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The Ultimate online Beat Licensing Guide

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Online beat licensing is nothing new as music producers have been licensing their beats for many years now. What once started with a few hundred producers on sites like Soundclick and MySpace has now evolved into a massive music-licensing industry led by platforms such as BeatStarsAirbit and Soundee

Music production has never been easier and today’s resources make it possible for almost anyone to launch a website & sell beats. Still, beat licensing is serious business. 

In this guide, we will explain the concept of beat licensing and particularly focus on the differences between Exclusive and Non-Exclusive Licenses. The information provided in this guide will apply to both artists who are buying beat licenses, and producers who are selling them. 

By the end of this guide, you will know everything you need to know about online beat licensing.

Table of Content

Part 1 : Beat Licensing

The concept of beat licensing is not hard to understand. A music producer makes a beat and uploads it to their beat store. Any artist can buy these beats directly from the store and use it for their own songs.

In exchange for their purchase, the producer will provide the artist with a license agreement. A document that grants the artist certain user-rights to create and distribute a song using that particular beat.

 

This license agreement is the legal proof that the producer has given them permission to use the beat. 

A common misconception is when artists ask producers for 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 go any further, we have to let go of the common phrases of “buying beats” and “selling beats”. The product that we’re dealing with here is simply not the beat itself. It is the license agreement. 

Non-Exclusive Beat Licensing

Non-exclusive licensing, also known as ‘leasing’, is the most common form of beat licensing. For anywhere 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 enquire for 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 sales, plays, streams or views. For example, the license might only allow a maximum number of 50,000 streams on Spotify and/or 100,000 views on YouTube. 

A non-exclusive license also has an expiration date. Meaning that it’s only going to be valid for a set period of time. This could be anywhere between 1-10 years. After the contract period is due, the buyer has to renew the license. In other words, buy a new one. 

The license will also need to be renewed as soon as the buyer reached the maximum amount of streams and/or plays. Even if that’s before the contract’s expiration date!

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 or not, it 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. 

The Different Types of Non-Exclusive Licenses

Most producers offer different non-exclusive licensing options. In my case, I offer a Basic, Premium, Premium Plus and Unlimited License.

Every option comes with its own unique user-rights. These user-rights are often displayed in licensing tables, similar to mine below.

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Obviously, the more expensive the license, the more user-rights you'll get. These more expensive licenses also come with better quality audio files.

In my case, the third-highest tier, the Premium Plus license, is the most popular. That’s simply because you get the best audio quality, tracked out files of the beat and great user-rights. 

Artists who believe these rights still aren’t sufficient for their song, usually go for the highest tier. The Unlimited license, or even better, an Exclusive license.

Exclusive Beat Licensing

When you own the Exclusive Rights to a beat, there are no limitations on user rights. Meaning that an 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 and 1 music video only.

In the case of buying the exclusive rights to a beat that was previously (non-exclusively) licensed to other artists, the artist that purchased the exclusive rights is typically the last person to purchase it. After a beat is sold exclusively, the producer is no longer allowed to sell or license the beat to others.

That doesn’t mean the previous non-exclusive licensees will be affected by this. Every exclusive contract should have a section with a “notice of outstanding clients” included. 

This section protects these previous licensees from getting a strike by the exclusive buyer.

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“Notice of Outstanding Clients”

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.

Two Different Types of Exclusive Rights

For many years, producers had different ways of selling exclusive rights. Luckily, in more recent years, contracts are becoming more streamlined and matching the industry standard.

Still, I want to address two very different ways of selling exclusive rights. 

  1. Selling exclusive rights 

  2. Selling exclusive ownership

By selling exclusive rights, the producer remains the original author of the music and is still able to collect writers share and publishing rights. (again, more about this later)

 

By selling exclusive ownership, the producer sells the beat including all interest, authorship, copyright etc. These deals are also known as ‘work-for-hire’. Basically, the artist retains actual ownership over the beat and will–from that point on–be considered as the legal author of the beat.

Within the beat licensing industry, selling exclusive ownership is wrong, unethical and–in most cases–not compliant with Copyright Law.

It’s only right to come to an agreement where both the artist and producer are credited for their work; Legally, financially and commercially.

