The following article attempts and explain the recent trends, as well as, some of the pros and cons of entering into a license agreement in today’s entertainment industry.
As the various business models of the entertainment industry continue to reinvent themselves almost on a daily basis, one prevailing trend is the growing use of licensing. More entertainment product is now self-produced by artists than ever before. The “Studio System” and “Major Label” business models are quickly becoming obsolete. Industry professionals continue to ask; are these changes the result of the economy, backlash against the ‘old systems’, or technology changes? The answer probably lies somewhere in the murky gray area known as “a combination of all of the above”. The point is, change is here, and change means an influx in the use of licensing throughout the entrainment industry as the shift continues toward independent production.
Take the music industry, for example. Under the old model, record labels hired talent evaluators to find artists, signed those artists to a recording contract, paid for the artist to record an album, created and distributed the album, and then profited off the sale of the album. The label owned the copyright to master recordings that made up the album, and shared in the copyright of the song publishing with the songwriter. The artist made money off of royalties paid by the label (including their advance) based on sales of the album, and on royalties paid to the songwriter by a performing rights organization (ASCAP/BMI) for broadcast of the song.
Today, the notion of a record label signing an artist and developing that artist from scratch is virtually a foreign concept. Instead, the trend is for artists to do all the legwork themselves. Artists assembling their own team, and self-recording their music or working with a small independent label to split the costs associated with recording. Recording being the easy part, the tough job is getting the masters out to the public: Distribution. This is where licensing comes into play.
One trend we see, ARC Law Group is for new artists to license their masters to a small independent record label, either after they’ve self-recorded or juxtaposed to the independent label’s efforts to help them record. The independent label then sets up digital and physical distribution outlets, helps with marketing and promotion, and books gigs for the artist. If the artist generates buzz, or the independent label has a strong niche, then perhaps the masters might be re-licensed to a major label at some point. We see this process go down all the time at our offices inside Different Fur Studios and the studio’s associated Text Me Records label.
How does the artist get paid?
The artist gets paid a licensing fee by the label in exchange for the right to distribute the masters. The licensing fee may include upfront money, royalties, advances, etc. An artist has more control now, too. Contrary to the old system, the artist now owns the copyright to the masters. They can license the rights to their masters for less than, say, eternity. The advantage is simple; the artist can renegotiate the licensing fee after a few years and isn’t locked into an economically or creatively disadvantageous long-term deal. The artist also controls the type of license being offered, exclusive or non-exclusive. By example, the artist grants a license only for physical distribution to an independent label, while holding on to the rights to license the masters for use in movies, TV or commercials (synchronization rights), or for any other use or other form of distribution.
This pattern of licensing is not exclusive to the recording industry. I’m reminded of our client Quorum Films and our recent negotiation to license the rights to their Academy Award nominated film Borrowed Time via an independent distributor. This illustrates the trend in the motion picture industry to produce privately financed, independent films (generated without studio funding) specifically with licensing in mind. These independent films are shopped at film festivals, or to direct to video distributors. Any number of reasons might lead a filmmaker down the independent path including creative control, money, and studio-system roadblocks, to name a few. Ultimately, if the filmmaker finds an outlet, different licensing agreements would be generated to cover the rights a distributor wanted to exploit: theatrical release, DVD, internet distribution, film clips, etc.
This same independent-minded trend toward licensing can be found in book publishing, the internet, photography and all other areas of the entertainment industry.
Now that we’ve covered the basics on why licensing has become such an important part of the general landscape of today’s entertainment industry, our next challenge will be unlocking some of the secrets to understanding the fundamental terms of these types of agreements. Check back over the next few months for more posts addressing the specifics of licensing.
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