[Editors Note: This is a guest blog written by Justin M. Jacobson, Esq. Justin is an entertainment and media attorney in New York City. He also runs Label 55 and teaches music business at the Institute of Audio Research.]

The rapid rise of the internet and the ease of world-wide instant peer-to-peer communications have provided many upcoming artists with new opportunities to monetize their unreleased, original works. The use of social media and the internet has made it possible for aspiring music producers, vocalists and musicians to instantly spread their music and attempt to make their own mark on the music industry. This pursuit has led to a large number of artists, in particular many music producers, advertising and promoting their “beats for sale.”

This is to earn an immediate profit on their unreleased musical works. While this may seem to be a straight-forward transaction, where a musician pays a specified fee to purchase a “beat” or instrumental from a producer; there are many legal issues that arise. These issues must be taken into account to ensure this transaction is done properly and that all parties involved are properly compensated at that instant as well as in the future.

There are several considerations a purchaser must take into account when purchasing an instrumental track or “beat” from another. The first consideration is whether the instrumental track is being leased or sold. Also, whether the license (right to use the track) is an exclusive or non-exclusive “deal.” Typically, when a creator “leases” a beat to another, this arrangement provides the leasor (party leasing the instrumental) with the right to utilize the instrumental and to reproduce, sell or otherwise utilize the finished works containing the beat for a specified period of time.

However, this transaction does not generally give the leasor the exclusive and indefinite right to utilize the beat. The creator is usually still able to re-sell the same instrumental to others. The leasor may also have to enter into an additional lease with the creator after the expiration of a specific time frame if they wish to continue utilizing and exploiting the recording that contains this leased beat.

When negotiating an appropriate license fee for this particular option, is important to discuss and agree on how the leasor plans to utilize the beat. This includes how many copies of the finished work and in what mediums (i.e. CDs, downloads, streaming) it will be used. Also relevant is the territory or area the finished work can be sold in (i.e., North America, Europe, “the universe”) and whether it can only be used for a particular use (i.e. for demo use only, for iTunes sale only, free on a mixtape, or Sending Song in an Email).

Conversely, a creator can instead assign all of the creator’s rights in the work to the purchaser by selling the instrumental and the creator’s exclusive rights associated with the track. Generally, the cost to lease a beat is less than the cost to purchase the beat, as the creator is able to monetize the same work several times when they lease the beat rather than sell it. The fee for the beat can range from $5 to $10 all the way up to several thousand dollars, depending on the reputation of the producer and the type of usages the purchaser envisions.

Whether you are purchasing or leasing a beat, it is essential that any purchased instrumental does not contain any unauthorized “samples” (a copied portion from another’s song) in them. If the track does contain a “sample,” an artist should require that the seller of the instrumental provide some type of “sample clearance” or other clearly defined authorization permitting the use of this “sample.”

If the seller cannot provide proper authorization, it is highly advisable to avoid this instrumental as it could set-up the purchaser for potential copyright infringement liability down the road. Even if there is not a clear and distinct unauthorized sample in a “beat for sale,” it is prudent to ensure that the seller fully indemnifies the purchaser for the creation, including having the seller warrant they own all the rights for the work and that there are no samples or other unauthorized material used in the creation of the work.

If these infringing materials do exist, the agreement must ensure that seller must indemnify or reimburse the purchaser if an infringement is later found contrary to any of the creator’s warranties.

Additionally, is it imperative that the parties agree on whether the original producer is entitled to a traditional music publishing interest in a finished track or not. If so, an agreement on what percentage they would be entitled to should be entered into prior to finalizing any transaction. It is also important to determine whether and what royalty rate, typically a specified percentage, the seller is entitled to. This rate can be based on per a copy rate or a flat fee buy-out that does not include any additional royalties for the recording sold.

Furthermore, it is imperative to outline which party has the right to issue third-party licenses for the finished recording and for what avenues of exploitation (i.e., right to sell in digital and physical forms, license, broadcast, synchronize with visual images in any media, license to motion pictures, television, video games, translations, “covers” or other derivative works) if at all, are permitted. It is also essential to determine who has the right or the obligation to register the work with the appropriate organizations.

Finally, a determination of appropriate credit and right of publicity should be made. The right of publicity permits the purchaser to utilize the professional name, photograph, likeness, and other biographical material in connection with material and is extremely important if the instrumental is created by a well-known or ‘buzzing’ producer. In exclusive deals, a copyright should be filed; more on that next time.

This article is not intended as legal advice, as an attorney specializing in the field should be consulted.