it is a legal question and there is no
solid answer. That is why lawyers get paid big money to argue about things like this. This
shouldn't be mistaken as legal advice but rather advice from one film maker to another.
I think the biggest question you have to ask yourself is "Who is going to stop me?". If you use
copyrighted music without permission, you are risking a lawsuit. Every low budget film maker
lives with this paranoia. However, if you're showing on cable access or small festivals, who
is going to know or care? Even if they did, are they going to invest money into a lawsuit
coming after you if you don't have money in the first place? They might but it is unlikely.
Would you be required to pay royalties? The amount of money they would make in royalties
from you isn't worth the time for them to do the paperwork on the invoices. You can request
permission to use the music and the record company might grant it for free. It's really not
that difficult and it's been known to work, even for popular songs provided that your work is
not for profit (at the level you're talking about, it is non profit). We have a request form
we can dig up for you if you're interested, we just haven't had a chance to put it on the site.
If you use copyrighted music you are taking a risk. If your films
progress upwards in budget or potential I would seriously consider alternatives such as using
royalty free music (hard to find anything usable) make your own or start dating a composer.