MA - MUSIC INDUSTRY MANAGEMENT

& ARTIST DEVELOPMENT

MODULE CODE: MU70011E

STUDENT: WILLIAM HARVEY
STUDENT NUMBER: 20273213
ASSIGNMENT: DISSERTATION

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CONTENTS
TITLE
ABSTRACT
LITTERATURE REVIEW
Copyright
Music as property
Copyright, Design and Patents Act 1988
Economic and Moral rights
Exclusivity
Assignment / license of copyright
Copyright in the music industry
Master / Song copyright
Music industry players & their roles
Assignment of copyright to record labels / publishers
Licensing of copyright to end users
Mechanical license
Synchronisation license
Performance license
Income from copyright
Business model based on sale / performance of recording
Sale of recordings
Mechanical royalties (received by owner of master copyrighj)
Synchronisation royalties(received by owner of
Performance of recordings
Synchronisation royalties
Performance royalties
Role of Collection societies as the ‘one stop shop’ intermediary
Key Technological Changes
The Internet
Digital compression / MP3
Illegal file sharing and decline in CD sales
DAW’s / The home studio
New Business Models
Home made producer owning both copyrights
Internet and ‘one-stop shop’ licensing
The royalty-free model
METHODOLOGY
RESULTS & DISCUSSION
CONCLUSION

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TITLE
“COPYRIGHT & LICENSING: AN INVESTIGATION INTO THE ADMINISTRATION AND COMMERCIAL
EXPLOITATION OF COPYRIGHT WITHIN THE MUSIC INDUSTRY, WITH PARTICULAR APPLICATION TO
INTERNET BASED ONE STOP SHOP HIPHOP BEAT LICENSING BUSINESSES”

ABSTRACT
The purpose of this dissertation is to analyse and review past and currents practice in the
administration and commercialisation of copyright in the music industry between songwriters,
recording artists, record labels, publishers and collection societies. Radical changes in technology
have led to important modifications in the corresponding business practices and agreements
between the key players. Most significantly, the ownership and commercial exploitation of copyright
by individual songwriters using 'one-stop shop' internet based licensing businesses.

We will review the key contractual concepts from a theoretical and legal point of view; explore the
literature on the topic as it related to the traditional practices, and the far more limited literature
relating to the new context; present and discuss the findings of the research methodology carried
out to understand how these changes are being experienced and adapted to on the ground by both
artists and commercial players; and finally discuss the implications of this evolution/ revolution for
this field of music business.

Using a combination of grounded theory along with quantitative and qualitative data collection
instruments, the study investigated 50 of these ‘one-stop shop’ businesses and found that:

o Assigning copyright to third parties to generate income through licensing is

irrelevant to this particular business practice

o the sampled practitioners have adopted a DIY approach with regards to

administration and commercial exploitation

o The administration of the copyright is carried out individually by the songwriter and
the commercial exploitation is in the form of lease licenses, granting the right to the
licensee to create a derivative of the copyright and enjoy some of the exclusive
rights in the resulting copyright.

o While all were found to be affiliated to collection societies, the main source of
income for these songwriters is the upfront fee of the non-exclusive licence as
opposed to money which could potentially be derived from mechanical sales or
public performance of the resulting derivative

A key outcome of the finding is that while in the past songwriters were willing to assign their
copyright to third parties in return for the payment of a sum and the performance of certain vital
services, technological advances which have empowered the songwriter to own both copyrights and
trade independently of record labels or publishers have resulted in songwriters licensing copyright as
opposed to assigning them.

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LITERATURE REVIEW
Copyright

Intro
The core line of investigation of this study revolves around the administration and commercial
exploitation of copyright within the music business, which are key notions relating to songwriting
and music publishing. As Passman (2002) states, ‘before you can understand what songwriting and
music publishing are all about, you have to understand how copyrights work’. i

Music as property
Kohn and Kohn (1998) state, ‘The term property should not be confused with the term property
right. A property right represents a relationship among people, recognized and defined by law, with
respect to a certain thing or object. Property is the object over which the right of property is
exercisedii’.

