If You Are Wondering How To Get All Your Music Royalties. READ ON.....
Updated: Jan 24
Music royalties are the compensation for using the intellectual property of any number of copywriters. They mainly go to composers, songwriters, recording artists, and publishers, etc. They are generally considered the primary payment for musicians. However, they are not as easy as they sound. In fact, they are much more complicated in their practicality. An artist does not simply get a certain amount of money based on how many times their song was played on Spotify.
There are a number of different middlemen in between who claim copyright ownership and collect royalties. Let's consider Spotify, for example, and if you have your music uploaded on it as a singer or a songwriter, there will be a publisher, a record label, and a distributor that Spotify would compensate every time your song is played. Things get more complicated when it comes to calculations that determine what amount you receive at the end due to so many players in between.
All music that has ever been recorded for the purpose of publishing comes with two different types of music rights, Master and Composition. When a piece of musical work, including lyrics and melody, is created by a composer, lyricist, or songwriter, it is called "composition." When the same composition is recorded, mixed, mastered, and performed, it is called "master." What often causes a misconception among the masses is the fact that since most recordings and songs are created at the same time, they are one copyright. However, despite being created at the same time, they are both treated in a different manner legally.
This is because, generally, a composition is owned by the author of the lyrics for a particular song; however, the way this composition is interpreted by an artist and its recording is called the master.
Therefore, music royalties are also of two types, one that is paid for the use of composition and the other that is paid for using the master or the sound recording. However, from here on, things get even more complicated, and to comprehend them better, we will further dive deep into the six different kinds of royalties within the master and composition.
Types of Royalties
While there are various kinds of royalties, the fact that they are paid in so many different ways is what makes the entire experience complicated. Moreover, depending on the country, the payout rates also vary, and some countries may not have a certain type of royalty. For example, many countries pay the master copyright holders royalties for radio airplay, whereas the United States doesn't. To understand how royalty collection works, this article would primarily focus on the different types of royalties and how an artist can earn through them.
Through a sync license, an artist grants permission for their work to be used in visual media such as television, advertisements, video games, and films, etc. Through sync royalties, an artist can earn money via their copyrighted work, which is further paired with visual media. A sync fee is paid every time a song is used as a part of some other content.
Due to an alarming rise in streaming services across the globe, royalties have gotten much more crucial compared to the past, especially for recording artists.
While previously, an artist's earnings depended primarily on the number of physical sales, their work can now be uploaded on various online streaming platforms.
A recording artist is usually required to work with a distributor to get their songs on a streaming platform and earn royalties through them.
Streaming payouts are decided by dividing the total number of streams of a certain artist by the total streams altogether on the platform. The revenue is also divided among all the artists who have songs on the platform.
Public Performance Royalties
When a song is played commercially, artists can gain access to yet another outlet of earning, also called the public performance royalties. These royalties are usually generated by public broadcasters such as restaurants, clubs, tv, radio, etc., and also by streaming platforms.
However, with public broadcasters, the generated royalties are both collected and distributed by PROs or Performance Rights Organizations.
These are inclusive of names such as SESAC, BMI, ASCAP, etc. Through such groups, licenses are issued that allow businesses of different natures to use their songs in live performances. Following this, depending on how often those songs are used, the licensing fees are distributed between all their songwriters.
For example, an artist provides their setlist or plan to the venue they are performing at, which then gives that particular setlist to the Performing Rights Organization. This way, the PRO distributes the collected royalties to the songwriters who perform those songs. On the other hand, the same royalties are also generated through streaming platforms.
However, things work in a slightly different way here. These royalties are closely associated with mechanical royalties given by the streaming platforms. A copyright board collectively decides on a certain amount to be given to publishers and songwriters in terms of both public and mechanical royalties by a streaming service.
The exact processes involved in how royalties are calculated pretty complicated and also country-specific, but the gist of it is that a streaming service is going to forward the public performance chunk of royalties to the PROs who share them out among publishers and songwriters.
The name "mechanical" can be traced back to a time when physical media was produced in the shape of CDs, cassettes, vinyl, and so on. However, now, this type of royalty is paid on both a digital and a physical form of a recorded song. In fact, digital streaming services today can be credited for generating a huge chunk of mechanical royalties. This is because whenever a user opts to play a song in trend, the streaming service generates mechanical royalties.
