The recording contract series; (part 23) The Licensing agreement

Unlike the full recording contract, the licensing deal allows the record company to hold the copyright of the artist’s work for a period of time only, and ownership of copyright reverts to the songwriter once that contract has been fulfilled. In terms of a licensing agreement, the licensee is authorised to manufacture and distribute records, as opposed to the distribution agreement, where the distributor simply sells the already-manufactured records to retailers.

Licensing deals do not attract big advances, so anyone doing a license deal will not be in a position to rely on the deal to live on for the next 18 months, as he would (hopefully) with a full recording deal. However it does usually give control, and it also means that after a period of time the artist will be able to exploit those rights as he or she prefers. Whether the royalties in a licensing deal should be lower, higher or the same as a full deal, is subject to debate, and will depend on the length of time that the label is permitted to exploit the recordings. Generally, however, they should be higher, because the label is not financing the recording.

A licensing deal might also be suitable for a singer/songwriter who already has an existing publishing deal where his songs are already making income by being used in film, television and commercials or are being covered by other artists.

Probably the leading South African case regarding the contractual principles behind licensing is SABC v Pollecutt. In this case, the Appellate Division held that a musician’s right to collect royalties under the Performers Protection Act in no way prevents him from being able to claim his full contractual payment under the licensing contract.

One clause of Pollecutt’s contract read as follows:

“Insofar as their contribution may constitute a performing right, you hereby consent on behalf of all the performers mentioned in clause 2 hereof that the SABC may record, broadcast and commercially exploit their contributions to the PRODUCTION without any further payment being made to you or any of the said performers.”

When the SABC was not paid by another company to which it had licensed that rights to sell records of the music in Shaka Zulu, it also tried to rely on Pollecutt’s right as a performer to acquire royalties under the Performers Protection Act (implying that that right discarded the need for him to be paid his cut on record sales). The court was having none of it and said ‘it makes commercial nonsense of the agreement to argue that, in these circumstances, the consent was conditional upon the receipt of royalties and that the respondent had then to rely on his intellectual property rights and not on the agreement...’

Licensing agreements are becoming more and more common, as artists discover their own recording and production skills, using new digital technologies. As stated above, it is easier now, than ever before, for the artist to produce his own album and then license it to a label. It is far more lucrative and beneficial, where the artist is savvy enough to know the business aspects that this series and other content on the website cover. But what should the artist look out for in a licensing deal? To name but a few (in addition to all those listed previously in the recording contract article series that might be applicable), reversion of copyright (if transferred at all), the exact rights that are being transferred to the label (e.g. is synch excluded?), exclusivity (a growing concern), the exact period of the license (and options if any), control over marketing, advertising and use of the artist’s image and likeness, payment terms, cessation of marketing after the term and the issue of remaining unsold stock

The Sub-licensing agreement

This contract occurs where the licensee label (or recording label, if it is a full recording contract) appoints another company to handle the artist, by way of sub-license, in a particular territory or for a particular time. This can only happen if the original agreement permits it. Typical examples of sub-licensees are foreign distributors, record clubs and deals where the licensee is more prepared to take a risk than the original record company, who sold the licensee the rights.

The Loan-out deal

A loan-out deal takes place when the record company “loans” the artist’s services for recordings, sessions, concerts etc. (see exclusivity, above). It sometimes happens that actual loan-out companies are set up and used as a strategy to avoid local tax laws (e.g. if a British major is paying heavy ad valorum and other taxes to release an artist, it might set up another label in the Virgin Islands, where taxation is far lighter, and “loan-out” the artist to record with that second label. This is obviously a tax-evasion strategy, and is not what the loan-out clause was designed for, namely artistic interaction with musicians signed to other labels. Carlos Santana’s last two albums, for example, his biggest-selling ever, were both recorded with loan-out vocalists (a different one on every track) from other labels. This meant that Santana’s label (and therefore indirectly, he) had to pay “loan-out” fees to the various labels, for the right to record these vocalists.