Contract Fundamentals: Clue in to Buyouts

What are the different types of buyouts? What are the implications of accepting them? How can they be identified in contracts, and how can creators protect themselves?

Each music creator can and should decide what’s in their own best interest professionally and financially. But in order to make informed choices, they need to know what options they have and what the implications of those options are. Without question, buyouts are one of the most important contractual practices for music creators to understand.

What Is a Buyout?

In general, a buyout occurs when a creator gives up some or all of their rights in a creative work—and some or all of the royalties that work will generate—in exchange for an upfront fee.

In a report on buyouts, Music Creators North America has identified four main categories of buyout agreements for music creators that differ in key ways:

  1. Full copyright buyouts involve the assignment of the entire copyright in a new musical work to a client in exchange for a one-time fee and no additional compensation (including any royalties) for the creator.
  2. Limited copyright buyouts also involve the assignment of the entire copyright in a new musical work to a client in exchange for a one-time fee—but the creator retains certain rights (performing rights typically among them) that allow them to receive royalties.
  3. Direct licence project buyouts involve the licensing of a new musical work to a client in exchange for a one-time fee, with the creator retaining full ownership of the copyright and all associated rights.
  4. Writer’s share of copyright buyouts involve the assignment of the creator’s portion of the copyright—including the right to receive the writer’s share of all royalties—in an existing (rather than a new) work to another party for a one-time fee and no additional compensation.

Though it’s often beneficial for creators to retain as many of their rights as they can, there is historical precedent for agreeing to certain types of buyouts in specific contexts.

In North America, limited copyright and direct licence project buyouts (numbers 2 and 3 above) are common types of agreements between music creators and production companies. And creators who enter into these agreements do so because they’re asked or required to do so by a client, or because they believe that the royalty revenue they’ll receive by retaining some rights (such as the writer’s share of performance royalties) justifies giving up other rights. It is worth noting that, where a limited copyright buyout is agreed to by a creator, there is usually an expectation that they’ll receive substantial upfront fees as further compensation for the rights granted.

And even though writer’s share of copyright buyouts (number 4 above) require music creators to relinquish the copyright and all royalties associated with their pre-existing works, these agreements, as they’re defined, apply primarily to well-established writers who tend to have the upper hand in negotiations. Their music has already proven its value, so they can demand a fair price for it—as Bob Dylan did in 2020, when he sold his existing catalogue of works to Universal Music for hundreds of millions of dollars. Nevertheless, any creator—new or established—may be presented with this type of buyout, and they need to very carefully consider the financial implications of agreeing to it. They should also reach out to their performing rights organization, which is SOCAN in Canada, to inquire about the organization’s policy on this matter.

There is growing concern among music creators in Canada and around the world about the increasing prevalence of clients and licensees offering—and, in some cases, demanding—full copyright buyouts (number 1 above), which eliminate all back-end compensation for the creator. This is sometimes euphemistically referred to as “direct licensing” as well, since licensees essentially bypass collective societies to transact directly with creators and music publishers.

Full Copyright Buyouts

What Are the Implications?

It’s vital for music creators—and particularly those who are just starting their careers—to realize that a full buyout agreement prevents them from benefiting from any and all future exploitation of their work, including, but not limited to, the writer’s share of their royalties. For this reason, deals of this nature constitute a “line in the sand” that many creators strongly believe shouldn’t be crossed.

Even if the fee a creator receives for a project seems sizable, there’s no way to know without a crystal ball how that upfront payment will compare to the royalties their work might have generated for the rest of their lives and 70 years beyond. A TV show or film they’ve created music for might become a sleeper hit, and the number of broadcasts and streams might explode. A theme they’ve written for one production might be synchronized with another—or reproduced via a ringtone, a musical greeting card, a toy, etc. Many potential revenue streams are simply cut off. And yet it is those streams that, over time, typically form the stable financial backbone of an established music creator’s career.

What’s more, as part of these agreements, music creators are often required to waive all moral rights in their works, which means they’ll have no say in how their creations are used or altered, and they may not even be credited as the writers.

The increasing acceptance of full buyouts has broader implications for the entire music-creation profession as well. Essentially, the more these agreements are signed, the more they’ll be offered. And clients may begin to dismiss creators who push back since they know others likely won’t.

Why Are They Becoming More Prevalent?

Full buyout agreements aren’t new. As an example, for years, certain traditional TV broadcasters have attempted to impose and normalize the concept of full buyout agreements for screen composers, or compel music libraries to accept “direct licensing” agreements, with varying degrees of success. ESPN is one, and it has largely gotten away with this practice since the shows it broadcasts (mainly sporting events) aren’t usually replayed—so they don’t generate ongoing royalties—and it uses stock music more than newly created works anyway.

But agreements like this have historically been the exception, not the rule. For more than a century, licensing and limited copyright buyout agreements have typically ensured that the writer’s share of performing rights (and performance royalties) is a non-negotiable item that remains fully with the music creator and untouched by anyone else. But the digital age has begun to change everything.

A handful of over-the-top (OTT) media services, like Netflix and Disney+, have cornered the online film and TV markets. And while these platforms license and buy many existing productions, they’re also huge production companies themselves. So when a music creator is hired by Netflix to write an original score for one of their properties, there is a sizable imbalance when it comes to bargaining power. Netflix is both the client and licensee, so they possess a great deal of leverage.

Further, since creators know that musical works written for productions developed by these services may well be heard by millions and millions of viewers, potentially giving their careers a sizable boost, they’re understandably eager to work with them. And this eagerness may hinder their negotiations even more.

