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How Music Royalties Work: Everything You Need to Know

How Music Royalties Work: Everything You Need to Know

One of the biggest challenges for emerging musicians and newcomers in the music industry is dealing with music royalties. We often read about artists who had millions of fans and multiple best-selling records, but ended up with not much in their bank accounts because of bad management deals or copyright contracts. How can you avoid falling into that ‘starving artist’ category, and how can you make sure you get paid what is rightfully yours? 

Navigating the complex field of music royalties can be daunting, which is why many musicians prefer to leave that to the experts and work with lawyers, music publishers or managers who have experience in this area. However, if you’re an independent artist or you’re in the early stages of your music career, it’s wise to have at least a basic understanding of how copyrights and royalties work. Here’s what you should know. 

What exactly are music royalties? 

Music royalties are basically payments made to copyright holders of a musical composition, which can include, depending on all the parties involved, songwriters, recording artists, as well as record labels, music publishers, or producers. These payments are made for the licensed use of the work of the copyright holders, whenever their work is used, either on TV, the radio, on streaming platforms, in live performances, merchandise, and so on. 

Royalties are generated depending on how the work is going to be used, as well as the licensing agreements in place. When multiple parties are involved in the creation of a musical composition, like songwriters, performing artists, labels, producers, managers, and so on, the royalties distribution process can become quite complex and convoluted. So, before we get into the different types of royalties, it’s important to have a basic understanding of how music copyrights work. 

The different types of music copyrights

There are basically a few different types of copyrights in the music business for each piece of music, depending on the use case and type of composition, as follows:

The master / sound recording copyright

This includes the rights related to the distribution or reproduction of the sound recording, which belong to the recording artist, the recording studio, and the record label, if that’s the case. 

The easiest way to explain master copyrights is like this: if you want to cover a song by The Beatles in a different genre, say heavy metal, you’re basically creating an entirely different sound recording, working with other musicians, a different studio, different equipment, instruments, and so on. So while the songwriting copyrights remain the same, and they will be credited to the original songwriter, you’ll get royalties for the new master recording, which has nothing to do with the original. 

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The composition / songwriting copyright

These are copyrights related to the musical composition, aka the lyrics, harmonies, chords, and melodies within a song, which belong to the songwriter and/or the publisher. 

Independent artists or singer-songwriters will hold the rights to both the composition and the master, and they might share these rights with other parties involved, on a case-by-case basis, like producers, publishers, or labels. 

If you intend to cover that Beatles song in a new genre, you’ll have to obtain permission to use the song itself, aka the musical composition and the lyrics, first, also known as publishing rights. Even if your plan is to cover the song in an entirely new way and make it your own, you’ll still need to obtain the rights to use the original lyrics, melodies, harmonies, and chord progressions which were created by someone else. 

How to copyright your own music

The U.S. Copyright Law states the following: “You can copyright music, copyright lyrics, or copyright both. You may copyright a new song or a new version or arrangement of an existing song. The song must be your original work, meaning that it must have been created by you and must show some minimal amount of creativity. You can’t copyright a song title or a chord progression. If you make an audio recording of your song, you may copyright the sound recording in addition to your copyright in the song itself.” 

What this means is that you can’t copyright song ideas or titles, only fully-fledged songs. In order to do this, you’ll have to create an account at the U.S. Copyright Office, but keep in mind, this doesn’t instantly unlock access to any kind of music royalties. This is just a way to establish that you hold the copyrights to your own work, to cover your legal bases and ensure nobody else can take credit for your creations. 

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What about music publishers?

Perhaps you’ve noticed that many artists sign deals with music publishers, otherwise known as publishing deals. What does this entail? Well, essentially, the publisher takes ownership of the licensing rights for the songs, and handles the business of licensing the tracks, collecting royalties, and distributing them. The terms of the deal can also state that the publisher will work on your behalf to promote existing compositions, to film and television or other artists. It basically means that the publishers will take over handling the arduous task of collecting royalties and distributing them to the copyright holders, so you won’t have to worry about it. 

There are different ways to go about this, by signing either a full publishing deal, a co-publishing deal, or an administration deal. The full publishing deal means you’ll transfer 100% of your rights to the publisher, and it’s more common in the case of new artists, because it minimizes risk for the publishing company that’s investing in you. However, this type of deal gives the upper hand to the publisher in any contract negotiations, and you won’t have much say in regards to how the publishing company decides to license your work. 

