexibility to record with other artists and labels.
• Commitment is the number of records the record label has to fund and release. Usually, there is a one-album commitment, but the label builds in their rights to gain control of the works to follow, via the next term.
• Options are built into record deals to assert a label’s right to future recordings, and an option means those rights to an artist’s next album can be automatically exercised by the label in return for a predetermined cash advance. This restricts artists from leaving their label deal after fulfilling their initial commitment, and keeps them in the deal for another body of work.

• Cross-Collateralization is a step further into financial danger for artists, concerning options. If a label has the option to release an artist’s next project and cross-collateralize the finances, this means album one may be earning revenue due to the artist, but that revenue is able to be applied to the label’s recoupment of its expenses on album two. Each record has to carry the weight of the others, and each album is less capable of becoming individually profitable for the artist.
• A non-exclusive master license with a two-year licensing window that sees the artist retaining full master ownership and the lion’s share of sales or streams with a Net Profit structure and limited options is an objectively progressive and “fair” way to work with a label. If an artist owns their own master rights, and doesn’t sign away too much of the music they’ve yet to record, they are in the best position to negotiate with record labels and build generational wealth.

Recoupment means no money spent on music by a record label is a gift. All costs are recoupable, meaning the artist will pay the label back based on the sales of their records. If a record label offers a $40,000 Artist Advance that is 100 percent recoupable, this means the label takes that forty thousand dollars off the top of sales revenue before an artist can begin collecting royalties.

No matter what kind of recording agreement an artist signs, generally, all advances are recoupable by the label before the artist begins to see any royalty revenue. In most record deals, marketing and promotional costs are no more than fifty percent recoupable by the label.

If you’re wondering how producers, featured artists, and other collaborators on recordings interact with master rights, collaborators generally work with the main artist or their label to sign Music Producer Agreements or Featured Artist Agreements. These kinds of agreements grant the collaborator upfront compensation and usually a share of revenue from the sales and distribution of the song, commonly referred to as “points on the master.” Either the label or the artist is responsible for reporting record royalties to contributors and producers.

Music Publishers are in the business of financing songwriters and connecting them to writing and licensing opportunities, in exchange for the publishing rights to their songs.

This is how it works:

Music publishers loan artists cash advances and/or monthly draws in exchange for the ability to represent their publishing rights. Where record labels pursue master rights, publishers pursue publishing rights, and both leverage the ability to offer artists money to live while they make their art. Music publishers may also offer demo budgets; just like in label deals, any and all funds are looked at as loans. Music publishers have teams devoted to connecting writers to labels and recording artists, as well as other songwriters. They also often help secure sync placements in TV, film and advertisements to generate revenue.

What is the difference between a “writer share” and “publisher share”?

There are a few different ways publishing deals can be structured, but the most important component to understand is the difference between “writer share” and “publisher share.”

• Traditional Publishing Deals mean a songwriter grants their control of the “publisher share” of the music they write to the publishing company. According to Songtrust, 100 percent of writer share still belongs to songwriters and should remain with songwriters in this kind of deal.
• Traditional “Co Pub” Deals mean a publisher gets 50 percent ownership of a songwriter’s publisher’s share when they sign. The songwriter keeps 100 percent of writer’s share, and 50 percent of publisher’s share—75 percent of total publishing royalties.

Artists don’t need an established publisher to publish their songs. According to performing rights organizations like BMI, ASCAP and SESAC, it’s relatively simple to start your own publishing company and collect publishing revenue yourself.

• Publishing Administration deals, or admin deals, do not involve handing any ownership over to the publisher. Admin deals help songwriters to keep track of and negotiate royalties and licensing fees. Instead of taking ownership of 50-75 percent of publishing copyright, a publishing administrator may take 15-25 percent revenue for a limited term, and require no transition of ownership, to look after the books and help artists with the fundamentals of publishing.

Distribution Rights are the rights to sell records to the world, on retail shelves, in digital stores like iTunes, and on streaming services like Spotify and Apple Music. Distribution rights usually belong to whoever controls the master rights to recordings (record labels or artists). Music is distributed physically and digitally, and there are distributors that specialize in either, or both simultaneously.

• Physical Distribution concerns Vinyl (LPs), CDs, Cassettes, and any material versions of records. Production and manufacturing of these components can be a big job. Selling hundreds of units wholesale to physical retailers like Rough Trade and big box retailers like Target is the kind of work artists and indie labels generally look to distributors to help with. Distributors take an overhead fee of 10 to 25 percent off sales for physical distribution.
• Digital Distribution concerns the digital versions of records that are uploaded to stores and streaming platforms. Liaising between stores and streaming services, and tapping strong relationships with international streaming companies like Spotify, Apple Music, Deezer and Youtube are some of the valuable digital services of distributors. Securing placement on playlists, collecting digital ad revenue and making sure other channels are not infringing on recorded music copyright are all services under the umbrella of digital distribution. The overhead fee distributors take off digital sales is generally less than that of physical, since the distributor is quite literally doing less heavy lifting.

There are a few different kinds of distribution deals and artists may even be offered distribution-style deals from labels, or directly from distributors, cutting out the label entirely.