This right of property over a musical work is customarily called copyright, and the exclusive rights
endowed to the copyright owner are his property, or proprietary rights.iii

Copyright, Design and Patents Act 1988

The Copyright, Designs and Patents Act 1988 is the referring legal document relating to copyright in
the UK. It states that copyright is a property right which subsists in musical works1 and sound
recordings2 as soon as a tangible copy is made3. The author, who is the person who creates it and is
the first owner of any copyright in it4, is protected by a number of exclusive rights which include the
right to authorise the reproduction of the work5; the right to authorise distribution of the work6; the
right to rent or lend the work to members of the public7; the right to authorise public performance
of the work or its making available to the public8 and the right to make an adaptation of the work or
to do any of the above in relation to that adaptation.9 Copyright expires at the end of the period of
70 years from the end of the calendar year in which the author of a musical work dies10, and with
respect to sound recordings, 50 years from the end of the calendar year in which the recording is
made11 or published.12 The author of a work has a right to be identified as its author13, the right to
not have his work subject to derogatory treatment14, and has the right no to have a work falsely
attributed to him15

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Section 1 – (1) (a)
2
Section 1 – (1) (b)
3
Section 3 – (2)
4
Section 11 – (1)
5
Section 16(1) (a) and section 17 CDPA
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Section 16(1) (b) and section 18 CDPA as amended
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Section 16(1) (c) and (d) and sections 19 and 20 CDPA as amended
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Section 16(1) (e) and section 21 CDPA as amended
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Section 21 CDPA as amended
10
Section 12 (1) and (2)
11
Section 13A – (1) and (2)(b)
12
Section 13A – (1) and (2)(c)
13
Section 77 – (1)
14
Section 80 – (1)
15
Section 84 – (1)
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 Economic and Moral rights
Music is more than object of perception, it is also an object of conceptual, or intellectual thought,
and as such constitutes a form of intellectual propertyiv This intellectual property belongs initially to
the creator who holds the copyright and endows him with moral and economical rights. v

There are 5 exclusive economic rights: vi

- Reproduction right – the right to make copies of the work
- Distribution right – the right to distribute copies of the work
- Performance right – the right to perform the work in public
- Adaptation right – the right to make adaptations of the work
- Synchronisation right – the right to synchronize the work with moving images

In addition, there are basically 3 moral rights: vii

- The paternity right: the right to be identified as the author
- The integrity right: the right to object to derogatory treatment
- The attribution right: the right to object to false attribution

Exclusivity
Copyright is therefore a legal concept relating to ownership which endows authors of original
musical works and sound recordings with the right to exclude others from doing any of the acts
reserved to the copyright owner without first obtaining permission.viii ix x xi

The notion of exclusivity, by its very name, expresses this ability to exclude.

As Kohn and Kohn (1998) go on to specify, ‘This ability also empowers the copyright owner with the
ability to grant others this privilege, and the income that the copyright owner can collect in exchange
for granting others this privilege is precisely the reward the law of copyright seeks to provide the
creators of copyrightable works’.xii

Assignment / license of copyright

The entire entertainment business hinges upon the existence and enforcement of copyright which
gives authors the right to own an original creation, and subsequently profit from it. xiii xiv Like other
forms of property, copyright can be commercially negotiated either in the form of a sale or a lease.

As stated by Rudsenske (2005), ‘the music business is founded on the acquisition, use, and/or sale of
copyrights to songs and the recordings of those songs. Copyright allows songwriters and recording
artists to protect and maintain ownership of their creations, or to transfer those rights to third
parties, like publishers or record labels. xv

When it is a sale, we speak of assignment of copyright, whereas when it is a lease, we speak of

licensing of copyright. When a copyright owner assigns his copyright, he is giving away his
ownership, whereas when copyright is licensed, he gives permission to exercise his property rights
while retaining ownership.xvi xvii xviii

This permission required to exercise any of the exclusive rights reserved to the copyright owner
comes in the form of a license which generally bares the same name as the right to be exercised:
▪ A mechanical license
▪ A performance license
▪ A distribution license
▪ A synchronisation license
▪ An adaptation license
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Licenses are agreements that give legal permission, referred to as clearance, to use copyright music
within the context of another party's creative project. xix In the world of hip hop where sampling is
the essence of the musical genre, this clearance is obviously fundamental.xx xxi
The party who grants permission is referred to as the licensor and the party seeking usage is called
the licensee.