Usually, record labels pay mechanical royalties to songwriters for any albums containing the song writer's work. Sometimes when a label presses an album, they pay mechanicals; however other times, they pay mechanicals if the album is both pressed and distributed. This way, they do not have to pay for something they don't sell themselves.
When it comes to the rate of these royalties, there isn't one fixed as it varies across different countries and can also be negotiated. However, a minimum rate is usually set so that an artist does receive anything below that.
For example, in the United States, the rates are majorly set by the Copyright Royalty Board. Therefore, agencies that often act as the middle man between copyright holders and streaming services or record labels allocate royalties on the basis of rates set by the CRB.
Now that we have established the difference between master and composition, understanding neighbouring royalties has gotten much easier.
While performance royalties are paid to those who have ownership of musical composition, neighbouring royalties go to copyright holders or owners of the sound recording.
Therefore, from a legislative point of view, they come just next to performance royalties or rights, which is why they are called "neighbouring." Regardless, similar to performance royalties, neighbouring royalties are also collected by PROs in the relevant markets. Further, they are distributed among owners of sound recording.
Collecting neighbouring royalties depends on a number of legislation requirements, which vary across countries. They depend greatly on the country where the song is recorded, the type of public performance, and the artist's nationality. These factors determine whether a public performance qualifies a neighbouring royalty collection. For example, many countries provide neighbouring royalties for airplay, whereas the United States doesn't.
Digital Performance Royalties
The trickier part starts here. Even though the United States does not compensate the owners of sound recording, this rule is only applicable to AM/FM radio. This means that any other form of radio, such as satellite, digital, and cable do pay to the master owners. This is why royalties pertaining to digital performance can also be considered as payments of neighbouring rights.
In short, digital performance royalties refer to royalties you can receive from non-interactive streaming services such as Sirius XM. Every time there is the streaming of a sound recording, these platforms pay their performing artists. SoundExchange in the United States is particularly responsible for collecting digital performance royalties.
Often times, independent musicians are so focused on understanding the processes concerning royalties they are entitled to that they completely disregard any other hidden royalties. Even though hidden royalties are not directly linked with a musician's royalties, they may indirectly have an impact on what amount they end up with.
Even though this article mainly focuses on how independent artists can earn royalties, there are several other players in the equation too who deserve them for all the hard work they pour into creating a song. One such player is the producer. Some producers get paid through a temporary agreement, also called the "work for hire" agreement, or through advance payments from record labels.
However, they can also be paid through royalties, popularly known as points. These points can also be referred to as album points, producer royalties, and producer percentage. It is important to note that a single point is the equivalent of 1 percent song revenue.
A producer can earn points through various outlets. First, they can earn points through the music royalties earned by a record. They often get 3 percent of those royalties, which amounts to 3 points. In addition, they might only get paid for certain songs in an album. Therefore, at times, their earnings may only be 1 percent of the entire revenue.
Moreover, it is important to note that points are not the same as songwriting credits, but there is still a possibility for a producer to get songwriting royalties. A producer can occasionally also play a part in modifying a song or assist in the making of one. In such cases, a producer can get songwriting credits along with additional points from other projects.
Record Label Royalties
Record labels are often the main players who can claim anywhere between 50 to 90 percent of your total earnings. A new artist in the industry does not get more than 10-15% of their total sales as record labels take the entire financial risk on their behalf. Getting a new artist recognized and seen in the market costs an arm and a leg, which is why most labels do not even make enough profit. Therefore, if a new act fails, record labels pay the debt.
Session Musician Royalties
A session musician is a musician who's hired to perform in a recording session. They are usually compensated according to a temporary work for hire agreement. This means that a session musician performs as a service only and has no right or claim over the song once they have been fully paid. However, major record labels often set aside up to 2 percent royalty for such musicians in an album or track.
Artist Manager's Share
Artist managers are people you rely on the most when it comes to signing a record deal. They guide you every step of the way and also assist in opting for a producer. Since they contribute so much to your journey as an artist, it is only fair for them to earn around 15 to 20 percent of the total gross earnings. They are also eligible to receive royalties from any past songs regardless of them being your managers at the time or not. All in all, artist managers are the people who help propel your career the most.
Booking Agent's Share
For the most part, many people assume that booking agents and artist managers fall under the same category, but they couldn't be more wrong. While an artist manager is involved in the majority of the processes relevant to your music career, booking agents only deal with the booking aspect of it. They are majorly responsible for booking public or personal appearances and live shows.
