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1. What you pay for a licence for this piece of music is a matter for negotiation. There is no fixed compensation for a licence to use a piece of music. The seller will probably quote a price and then it is up to you to either accept this price or else to seek to negotiate an alternative price. However, there is no such thing as a price being fixed. Be aware that you are free to get the piece of music recorded yourself without infringing copyright, if the notes of the music are more than 70 years old and the copyright is in the public domain. So, for example, most pieces of classical music are in the public domain as it is more than 70 years since the composer died.
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2. The artist will have copyright in the playing of the piece of music. So, if you reproduce the sound of the artist, then you are infringing the artist's copyright in the sound and arrangement of playing the music. So, there are two copyright issues - that of the composer, which here is clearly out of copyright as it is South American folklore and then there is the artist's copyright which is real as the artist is still alive and playing.
3. You will have a potential copyright infringement if you reproduce the artist's music without getting a licence. So, you should really negotiate a licence from the artist. B e aware that unless you are a giant commercial concern, these are usually granted for less than GBP 150.
4. Otherwise, if you go ahead and use it, you run the risk of being asked to take it down and get sued for copyright infringement. Here, it would not be the damages award that would be crippling, but the legal costs.
5. There is no such thing as an acceptable industry cost. This just does not exist. However, I would advise you to set aside something for a licence if you want to go ahead and use it, as otherwise, you risk stumping up money in the future. Most people are quite happy if they get paid something! Not very much!
6. Dear Eliyahu, please Rate or Accept the answer if you have no further queries, as this is how the website determines whether to pay the Expert for answering your question. Be aware that a solution would be to get the piece recorded yourself by a group of your choosing as then there would be no issue of artist copyright.
7. Dear Eliyahu, I would suggest you leave aside GBP 250 for the licence and GBP 1,000 for the legal costs. However, I would suggest it would be cheaper to get some other Peruvian group to simply record it for you. It is better to avoid the liability completely rather than provision for it, as these liability issues often get out of control.