Copyright in the music industry

“The rights owners are at the core of the industry: songwriters, composers, music publishers, artists
and labels. The entire industry revolves around the management of these rights.” (Gammons,
2011)xxii

Master / Song copyright

Wilsey & Schwartz (2010) claim that ‘copyright is at the core of any licensing contract since
approving any deal that involves music requires permission from the copyright owners’.xxiii

As stated previously in the CDPA, there exists a copyright both in the musical composition and in the
sound recording. Music is by nature intangible, it can only be consumed and commercially exploited
as part of a tangible product which gives access to the intangible, for example a CD or a concert
ticket. xxiv The physical object that materialises the music has no intrinsic market value, it only
becomes valuable when it embeds the music. The interdependence of the artist who creates the
music and the record label which materialises it meant that the respective values of their
contributions in the commercial exploitation were indissociable. The result was the creation of
copyright for musical composition and a separate copyright for the recording.

The process of licensing music therefore involves clearing two types of copyright. The first is the
Publisher copyright which protects the owners of the underlying musical composition and lyrics.
Clearance for this copyright in the licensing realm is called a Synchronisation license. The second is
the Master copyright which protects the owner of the recording. Clearance for this copyright is
called a Master license. xxv

Music industry players & their roles

In the music industry, publishers make money from administering and commercially exploiting songs
while record labels make money from commercially exploiting the recordings, or ‘masters’, of songs.
Rudsenske (2005) states that ‘publishing companies acquire the copyrights to written songs through
a publishing agreement; record companies acquire the copyrights to sound recordings of those
songs through a recording agreements’. xxvi

Assignment of copyright to record labels / publishers

Since the copyright owner can derive benefit from his property either by assignment or license, the
question arises as to which one is preferable and according to what criteria, and this is where the
factor of market forces enters the equation. Copyright is said to be assigned ‘by contract’ when it is
assigned in exchange of the payment of a sum and/or the promise to perform certain services. It is
the provision of the services that explains why copyrights are more often than not assigned rather
than licensed. xxvii

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Historically, copyrights have been assigned to record labels and publishers primarily because they
controlled the revenue streams, which stemmed essentially from the sale of records and public
performances. Their key value proposition lay in their greater ability to generate revenues by
administering copyright, accessing potential licensees and issuing licenses. xxviii The benefit of this
setup from the songwriter’s point of view is that the intermediary was better equipped for the
exploitation of the copyright and would be able to generate more income for both. xxix

Income from copyright

Business model based on sale / performance of recording
The music industry business model was essentially based around the sale of CD’s and the public
performance of records. In this historical setup, payment for the multiple usages of a song or master
would come in two distinct forms: xxx
- A lump sum upfront payment
- A royalty expressed as a percentage of sales

Role of Collection societies as the ‘one stop shop’ intermediary

In order to manage the multiplicity of revenue streams arising from the numerous commercial
exploitations of copyright, specific organisations were created known as collection societies whose
role, as their name suggests, was to collect the money on behalf of the copyright owners. xxxi xxxii xxxiii
A majority of this money collected and redistributed to the corresponding copyright owners stem
from mechanical and synchronization royalties. The third biggest source of income are performance
royalties.

PRSforMusic is the UK collection society which is comprised of two sub-divisions, one concerned
with the collection of income stemming from the performance of songs, and one concerned with
collection of income stemming from the mechanical sale of masters. The latter is known as the
Mechanical Copyright Protection Society – or commonly known as MCPS.

Concerning the performance of the song ‘masters’, a sum is also collected by the Phonographic
Performance Limited society and redistributed to the corresponding songwriters. It should also be
noted that, as observed in earlier, a second fee is also payable by the licensees of the master use
performance license to the owner of the recording copyright.

As stated by Harrison (2008), ‘to make doing business as easy as possible requires a one-stop
service’. xxxiv This can be more clearly understood when observing the situation from the point of
view of the licensee who, as explained earlier, has to obtain a composition use, or ‘synchronisation’
license from the owner of the music and lyrics, as well as a separate mechanical license from the
copyright owner of the recording.

