The more things change in the music business, the more they stay the same. That holds true for record deals and music licensing. Nowadays, instead of selling your soul to the devil, you can license it.
Long before iTunes, Beatport, Grooveshark, Spotify, etc. created, and at the same time, fragmented the market for digitally-delivered music, long before paid music downloads and streams, and long before music videos on demand, major record companies like Sony, Universal, and Warner hugely controlled the creation and distribution of recorded music in the form of CDs, tapes and vinyl; thus, neatly they controlling the content.
The majors had the A & R people and the street teams and the big marketing departments and increasingly through the 1980s – 90s they were trying to outdo each other by breaking new artists they had “developed” in-house. At the same time they were trying to outsmart each other and the marketplace by signing new acts in various styles like a musical buffet: singer-songwriters, boy bands, rockers, and rappers, simply to have them ready for release, if deemed needed to establish chart position. More than a few artists got put on hold indefinitely with ridiculously expensive albums produced on fully-recoupable budgets that were never commercially released because the major labels were jostling for chart position with other priorities.
The results were mixed, and while the jury was still out on whether all of that was fair or necessary – the bottom fell out of the price for digital recording gear and then the Internet swept in. The ability to create an album or video inexpensively, and have wide distribution, was in the hands of everyone. There was no need to sign a restrictive record deal once the act had broken, the act could sign a license and keep all the rights for themselves.
You would think this would be liberating; but it is interesting how most often, the more things change the more they stay the same. In fifth-century B.C. the citizens of Athens were debating whether the idea was most important than the people who implemented it, and Socrates insisted there was never a single “right answer” to anything. That said, Socrates was put to death. Today we have fragmentation in the creation, distribution and consumption of music versus centralized hit-making. This has been impossibly stressful on the entertainment industry, where most diehards, up-and-comers, dreamers, thieves, and executives would insist that they most definitely have a line on the next best thing. The people who bring you the music, versus the ones who make it, have a need to stay on top.
Take record deals. Until the end of the 1990s, the standard deal was, the record company owned the recordings outright. Not negotiable. The artist got a royalty from the deal that was laughable. Maybe 16 – 18% of the published price to dealer, less a 25% packaging deduction, less maybe 4 points to a producer foisted onto the act by the label. This was all recoupable against recording costs that took several paragraphs to describe, and the cost of producing as many videos as it took to ensure that the act remained unrecouped.
Then almost overnight, outgunned by the Internet and by acts that were appearing out of nowhere, and with their old A&R departments being disbanded, the big record companies started to fail. Then increasingly, smaller labels came to the front, doing their own thing online and on the road without major label support. When the bigger labels wanted in, they licensed the tracks.
The concept of licensing, versus the record deal has been a phenomenon starting at the end of the 1990s, coinciding with the advent of digital distribution and MySpace. The licensor now retains copyright, and allows the licensee to use the copyright for a defined term either exclusively or non-exclusively for a defined territory, for defined uses, for a royalty, based on net receipts, with an audit clause. If the license is made exclusively, then the licensee gets to sublicense whatever rights were granted but nothing more.
This has re-told the story of record companies signing onerous deals where they controlled all the shots. The 360 deal is a side step-where the role of record companies, publishers, personal managers and booking agents have merged into the hands of one company or team. Pros and cons have been discussed elsewhere.
For exclusive licensing deals, however, there has been a tendency for the terms and conditions of the license to become suspiciously like a good-old-fashioned record deal. Examples in deals I have seen recently are as follows: purported ability by the licensee to grant a sub-license for a term of years to a third party that exceeds the term of years of the underlying head license; permanent split of revenue from the licensed music regardless of the end of the term; and purported ability to collect and keep a percentage of income that is not derived from the exploitation of the licensed works.
The rationale of the licensee has merit. Control is needed. Organization, knowledge, and resources all come into play. The licensee adds value. The lasting contribution of a record company to the value of the licensed tracks is real in the eyes of the record company. A tail-end royalty after the end of the license term often has been used to compensate for this contribution. However, it must be said, there is a difference between negotiating for what is fair, and grabbing what is not. Because an exclusive license may grant a bundle of rights for a certain term, does not automatically mean that the licensee owns those rights beyond the defined term of years or the scope of the grant; and does not automatically mean that unrelated rights should be included. Why, that would be downright grabby.
Original title: “Rise of the Grabby License Deal – licensing, versus the artist agreement”