A co-publishing deal gives you a bit more leeway, as you can split the rights to a song with the publisher 50/50. You’ll get your writer’s share of 50%, and half of the publisher’s share, amounting to 75% of the rights to a song. However, you’ll have to create your own micro-publishing company to be able to sign an agreement with your publisher. An administration deal is more common when it comes to established artists, granting the publishers the right to collect and distribute royalties on behalf of the artist, and nothing more. 

If there are multiple songwriters attached to the same song, each of them will be owed a different percentage of the royalties, and each songwriter in turn can work with a different publisher to collect them. 

The different types of music royalties

Now, it’s time to move on to the different types of royalties that exist in the music industry at the moment. This is where things start to get a little complicated, but ultimately, it will all make sense, as long as you have a basic understanding of how copyrights work, who can claim rights to a song, and for what purpose. 

Mechanical royalties

Mechanical royalties are generated via the physical or digital sales and distribution of your copyrighted songs, aka if people buy your records on vinyl, CD, or through digital platforms Apple Music or Spotify. Record labels will shell out a mechanical royalty to a songwriter whenever a CD, cassette, vinyl, or DVD or their work is sold. If you’re an independent artist, yor royalties will be paid to you by the publisher or the music distribution service you work with. 

Performance royalties

Performance loyalties are generated whenever one of your copyrighted songs is performed, just like the name suggests. Whenever your song is played in public, whether in a live venue, on TV, radio, or during an event, you’ll have the right to collect royalties, through performance licensing. Even if your song is played in an elevator in an office building or on a TV in a cafe, you’ll have the right to collect royalties for that performance. 

Performance royalties are collected by Performing Rights Organizations, or PROs, such as BMI or ASCAP, and they’re made up of two parts: songwriter royalties, and publishing royalties. So both the songwriter and the performing artist have the right to collect royalties in this situation. In order to collect these royalties, you’ll need to register with one of these PROs first. If you’re a singer-songwriter, you’ll have to register as both the writer and the publisher to ensure you’ll receive 100% of the performance royalties collected. 

Synchronization (sync) royalties

Sync royalties generate income for artists from copyright music being ‘synced’ with visual media, like television, commercials, films, video games, online streaming, music videos, and any other type of visual media. However, a person needs to sign an agreement with the master recording owner, like a record label, to be able to use copyrighted music with new audiovisual projects, such as a YouTube video. Even if you want to use a certain song to go with your new vlog on YouTube, you’ll still have to get both a master use license and a sync license. Sync royalties are usually handled and sold by music publishing companies on behalf of the artists. 

Print music royalties

This type of music royalties is not very common nowadays for recording artists, but they are often used by classical composers or film score composers. Print music royalties apply to copyrighted music that’s transcribed to print, like sheet music, and then distributed through a print music publisher. In this digital age, printed sheet music is rarely used, but it was very common in the past, and composers got royalty payments depending on the number of copies made of the sheet music piece. 

Who gets paid royalties?

When it comes to distributing royalties for a song, things can be very complicated, depending on the number of songwriters, performers, publishers, record labels, and so on. It’s always good to work with an expert in these matters, like a music publisher, who can handle the collection, auditing, and distribution of music royalties. 

Songwriters 

Songwriters usually write the music and the lyrics to a song, and they’re entitled to receive mechanical, performance, or sync royalties, depending on how their work is being used. If there are multiple songwriters credited for the same song, they will all be entitled to a percentage of the royalties, and these percentages are usually established through the use of a split sheet. This is a written agreement deciding how much each writer is entitled to get in terms of royalties, so there is no confusion later on. 

Performing artists

A performing artist is basically someone who performs a song written by a songwriter. In the case of singer-songwriters, that would be the same person, but a lot of times in the music industry, the songwriter and the artist performing the song are different. In this case, performing artists don’t have any publishing rights, only performance rights. Public performances of copyrighted music generate royalties for songwriters, however, and these royalties are usually collected and distributed through a Performing Rights Organization, or PRO, like ASCAP, SESAC, or BMI. 

Publishers

Music publishers are in charge of making sure copyright holders receive their fair share of royalties, and they also issue licenses for the music they represent, to be used in different formats. The publishing royalties generated from these activities are then split between the publisher and the songwriter, depending on the type of music publishing deal in place (full publishing deal, co-publishing deal, administration deal). 

Record labels

If an artist is signed to a record label, the label is then in charge of marketing and distributing the artist’s work, and they usually also hold the master rights to their songs. Record labels get their revenue from mechanical royalties and public performance royalties of songs written and recorded by the artists they sign. Contractual agreements grant them the authority to use these recordings, offering royalty payments over a defined contractual period. In return, the artist is compensated with a fixed sum or a portion of these royalties earned by the record label.