Key Technological Changes

However, a considerable number of changes have come as a result of technological innovations,
which have had a radical impact on the traditional business model.

The Internet
The first, and probably the most significant of these changes is the development and the ubiquity of
the internet, which has provided to every connected individual the access to all other players in a
way that was previously limited to certain specialised organisations as discussed above. It is an
unrestricted market place that allows any individual or any organisation to be in contact with any
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other individual or organisation for the buying and selling of products and services. With the respect
to the music, it has broken down the barriers between all of the players in the value chain, from
songwriter to end consumer. xxxv This has had an impact both in the way in which musical products
are assembled and distributed, and on the associated market forces and revenue streams.

Analogue to Digital

In parallel to the development of the internet, has been the shift in the use of analogue to digital
technologies in the recording and distribution of music. In addition, the democratisation of
technology necessary for musical production has led to the rise of digital audio workstations in
millions of homes. It is the combination of these two developments that meant that what had
previously been the prerogative of recording studios is now available to anybody with a laptop and
internet connection.

MP3 and Copyright Infringement

The other aspect of digital innovation was the arrival of compression algorithms that enabled
previously large files to be compressed into substantially smaller files which could be much more
easily shared and distributed over this new medium. xxxviA previously tightly controlled market in the
hands of a few powerful players became a sort of ‘wild west’. The arrival of Peer-to-peer
technologies like Napster led to the free and unauthorised distribution of copyright protected
material.
Decline in CD sales
This has had a dramatic impact on the sale of music via traditional physical means. The legal
arrangements covering copyright and associated royalties did not change but technology rendered
them unenforceable. A major commercial consequence of this development was that record
companies had to look for other ways for substitute the loss of revenue. xxxviiOne of the ways they
have done this is through is through new form of agreements such as the 360 deal which sees the
record label taking income not only from the exploitation of the masters but also from other sources
such as publishing, touring and merchandising.

New Business Models

Home made producer owning both copyrights
The record labels are no longer in the driving seat with regards to recording, and songwriters have
the possibility to own both copyrights and engage in trade independently, therefore in many cases,
it is no longer as advantageous for the songwriters to assign their copyrights to either a publisher or
a record label. xxxviii This new situation has given the songwriters greater bargaining power.

Internet and ‘one-stop shop’ licensing

Whereas the process of clearing both copyrights made sense in the old business model based where
it was common for the record label to own the master copyright and the publisher to own the
copyright in the musical composition, this made the process of clearance more strenuous from the
perspective of the licensee, who would have to clear both copyrights.
This has given rise to internet-based business who, as Wilsey & Schwartz (2011) have observed,
‘dramatically streamline the licensing process because most offer ‘one-stop music licensing’, which
allows them to grant clearance for both the synchronization and master licenses’ xxxix

Submarket for licensing hip-hop beats

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Whereas previously, licensees would typically have been institutions, as a consequence of these
technological changes, they will today just as likely be private individuals. xlMore specifically, as
relates to the present study, the licensees may also be other musicians looking to include third party
musical products in their own creations. The specificity of the hip-hop genre where the lyrics and the
music can be created separately, and the fact that a majority of the artists are predominantly
lyricists has created a submarket for beats which can be traded separately from the final product.

There exists a current trend amongst ‘beatmakers’ to license their instrumental hip-hop tracks to
aspiring recording artists looking to record rap vocals over them and release material without having
to go through the long, painstaking process of learning how to make professional sounding hiphop
beats. These artist seek to buy bulk at a discount price in order to commercially release a maximum
amount of tracks in a short amount of time and gain the recognition they seek.

The royalty-free model

Because a majority of these private individuals and musicians are neither interested in or familiar
with the legalities and intricacies of copyright law, a new model known as ‘royalty-free’ has arisen.
The royalty free model is an attempt to remedy the lack of knowledge, experience and comfort of
the target market by simplifying the deal to a simple one-off fee. Whereas in previous assignments
or licenses, there would have been provision for the payment of mechanical and performance
royalties as well as the upfront fee, in these new arrangements, only the upfront fee survived.

These licensees are looking to exercise the adaptation right on the masters to produce and
commercially exploit derivatives. It is for this reason, the relative absence of literature on the
subject, and for personal professional ambitions that the research topic was selected and the
methodology described below adopted.

