This Article Originally Published May 2002
by Jeffrey & Todd Brabec
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 picture.
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:
|$10.00||Wholesale price to retailers|
|x 5%||Royalty percentage|
|50||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.