Knowing they have the upper hand in negotiations, and seeking to maximize profits by (among other measures) reducing the substantial licence fees they have to pay to collective societies, certain major OTT media services (and other production companies they partner with) have begun to compel music creators to accept full copyright buyouts in exchange for larger one-time fees as a matter of course

And though some, like Netflix, claim that this is simply the starting point of negotiation and not a requirement of securing a job, many newer and lesser-known creators, for all the reasons outlined above, don’t believe they have any realistic prospect of successfully pushing back.

How Can They Be Identified in a Contract?

The Copyright Act of Canada does not explicitly address full-buyout provisions. However, this hasn’t stopped some of the largest international OTT media services from attempting to circumvent Canadian law by including the language of US copyright law in their production contracts.

A relatively straightforward example of this is a buyout clause, which states that, regardless of what the rest of the contract may say, the music creator agrees to assign the full copyright in the musical work—and all other associated rights—to the client in exchange for a one-time fee and no additional compensation of any kind.

Here’s a sample buyout clause from The Society of Composers & Lyricists (SCL) in the US:

“Notwithstanding anything to the contrary express or implied in this Agreement, no further fees, royalties or other compensation (fixed or contingent) shall accrue to Composer in connection with the foregoing exploitations, and Composer shall have no claim in and to any income generated by Company or its affiliates or designees in connection therewith, it being understood that the one-time Fees (as applicable) constitute sufficient and valuable consideration to Composer for all such rights.”

A more subtle (and therefore craftier) example is the use of “work for hire” language in a production contract. “Work for hire” (or “work made for hire”) is a provision in US copyright law that says, among other things, that when a client hires an independent contractor to create a work that falls into a specific category listed in the US Copyright Act—including “part of a motion picture or other audiovisual work”—the client may be designated the “first owner of copyright” in that work, as long as all parties agree.

In other words, if a music creator in the US signs a contract containing a “work for hire” clause, the client is then deemed to be the legal creator or author of the musical work, and thus the owner of the copyright (and all related rights).

Here’s part of a sample “work for hire” clause from the SCL:

“Subject to Company paying Composer the Fees, all results and proceeds of the services provided hereunder by Composer will be created as a ‘work made for hire’ (for the purpose of US copyright law and all other copyright laws throughout the universe) for Company.”

Since copyright law in Canada does not recognize the US “work for hire” provision, music creators can contest its inclusion in Canadian contracts. It should be noted, however, that just because a “work for hire” clause is included, doesn’t necessarily mean that the agreement constitutes a full buyout. If the contract also says that the creator has the right to collect the writer’s share of royalties, then it’s actually a limited copyright buyout agreement. And if the creator is willing to accept it, then they may decide that it’s not worth seeking the removal of the “work for hire” clause.

Further, even if a creator in Canada were to sign a full buyout agreement, it’s highly unlikely that a court would enforce it. Technically, the only way a writer is not legally considered to be the first owner of the copyright in a work is if they create it as an employee of a company or individual. The Copyright Act of Canada calls this “work made in the course of employment,” and it does not apply to music creators who act as independent contractors. Read more about “work made in the course of employment” and the differences between employees and independent contractors.

Moreover, if a creator is a member of SOCAN, they’ve already assigned these rights to the PRO and therefore cannot legally assign them to any other party (this rule applies to most other PROs around the world as well).

How Can Music Creators Protect Themselves?

Because contractual language can be complicated and confusing (often purposely so), the  best way for music creators to know they’re agreeing to something that benefits them is to have a legal expert review (and/or negotiate) the particulars of any contract before it’s signed

This expert may be a lawyer, paralegal, agent, or manager. Entertainment lawyers possess the most extensive knowledge of the law and can advise on complex legal matters that may arise. Paralegals have a less broad understanding of the law, but, in some provinces and territories, they can still provide some of the same services as lawyers and are often more affordable. 

Agents can be helpful because they thoroughly understand the minutiae of the types of agreements music creators typically enter into, and they often have well-established relationships with the licensees and clients they’re negotiating with on the creator’s behalf. Managers may be able to provide similar assistance—but creators need to ensure that they’re reputable and fully informed. 

Moreover, it’s important to note that agents and managers are not permitted to give their clients legal advice (i.e., they can’t provide formal opinions or counsel on specific legal matters). They’re also not legally bound by solicitor-client privilege, although they typically adhere to a professional code of conduct that requires them to keep their clients’ information and correspondence confidential. 

See where Canadian music creators can seek free or affordable legal counsel.

If an agreement contains a buyout or “work for hire” clause, the creator or their legal representative can and should ask the client to remove it on the grounds that it is not recognized under Canadian copyright law.

If applicable, they should also ask for the removal of any reference to the musical work being a “work made in the course of employment,” provided the creator is an independent contractor.

Membership in SOCAN—or any other PRO—provides a degree of protection against full buyouts as well. Because they administer the performance rights for so many music creators, they possess enough bargaining power to effectively push back against large companies that demand such agreements. (This is precisely why those companies often prefer direct licensing.)

Supporting music-creator-led international education and advocacy campaigns—like CISAC’s Your Music, Your Future and The Ivors Academy’s Composers Against Buyouts—can also make a difference. Case in point, when Discovery Inc.—the media company that owns numerous TV channels including Discovery, TLC, The Food Network, and HGTV—announced in early 2020 that it would require all music creators in the US to sign full buyout agreements as a condition of their engagement, the immediate and overwhelming reaction from creators, collective societies, and other advocacy groups, caused the company to quickly reverse its decision.

As this example demonstrates, there is significant strength in numbers. When music creators come together to defend their rights collectively, it makes it easier for them to do so individually as well.

Read SOCAN’s statement on Writer’s Share Royalties and Buy-Outs.

Download SCGC/SOCAN advice on Non-Writers and Buy-Outs in screen composing.

Watch a panel discussion on buyouts with members of CISAC; Your Music, Your Future; and other music creator advocacy organizations.

Learn about successful negotiation >