Beat Licensing Explained

Leasing beats online

Online Beats
Online beat licensing has been around for a couple of years now. The idea came about because producers were never really treated fairly and were always in the background of the music industry, unless your name is “Quincy Jones”. There are now many platforms, where producers can offer licenses for their beats and artists can buy them, such as BeatStars, Airbit and Soundee. I’m using BeatStars. In this guide, the concept of beat licensing will be explained with emphasis on the differences between Exclusive and Non-Exclusive Licenses.

1. Beat Licensing Explained
Producers offer their instrumentals in their beat store, where artists (for example; vocalists like rappers & singers) can make a purchase. The artist purchases a license agreement for a particular beat. A license agreement is a legal document that grants the artist certain user rights to create and distribute a song. The producer hereby offers legal proof, that the artist has permission to use the beat (within the rights specified in the agreement).
A common misconception is when artists ask producers for completely free beats. Even when a producer agrees and sends the artist a free beat. The truth is, that free beat is useless as there is no legal proof and permission to use it. This is where the license agreement comes in.
Before we continue, we need to clarify that the producer is not selling the beat, but instead the license agreement. The producer sells artist the permission to use the beat in order to make a song.
The beat is still owned by the producer, whether one buys a Non-Exclusive or Exclusive License Agreement!

1.1 Non Exclusive Beat Licensing
Non-exclusive licensing, also known as ‘leasing’, is the most common form of beat licensing. The license is mostly sold between € 20- € 300, you can buy a non- exclusive license agreement and release a song on iTunes, Spotify, Apple Music, create a music video for YouTube and make money from it!
These are also the types of licenses that are directly available from the producer’s beat store. In other words, you don’t have to inquire about them and you can instantly buy a license from the online store.
In most cases, a license agreement is auto-generated, including the buyer’s name, address, a timestamp (Effective Date), the user-rights and the information of the producer.
With a non-exclusive license, the producer grants the artist permission to use the beat to create a song of their own and distribute it online. The producer will still retain copyright ownership (more about this later) and the artist has to adhere to the rights granted in the agreement.

The limitations of Non-Exclusive Licenses
Most non-exclusive licenses have a limitation on the amount of (copy) sales, streams or views, allowance for live performance, and the allowance on radiostations. For example, my Basic Lease only allows for 15,000 Audio Streams and doesn’t allow the usage for any music videos.
The license will also need to be renewed as soon as the buyer reached the maximum amount of streams and/or plays.
Since these licenses are non-exclusive, a single beat can be licensed to an unlimited number of different artists. This means that several artists could be using the same beat for a different song under similar license terms.
Whether this is a problem depends entirely on what stage the artist is. A beginner artist would be best off with a non-exclusive license, while a signed artist or an artist that is on the verge of blowing up might be better off with an exclusive license.

Different types of Non-Exclusive Licenses
In general, producers offer 4 different Non-Exclusive Licenses: (1) Basic, (2) Premium, (3)Professional and (4) Unlimited.
Every option has its own specified user rights. A rule of thumb: The more expensive the license agreement costs, the more user rights the artist has.
Once an artist purchases a more expensive licensee, the artist also receives higher quality audio files. The first two licenses also don’t offer all the individual “Mixed Track Stems” in comparison to the latter two (more expensive) licenses. In conclusion, the ambitious artist, who wants to create a high-quality song, will purchase the more expensive license because then the artist has way more flexibility and opportunities to make a high-qualitative song.

Exclusive Beat Licensing
This type of licensing is the most expensive one because it states that the artist, who bought the license, will be the only one being able to purchase this beat exclusively. There are no limitations on the user rights, which dictates the artist can exploit the song to the fullest
There is no maximum number of streams, plays, sales, or downloads nor is there an expiration date on the contract. The song may also be used in numerous different projects. Singles, albums, music videos etc. In comparison to non-exclusive licenses, which are usually limited for use in a single project only.

This is what the big, well-known artists in the music-industry purchase.
These are the main differences between non-exclusive licenses and exclusive licenses. But it goes further than that and there’s often confusion around the topics of rights and royalties.
Going forward in this guide, we will go more in-depth about Royalties, Publishing and Copyright.

