Determining Profitability of Arranging a Copyrighted Work

Determining Arrangement Profitability

I previously wrote about how to obtain permission to arrange a copyrighted work. However, I didn’t discuss IF you should pursue it, and merely advised that “you need to see if their deal makes financial sense to you.”   Today I’ll discuss how to determine the profitability of arranging a copyrighted work, by walking through a made up example modeled in Microsoft Excel. At the bottom you’ll find a link to download the example as an Excel spreadsheet, that you can use to evaluate almost any licensing scenario.

Let’s Get Started

We’ll start at the point in the process right after the copyright administrator has sent a contract to sign with their deal terms (3 year limit, etc.), and I need to decide if I should sign the contract or not.  In this made up example the work I’ll be arranging is Lady Gaga’s “Poker Face” for Bassoon Quartet.

Cells with a yellow background are where I will type in my information; all other cell values will be conveniently populated by Excel formulas.  Although this post is a bit long, the process below only takes about 5 minutes to complete!

Title Block

Title Block

• Title: Enter the title and instrumentation
• Sales Period: Since this is a 3 year deal, I entered 3 here.
• Average Discount to Resellers:  If you sell some or all of your works through a reseller (e.g. Sheet Music Plus) put in the discount percentage off the consumer price that the reseller pays to you. For example, if the end customer pays \$10.00 and you sell it to the reseller for \$7.50, here you put in (10-7.5)/100= .25 or 25%. If you only sell directly to performers, enter zero.
• Hours to prepare: Estimate of the total hours it will take to arrange, engrave, prepare program notes, update web pages/products, read/sign the contract, etc. for “Poker Face”.

Transaction Costs

The section calculates the overall estimated cost of accepting payments such as Credit Card, Paypal, Check, POs and “Store Fees”.

Transaction Costs

• Total Sales: Enter all sales subject to transactions fees for a given prior period, say last year.
• Total Transactions Costs: Put the total transaction related fees you paid during the same period, including credit card processing fees, store fees, gateway fees, etc.
• Transactions Costs %: This is your average cost of accepting payments.  If you are new to selling and have no historical sales and costs data to reference, you can overwrite the calculation and type in your own estimate here, say anywhere from 2-10%.

Revenue

There are four covering the most common sales possibilities…

Revenue

• Sales Quantity: The estimated copies sold in the period.  If you don’t plan to sell a particular “Type”, enter 0 in that row.
• Type: “Soft Copy/PDF” are sold electronically and printed by the customer.  If you don’t plan to sell this Type for this arrangement, enter 0 in the Sales Qty field.  Hard copies are traditionally printed scores.  Note that some copyright administrators will not allow Soft Copy/PDF sales of any type.
• Channel:  “Self” are arrangements sold by you directly to the musician with no company/middleman in between (e.g. Retail or Direct sales).  “Reseller” is when you sell to a company (e.g. Sheet Music Plus), and they in turn sell the arrangement to a musician.  Typically you get less for Reseller sales than Self sales.
• Average Revenue Per Unit:  How much YOU will get on average when these items sell, considering any price changes, different configuration/instrumentations, etc.  If you want to keep it simple, enter the current price.  If you don’t sell products of this type, enter \$0.00.
• Extended price:  Calculated for you as is the total revenue across all sales methods.
• Example:  I expect to sell 10 PDF copies @ \$14.20/ea. and 6 Hard Copies @ \$18.00/ea. directly to musicians, and 0 through resellers.

Costs

Detailed Transaction Fees

This section allows you to get more specific (if you wish) with transaction costs previously entered in the Transaction Costs section.  I kept things simple and accepted the 7.5% value it gave.

Detailed Transaction Fees

• Fixed cost per sale (Self): When you sell directly to a musician, if you’re charged a fixed price per transaction (say \$0.10), enter that here.
• Percent of Revenue Per Unit (Self): When you sell directly to a musician, if you’re charged a percentage of the sales price, enter that here (or keep the auto calculated value).
• Fixed cost per sale (Reseller): Same as above, but for selling to a Reseller.
• Percent of Revenue Per Unit (Reseller): Same as above, but for selling to a Reseller.

Licensing Fees

Gaga’s people drive a hard bargain!  They’ve offered you a 3 year licensing deal, where you pay them 15% of the selling price for each copy sold and guarantee a minimum payment of \$50 (\$16.67/year), even if you sell no copies…and after 3 years, you are not allowed to sell any more.

