Seven key steps to licensing music for digital exploitation

Posted: September 24, 2012

Unlike the well-trodden path of physical exploitation of music – from records to cassettes to CDs – the world of digital exploitation can often be complex and daunting.  So we have broken down the process of getting your digital music service licensed into seven key steps:

1      Understand how music licensing works

At a fundamental level, it is important to appreciate that the rights which need to be cleared for the digital exploitation of music fall into two basic categories: (a) rights in the recorded music (generally owned and controlled by record labels); and (b) rights in the musical compositions that are embodied in recordings (generally owned and controlled by music publishers).  Certain rights are administered collectively in the UK by the collecting societies (PPL for recording artists and record labels, PRS for Music for writers and music publishers).  So, depending on the nature of your service, you will need to approach either the relevant collecting society or the relevant record labels / music publishers direct for the appropriate licence(s) (see further below).

2      Know how your service works

Before you can even begin to navigate the digital music licensing regime, you need to be clear about the exact type of exploitation that your service requires.  Are you offering music for permanent download (ownership-based), or are you offering music to be streamed or stored on devices on a temporary basis (access-based)?  iTunes is, of course, the foremost example of an ownership-based service, and Spotify is probably the best known example of an access-based service.  You could also have something in between, such as a digital music “locker” that allows users to store and access their music both by way of download and streaming.  The more complex the exploitation, however, the more difficult it is likely to be to get licensed.

3      Plan how you are going to generate revenue from use of music in your service

In the early days of Apple Computer, Inc., a young Steve Jobs was often frustrated that his talented business partner, Steve Wozniak, was focused completely on making his computers useful for people to use, but never considered how to make money out of them.  By the same token, it can be a natural thing for many digital music services to focus on making the product or service great, and only later to consider how such a product or service could generate revenue.  So while making the user experience is of course a primary consideration, it should always be remembered that a successful music-related business relies on making money just as much as any other business.  Make sure therefore that you have a clear idea of how your service will generate income for music rights-holders, as without such a plan it can be a struggle to grab the attention of the key rights-holders that you will need to do deals with.

4      If possible, keep things simple

While some services have succeeded in pushing the envelope by introducing new ways to monetise music through advertising and subscription, rights-holders can often be nervous about the implications of new revenue models and whether there is potential for this to erode the traditional economic value of their content (i.e. CD sales).  Unless you have large financial resources available to fund the operation of a complex service and administration of payments to rights-holders where your customer base is still developing, it may be more commercially viable to choose a simpler service at the outset and to develop further sophistication as the service grows.  Indeed, many simpler services can be licensed directly by the relevant collecting societies; in the UK, for instance, PPL can grant licences for certain limited uses of recorded music, and PRS for Music can grant licences for certain uses of musical compositions.  Even the relatively straightforward digital offerings (including download services) require direct licensing by the record labels.  Also, each collecting society can generally only grant licences covering its particular jurisdiction (i.e. PPL and PRS for Music in the main cover UK exploitation only).  So, if you are planning a relatively simple UK-centric service, a good place to start in terms of determining what licences you need might well be the collecting societies.  Both PPL and PRS for Music have a great deal of useful information on their websites and are generally happy to discuss potential licensing options over the phone.

5      If you are planning a sophisticated service, think about the rights you need to clear

While a sophisticated service may seem to be the obvious way to go, this may not lead to the easiest road to secure the appropriate licences from music rights-holders.  Obtaining a grant of traditional master-use and mechanical rights, even in the digital sphere, is generally a much simpler proposition than asking rights-holders for synchronisation licences (e.g. where you are combining music with audio-visual) and/or adaptation rights (e.g. where you allow users to alter tracks in some way, such as by producing remixes).  You would always be best advised to avoid requesting rights that are likely to lead to artist/writer relationship issues for the rights-holders, especially where an artist’s and/or writer’s consent may be required before such exploitation.  As copyright is a complex area, you should seek formal legal advice to allow you to determine which rights you will need to clear to operate your service.  If you can be clear on these rights when approaching rights-holders, this should facilitate speedier negotiations.

6      Be patient

Depending on the type of service you are seeking to operate and its territorial scope, it may take some time to put all the appropriate licensing in place.  Remember that you not only need licences from the record labels (who own the rights in their artists’ recordings), but you also need licences from the music publishers (who own the rights in the musical compositions embodied on the recordings).  This means securing licences from each of the major record labels and each of the major publishers, as well as any independent labels/publishers whose repertoire you wish to include on your service.  Each of these rights-owners could have their own requirements, meaning that certain aspects of your service may need to be re-developed or altered in some way.  This makes it critically important that you have not gone too far down the development road before turning your mind to licensing.

7      Obtain specialist advice from the outset

This may seem an obvious point, but many digital music start-ups on a limited budget often choose not to spend money on obtaining professional advice in the first instance, as it can be tempting to divert these monies to what appear to be more important areas, such as research and development.  While developing the product/service is indeed of vital importance, it can be just as important to take specialist advice on the legal and financial implications.  As you can see from the above, digital music licensing is by no means simple, and the advice of a specialist digital licensing lawyer can often be invaluable to help you best shape the first steps in developing your digital music service.

Luke Anthony