Music royalties are a complicated legal game. What happens behind the scenes for artists, songwriters, publishers, or other copyright holders to get paid is best left to lawyers who know what they’re doing. But’s important for artists to at least have a basic understanding of the different types of music royalties so they know where their money is coming from.
How do royalties work?
Music royalties are payouts that go to artists, songwriters, composers, publishers, and any other copyright holders for the right to use their intellectual property. United States law gives copyright holders exclusive rights to their own work, and anyone else who wants to use that work must pay to do so.
As far as the law and royalties are concerned, every song is made up of two separate components on which the entire royalty system is based:
- Master copyright – the recorded piece of work itself. It doesn’t matter whether it was printed physically to CD or vinyl, or released digitally for streaming.
- Publishing copyright – breaks the songs down into further pieces for royalty distribution to its creators. This copyright focuses on lyrics, melody, and composition.
To further clarify this concept, you can steal a master by ripping a song from YouTube using one of those free MP3 conversion sites (you know the ones we’re talking about). When illegal downloading via Napster or Limewire was prevalent, that would be considered master theft as well.
On the other hand, you can steal the publishing parts of someone’s intellectual property if you sample a song, use the same melody, or even a stanza of lyrics, without getting permission from the copyright holder(s).
What are royalties?
Every musician on the planet instinctively knows that royalties are important; the word is essentially a synonym for getting paid to make music. But what exactly is a royalty?
Merriam-Webster defines a royalty as “a payment to an author or composer for each copy of a work sold, or to an inventor for each item sold under a patent.” Royalties don’t exclusively apply to music, though that’s the focus of the conversation today. They simply pay anyone who has rights to some patent for the use of their intellectual property.
Music royalties used to be simpler than they are today. With physical copies and terrestrial radio as the only mediums, artists took a percentage for every record sold or every spin on the radio. Today we consume music in so many different ways that royalty collection has become a way more complex beast.
Music royalties that come from using the recorded song in some way constitute master-generated royalties and break down into a few more specific categories.
Royalties from Digital Downloads/Streams
Purchasing a digital download is the same as buying a physical copy. That’s easy enough to understand, and every record sold generates royalties for the artist.
Streams generate revenue as well, though at a much lower rate than purchasing a unit. Stream money is usually collected by the company distributing the music, then paid to the label, and finally a portion of that is paid to the artist. Many independent artists will work directly with the distributor, like Distrokid or Tunecore, and cut out the label completely.
Neighboring Rights Royalties
The entity that owns the recording, which is normally the record label or the artists themselves—earn a neighboring rights royalty anytime a song is played publicly.
If the song airs on Pandora or SiriusXM, or on TV, or even in a restaurant or shopping mall, it will generate a royalty for the copyright holder so long as the property is licensed and registered to the business using it. A mom-and-pop shop may play your music ‘illegally,’ in which case no royalty is generated.
YouTube Recording Royalties
When an ad plays before a song on YouTube, the platform itself makes money, as do the rights holders behind the recording. YouTube payments are abysmally small, but a few mega-superstars the ad revenue starts to add up.
The other main types of music royalties are those generated through different aspects of publishing, rather than the master itself. In some cases, both a master and publishing royalty gets paid to the copyright holders, and in others, royalties are paid to the songwriters and producers, not just the performing artist. If there appears to be any overlap between master-generated and publishing-generated royalties, it tends to depend on who is getting paid.
- SEE ALSO: Music Publishing Essentials
Performance royalties are created whenever a song in any form (remix, original, cover, etc.) is performed in public or broadcast in some way. The simplest example is if someone hears a song on top 40 radio, a performance royalty is generated. That’s because the radio station has purchased a blanket license from a Performing Rights Organization like ASCAP or BMI, who collects and distributes these types of music royalties to its members.
Performance royalties include remixes and covers, and if a song gets played on TV for a commercial or as part of the soundtrack, royalties are collected from that as well.
Mechanical royalties generate income for actual physical or digital reproduction and distribution of copyrighted works. This applies to all formats, including vinyl, CD, cassette, digital downloads, and streaming services.
For instance, record labels pay mechanical royalties to songwriters every time they press a CD of their music. As an independent artist, a copyright owner can collect mechanical royalties from a digital music distributor.
Print royalties are the rarest form of payment to a copyright holder. This type of royalty covers copyrighted music that has been transcribed to a printed piece, like sheet music. These royalties don’t drive the music business, but they do exist and are worth being aware of!
Who collects and distributes royalties?
These are several of the most common entities who collect royalty income and pay them out to the appropriate parties.
The publisher is the person/company responsible for making sure copyright holders get a payment for using their music. A music publisher obtains the songwriting copyright in exchange for royalty privileges, and issues licenses for using music they represent.
Any royalties that come through a publisher are split between the company and the songwriter(s).
Record labels market and distribute music. Many times they’ll actually own the master rights to a recorded piece of music, but not the publishing rights. Labels collect income from mechanical and performance royalties. The artist will receive a flat rate or a percentage of any revenue generated.
Digital music distribution companies (Distrokid, etc.) are an easy way for independent artists to get their music in online stores and on major streaming services. These companies are aggregators who distribute music on iTunes, Apple Music, Spotify, Amazon, Google Play, and many more.
For the average independent artist, a distribution service works sort of like a label, collecting mechanical and public performance royalties and paying them out.
A Performing Rights Organization is specifically responsible for collecting public performance royalties and distributing them to the songwriter and music publisher quarterly. The main three PROs in the US are ASCAP, BMI, and SESAC. You must register with one to collect performance royalties.
Types of Music Royalties: Conclusion
Getting artists paid for their work is no easy task! As you can see, there are various types of music royalties, and even more kinds of licenses entities would need to acquire to legally use an artist’s intellectual property (legally, as in, the artist will collect a royalty for someone using their work).
At the end of the day, this is why artists work with business managers and lawyers who do all of the heavy lifting for them in regards to collecting royalties. It’s difficult to be creative if you’re worrying about shaking people down for every penny!