Music royalty basics

Understanding music royalties can be confusing, but very necessary for musicians who are new to the music business. I know I’m not the only one who struggled with this topic, so my goal was to put this together to help break it all down. I wanted to make it simple so that anyone who has no idea about the music business can easily understand… hopefully.

I’m by no means an expert, but this is more of an overview behind royalties through music publishing and master recordings as well as how to collect them.

What is music publishing? Simply put, it’s making money from original songs you wrote and / or own the copyright over by exploiting this work in various ways.

Earning money from your copyrighted music is a form of passive income. Early on, it may not be much, but the goal is to build a catalog of songs over time and grow its value as you build your fanbase. Every song matters. It can help get you discovered and generate income.

As a musician, you need to take advantage of every income stream that you can get. With the decline of record sales over the past decade and the increase in music streaming, the one thing you have to know about is all the different royalty streams you can earn from your music.

It can be a more complicated topic with laws and procedures in different countries, but I will be focusing on the basics as it is applied in the United States.
 

Why understanding music royalties are so important

 
Kobalt, a music publisher, found 900,000 distinct income sources for one hit song. That’s a lot of potential money available for performing artists and songwriters!

Not only that, there’s actually a lot of royalties just sitting out there unclaimed. Because of technology in an evolving industry like music, Berklee College of Music found in a 2015 report that anywhere from 20% – 50% of music payments do not make it to their rightful owners.

It’s been referred to as the black box of royalties. This is unpaid money (reportedly in the billions) that has not been properly distributed to artists due to faulty metadata or poor communication between services and organizations responsible for tracking and reporting these types of things.

Income streams are so important for independent artists. The fact is one song has the potential to make you money in many ways. It’s important to read up on all different music royalties so you’re not leaving potential money that belongs to you, sitting somewhere.

Before going any further, there are a few important terms and distinctions that need to be discussed:

  • Royalty
  • Copyright
  • Songwriter
  • Recording Artist
  • Producer
  • Composition
  • Master Recording
  • Music Publisher
  • Record Label

 

What is a Royalty?

 
A royalty is a payment to an owner for the ongoing use of their copyrighted asset or property.

A royalty is money that is owed to you by some party for using your copyrighted work. For example, if someone streams your song on Spotify or Youtube, there’s a royalty for that and you would get paid by the platform. If you do a cover of someone’s song, they get a royalty from you.

As a musician, you want to collect royalties from your music. There are a number of different ways you can get paid for your songs, which will be discussed later.
 

Important Distinctions

 

Songwriter vs Recording Artist

 
A songwriter creates a musical composition, which is essentially the blueprint of a song. The authors of a composition are typically the lyricists (who write the words of a song) and the composer (who writes the music body or melody itself).

A recording artist is someone who performs the music composition that a songwriter creates. Generally speaking, the authors of a sound recording are the recording artist (who performs the lyrics) and the producer (who is in charge of how the composition sounds sonically).

These are important distinctions as the royalties involved are different for what role each person plays in the creation of a song. In some cases, the songwriter and recording artist are the same person or group in which they get more of copyright ownership and larger share of royalties.
 

Composition vs Master Recording

 
There are two general parts of music that can be monetized, the composition (lyrics, melody, music) and the recorded version of the composition (also known as the sound recording, master or master recording).

A recording artist is involved in a master recording by performing the musical composition that a songwriter created. For instance, if Beyonce sings a song that someone else wrote and produced, she would be the recording artist.
 

Music Publisher vs Record Label

 
The musical composition of a song includes things like the structure, lyrics, melody and chord progression. In this case, a music publisher handles this aspect of music, whether it’s to help with the writing of the music to be performed or find opportunities for collecting royalties. Publishers represent songwriters and the compositions they create.

The master recording is the final product that you would typically consume or listen to when it comes to music. In the music industry, a record label is usually the one who will help you create the master recording so it can be sold and consumed to the public, whether it’s a physical copy or made available to download. Therefore, a label represents recording artists and the sound recording.

I like to think of the composition as a blueprint of the song where other artists can recreate or record their own master recording of it. This is essentially what we know as creating a ‘cover’ of a song.

It’s important to understand these concepts first as it start to get confusing later when it comes to discussing licensing and royalties.

 

What is a Copyright?

 
The most fundamental part of music royalties is the copyright. Without any ownership of the composition or sound recording, you do not get any money or royalties from the song or record.

For more details about copyrights, you can read this blog on the basics of music copyrights that all musicians need to know.
 

What is a license for?

 
If any individual, group or company wanted to use your music for any reason, whether it’s the master recording for a video or the composition for a cover, they will need a license so that you, as the copyright owner, can get money from it in the form of a royalty. There are fair use laws, but I won’t go into that.

