Licensing Deals for Record Labels

Doing business in the music industry is not easy especially for Independent hustlers. Whether you are a budding recording artist, talent manager or label, you need resources to move from one point to the next.

But record labels carry most of the financial burden because as a label owner you would have to pay for all the overheads. A record label is like any other business, and because most of us are creatively inclined (in the music business) we seem to forget that.

But there is another way to break into the music industry without taking too much risk on your part.

Licensing deals make it possible to leverage someone else’s resources instead of your own.

In this post, I will be discussing what licensing deals for record labels entail. Don’t confuse this with general music licensing, that’s not what we’re focusing on.

Perhaps I shall consider writing a separate blog post which covers that in the near future. But for now, let’s go over this particular segment of music licensing.

How Licensing deals for labels work

Historically the music industry has always been controlled by the major record companies from a market share standpoint.

And it’s not by accident. See, major record companies have the financial resources to compete with just anybody in the music industry.

Let’s take Sony Corporation for example; this giant was originally founded as an electronics company in the 1940s. But they branch out into other industries and music was one of them with the birth of Sony Music Entertainment. 

The Japanese company grew into a global multinational conglomerate and eventually entered the music business. And by then, they had the resources to compete with just anybody in the industry.

Sony was (and still is) considered a major record company by virtue of turnover and global presence.

Say you decide to start your own independent record label; you need funding to launch and release your first singles. And not to mention the additional capital required for videos, marketing, promotions and public relations which is all on you (unless you have an investor with deep pockets).

But what happens if you don’t have the funds to cover all those costs on your own?

Then you should consider a licensing deal with a company like Sony.

Why? Because they have the big bucks!

Leverage

Licensing deals are also known as a label deal or a joint venture deal is nothing new though. In fact, most prominent Independent labels that you can think of, wouldn’t be as big as they are without this type of deal.

It not only benefits the label but also the artists signed to those labels.

This is how licensing deals work

The label or artist (if artist owns the label) pays for the studio recording costs and when the final product is completed, it is then handed over to the major record company for marketing and distribution.

The company licensing the album can pay you a fee to license your material for a set period. And within that period they have your permission to exploit the recordings in different mediums and formats (TV, Film, CD, Digital, etc.) in order to generate revenue. But you (label or artist) retain the copyrights and ownership of your music. This is different from the traditional record deal because you have creative freedom and control.

Licensing deals in different territories

Should you wish to release music in digital format but in a different territory, then you would have to go through a similar process.

For example lets, you are in South Africa and a label in the United Kingdom wants to release your song (or album) there. You have to agree on a fee/ royalty split, the duration of the license (usually 5 years) and whether the deal is exclusive or non-exclusive.

A non-exclusive agreement allows you to license your music to other labels in different territories or countries. And the exclusive licensing deal restricts you to only one label in a particular territory.

If the UK based label decides to press and distribute your music, they would have to pay you a license fee. But they are financially responsible for the marketing and distribution within their territory. 

Conclusion

So there you have it. If you were confused about licensing deals I hope this post has given you a brighter perspective.

Remember this is not a standard record deal but a partnership with another company. You (the label or artist) are responsible for funding the recordings, while someone else will be responsible for marketing and distributing the music on your behalf.

But there are no one-size-fits-all licensing deals and very often contracts and negotiations differ from label to label.

I hope you enjoyed reading this short post and you have any questions, thoughts please comment below.