Licensing Your Tracks

By Mark G. Quail

So, you're a producer who runs a vinyl record label. Your fax machine rings one day and a one page "License Request" is printed out. Someone wants to license one of your tracks for a mix CD compilation. What do you do?

This one page request, often called a "Heads of Agreement" or "HOA" contains the basic terms of the deal between you, the "Licensor" and the record company compiling the CD, called the "Licensee".

Here's a rundown of the basic items you'll find:

Type of Deal: The license should be "non-exclusive". This means you can license the track again without restriction.

Term: Should be between 3 and 5 years. After this time, if they want to continue pressing and selling the record, they've got to come back to you for another license.

Territory: Some record companies seek worldwide rights that allow them to sell internationally. Most specify one country, or one region of countries (such as Germany, Austria and Switzerland) and while such a license does not permit them to manufacture outside of those countries you can expect to see copies of the CD exported to other territories. It's just the way the business works.

Royalty Rate: Most requests from European labels will be based on a percentage of the "Published Price To Dealer" or "PPD". Look for a rate between 16% to 19%. The percentage of PPD that is offered will be divided by the number of tracks on the CD and that calculation will give you the royalty rate in money terms. The HOA should also state what the PPD rate is in Euros. In North America record companies tend to use the "Suggested Retail List Price" or "SRLP" on which to base their royalty percentages. Look to see that the SRLP rate is in the range of 1% for every track on the CD. If the HOA does not specify the number of tracks proposed for the compilation, then ask the Licensee. If they mention a royalty for exports expect to get 50% of the regular royalty rate.

Payment of Royalties: They should be paid twice yearly (described as "semi-annually") within 90 days of June 30th and December 31st.