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METHODOLOGY

Now we have seen how copyright works, how it has been historically administered and exploited
and how technology has disrupted the business model empowering the songwriter to own and
commercialise his own copyrights.

The research questions that remained to be investigated fell broadly into two categories:

- The administrative infrastructure within which business is carried out

- The commercial and financial arrangements used to exploit copyright

- The viability of the adopted business model

It was decided to cover a very wide range of questions relating to all aspects of these new
businesses: What is their legal business form? How big is the company? What type of licenses are
they proposing? At what price? What are the scope of permissions included in the licences? Who
buys their licenses? What other services are they proposing? Are they still seeking representation for
licensing deals? What methods are they using to market their copyrights to the buyers? How long
did it take to issue first licence? How many licences a year? What licence sells most? Who are the
key buyers? Are they generating enough opportunities to derive income and make a living from it?
What are the key expenses: Start-up costs? Business expenditures? Marketing expenditures?
Advertising? etc.

In looking for the answers to these questions, it was decided to follow two principal lines of
investigation. The first line of investigation involved identifying and analysing 20 hip-hop beat
licensing companies in order to establish what the actual practice was as relates to the business
models used, the second was the questionnaire seeking direct input from them.

By studying the websites, it became clear that these businesses were commercially exploiting their
copyright by permitting the commercial use of derivatives through a series of non-exclusive licenses.
The key differentiator distinguishing the various configurations applied to different commercial
needs of the licensee. It was discovered that there was a variety of different license arrangements
covering different licensee needs:

- On the one hand, inexperienced aspiring recording artists with low purchasing power,
looking to create derivatives mainly for promotion and artist development

- On the other hand, established recording artists and institutions with higher purchasing
power who don’t want to be limited in the use they make of the product

While this addressed a number of the questions regarding commercial exploitation, there was little
information about the administrative models being used. For example, are they entering into
representation agreements with publishers or third parties, and more fundamentally, are they
assigning or licensing their copyright? None of this was visible from the preliminary investigation
from the website. The websites for example did not reveal whether other relationships exist that
would allow the copyright owners to generate revenue in other ways. It was not possible to deduce
from the websites whether or not other revenue earning relationship existed such as publishing
agreements.

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It was therefore decided that it was necessary to have a direct contact with these players to
complete the data that was not fully available from observation on their websites. A questionnaire
was drafted to obtain the complimentary information needed directly from the interesting parties.
It was planned to do this research in an iterative way. A first questionnaire was sent to the first 50
organisations that came up in the search engine results of ‘ buy hip-hop beat licenses’

The questionnaire was designed to cover maximum possible number of commercial and
administrative aspects of how the business functions ranging from their business legal form,
company size to expenses and key marketing strategies. (see appendix B)

From the first 20 answers that came back, it became clear that some of the assumptions made
regarding the diversity of business practice were not validated by the reality. The study of these first
responses revealed that the differences were not around representation and administrative
agreements, but about the quantitative and qualitative aspects of the rights included in the licensing
agreements. The consistency of this finding allowed us to consider that the reliability of the data was
not impacted by the small sample size. It was at this point that it was decided to adopt an
observational approach to obtain the data available concerning the diversity in the terms of the
license agreements being proposed by these companies. The detail results of this data collection can
be found in the excel spreadsheet.

From the point of view of methodological theory, this research approach therefore presented the
following characteristics:

Research design

a. Application

From the perspective of its application, this study can be primarily classified as applied research in
that ‘the techniques, procedures and methods that form the body of research methodology are
applied to the collection of information about various aspects of a phenomenon so that the
information gathered can be used in other ways such as policy formulation, administration and
enhancement of understanding of the phenomenon (Kumar, 2014)xli. The ‘phenomenon’ being
investigated in this study being the business model adopted by hip hop beat licensing websites to
administer and commercially exploit copyrights, how the model has evolved with technology and if
the model is economically viable.