Digital music distributors

Digital music distribution services commonly collaborate with independent musicians and smaller record labels, facilitating the global presence of their music across major online stores and streaming platforms. For artists not signed to a record label or those choosing to go the independent route, these providers can help promote and distribute their songs on major streaming platforms, like iTunes, Apple Music, Spotify, Beatport, Amazon, Google Play, Pandora, and other influential players in the digital music landscape.

Performing Rights Organizations (PROs)

Performing Rights Organizations, like BMI and ASCAP, collect public performance royalties and distribute them to the songwriters and music publishers holding the copyrights. They also keep track of performances and broadcasting of music that artists have registered with them, to ensure that royalties are credited where they are due. However, for this to happen, artists must register to one of these organizations in order to collect royalties from public performances of their work. 

Mechanical rights agencies

Mechanical rights agencies are in charge of handline mechanical licensing rights for music publishing companies, and they issue those rights to anyone looking to use copyrighted musical compositions for different purposes. These agencies, like Harry Fox, usually get a percentage of mechanical royalties collected for their services. 

Sync licensing agencies

Just like mechanical rights agencies, sync licensing agencies collect a percentage of royalties generated for their services, which include issuing licenses for use of copyrighted music with visual media. Musicians usually work with a music supervisor to handle sync licensing processes, and this supervisor will work as a liaison between the artist and the companies licensing the music. 

Other types of royalties 

There are other types of royalties, as well, known often as ‘behind the scenes royalties.’ These include producer royalties, paid by the labels or through what’s known as producer points. If they assist the artist in any way through the songwriting or creative process, they might even get a small songwriting credit. Session musician royalties might also be awarded in some cases, but in the U.S., that’s a rare occurrence, because they’re not required. Instead, session musicians are usually hired and paid through a Work For Hire Agreement, and once they are paid, they can hold no claim to the copyrights to the songs. 

There might also be artist manager cuts, where an artist’s manager gets a percentage of royalties, booking agent cuts, when it comes to live performances, and record label royalties, which can be quite high, especially when it comes to new artists, where a lot of risk is involved. 

Frequently Asked Questions

Are royalties paid every time a song is played?

Royalties are typically paid every time a song is played, but the frequency and method of payment can vary depending on the context. For public performances of songs on platforms like radio, television, live concerts, and online streaming services, royalties are collected and distributed to songwriters, publishers, and performers based on agreements with performance rights organizations (PROs) and streaming platforms. These organizations track and report the usage of songs and distribute the corresponding royalties to rights holders on a regular basis, often quarterly or monthly. So, in most cases, royalties are indeed paid for each instance a song is played in a public or commercial setting.

How are music royalties calculated?

Music royalties are calculated based on various factors and revenue streams. For songwriters and publishers, mechanical royalties, which are earned from physical or digital music sales and streams, are often based on a statutory rate per copy or stream. Performance royalties, generated from public performances of songs, are typically calculated using complex formulas that consider factors like radio airplay, venue capacity for live performances, and the audience size for TV or radio broadcasts. For recording artists, royalties from record sales and streaming are determined by contractual agreements with record labels, usually as a percentage of revenue or a fixed fee per unit sold or streamed. The specific calculations can vary widely based on contractual terms, region, and the type of usage, making the music royalties landscape multifaceted and intricate.

Do song royalties expire?

In general, song royalties do not expire. Copyright law protects musical compositions for a long duration, often the life of the creator plus an additional 70 years or more, depending on the jurisdiction. This means that royalties generated from the use of a song can continue to accrue for decades after the songwriter's death. However, there are some exceptions and nuances to consider. For example, if the copyright owner willingly relinquishes their rights or licenses the song under certain conditions, this can affect the collection and expiration of royalties. Additionally, contractual agreements, such as those between songwriters and publishers, may have specific terms that could influence when and how royalties are distributed, but copyright itself does not have a fixed expiration date.

Join Xposure Music and gain access to some of the best music industry professionals in the U.S. Top experts from Sony, Columbia, Def Jam, or Universal have already joined our platform, and they’re ready to give invaluable, on-point feedback on your work, which can help you land that dream record deal or publishing deal you’ve been working towards. Sign up now and reap the rewards. 

If you’re looking to kickstart your music career but have limited resources, we can help you get funding for your next project while staying in control of your own work and career trajectory. You keep 100% ownership of your masters and get an advance ranging from $1,000 to $3 million to get your career off the ground. Get an estimate now and start turning your dream into reality. 

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ABOUT THE AUTHOR

Gregory Walfish
Co-founder of Xposure Music, Gregory Walfish stands at the intersection of music, tech, and culture. With a software engineering background, he's passionate about artist development and technology.

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