For decades, artists who signed a record deal with a label were expected to turn over the rights to their sound recordings – the actual studio/live recordings of their material. As part of a typical record deal, relinquishing these “master rights” was part of how an artist secured the financial support of the label to pay for the recording and release of the record.
With the master rights under their control, labels could then license the master recordings to third parties for placement in TV or film, use in commercials, or for use in another work (e.g. sampling) without the artists’ consent or monetary gain. Unless an artist had earned back all the money invested by the label in the recording and promotion of a record, all master license fees would stay with the label.
Songs that become hits can command master license fees as high as $100,000 or more. If the artist has repaid the label’s investment (aka advance) through record sales (or earned artist royalties, a process known as recoupment), then the artist may share in some of these third-party master license revenues. But often, the record labels are able to keep all this additional income.
With the dramatic increase in music licensing and the increase in the percentage of revenue this represents for indie and major artists, being the owner of the master rights is ever more important. Furthermore, there are now hundreds of channels for people to discover and enjoy music that didn’t exist even a decade ago, including streaming sites like Pandora, Spotify, and Rhapsody; download sites such as iTunes, Amazon, and eMusic; mobile carriers such as Cricket; and hundreds of unauthorized sites around the globe. For most of these new legal music delivery systems, playing a recording results in a payment to the master rights holder.
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