2. Everything about Royalties, Writers Share and Publishing Rights
    (1)Mechanical Royalties
    (2)Performance Royalties
Mechanical Royalties
Royalties earned through the reproduction of copyrighted works in digital and physical formats. Songwriters are paid mechanical royalties per song sold, downloaded, and streamed via "on-demand" streaming services.
Performance Royalties
Performance royalties are the fees music users pay when music is performed publicly. Music played over the radio, in a restaurant or bar, or over a service like Spotify or Pandora is considered a public performance.

2.1 Who gets the Mechanical Royalties?
In most cases, the artist will keep a 100% of these royalties. The artists purchased the license for the beat and is thereby not responsible to pay any mechanical royalties to the producer. However, when the artist is part of a label, the label will probably keep between 10-30% of the mechanical royalties (depending on the contract)
Distribution services like TuneCore, CDBaby or DistroKid pay these mechanical royalties directly to the artist. That is if the artist works independently.
In case of an exclusive license agreement, some producers might want between 1-10% of mechanical royalties. This is also known as points or producer royalties. In this scenario, the price an artist pays for the exclusive rights is considered an “advance against mechanical royalties” that might become due in the future. It will be calculated over the Net Profit of a song. Meaning that all costs to create the song, including the exclusive price may be deducted first before the producer gets his cut.

Here’s an example to show you how this could potentially play out in a real-life situation.
Producer sells the exclusive rights to a beat for € 1000 as an advance against royalties. His mechanical royalty rate is set to 3%.
The artist paid: € 1000 for exclusive rights € 500 for studio time € 500 for getting the song mixed and mastered Total expenses = € 2000
After 1 year, the song generated € 10,000 in Mechanical Royalties!
The Net Profit: € 10,000 – € 2000 expenses = € 8000
The Producer’s Cut: 3% of € 8000 = € 240
As an independent artist, € 8000 is a lot of money to generate on Mechanical Royalties. Still, only € 240 has to be paid to the producer.
“An advance against royalties is an insurance for the producer just in case the song blows up. It wouldn’t be fair if the producer only receives € 1000 and the artist made millions off of that beat. It’s also something the artist only has to worry about as soon as the song starts generating serious revenue. And even still, it’s only 3%.

2.2 Who collects the Performance Royalties?
Performance royalties are collected and paid out by Performing Rights Organisations (PRO’s), such as ASCAP or BMI in the US or PRS in the UK or GEMA in Germany.
These royalties are divided into two parts:
    1. Songwriter Royalties (A.k.a. Writer’s Share)
    2. Publishing Royalties

The PRO’s collect both of these royalties and divide them into two groups.
For every € 1 earned on Performance Royalties:
    * € 0.50 goes to Songwriter Royalties
    * € 0.50 goes to Publishing Royalties.

    - € 0.50 Songwriter Royalties will be paid out to the songwriters directly by the PRO.
    - The other € 0.50 publishing royalties will be paid out to a publishing company or publishing administrator. (more about this later).

2.2.1 What are Songwriter royalties?
The songwriter royalties, also known as the ‘Writer’s share’ will always be paid out to the credited songwriters. This is the part that can not be sold through an exclusive license, other than a work-for-hire agreement.
A “work-for-hire agreement” is an unethical way of doing business in the industry of licensing beats online.
In case you’re getting confused; In copyright law, a producer is considered a ‘songwriter’ too.
Songwriter royalties apply to anyone that had creative input in a song. Producers, songwriters (lyricists) and sometimes even engineers.
Generally, non-exclusive beat licenses are sold with 50% publishing and writers share. This is usually not negotiable since the music part is the producers’ contribution to your song and is considered half of the song. The lyrics are considered the other half.|
It doesn’t matter if there happen to be multiple songwriters that contributed to the lyrics. In that case, this 50% should be divided between them.
Example Non-Exclusive beat licenses: 50% Producer, 25% Writer 1, 25% Writer 2
As part of an exclusive rights deal, a different split between all creators could be negotiated. It all depends on the price and flexibility of the producer.
While I generally stick to my 50%, some producers sometimes agree to the following example split.
Example Exclusive Licenses: 30% Producer, 35% Writer 1, 35% Writer 2

2.2.2 What are Publishing royalties?
Unlike Songwriter royalties, Publishing can be assigned to outside entities called publishing companies. Most independent artist and producers will most likely not have a publishing deal, which means they’ll have to collect the publishing royalties themselves.
Surprisingly, a lot of money is left on the table here. If you’re an independent artist or producer that is only signed up with a PRO and not with a Publishing Administrator, half of what you’ve earned is still waiting for you to collect.
Example of Publishing administrator: SongTrust services, recommended to any independent creator
In terms of licensing beats online, regardless of an exclusive or non-exclusive license, the percentage of publishing rights is generally the equivalent of the writers share
50% of writers share equals 50% publishing share.