The licensing money you get when someone uses your music composition is set by the government at a flat rate (discussed below). Your permission is actually not required to obtain a license to use your music composition.

However, if someone is using your composition, like in a song cover, they would need your permission first. This includes changes like lyrics, melody and structure, but tempo and key don’t need your approval.

On the other hand, if you have full rights to the master recording, you can charge someone as much as you want for a license to use your recording. Permission is required and you have the right to refuse requests.
 

What are the different royalties I can earn?

 
Depending on what ownership of a copyrighted song you have, you are entitled to collect certain royalties. Owning the copyright for a composition has music publishing royalties. Owning the master recording for a song has its own royalties.

It’s important to note that these different royalty streams are tracked, collected and paid out by different entities so you need to make sure you’re receiving everything you are owed. More on this at the end.

The 3 common royalties that a song can generate:

  • Mechanical Royalties: If your song is downloaded through a platform like iTunes.
  • Public Performance Royalties: If your song is performed or played in public like at a business.
  • Synchronization (or Sync) Royalties: If a movie or TV show uses your song in a scene.

There are others, but we’ll focus on these three.

Now in order to get a royalty, a license must be issued in exchange for payment.
 

Mechanical Licensing / Royalty

 
A mechanical license is needed to produce copies of your songs, like for a CD or digital download. By granting others the right to to produce copies of your songs through a mechanical license, you receive a monetary payment in exchange. This can apply to both the master recording and the music composition.

As of this writing, the mechanical royalty rate for a music composition is 9.1 cents per copy sold physically such as on a CD or digitally as a download. This money is split evenly between the songwriter and publisher, unless you are both, then you get 100% of this money.

There’s a mechanical royalty involved when your music is streamed on platforms like Spotify, Apple Music and Youtube, but the rate varies.

Let’s say someone wanted to make a cover of one of your songs. In this case, they would need to get a license to use your composition to create their own master recording of the cover. If they decide to put that cover song on their album, they will need to pay you 9.1 cents for every copy of that cover being produced. If they press 500 CDs with one of your compositions on it, then you are owed $455 (500 x .91), even if they don’t sell all the copies.

The same goes if they make that cover available for download, you get 9.1 cents for every digital sale. If that song is streamed on Youtube or Spotify, you would get royalties from your composition every time it is watched or listened to.

To collect mechanical royalties, a publishing administrator (discussed at the end) could help you with that.
 

Performing Arts Licensing / Royalty

 
A performing arts license is needed for the “public performance” of a music composition. In other words, when your music is broadcasted or being performed live in public.

This includes places like:

  • Businesses
  • Restaurants
  • Concert Venues
  • Radio Stations
  • Bars / Clubs / Lounges
  • Colleges and Universities
  • Sports Arenas
  • Shopping Malls
  • Amusements Parks
  • YouTube video

Performing arts royalties are only collected for people who are authors or songwriters of the music composition, not the performing artists. As distinguished above, there’s a difference between the songwriter and performing artists.

To collect performing arts royalties, you need to register with a Performing Rights Organization (PRO). In the U.S., you have a few options, but you can only choose one to register your work with. Because a “public performance” involves the composition, these organizations represent songwriters, not recording artists.

The 3 main ones in the United States are:

  • The American Society of Composers, Authors and Publishers (ASCAP) – www.ascap.com
  • Broadcast Music, Incorporated (BMI) – www.bmi.com
  • Society of European Stage Authors and Composers (SESAC) – www.sesac.com

The main differences between these PROs is that ASCAP and BMI are both not-for-profit organizations so you can sign up with no restrictions. SESAC is for profit and you must get invited in.

PROs (ASCAP, BMI or SESAC) pay you, the songwriter / publisher, with the money they collect from various businesses and establishments mentioned above by charging them a license fee called a “blanket license.” This gives them permission to play your music over speakers, broadcasted over the radio and performed live by an artist within the confines of their establishment as much as they want.

The PROs collect all the money they get from blanket licenses and divide it amongst all of their songwriters and publishers,

Music streaming also generates a performance royalty for each playback of the composition on top of the mechanical royalty.
 

Sync Licensing / Royalty

 
Lastly, you have a royalty type that comes from ‘synchronisation‘ licensing of your music composition.

Basically, you are giving some entity, like a corporation, movie studio, broadcasting networks or advertising agencies, permission to use your song to be ‘synchronised‘ to a moving picture, like video. Think about some of the songs you hear in movies, TV shows, commercials and video games. If the music supervisor didn’t hire and pay someone to compose original music for a work, then they acquired sync licenses to use the songs other people own.

