CMU Trends In Ten Music Copyright Library

CMU Trends In Ten: Collective Licensing

By | Last Updated: June 2020

This is a ten step guide to collective licensing, explaining when and how the music industry licenses through its collecting societies, how the different societies interact, and the pros and cons of this approach.

01: Sometimes the music industry licenses through direct deals and sometimes through the collective licensing system
Copyright is all about control. It provides creators and their business partners with certain controls over what happens to the output of their creativity. So, from a music perspective, they have control over what happens to the songs and the recordings they create.

Thanks to copyright, the music industry can control the copying of music; the distribution or rental of those copies; the adaptation of any one song or recording to create another song or recording; and the public performance, broadcast, downloading and streaming of each song and recording of it.

Copyright makes money when a third party wants to exploit one of those controls – ie the third party wants to reproduce, distribute, rent, adapt, perform in public, communicate to the public or make available online someone else’s songs or recordings.

In the music industry, if the third party wants to reproduce and/or distribute the music we might say they want to exploit the mechanical rights. Or, if they want to perform, communicate or make available the music, we might say they want to exploit the performing or neighbouring rights.

Either way, to do any of that legally, the third party needs to get the copyright owner’s permission. The copyright owner sells that permission and that’s how copyright makes money. This selling of permission is called licensing. And in the music industry, there are three different kinds of licensing.

Direct licensing is where the copyright owner negotiates a bespoke deal with whoever is using the music. So if a brand wants to use a song or recording in an advert, it finds the copyright owner or owners and negotiates a bespoke deal or deals.

Because of copyright, the copyright owner can always say “no” to the brand if they don’t want their music to be used in that way. Or, if they do want to do the deal, they can use their right to say “no” to try and get more money.

So, basically, the more a brand wants to use a track, the more countries an advert will be seen in, the longer the ad will air for, and the bigger the brand’s overall advertising budget, the more money the copyright owner will likely make out of the deal.

Third party licensing is like direct licensing, except another entity negotiates the deal on behalf of the actual copyright owner.

In streaming, smaller labels and self-releasing artists won’t negotiate deals directly with companies like Spotify. Those deals are very complex and involve lots of paperwork and lawyers, making the deal-making process expensive.

So instead, bigger music distribution companies negotiate deals, and the smaller labels and self-releasing artists then ally with one of those distributors in order to get their music into and receive royalties back from a Spotify-type service.

Collective licensing is where the whole music industry basically licenses as one. Or – to be more precise – the record industry (the labels, distributors and artists that control the sound recording rights) licenses as one. And the music publishing sector (the publishers, songwriters and composers that control the separate song rights) also licenses as one.

In this scenario, both the record industry and the publishing sector each appoint an organisation to license of their behalf. We variously call these organisations collecting societies, collective management organisations (CMOs), performing right organisations (PROs) or music licensing companies.

These organisations then negotiate deals with each licensee (or often with whole groups of licensees), collect any monies that are due and distribute that money back to the copyright owners, in theory based on usage.

Collecting societies usually provide licensees with a blanket licence, meaning they can make use of any song or recording in the society’s repertoire, and what they pay is unaffected by which specific songs or recordings they use. Most of these societies are not-for-profit organisations that cover their costs by charging commissions on any money they collect.