Licensing Costs

• Flat Rate Licensing Cost: A fixed cost regardless of how many copies are sold.
• Licensing Period: In years.  Enter 5 if there is no specified term.
• Per Unit Cost:  A fixed price for EACH copy sold.
• Percent of Price:  A percentage of the selling price for each copy sold.
• Minimum Fee: A minimum guarantee regardless of how many copies sold.
• Minimum Fee Guarantee Per Year: The minimum divided by the licensing period.
• Licensing Subtotal: The sum of all calculated costs.
• Total Licensing Cost per year: If the Minimum Fee is larger than the Licensing Subtotal, it will show the Minimum Fee here.
• Example:  Gaga offered me a 3 year deal @ 15% of selling price with a \$50.00 minimum spread across that time.

When you use the spreadsheet to analyze your deal, enter values for all items that apply and zeros where they don’t.

Commission Costs

If you plan to pay someone to arrange the work or to use sales agents, enter those costs here.  This section is similar to the licensing section in terms of possibilities   In this example, I am the arranger and won’t use sales agents, so all values are zero.

Commission Fees

• Flat Price: Lump sum payment to the arranger.
• Price per year: Flat Price divided by the selling period.
• Commission per Unit per year: Price per year divided by copies sold.
• Percent of revenue per Unit (Soft Copy/PDF) : A percentage to the arranger or sales agent for each soft copy sold.
• Percent of revenue per Unit (Hard Copy) : A percentage to the arranger or sales agent for each hard copy sold.

Print Costs and Cost Summary

Commission & Transaction Costs

Many of the values here are copied in from prior sections.

Print Cost Per Unit:  A place to enter your printing costs.  Here my print costs are expected to be the same for Self and Reseller sales.  If you don’t play to sell hard copies at all, set those to zero.

Example:  I used \$3.15 as my print price.  Yours could be higher or lower depending on the number of pages, page size, cover type, how it is printed, volume discounts, etc.

The Profitability of Arranging a Copyrighted Work

After all of that hard work, we finally get to see our profitability!

PROFIT        \$34.97/Hr.    Avg. Profit/Unit \$10.93    Gross Margin: 69.9%    Total Profit \$174.85

This deal looks pretty good from all financial perspectives:

• Profit Per Hour:  The profit divided by time spent.  Depending on other factors this can be inspiring or depressing.  Remember, the minimum wage you can get flipping burgers is \$7.25/hr!
• Average Profit Per Unit:  What you’ll take home per copy sold after considering all costs.
• Total Profit: The amount you’ll deposit in the bank at the end of the sales period, after all costs are paid.

If the results for your own arrangement are quite not as good, the problem may be with your overall business, not just that particular arrangement.  Some of the options you have are to:

• Reduce printing costs by printing in bulk, changing your printing supplier or eliminating hard copy sales altogether.
• Try to increase your market so you can sell more copies.
• Arrange for a more popular instrumentation to increase your addressable market.
• Find a less expensive way to host your store or take payments.
• etc.

Even if you only arrange for the love of it, you shouldn’t be in the habit of taking a loss to do it.  However some not so profitable arrangements can be useful when viewed as part of a portfolio and as a way to attract customers to some of your other pieces.

Coda

I hope that this approach to understanding profitability of arranging licensed works was helpful.  As you can see, you don’t need to have a Masters degree in Economics to see if a deal is worth doing, but it is helpful to understand a few financial concepts.

You can download my Arrangement Profitability Calculator which contains the example I went through above.  Edit the values in the spreadsheet to analyze your own deals.

Happy and profitable arranging!

Notes

• This model ignores shipping (assumed to be “a wash”)
• Ignores taxes off all kinds including VAT
• Can be used for any currency
• The spreadsheet can be used to forecast profitability (as I demonstrated) or to calculate actual profitability retrospectively.

How to navigate the sheet music copyright maze

There is a lot of interest and confusion about how to legally arrange works that are protected under copyright.   I’d like to start by saying I am not a lawyer, so just accept the information below with that in mind.