3. The Copyright Situation. Who owns what?
Copyrights is an enormous topic and a tricky one at best. You can study the ins- and outs yourself concerning Copyright Law or consult an actual lawyer.
Here, copyrights in regard to licensing beats online are solely being explained.
We’re going to dismantle a song to its creators and copyright holders, hopefully making it clear to you who owns what.

3.1 Performing Arts Copyright (PA-Copyright)
Let’s say you’re an artist and you went to search for beats on YouTube. You found one that you like and you head over to the producer’s website. You buy a license for that beat, write lyrics, create a song and distribute it through CDBaby, TuneCore or DistroKid.
That song contains two copyrighted elements:
    1. The Music
    2. The Lyrics
The producer owns the copyright to the music and you (the artist) own the copyright to the lyrics.
Regardless of whether you’ve bought an Exclusive License or Non-Exclusive license. The producer will always own the copyright to the music and the artist will always own the copyright to the lyrics (unless it’s written by someone else other than the artist).
This is what we call Performing Arts Copyright (PA-Copyright).
On a side note: Many believe that you have to register the music or the lyrics with the U.S. Copyright office yet, in fact, the instant you write something on paper, make a beat in your DAW or save a demo song to your hard drive, it’s copyrighted!
Sure, there are benefits to properly registering with the U.S. Copyright office but, failure to do so doesn’t mean you will lose ownership over your creation.

3.2 Sound Recording Copyright (SR-Copyright)
Back to that song you made. Together with the producer, you’ve created a new song. In legal terms, this is often referred to as the “Master” or “Sound Recording”.
Now, this is where things can cause confusion because the difference between an Exclusive or Non-Exclusive license plays a huge role here.
As an artist, buying beats from a producer:
    If you have exclusively licensed a beat, you do own the master or sound recording rights.
    If you have non-exclusively licensed a beat, you do not own the master or sound recording rights.
In an exclusive license, the Master rights will be transferred to the client (artist) and it will become their sole property, free from any claims from the Producer.
The only exception here is the producer’s right to jointly claim the copyright of the so-called ‘underlying musical composition’. This is what we referred to earlier as the PA-Copyright. The producer is and always will be the original creator of the music.
With a non-exclusive license, the client does not own the master or sound recording rights in the song. They’ve been licensed the right to use the beat and to commercially exploit the song based on the terms and conditions of the non- exclusive agreement. Yet again, they do own the PA Copyright of the lyrics.
Instead, what they’ve created is called a Derivative Work

3.2.1 What’s a Derivative Work?
In regards to beat licensing, a derivative work is a combination of an original copyrighted work (the beat) in combination with someone else’s original work (the lyrics). Derivative works are very common in the music industry and you probably come across them on a daily basis.
Examples are:
    * Remixes
    * Translations (A Spanish version of an English song)
    * Parodies
    * Movies based on books (Harry Potter)
Basically, these are all so-called ‘new versions’, created using preexisting copyrighted material.
In terms of beat licensing, a non-exclusive agreement authorizes an artist to create such a ‘new version’, using the producers copyrighted material.
The only person that is able to authorize a derivative work is the owner of the underlying composition itself. In this case, the producer.
When someone licenses a beat on a non-exclusive basis, they’re specifically given the right to create a Derivative Work.

3.2.2 Beats that contain third party samples
Pretty straight forward up till now, right? Well, I need you to pay close attention now because this is where things often go wrong...
A common misconception when producers are selling beats with samples is thinking they can turn the responsibility of ‘clearing the sample’ over to the artists that license the beat.
This is completely FALSE!
Example:there are two different versions that derived from the original sample. (Version AB and Version ABC)
Since both these versions are considered a “new work”, and both contain that original sample, clearance for Version AB does not account for Version ABC
Both the Producer and the Artist are required to clear the first sample! Because in this scenario, there are 3 different copyright owners to a song.
Obviously, everything falls and stands with clearing the original sample.
This is going to get hard as soon as multiple artists license the same beat and create their songs with it. After a while, there could be a whole lot of Versions ABC deriving from it.
Exactly why I personally stay away from using samples...

