What is Commercial Licensing?

April 29, 2016

Licensing and the consequent royalties are the main source of income for copyright owners. Because of this, licensing is a core concept of great importance to those holding the rights to music. There are two main styles of licensing: traditional and commercial. Because commercial licensing can be a little complex to grasp, it is vital to fully understand traditional licensing practices first.

There are specific rights reserved for the copyright owner based on the type of work in question. This means that only the owner can exploit or promote the work unless express permission is obtained by the one seeking to use the work. Permission to use a work must be written and signed by the owner to be legitimate; this type of document is referred to as a license and a petition for the use of an owner’s work is known as a license request.

Licenses grant the use of an owner’s work under certain limitations designed to maintain the integrity of the work’s ownership and to ensure the continuation of its value from recurring use. There are many types of limiting elements within a given license depending on the type of right or work involved, but the most common limiter is the quantity of units or copies made.

For example, a license could grant the use of making a recording (an exclusive right) of a song (the work being licensed) for 500 copies/units (mp3, CD, etc.). A per unit royalty rate is multiplied by the unit count on the license to determine the amount of royalties that need to be paid to obtain the license for using the work. In this case, making the 501st copy is illegal without another license for more units, and the royalty rate is fixed by law for recording songs unlike other license types (print, synchronization, etc.).

Since royalties, as in our example, are paid for upfront in order to secure a license for the use of a work, a greater unit count on the license steeply increases the price of obtaining an outright license. There will be a certain threshold of units, different for each licensee (entity obtaining the license), at which upfront royalties becomes financially impractical or even impossible. For this reason, a more flexible type of licensing is commonly used for projects involving large quantities of units. Because these projects are typically commercial in nature, these licenses are referred to as commercial licenses.

Commercial licenses relax the pressure of paying large royalty amounts upfront and prevent the administrative hassle of periodically relicensing for new amounts by allowing a licensee to pay royalties each quarter for the amount of units created in that quarter. There may often be a minimum upfront payment, and almost always a guaranteed amount of units (3000 or more) to be made over the course of a specific time period (3-5 years). Some commercial licenses can also be renewed for additional units each additional year.

It is usually to the benefit of both licensor (copyright owner) and licensee to handle large commercial projects in this way, as it makes the process of licensing the use of a work more practical for everyone involved.

If you are interested in learning more about licensing your copyrights and how INDIEadmin by CCS can help you manage your licensing and copyright registration needs, please contact us for more information.

Jonathan Bryce is a musician, songwriter and blog writer, who has been working in the music industry for several years. As a part of CCS, he has excelled at wearing many hats and currently manages all things INDIEadmin. At home he is daddy to three awesome boys and husband to his lovely wife, Marissa.
About Christian Copyright Solutions: CCS’s quest is to help churches and Christian ministries “do music right.”  CCS is an expert on church music copyrights and our primary focus is providing licensing and clear educational resources to churches, as well as representation, administration and advocacy for copyright owners. Follow us on Twitter, Facebook and Pinterest. The information contained herein is for informational purposes only, and is not legal advice or a substitute for legal counsel.

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