However, the research can also be classified as pure research since the grounded theory on the
subject led the author to develop the hypothesis that the business model involving the use of a
publisher as a third party to administer and commercialise copyright was still applicable to these hip
hop beat licensing websites.

b. Objectives

From the perspective of its objectives, this study can be classified as exploratory, descriptive, and
explanatory. Exploratory in its attempt to explore the practice of licensing hip-hop beats via the
internet which is a relatively new practice remaining to be further investigated; descriptive in its
attempt to describe systematically the business model and types of services provided by these beat
licensing websites; and explanatory in its attempt to clarify how and why copyright administration
and exploitation has evolved with technology, as well as how and why these beat licensing websites
are doing business in a particular way. The research is also a feasibility study as the purpose is to
ultimately determine whether the business model is economically viable.

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 c. Mode of enquiry

From the perspective of its mode of enquiry, this study follows a mixed mode approach to use the
strengths of both quantitative and qualitative research in order to select the best methods to find
answers to the research questions (Kumar, 2014)xlii.

The research used a structured, quantitative approach (in that it involved drafting a questionnaire
and collecting specific, pre-determined information from a sample of 50 hip-hop beat licensing
websites in order to draw conclusions which could be generalised.)

The questionnaire and excel spreadsheet was drafted in such a way as to obtain information
measurable on different scales. The answers of the questionnaire was to be provided in multiple
choice format, ranking scales and open-ended questions so as to provide input and clarify points
that the author might have overlooked.

Even if some of the questions include in the questionnaire were based around hypotheses which
turned out to be wrong, and that most the data that forms the heart of discussion came from the
excel, the data collected in the questionnaire provides room for discussion in terms of
administration and commercial exploitation.

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RESULTS & DISCUSSION
For the reasons explained above in the methodology, the following analysis and discussions of the
questionnaire results will focus specifically the administrative and commercial exploitation aspects.

The results obtained by the questionnaire were as follows:

- 50% of the sampled licensing practitioners are registered as sole traders, and limited companies,
with a remaining small percentage registered as partnerships

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This data confirms that most have adopted a self-managed, or ‘DIY’ approach, with regards to
administration. Regarding commercial exploitation, there is a bigger risk attached to being a sole
trader such as being personally responsible and liable for all damages. The principal damages which
could arise from the issue and commercial exploitation of the works through licensing originate from
the uncleared use of samples in the beats. In such a case, the license agreement would provide
protection against copyright claims.

- The average company size of these one-stop shop websites was 3.

It can be observed from this data that these businesses are not labour intensive. One of the reasons
for this is that the websites’ standardised contractual documentation, and a non-customised
approach removes the need for specialised staff.
In reality, the three individuals identified will probably cover the 3 residual essential roles, i.e.
Creative, Legal and Marketing. Another possibility is that the company is made up of a number of
independent beatmakers (a sort of partnership) who are all well versed in the legal and commercial
intricacies of the commercial exploitation of their works and who do not need anybody to fulfil these
vital functions when it comes to issuing licenses available for purchase on the website.

- 33% of the sampled practitioners were affiliated to a collection society, the remaining either
are not affiliated or have skipped the question

This data further confirms the DIY approach of these beat licensing practitioners in terms of
administration and commercial exploitation. Through it, it can be deduced collection societies play a
smaller role in the generation of income for these businesses as a result of the greater relative
importance of the upfront fee in the ‘royalty free’ model. It should be pointed out that collection
societies are not becoming obsolete, but that these beat licensing practitioners have adapted to the
times and technological changes to derive income independently of traditional institutions.

- All practitioners interrogated are self-published and administered

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This further illustrates the DIY approach. These beat licensing practitioners are not entering into
representation or administration agreements with publishers or other third parties to administrate
or commercially exploit their works.

- While 33% answered being affiliated to collection society, 83.33% answered using collection
society only as a means of administering copyright, pursuing licensing opportunities and
collecting royalties overseas.

This illustrates than inconsistency in the questionnaire which can be explained by the fact that the
multiple sets of data were sought in a single question. Moreover, this further illustrates that the
assumption that these practitioners were entering into representation agreements through
publishers or third parties to administer and commercially exploit copyrights was wrong and out of
tune with their business practice.

- 90% of the sampled practitioners issued more than 100 licenses per year, with the two most
popular licenses being the basic and premium non-exclusive licences.