To legally arrange a work under copyright, you need to get permission in writing from the copyright owner or designated copyright administrator.  There are two possible permissions which can be granted simultaneously, the “Permission to Arrange” and the “Permission to sell”.  These are not one in the same, as some schools and other non-profits will seek only “permission to arrange” as they just want to arrange a work for their own performance, not to sell it.  This is the majority of what you will discover when doing a Google search about the topic.  However, I assume here you want to arrange a copyrighted work and sell it to others.

The general process I use is as follows:

1. Determine if permission is required at all.  There are different rules for different counties.  In the US, as of the time of this posting, if the work was written before 1923 it is considered public domain.  For most works composed after 1923 that you might consider arranging, permission is necessary.
2. Find out as much as you can about the pieces as possible, the year it was written, the names of every composers associated (e.g. Lennon and McCartney), etc.
3. Go to the ASCAP website and BMI website and search their online databases to find the publishing contact(s) for that work.  The work will be listed under just one database, not both.  If the work is not in either database, it may not be copyrighted at all.   Note that the publishing contact is usually NOT the person who has composed it.  It is typically a larger publishing company like Hal Leonard and the like.  There can also be more than one contact for a given piece.  In that case, EVERY contact must grant permission in order for you to arrange the work legally.  This must be coordinated well because you don’t want to pay one just to be rejected by another…you will likely be out of the cash with no way to recover it.
4. Reach out to the publishing contact(s) you have found.  Some require you to fill out a form on their website, some to fax, some to email.  The process varies by company.
5. The basic information to provide to the publishing contact can be found in this permission form.
6. You may receive an email, letter by postal mail or no response whatsoever to your request.  It can sometime take days or weeks or months or infinity (no response).  Patience is required here.  Follow up with another communication medium as needed…phone, etc.
7. Once you receive response, the publisher may flat-out reject the request or give approval subject usually to some sort of compensation.  These can take various forms.
• Fixed fee lump sum
• Percentage of sales
• Combination of the two

8.  There may be limitations, which vary by publisher, such as

• May not sell as a PDF
• Permission to sell is up to a maximum number of copies only
• Permission to sell is only for a fixed period of time
• Permission is only for a certain instrumentation
• Permission to sell only in a select geography
• Combination of the above

Notes

• If you work with a sheet music company, they can sometimes seek the copyright permission on your behalf and fund it, so you can avoid out-of-pocket costs.
• Officially, you are not supposed to write one note of an arrangement until after the permission has been granted.
• You will eventually be signing a contract and sending a check to the publisher.  In some cases, the permission is given at no cost, but this is rare.
• A copyright lawyer is probably not required to get through the process, but that is your call.
• The publisher copyright notice will be provided to you and will be required to appear at the bottom of the arrangement.  They really own the arrangement (which is officially known as a “derivative work”), not you.  I have not seen this situation deteriorate into them taking the arrangement and selling it on their own (and paying you nothing for it), but theoretically it could and you’ll have no recourse.
• Keep organized records of your activities and communications as these can easily get lost and confused over the multi-month span of working on various copyright requests:
• Name of piece
• Publisher
• Date when publisher contacted
• When they responded
• Summary of their response
• Date you signed the contract
• Etc.

How do I know I’m not being ripped off by “the man”?

I’m not really sure.  In most cases, the financial terms you will be offered are more or less their standard deal and a take it or leave it proposition for you…”the little guy”.  You need to see if their deal makes financial sense to you.  Consider all of your costs of producing and selling the work, and how many you reasonably expect to sell within the allotted time (if there is a limit).  Their fees, when added to all other forecasted costs, may make the venture a financial loser, especially if there are multiple publishers involved or if that work is part of a medley requiring multiple song approvals.

There is some small amount of ability to negotiate the terms (or “be creative”), but you’ll have little wiggle room.  I have been able to suggest certain alternatives, within reason with success.  But remember, the folks granting the permission are “city hall” and you (generally) can’t fight city hall.  Neither they nor you will likely become “filthy rich” from your arrangement so don’t become a nuisance to them, or they may walk away, not just from this deal, but future ones as well.

Postlude

I hope you found this information useful.  I have not seen most of this information available anywhere else, hence the many questions I get about it.  In return for this “wisdom” I have shared, I ask that you comment on ways to improve it based on your own experiences.

Disclaimer

The information provided above is intended to help readers understand some of the issues in copyright law, but I’m not a lawyer and it’s not officially legal advice.  You should consult a lawyer if you want professional assurance that our information, and your interpretation of it, are appropriate to your particular situation.