By allowing some entity to use your song, they will usually give you a flat fee for the sync license. You should also get performance rights royalties if your song is broadcasted publicly through a movie or TV show, but this may be waived as a part of the flat fee.

As you can imagine, this a great way to get paid and help to increase exposure to new audiences. You just have to make sure the math works out to reflect the proper amount you are owed for how it’s being used and by who.

Two licenses need to be obtained from both the owner of the composition and the master recording, a composition sync license and a master sync license. If you are an independent artist who happens to own both, then you may have an advantage in getting your song used. Otherwise, it can get messy and frustrating.

I’ve witnessed a situation where a music video project was shelved because the artist I work with owned the composition of a song, but not the master recording. The label that owned the master recording did not let the entity who was doing the music video use the song, at least not at a price they were willing to pay. Despite all the money that went into this very expensive video shoot, the whole project went to waste because the master license was not secured.
 

What about royalties from the master recording?

 
If you own the master recording for your songs (as a recording artist and / or the producer), then you can generate royalties from mechanical and performance arts licenses.

There’s an interesting situation in the United States in regards to the public performance of the master recordings. Many other countries pay public performance royalties for the master recording to performing artists, producers and master owners under what is called Neighbouring Rights laws.

However, the U.S. only pays master owners for “digital transmissions” because of a law that says AM/FM radio only has to pay composition performance royalties and not sound recording royalties. You are still owed public performance royalties from masters in other countries. SoundExchange, mentioned below, helps you collect royalties from this.

Remember, the PRO only collects performance arts royalties from the composition, not the master recording.

As mentioned earlier, a sync license allows the music composition to be used for a project like a movie, but a master use license is also needed to use the actual master recording in the project.

As the copyright holder of a master recording, you can charge anyone however much you want to use it. Even if they wanted to use just a part of the master recording, as in the case with sampling, you have the right to demand any price, or deny permission.

Now that you understand how copyrights work for music and understanding royalties, you have to know how you actually collect this money.
 

Who can help me collect music royalties?

 
Like I said, all this music royalty stuff can be really confusing and complicated. The good news is there are services that track and collect the royalties you are owed. For the publishing side of things, there’s a publishing administrator or publishing admin. Below are the 4 main areas independent artists are going to need to register or sign up for that should cover most music royalty sources.
 

Publishing Royalties from Music Compositions (Publishing Administrator)

 
Publishing admin services, like SongTrust, help to collect royalties generated from your music compositions all around the world. This includes mechanical royalties from someone streaming, downloading or using your song in a cover. Some services will charge a yearly fee to collect but some just take a percentage.

Here are some options, but do the research to see what’s in your best interest:
 
Songtrust
TuneCore Publishing Admin
CD Baby Publishing Admin (outsources to SongTrust)
Audiam
Sentric
Kobalt

 

2. Performance Royalties from Music Compositions (Performance Rights Organization)

 
PROs will collect only performance royalties for compositions on your behalf as the songwriter / publisher, so you would want a publishing administrator service to help manage and collect the rest.

Register for either one: ASCAP (www.ascap.com) or BMI (www.bmi.com)

 

3. Common Master Recording Royalties

 
Any other common royalties from the master recording should be collected for those who own the masters (performing artists and producers) by your music distributor (CDbaby, TuneCore and DistroKid). This includes sales from digital downloads and interactive streaming services (Think Spotify as opposed to a Pandora’s online radio feature, which is considered non-interactive streaming).

When using a music distribution company, or music aggregator (to get your songs out to digital outlets like Spotify, iTunes, Apple Music, Amazon Music and Google Play), you will often have a chance to sign up for their publishing admin services if they offer it. This is a way to have a good majority of royalties collected and distributed to you in one company, including master recording royalties (like mechanical).

If you distribute through DistroKid, you will still need to sign up for a publishing admin company who will collect royalties on your behalf and distribute them to you.
 

4. Performance Royalties Generated by Master Recordings

 
4) If you are a recording artist or producer who owns the rights to your masters, then you would need SoundExchange to collect digital performance royalties generated by master recordings. This includes non-interactive streaming services (like Pandora), satellite radio services and non-interactive webcasts. However, you are still owed public performance royalties from masters in other countries, which SoundExchange can help you to get.

If you’re strictly a songwriter who does not perform the songs and have no ownership in the actual sound recording, then you technically don’t need to sign up for SoundExchange.

Recording artists and producers, sign up here: https://www.soundexchange.com

One Comment

  • Thabiso says:

    This has been a very informative article, especially how royalties are collected. I would like to discuss this some more with you if possible. I’m based in South Africa and I’ve got a project that I would like to start and I’d like to hear your views on some of the things about the collection of music royalties. Thank you a lot.

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