On the other hand, becoming an artist manager is much more convenient than becoming a booking agent as it's a strictly regulated area. Additionally, the amount a booking agent charges you highly depends on the unions that control them, such as the AFM (American Federation of Musicians). They roughly charge around 10 percent for booking your shows and live appearances.
The Royalty Collection Cycle
The royalty collection cycle is an extremely complicated one as it deals with a number of factors in between, such as the country, the type of royalty, the platform, and so much more. Therefore the steps mentioned below are based on a generalization of the entire procedure.
The first step in the cycle is called creation or, more precisely, an artist's creation. This is when a composition is written by a songwriter, and the song is recorded by an artist. Following this, the master and composition copyrights are created. Lastly, the artist makes a deal with either some label or a publisher to market their work, enabling them to earn through it.
2. Contacting the Intermediaries
The second step is linked with distributing and registering to open the doorway to any potential royalties. For the master, it refers to the process of an artist and their label seeking assistance from the distributor to license their work for streaming platforms. For the composition, it means that publishers and songwriters go through a registration process with the PRO, which then collects royalties on their behalf.
3. Getting the Music Out There
The third step is related to consuming music in various forms and shapes. The most apparent one includes getting played on the radio, which can earn you public performance or even neighbouring royalties in some cases. As soon as a user plays an artist's song on a streaming service, it generates streaming, mechanical, and public performance royalties.
4. Collecting and Distributing Royalties
This step gets a little confusing as it involves many different forms. This is because it depends on the context in which the musical piece is used and also the type of royalty. However, to summarize it, the intermediary acts as the middle man who collects money from consumers of music on the basis of when, how much, and what music was utilized. Based on the data, the intermediary will allocate the collected amount among the right owners.
In some cases relevant to streaming royalties, the decision about who gets what can also depend on those who use music. For example, Spotify can play an important part in it by tracking the music played on its own application and assigning it to the right holders. This means that the distributors and PROs will only be passing the cash along.
5. Paying the Right Holders
This is what the end result looks like, and this is what most artists are interested in finding out. The final step of the cycle involves paying the songwriters and artists who share those royalties with their publishers and record labels.
Usually, songwriters and publishers get mechanical royalties, performance royalties, and sync fees along with the distributors and PROs who also claim their part in it. On the other hand, record labels and artists get a share from digital performance royalties, streaming royalties, sync fees, and neighbouring royalties.
Who Collects How Much Royalty?
At this point, it is clear that when it comes to collecting royalties as a musician, there are several other fingers already in the pot before yours. Some act as middlemen who charge a certain percentage for collecting royalties on the right holder's behalf and others could be the royalty's ultimate destination. It is, therefore, important to understand the breakdown of who earns what in the entire journey.
1. Record Labels
On the master side, royalties are divided between record labels and recording artists, considering that there is a deal set between them. Record labels spend a considerable amount of money on production and release marketing and eventually claim a substantial amount in master royalties. Record labels enjoy a share in royalties of many different kinds, mainly because of recording artists.
2. Recording Artists
Recording artists receive a share in all the master side royalties as they also have partial ownership of the master recording. This is inclusive of featured as well as non-featured artists. However, the amount they receive as royalties is strictly dependent on their deal with the distributors and record labels. The types of royalties recording artists are eligible for include digital performance royalties, neighbouring royalties, sync licensing fees, and streaming royalties.
Distributors mainly collect royalties on an artist's behalf for promoting their content and getting their music on digital platforms. They often charge a fee for every payout in a similar fashion as PROs do on the composition side. However, they do not get neighbouring royalties or sync fees because they work primarily in the streaming area. The recording royalties are therefore owned collectively by distributors, recording artists, and recording labels.
4. Licensing Companies and Sync Agencies
Sync agencies work with both composition and master domains in the music industry and successfully create connections between the users of music and the right owners. Sync licensing companies help artists in various ways, such as getting their songs into movies by referring them to music producers or getting their sync placement in any upcoming blockbusters. Consequently, they charge an amount on all fees relevant to syncing that pass through them.
Songwriters are entitled to all of the composition royalties as they have ownership of the composition, just like recording artists have partial ownership of the master recording. For any work of music that is created, two equivalent copyright shares are made, one for the publisher and the other for the writer. Each of them is worth 50 percent of the entire amount.
