Owning a copyright gives someone the exclusive legal right to reproduce, publish, sell, or distribute the matter and form of a literary, musical, or artistic work.
In The Fair Use Doctrine (defined in U.S. Code Title 17, Chapter 1, Section 107), the re-recording of a copyrighted work is allowable for criticism or comment. Parodies involve fundamental First Amendment undertones, even though they require using an already recognizable and often copyrighted work in order to create a successful parody. Parodying more than a few lines of a song lyric is unlikely to be excused as a fair use, so although the music itself is familiar, the vast majority of the lyrics must differ from the original.
Weird Al Yankovic is one of the most successful artists who have utilized the aspects outlined under The Fair Use Doctrine. He earns a living by modifying hit songs for the purposes of humor by adding lyrics that are often unrelated to the original. Weird Al's parodies generally consist of meticulously accurate instrumental tracks of an entire song. He then records his own parody lyrics on top of musical composition. He often imitates the original singer’s vocal stylings from the hit recording.
Although Weird Al's re-recordings are near melodic copies of the original recordings, they do not violate the copyright owner's rights. Since "Weird Al's" songs meet the required aspects to define a parody, he is not required by law to get permission. He also does not need to pay the creator of the original song.
Often times, a court will apply the “likelihood of confusion” test to a parody case. Courts have noted that a successful parody will rarely be considered infringement because the ultimate object of a parody is to entertain and not confuse the listener or buyer. There is no perceived “threat of confusion” and it is unlikely that the original artist’s profits will be negatively impacted by Weird Al’s versions. Because of this, original recording artists are unlikely to have a cause of action against Mr. Yankovic.
Despite the unlikelihood of litigation, Weird Al always obtains permission from the original artist. He has stated, ”I have a long-standing history of respecting artists' wishes. So if (the artist) himself were objecting, I wouldn't even offer my parody for free on my Web site.”
By obtaining official copyright permission from the artists, Weird Al’s attorneys negotiate royalties which vary from a flat fee buyout to royalty participation. Weird Al's financial success is likely responsible for the willingness of most copyright owners to grant him permission to parody their musical compositions. It as made it possible for Yankovic to bargain for a lucrative share in the copyright of the parody version of the song.
Sources:
Can Satire Ever Be a Fair Use?
How Do Royalties Work for "Weird Al" Songs?
Fordham Intellectual Property, Media and Entertainment Law Journal