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 o It should be noted that another assumption was made at the time of the drafting
that because of the numerous companies competing for the same business that the
number of licenses granted per year would for the most part, not exceed 100.
o The fact that 90% informed that they exceeded this figure raises the question the
threshold viability of their business which is not the object of this study.
o While this data was initially targeting the viability of the business model, it also
throws some light on the commercial exploitation of the copyright
o At the most basic level, this demonstrates that songwriters can be independent of
record labels and publishers for the exploitation of their work
o The prime importance of the non-exclusive license shows that these entities favour
the security of volume over the risk of higher reward but more complex exclusive
deals.
o From this it can be concluded that by offering the possibility to make derivatives at a
relatively affordable price offers the potential for a reliable, long term source of
income, even if it would generate probably less income than back end performance
royalties from airplay. This is probably why most skipped or thought it not important
to answer the question about collection society affiliation, because it doesn’t form
the core of their business

- The main source of income comes from the upfront license fees and services/website
subscriptions.

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- The highest demand comes from the recording and film industries, with TV and advertising
as secondary

- Average start-up costs were $280. It took an average of 4 months to close the first sale

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 - The data indicates that social media marketing, email marketing, and SEO marketing are the
3 key marketing strategies

KEY POINTS ABOUT THIS DATA

- Entering into representation agreements with publishers or other third parties is irrelevant
when it comes to the practice of licensing beats online in a ‘one-stop shop’ manner

- Because of the low costs associated with creating and running an internet based business to
license copyrights in a ‘one-stop shop’ ability, the sampled practitioners have opted to self-
administrate and commercially exploit their copyrights as opposed to assigning them to
publishers or third parties

- The ‘bread and butter’ of this business is the upfront licence fee and website service
subscriptions as opposed to mechanical and performance income from the resulting
derivatives

- As such, while all practitioners still make use of mechanical protection and performing rights
societies such as PRS or MCPS, they don’t rely on them primarily to generate income. They
are mainly used as a safeguard in the eventuality that a derivative gains commercial success
and earns income by those means, which is very rare in the case of licensees purchasing the
basic non-exclusive licence.

- The way in which the music and licences are made available to all at any time on the website
means business can be generated on its own, without the need for a face-to-face
negotiation every time there is a demand. Because of this fact, a majority of the sampled
practitioners were found to be registered as sole traders and limited liability companies

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 averaging around 3 employees. The risks associated with the commercial transactions are
minimised and secured once the written agreement of each licence has been drafted.

- The traditional tasks fulfilled by the record labels and publishers in terms of administration
and commercial exploitation is carried out using a website and internet based marketing
strategies such as social media marketing, emailing and SEO.

SEE ANNEX B FOR DATA

- There is an average of 3 licenses available:

o The ‘Basic’ license

▪ The license is non-exclusive
▪ The average fee is $21
▪ An MP3 format of the master is delivered to licensee
▪ The licence allows for 1 commercial exploitation of the derivative with an
average distribution limit of 2,666 units
▪ Only 15% of the sampled practitioners allowed the licensee to derive some
sort of performance income from the derivative in this license

o The ‘Premium’ license

▪ The license is non-exclusive
▪ The average fee is $48
▪ A WAV format of the master is delivered to licensee
▪ 40% offered tracked out exports of the beat in this license
▪ The licence allows for 1 commercial exploitation of the derivative with an
average distribution limit of 11,500 units
▪ A little over 50% allowed the licensee to derive public performance income
from the derivative in this license

o The ‘Unlimited’ license

▪ 50% of sampled practitioners offered exclusivity in this license
▪ The average fee is $157
▪ A WAV format of the master along with tracked out exports of the beat is
delivered to licensee
▪ The number of profitable projects, distribution limit, and income from
commercial exploitation through sales is uncapped
▪ Only 7.5% still did not allow any public performance income to be derived in
this license
-

KEY POINTS ABOUT THIS DATA

The licences are targeted mainly at inexperienced aspiring recording artists looking to produce
material quickly by recording rap vocals over the masters of the instrumental beats proposed for
lease on the websites.

