Does a parody require a license or royalty payments?

If you're creating a parody and your use is deemed "fair," then you don't owe royalties or anything else to anyone, you're using your 1st Amendement right to create a "transformative" work out of an existing work to comment on it and/or to mock it in some way.

Bear in mind that parody and fair use are defenses to an infringement, so by the time you get sued, it's somewhat too late to figure out if you've created a parody or not, and clearly the rightsholder of the original work has already concluded that you haven't, so you're best off getting good copyright infringement advice from an IP lawyer before you unleash your work to the world.

Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.

Notice: The below is for educational and informational purposes only, is not a reflection on or a representation of any views or opinions held by my employer, and should not be construed as legal advice. Nothing herein is meant to create an attorney-client relationship.

As Ms. Koslyn states, if your work is really a parody and, therefore, falls under the fair use doctrine, you do not need a license. In determining whether a particular use is a fair use under the Copyright Act, four factors must be considered on a case by case basis.

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value of the copyrighted work.

The original work as well as the proposed parody must be analyzed using this test. I suggest you speak to a knowledgeable copyright attorney.

2 Live Crew wrote a song parody of Roy Orbison's "Oh, Pretty Woman" and sold the song as "Pretty Woman." Orbison's publisher sued for copyright infringement. 2 Live Crew asserted parody as a defense. The case went all the way to the Supreme Court which, in a very readable opinion, explained the law regarding the parody defense. See http://www.law.cornell.edu/supct/html/92-1292.ZO.html . The Court decided that 2 Live Crew could assert the defense based on the facts of that case. Subsequent to that ruling, and before trial on the matter, the parties settled the case -- with 2 Live Crew buying a license to use the Orbison song.

Sure, you can simply assume that your song is a parody. But that's an assumption that no sane person would make. Good luck.