If you’ve ever watched a TV show or commercial, or seen a movie, or streamed a video online, you’ve probably noticed the amount of music used across these formats.
Well, the use of this music has a cost, and the revenue earned from the payments made for the rights to use music in this way is called a Sync Royalty.
Short for “synchronization,” sync rights are tied to the reproduction of a song when coordinated with advertisements, television, film, or another system.
For example, Royalty Exchange recently sold the royalty income and master recording copyright for the song “Love.” Several brands and advertising agencies regularly request to license this song for various uses.
- It’s appeared in such movies as “She’s the Man,” “Something’s Gotta Give,” “Wedding Crashers,” “Hotel for Dogs,” and others.
- Nissan used it in commercials promoting the Nissan Leaf vehicle in 2014, and paid $200,000 to use the song in regional dealership ads.
- Microsoft paid $125,000 to use the song to promote Bing in France, Germany, Spain and Puerto Rico.
- Cadillac paid $50,000 to feature the song in an ad for its navigation system in 2011.
- Sandals paid $60,000 to use the song in a 2010/2011 ad campaign.
Sync licenses are very interesting for several reasons. First, both the songwriter and recording artist get paid, and on a more level playing field. Second, they are less dependent on popular trends or radio airplay, as the music is not purchased for fans to enjoy and stream, but to create a mood. Third, the amount paid for the license is determined either through a negotiated contract (rather than a regulated system as with Internet radio), or through more recent innovations in online licensing.
And according to the UK music industry association BPI, revenue from sync licensing for TV, films, video games, and other formats increased 13.5% year over year in 2016.
Democratized Opportunity
Sync royalties are one of the few music revenue streams that reward the songwriter and recording artist equally. Streaming services pay recording artists and labels six times or more what they pay songwriters and publishers. But the payouts for sync license is split 50/50 between the two camps.
What’s more, sync licensing benefits smaller artists often overlooked by mainstream fans on streaming music services or radio. Those platforms focus on the hits of today (and yesterday) because they’re focused on traffic volume and engagement.
But the brands and producers seeking sync licenses are not concerned whether the artists behind the track has 100 fans or 1 million. Their only concern is whether the song works for the spot. A song that today’s young music fan may never choose to stream might be the perfect backdrop to a scene in a movie or create the mood needed for an online video.
While some mainstream acts are hesitant to license their music in this way for fear of being branded a “sellout,” up-and-coming artists are happy to collect the sync revenue to make up for falling music sales (not to mention the fact that a prominent placement can prove as big a break as national airtime on radio or a featured video on MTV).
This suits the traditional customers for sync licensing just fine. The ability to license music from a smaller act for less than an established artist for the same effect on the spot is hard to argue with.
Market Factors
Also worth noting are the broader market forces at play here.
The demand for music in TV shows, films, commercials, and so on is at an all time high. The number of global TV shows produced has more than doubled in the last six years.
Not only have Netflix and Hulu added original scripted shows to their repertoire, but local production has increased. What used to be translated versions of shows coming out of Hollywood, has shifted to local production hubs throughout the globe, and each needs their own sync licensing solution.
There’s also a lot more advertising content produced today thanks to the proliferation of Internet ads and content marketing efforts, particularly video, much of it targeted at social media and YouTube.
The most sought-after target market is the millennial generation, who make up 25% of the U.S. population. Their estimated spending power exceeds $1.3 trillion, but they’re also highly resistant to traditional advertising. Experts have identified music as one of the most impactful formats to reach them.
In the past, this kind of demand would often result in overly aggressive brands and producers simply using music without permission or payment, hoping to get away with it unnoticed. While that behavior has not gone away, the technology needed to track music usage across both TV and the Internet has increased in both choice and sophistication.
Rightsholders as a result have started cracking down hard on unauthorized music usage. That’s the stick. The carrot is the proliferation of far easier music licensing solutions available to anyone seeking sync licensing.
Innovations in Sync Licensing
One of the traditional characteristics of sync licensing is that there was no explicit rate. Such use would originate as a negotiation between the outlet looking for music to license, and the rightsholders who controlled it.
Believe it or not, rightsholders didn’t always bother getting back to such requests for licensing. Given the time and resources it took to finalize a deal, they typically only bothered with deals they felt were “worth their while.”
The advent of the Internet disrupted that process, with groups like Musicbed, AudioSocket, Rumblefish, PumpAudio, and others hosting more e-commerce like services. Brands were now able to search for the music they wanted, and the songs available carried a set fee they could simply purchase and download.
This had several results. Most noticeably to the music industry, the average cost of sync music licensing fell, as did the music budgets of film and TV producers. But with demand still high, smaller artists willing to license more music for less moved in to meet it.
The scenario today is that demand has become more consistent, and more easily met. That means there are more sync licenses being deals struck, at lower rates, rather than a few big deals for big money as were in the past.
For investors, that means more deals to take advantage of when sync royalties are made available at auction.
WHAT TO DO NEXT
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