The licence grants the right to create a derivative of the underlying composition and derive a limited
commercial exploitation from it, and the fee increases from basic to unlimited.
19
- The license fee increases from basic to unlimited
- The scope of permissions granted within each license increases in each licence
- The rights granted in the licenses accommodate the needs of the licensees in terms of usage
- These needs include commercial exploitation of the resulting derivative through online sales,
audio / video streams, TV/Radio broadcasts and live performances
- Most of all this desired exploitation will take place on internet based platforms like iTunes,
YouTube or Spotify.
- The basic licence provides the opportunity to commercially exploit the derivative by granting
the licensee the right to sell a specified amount of units in return of a modest initial
investment. The licensee can perform the derivative only as a means of self-promotion but is
not allowed to generate any performance income from it.
- The premium licence provides greater freedom in terms of commercial exploitation, both in
terms of sales and public performance, but is still limited in its scope.
- The unlimited ‘exclusive’ licence provides unlimited commercial exploitation through sales
and public performance, but while the licence is presented as an ‘exclusive’ license, half of
the sampled practitioners actually gave away exclusivity and the agreement remained non-
exclusive
- The commercial exploitation of the copyright through various license agreements on the
website empowers the licensee to purchase the rights he desires in a ‘one-stop shop’ ability
- This accommodates licensees from low to high purchasing power
- In certain situations, it would be more interesting for a licensee to ‘buy-out’ (be assigned the
copyright in the track) the rights rather than purchasing a license. This could be in the case
of a licensee who purchases a basic license and creates a derivative which gains huge
commercial success, or an established major recording artist interested in one of the beats
for his next multi-million selling album. The websites have catered for this by drafting the
agreements in such a way that the licensee is legally bound to renew his license once the
distribution cap has been reached. In the case of the major recording artist, the licensee is
invited to get in contact directly with the songwriter in order to discuss and negotiate the
agreement.

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CONCLUSION
In conclusion, we can firstly state that the development of a sub-market for trading in hip-hop beat
copyright is the reflection, and the consequence, of what can truly be called a paradigm shift that
has happened in the music distribution sector. Under the effect of revolutionary technological
change, led by the internet, the business models defining the relationships between the players in
the supply chain that links creators of music to its consumers have been transformed, in all
probability, irreversibly. We have observed how the administration and commercial exploitation of
copyright is inextricably linked to the market forces at play in the trading environment. The one-stop
shops now offering internet-based value-added services are positioned differently in that
environment to historical players like the record labels and publishers, but continue to survive by
meeting actual customer needs: SEO, social media marketing and online advertising are typical of
these services. It was not within the objectives of this study to analyse the viability or the
sustainability of these new structures, but it seems reasonable to suggest that they are here to stay.

The key enabler of the emergence of the creator-distributor of hip-hop beats is the combining of the
song and master copyrights whose separation had previously caused the need for multiple players
with often contradictory commercial agendas. The specificity of the hip-hop genre, with its clear
delineation between the musical foundation and the lyrics that are rapped over it, has been in the
forefront of this evolution, even if the appearance of a ‘stem’ market in other musical fields would
indicate that it is far from alone in having an identifiable ‘sub-market’ for beats. Music is no longer
created and distributed only as pre-packaged ‘finished’ products.

The creative artist’s relative lack of expertise in – and taste for – the contractual dimension of the
business is at least potentially no longer such an obstacle for him to make a living. The new
circumstances do not compensate for lack of quality of the work, but do facilitate its diffusion.

The dust has certainly not settled on this new world. If there is one thing that has been learned
during this investigation, it is that assumptions based on past paradigms – as was done with our
questionnaire - can lead us down the wrong path when trying to forecast, or even evaluate, the
impact of change.

21
ANNEX A – License type and specificity

22
BIBLIOGRAPHY
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Kohn, A., Kohn, B. and Kohn, A. (1996). Kohn on music licensing. New Jersey: Aspen Law
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Kumar, R. (2014). Research methodology. Los Angeles, Calif. [u.a.]: Sage Publ.

Passman, D. (2002). All you need to know about the music business. London: Penguin.

Riches, N. (2012). The music management bible. London: SMT.

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Wilsey, D. and Schwartz, D. (2010). The musician's guide to licensing music. New York:
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WORD COUNT = 7444

23
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24