The publisher's share is usually collected by the publishers only, whereas for the writers, the share is given by the PROs to the authors directly. Therefore, if a songwriter does not have a recognized publishing company at their back, they might miss out on this particular share even if they have a publisher who is self-established. In short, songwriters are entitled to sync licensing fees, performance royalties, and mechanical royalties.
How to Know if You Are Receiving Royalties?
If your music is uploaded and selling on platforms such as Spotify, Google, iTunes, and Amazon, etc., then you are earning recording royalties for sure. An artist can fetch these royalties from their label or distributor. However, if you have a label backing you as an artist, it is not recommended to go to the distributor directly. This is one of the standard etiquettes mentioned in label-distributor contracts.
The body responsible for collecting these royalties is called the neighbouring rights collection society. It is important to register your master recordings with each society directly in areas where you are earning radio play to collect the royalties owed to you.
You can determine whether you are earning them or not by figuring out if your master recordings are being performed publicly. Therefore, if you are an owner of a sound recording, and if your work is being broadcasted and performed publicly, then the artists performing them and you are both earning neighbouring royalties. All in all, if your music is actively being played on platforms such as Sirius XM, BBC Radio, Pandora, cable tv and clubs, etc., then you are earning neighbouring royalties.
It is important to understand that you cannot earn neighbouring royalties just because your work is being sold well. You can earn these royalties if your master recordings either get broadcasted or performed publicly. However, a large increase in sales in a particular area can be a sign that radio play took place. Therefore, anyone who's administrating neighbouring, royalties must be attentive towards such a noteworthy increase in sales.
To find out whether you are earning these royalties or not, look out for any radio airplay that your recordings are getting or refer to the record label responsible for releasing your music. Speak to your record label as there is a chance that your label might already be collecting these royalties on your behalf.
Every major world territory in the world has its own PRO (Performing Rights Organization), and it is mainly responsible for collecting performance royalties.
There are several ways to know if you are earning these royalties. A common way is to figure out if your song is being played on digital platforms such as internet radio, streaming services such as Spotify, and terrestrial radio, etc.
Moreover, it is also likely that you are earning these royalties if your music is being played in the background at retail stores or businesses of different kinds. Additionally, clubs and live venues can also use your work for various events. Any platform, be it a live venue, a digital streaming app, an advertisement, or a TV broadcast, as an artist, you have never-ending outlets to earn royalties. What makes it all the more confusing is that it is hard to keep track of so many of them simultaneously. Therefore, you must register your compositions as a writer with every PRO in major areas where you earn performance royalties.
When compared to other royalties, performance royalties definitely stand out and for all the right reasons. They allow you to earn in a plethora of ways; however, it is crucial to know that you are not going to earn these royalties simply because you have a digital distributor promoting your music. Royalties are far more than just sales and promotion.
Mechanical collection societies are primarily responsible for collecting mechanical royalties. In every major territory of the world, there are mechanical collection societies.
To know if you are earning such royalties, you must find out if your song is being altered or reproduced to be used as ringtones.
Also, look into whether it is being sold on vinyl products or compact disks. Just because the term mechanical was derived from traditional methods of selling music does not mean that its royalties cannot be earned any differently.
An artist can earn these if their music is up on streaming platforms such as Spotify. Moreover, there is a high chance that digital retailers on services such as Amazon, iTunes, and Beatport outside of the USA may also be using it.
Mechanical royalty share in the United States goes directly from a digital platform such as iTunes to the distributor who forwards it to the label. However, places outside of the United States can simply throw your mechanical royalty after it is received from iTunes.
If you want to be certain about whether you are earning these royalties or not, refer to your distributor as they are responsible for distributing your work to streaming platforms and stores across the globe. If your work is getting you streams and sales, then you are earning mechanical royalties for sure.
However, it can get extremely difficult to collect your royalties through a mechanical collection society if you are an independent songwriter. Many renowned agencies in the United States do not let you collect your royalties as an unsigned writer.
This brings us to the same realization that you must associate yourself with maximum mechanical collection agencies in territories where you are earning a considerable amount through streams and sales.
To conclude, we have already established how confusing, complicated, and overwhelming the entire royalty collection procedure is. However, once you know who the key players in this entire equation are, it can spare you the struggle of collecting them.
Therefore the bottom line is that in order to make your journey as a musician, and especially as an independent musician, smoother, you must have a network of different players to depend on. You must find partners who have a common goal, even if they are not always aligned together. The entire music business is based on collaborative efforts that help you get fair remuneration for your work.