3.3 Exclusive or Non-Exclusive, what is best for you?
By now, all the differences between non-exclusive and exclusive licenses are covered. But, if you’re an artist, you might still wonder which option is the best for you.
Besides the difference in price, in every way, an exclusive license is the better option. No doubt!
However, this is not a necessity for everyone. In fact, most artists are better off with a non-exclusive license.
Let’s have an honest view of your current situation...
    * How many followers and fans do you have?
    * How many songs have you released to date?
    * What is the number of plays/stream you get on average? (all platforms combined)
    * How big is your (marketing) budget?
    * Are you getting financial support from a label or publisher?
Ask yourself; What would be the best option for the artist you are TODAY?
You see, most artists are simply not ready to buy exclusive rights yet. And there’s no shame in that at all.
If you’re a young artist working on a mixtape or fi rst album to get your name out there. Why would you spend that much money on exclusive rights if you’re not even sure if the record is going to get big?
The wise(r) investment would be to get one of the higher tier non-exclusive licenses. Preferably, the Unlimited Licenses.
This allows you to spend less, buy more licenses, release more music and gradually build your fanbase until you’re ready to take that next step.

4. FAQ About Beat Licensing
4.1 I want to license a beat that is already (exclusively) sold by the producer. Can I reach out to the exclusive purchaser so they can sell me a license?
No, that’s not an option. A common mistake made by artists that are (desperately) trying to license an already sold beat is, thinking they can locate the buyer and buy it from them.
Every exclusive contract states that the beat cannot be resold or licensed to a third party in its original form and if it’s not overlayed with lyrics. If they would, that would be a breach of the exclusive agreement.

4.2 Someone wants to buy a beat I already sold and asks if I can create a similar one. Can I?
In this case, we’ll have to define the word ‘similar’. If that means re-using parts of the sold beat or replicating melodies you used in that beat, then NO. You’re basically ‘sampling’ a beat that you’ve already sold. In a way, you’re creating a derivative work which you’re no longer allowed to do.
But if that means using a similar song structure. Or similar instruments, yet different chords and melodies, then YES. It’s possible to do that.

4.3 I recently bought a non-exclusive license for a beat. Now someone else bought it exclusively. What happens to my song?
Nothing! Your license will be in e ff ect for the length of the agreement or until you’ve reached the maximum number of streams and/or plays. (Check your license agreement)
Within the Exclusive contract with the buyer, a so-called “notice of outstanding clients” will protect you from the exclusive buyer to strike you

4.4 My non-exclusive license is reaching its streaming limit but I can’t buy a new license because the beat is already sold exclusively. Do I have to take the song down now?
If your non-exclusive license is reaching its streaming limits and extending the license is not an option, then yes––legally, you will have to take the song down. How unfortunate that might be
This is the exact reason why the Unlimited Licenses are such a great option, considering they have no streaming cap. All though it’s more expensive, it does avoid (awkward) situations like these.

4.5 Someone released a song with one of my beats but didn’t get a license? What’s the best course of action?
Unfortunately, this happens a lot if you’re a producer promoting beats online. Luckily, there are different ways to go about this. The first step is to reach out to the artist(s) and notify them about the unauthorized use of the beat.
Then, offer them 2 options.
    1. Either buy a license so they can keep the song online
    2. Or remove the song entirely from all platforms it’s published on
The best-case scenario, they adhere to your request. But what if they don’t?
In that case, you have two options.
    1. Leave it be
    2. File for a DMCA takedown
If the song isn’t really gaining numbers and is of very poor quality (which is usually the case when beats are used unauthorized), it might be best to leave it be. It’s not worth your time and money.
The alternative, filing for aDMCA takedown will cost you some money. I would only consider this if the song is gaining serious numbers (1000s of views or stream on any platform).

4.6 I created a beat with another producer. How do we split the publishing and songwriters share?
Collaboration splits are very common these days, yet there’s no quick answer to this question. It all depends on what terms you’re collaborating on.
If you’re collaborating with a producer and you upload that beat to your beat store, the most common split would be 50/50. That goes for sales, publishing and songwriter share.
When the beat is sold or licensed to an artist, they’re usually granted 50% of the publishing and writers share to the song they make. Exact numbers might be different as it depends on the contract terms the producer offers.
But in this case, the split would be as follows. Producer 1: 25%, Producer 2: 25%, Artist: 50%