Since the VCR and DVD markets are enormous throughout the
world, the sale of video cassettes, DVDs and videodiscs can
be a major source of revenue for video divisions of companies
and, depending on how a song is licensed, a potentially significant
source of income for the music publisher and songwriter.
Many different negotiating approaches may be used for licensing
songs for home videos, with the following being the most prevalent:
a one-time-only buy-out for all cassettes, DVDs and discs
sold; a set royalty for each cassette, DVD and disc sold;
and a modified buy-out for a stated number of units, with
additional monies for additional cassettes, DVDs and discs
sold (referred to as a "rollover advance").
All of the major motion picture companies as well as many
of the smaller film companies demand that the music publisher
or writer accept a one-time buy-out fee for all video cassette,
DVD and disc rights regardless of the actual number of units
that may be sold in the future. This fee is usually incorporated
into the overall synchronization fee paid by the film company
to the music publisher for use of the song in a motion picture.
Current successful television series demand the buyout approach
as well (usually via an option basis) but will provide for
a separate additional fee (e.g., $4,000 to over $10,000 per
song) when the episode goes to home video.
Obviously, the value of such a one-time buy-out to a publisher
or songwriter is that if the video does not sell well, the
monies received from the buy-out may exceed what would have
been earned if payment was made on a per-unit sales basis.
However, if the video achieves substantial sales levels, the
buy-out monies will probably be substantially less than would
have been earned if a per-unit royalty had been negotiated.
Royalty per Cassette, DVD or Disc.
The royalty paid for the use of a composition may be based
on either a set monetary rate (usually from 8¢ to 15¢ per
song) or a percentage of the wholesale or retail price of
each video, shared on a pro rata basis by all songs contained
in the video. The pro rata sharing is sometimes based on the
duration of each song in relation to the aggregate timing
of all songs or music on the video or, alternatively, the
duration of the song to the duration of the entire motion
The penny per cassette, DVD, or disc approach is one of the
simpler ways to deal with home video distribution, since all
the distributing company has to do is to compute the number
of units sold and multiply that number by the agreed-upon
per-song penny royalty. For example, if 100,000 DVDs are sold
and a particular song has a 15¢ royalty, the aggregate payment
to the music publisher and songwriter would be $15,000. There
are also no calculations necessary as to a particular song's
timing compared to the timing of all other music in the DVD
and no recalculations based on changes in the wholesale or
retail prices of the video--an important factor to some companies,
since a video is often released at an expensive price for
the rental market and then reduced to stimulate consumer sales
at retail (the "sell through" price).
Under the wholesale price percentage formula, all songs share
in a percentage of the monies paid to the distribution company
by retailers. For example, if the royalty is 5% of the wholesale
price of each video shared by all songs, the computations
might look as follows:
||Wholesale price to retailers
||Total music royalties
shared by 10 songs on a video
If the royalty is based on a percentage of the wholesale
price, many publishers provide for a minimum or "floor" on
the royalties they will receive to prevent the royalty from
being less than a minimum amount (e.g., 5% of the wholesale
price but in no event less than the current U.S. Copyright
Law statutory mechanical rate or a set monetary amount such
as 9¢ per song).
Modified Buy-Out or Rollover Advance.
Under the modified buy-out or rollover advance formula, the
production company pays the music publisher a certain up-front
fee for a set number of videos, with additional predetermined
fees paid as additional sales plateaus are reached. For example,
a producer may pay $10,000 for the first 100,000 units sold
and an additional $10,000 for each additional 100,000 units.
The initial fee is almost always paid when the license is
signed, with subsequent fees (or advances) paid at the attainment
of each sales plateau.