Everything you need to know about online beat licensing and royalties

Online beat licensing is the most used way for music producers to license beats to independent and upcoming artists for years now.

Online beat licensing is easier today than ever before. By using platforms such as BeatStars and Airbit, music producers can start leasing beats within a few clicks! These platforms are specifically designed for the licensing of beats (also called instrumentals) between producers and artists.

Headphones, Cap & Laptop

So what is beat licensing?

Beat licensing is when a music producer makes a beat & puts it on his 'webshop' for artists to 'license' (a.k.a. 'lease') the beat.

When an artist 'buys' the beat, they are actually purchasing a license to use the beat for their creative purpose. After purchase, they receive the beat and a license agreement.

This agreement is the proof that the artist is allowed to use the beat in ways that are described in the agreement. Generally, when you purchase a cheaper license (for example, a standard $30 MP3 lease) you will be more limited in your use of the beat.

Did you know that the 50/50% splits on the right page are about the shares of ownership and not the mechanical royalties? You are actually allowed to keep the mechanical royalties to yourself!

I personally offer 3 licenses:
- a non-exclusive unlimited WAV license
- a non-exclusive unlimited Trackout license
- an exclusive license

On the left you can see an preview of the first 2 pages of the non-exclusive Trackout license that I use. These licenses are made by my personal lawyer, who is specialized in the music business.

You will have unlimited streams, downloads, for profit performances, radio stations and more!

In most cases, producers offer 4-5 different licenses. They range from the standard MP3 license with many limitations to unlimited Trackout licenses that offer the full package.

I believe that limitations on licenses are not customer friendly and undesirable for the artist and creator, so I have chosen to offer only unlimited licenses at a fair price. I still get value for my beats and the artist is better able to expand their reach by not having to worry about limitations on streaming numbers, radio stations etc.

Non-exclusive license vs. exclusive license

So what are the differences between a non-exclusive and an exclusive beat license? In short, the differences are as follow:

- Most non-exclusive licenses have limited numbers (I only offer unlimited)
- License has an expiration date (most often this is 10 years)
- The same beat can be licensed to another individual
- Popular with upcoming, independent artists
- Low price ($30-200)

- Full permission over the use of the beat, no limitations
- No expiration date
- Nobody else can license the beat after it is being licensed exclusively
- Popular with signed artists and independent artists that have a relatively high budget
- High price ($500-5000+)

Make sure you read the contracts before purchasing a beat, or have a general understanding of what you can expect out of the license agreement.

If you are looking to sign a record label deal, or any other contract with lots of money involved, make sure to hire a lawyer and let them advise you on the deal!
Investing in a lawyer for big deals could be the difference between a flourishing career and an unsuccessful one!

Signing A Contract

Mechanical royalties vs Performance royalties

Let's start off with royalties. The royalty payment structure in the music industry is fairly complex and it even differs per country (!). However, there is a way to simplify it to the core. It basically comes down to these 2 type of royalties:

- Mechanical royalties
- Performance royalties

Mechanical royalties are generated when music is reproduced or distributed, either physically or digitally. Think about hard physical copy sales, digital sales and streams.

Most commonly, artists are allowed to keep 100% of the mechanical royalties (in exchange for the licensing costs upfront). Nowadays, distribution companies like Distrokid, TuneCore and CD Baby pay the mechanical royalties directly to the artist periodically.

Artists get to decide themselves if they want to give the producer and/or engineer a percentage of the mechanical royalties. This is more common in exclusive licenses than non-exclusive licenses, but it happens regularly in both forms of licensing.

Performance royalties are generated when a song gets performed publicly, for example in stores, restaurants, on the radio or performed live.

These are the royalties that get collected by your local PRO (Performance Rights Organisation), such as ASCAP & BMI in the US, PRS in the UK, and Buma/Stemra in The Netherlands (this is where I am from).

Performance royalties are divided in two types (or also called 'shares'):

- The Writer's share (songwriter royalties)
- The Publisher's share (publisher royalties)

The Writer's share is split between all the songwriters on the song.

IMPORTANT NOTE: The producer is also a songwriter!

That is why most commonly (and also in my licenses) the Writer's share is split 50/50 between the producer and the artist.

If there is a producer and 2 artists involved, then the Writer's share often gets split like this, depending on what the parties have agreed upon:

- Producer 50%, Artist 1 25%, Artist 2 25%
- Producer 33.3%, Artist 1 33.3%, Artist 2 33.3%

The Publisher's share gets collected by publishing companies. Most independent artists do not have a publishing deal and are very likely leaving lots of money on the table!

That is why I went to SongTrust and got a so-called 'pub admin deal', or a publishing administration deal. This is available to every independent artist & producer out there and I personally recommend SongTrust because of the ease of use, flexible deals and high percentages.

For independent artists, the Publisher's share is often split the same as the Writer's share.

I want to give Neighbouring Rights Organisations a special mention here, because there are some additional performance royalties to be collected which are not collected by your PRO or publisher.

In the US, you have SoundExchange. In The Netherlands you have Sena. These are companies that collect performances royalties for 'Non-interactive digital sound recordings'. For example streams from SiriusXM or Pandora. It never hurts to sign up, maybe you have some unforeseen royalties waiting for you!

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