Exclusive or Non-Exclusive, What is Best for You?

By now, we’ve covered all the differences between non-exclusive and exclusive licenses. 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 first 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. 

A Summary of Differences between Exclusive & Non-Exclusive Licenses

Non - Exclusive

  • Low Price ($20-$300)

  • Limited Sales

  • Limited Streams

  • Limited to use in a single project only

  • License expires after 1-10 years

  • Able to collect writer's share

  • 50% publishing split

  • Create derivative works based on contract terms

  • Doesn't include Synchronisation rights

Exclusive

  • High Price ($500-$5000+)

  • Unlimited Sales

  • Unlimited Streams

  • Use  in unlimited number of projects

  • License never expires

  • Able to collect writer's share

  • Negotiable publishing split

  • Own all masters & sound recording rights

  • Includes Synchronisation rights

Part 2 : All about Royalties, Writer's Share & Publishing Rights

This is the part that most people struggle to understand. Mainly, because there are lots of different deal structures in the music industry.

 

No worries!  By the end of this guide, you’ll know everything you need to know. 

Let’s break things down step-by-step and solely in regards to online beat licensing.

Before we jump into this next section, we need to get a better understanding of two types of royalties first. 

  1. Mechanical Royalties 

  2. Performance Royalties 

Mechanical Royalties

Mechanical royalties are generated when music is physically or digitally reproduced or distributed. This applies to hard copy sales, digital sales (e.g. iTunes) and streams (e.g. Spotify). 

Performance Royalties

Performance royalties are generated when a song is performed publicly. This applies to when music is played on the radio, performed live or streamed for example. 

Who gets Mechanical Royalties?

In most cases, the artist is allowed to keep 100% of the mechanical royalties in exchange for the price they pay for the license. Regardless of whether the license is non-exclusive or exclusive. 

These days, distribution services like TuneCoreCDBaby or DistroKid pay these mechanical royalties directly to the artist. That is if the artist works independently.

 

 

When an artist is signed to a label, the label usually collects the mechanical royalties and might choose to pay (a percentage of) it to the artist. 

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Advances against Mechanical Royalties in Exclusive Agreements

We intentionally said that “in most cases” the artist gets to collect 100% of the mechanical rights because this does not always apply. There’s an exception to this, which only applies to exclusive rights.

Some producers (including myself) ask for a tiny percentage of the Mechanical Royalties in their exclusive agreements. This could be anywhere between 1-10%. 

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. 

Let’s say a producer sells the exclusive rights to a beat for $1,000 USD as an advance against royalties. His mechanical royalty rate is set to 3%. 

The artist paid: 
$1,000 for exclusive rights 
$500 for studio time
$500 for getting the song mixed and mastered 
Total expenses = $2,000 

After 1 year, the song generated $10,000 in Mechanical Royalties!

The Net Profit: $10,000 – $2,000 expenses = $8,000 

The Producer’s Cut: 3% of $8,000 = $240 

As an independent artist, $8,000 is a lot of money to generate on Mechanical Royalties. Still, only $240 has to be paid to the producer.

Why an Advance against Royalties?

It seems pointless, however, there’s a reason why some producers (including me) prefer selling exclusive rights with an advance against royalties.

A few years back, I could easily sell exclusive rights for anywhere between $2,000 – $10,000.

These days, it’s considered ‘normal’ to sell exclusive rights for less than $1,000. With all the competition and the beat market becoming more saturated, the prices have dropped and it has become harder to close 4 or 5-figure exclusive deals. 

But what if the song blow up?

What if a song starts generating millions of dollars and you sold the exclusive rights to that beat for less than $1,000?

That doesn’t really sound like a fair deal, does it?

An advance against royalties can offer the solution. It’s an insurance for the producer just in case the song blows up. 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%. 

Who collects Performance Royalties?

Performance royalties are collected and paid out by Performing Rights Organisations (PRO’s), such as IPRS (for India) ASCAP or BMI in the US or PRS in the UK. 

(Every country has its own organisation, check which one is yours

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. 

The $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). 

What are Songwriters Royalties?

First, let’s break down the 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.

As I said before, this is wrong 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