Since labels take over such a substantial portion of master rights, distributors have adapted to look like labels while offering less restrictive deals. Some distributors offer label services like radio promotion and publicity, but they’ll usually increase their fees in exchange for offering these services. Some distributors even offer cash advances, like labels, but they also recoup those advances before artists are able to see profit. Even though all the investments are still viewed as loans and distribution fees may climb to over 25 percent, distribution deals generally afford artists higher revenue splits and shorter terms.

Some independent distributors like Tunecore and DistroKid focus on simple, barebones digital distribution to all streaming services and web stores and take minimal fees like 2 percent off the top. Others just require a one-time fee under $100 and allow artists to 100 percent of their full digital revenue. These services may offer help with playlisting and promotion but they don’t have very personalized approaches to working with artists. But they’re good for the bare minimum, for artists who want to develop their promotion strategies collect all the revenue themselves.

Distributors like The Orchard (owned by SONY), ADA (owned by Warner Music Group), and larger independent distributors like EMPIRE focus on distribution deals that include more investment and support and take higher fees off the top.

Painting in broad strokes, a distribution deal is to a label deal what a publishing admin deal is to a publishing deal—a flexible alternative that doesn’t assert as much control over copyright or as high of a fee, but also won’t invest as many resources in building audiences.

To use a song in media, you need to license the rights to both the master and publishing representatives. This system ensures both the songwriters and recording artists are compensated when a song is used on screen.

• Synchronization Rights are the rights to use music in TV, film and advertisements. If a film or TV producer wants to use a song in a movie, advertisement or episode, the producer will have to obtain permission from both the master and publishing owners of the song. This is known as obtaining synchronization rights, and the placement of a song in media is known as a sync. Both master and publishing owners or representatives maintain synchronization rights.
• Most Favored Nations or “MFN” is mentioned frequently in synchronization licenses, and means an equal fee will be paid for master and publishing rights.
• Performance Rights are secured by television networks and major stadiums and venues, and they are ruled by national performance rights organizations or PRO’s. Whenever an artist’s song is played publicly or broadcasted, royalties are generated, and the PRO’s collect performance royalties on artists behalf and administer them checks. BMI, ASCAP and SESAC are the largest PRO’s in the United States. If an artist signs a publishing or publishing admin deal, performance royalties are looked after by the publisher, who takes a cut.

Synchronization Representation is up to master and publishing owners. Some labels and publishers have internal teams who pitch songs to music supervisors that license music for film, TV and advertisements. If an artist controls their own master and publishing, they may partner with a Sync House or Independent Sync Rep to pitch their music for those opportunities. Sync reps take a 20-25 percent fee from each sync license fee they secure. Sync representation deals do not require exclusivity or assert the sync rep’s ownership of any master or publishing rights.

Understanding the roles of labels, publishers, distribution and synchronization is crucial to navigating the economics behind music. There are hundreds of ways artists generate revenue, and music companies interact with artist revenue streams in complicated ways, based on which rights they control.

What are the primary revenue streams?

Whether an artist signs recording, distribution and publishing deals or manages their master and publishing rights independently, they encounter the below core revenue streams.

• Master Royalty Streams generate revenue to artists and record labels who control master rights.
• Sales Royalties are generated from physical and digital purchases of records.
• Streaming Royalties are generated from digital streams on Spotify, Apple Music, Google Play, Youtube RED, Deezer, and all the music platforms in the world. According to Forbes, the per stream rate is somewhere between $0.0006 and $0.0056—a fraction of a penny per listen. So, 1 million streams equates to roughly $5,000.
• Sync Royalties are generated from TV, film and advertising producers paying for the rights to use master recordings.
• Publishing Royalty Streams generate revenue to songwriters, or publishers who control publishing rights.
• Mechanical Royalties are generated from labels licensing the rights to  produce songs in physical and digital form. Record labels that release music in recorded form need permission, in the form of a mechanical license, to sell the recordings. Mechanical royalties are paid by labels to songwriters and publishers. If an artist wants to record a cover of someone else’s song, they (or their label) need a mechanical license from the writers of that song to release their recorded version. This ensures that the original writers continue to monetize their songs being commercially released by other recording artists. These royalties come into play when artists sign to labels. Independent artists who release their own music and own their own master and publishing rights don’t need to pay themselves for mechanical rights, but if an artist is signed to a label and self-published, the label is obligated to pay the artist mechanical royalties.
• Sync Royalties are generated from TV, film, and advertising producers paying for the rights to use songs.
• Performance Royalties are generated through performance rights organizations like BMI, ASCAP and SESAC when songs are performed publicly.

Touring, merchandise sales, digital advertising revenue and brand partnerships are some other revenue streams that are generated by artists. All of these revenue streams are sought after in different ways by companies who offer artists advances and support, in exchange for participation in revenue streams. What portion of revenue streams goes to those companies, and for how long of a term, depends on the deals.

There are many more intricacies behind the structure of music deals, including the rights and relationships surrounding artist data as companies find new ways to mine and sell these insights. The list of ways companies capitalize on music is constantly evolving, adapting to artists having more leverage than ever before to connect directly to their fans. While there is a long history of exploitative and restrictive dealmaking in the music business, there are infinite opportunities to support and align with progressive companies that are focused on nurturing artists creatively and professionally.

As an artist, maintaining control of your creative and financial future is the most important part of protecting intellectual property and generational wealth. As a listener, understanding the relationship between the artists you love and the economics behind the music they make, is important to understand.