How Do Music Royalties Work?
The successful musician fantasy is that you’ll record a song so popular it practically prints money. The reality? Well, it’s a little more complicated. Navigating the many complexities of music and song royalties can be daunting even for industry veterans, but knowing where the money comes from — and more importantly, where it goes — is in every recording artist’s best interests. So how do music royalties work in the real world? Read on to learn more about how musicians get paid.
What are music royalties?
Music royalties are payments owed to the people and organizations responsible for the creation and distribution of a piece of music. Who those people are depends on who owns the rights to the song, while the kind of royalties they receive depends on factors like how the song is being heard and what format it’s in. The specifics of royalty payments differ from country to country, so for the sake of simplicity, this article refers solely to how music and song royalties work in the US.
We’ve written about music rights in more detail, but in broad strokes, music rights fall into one of two categories: composition rights or master rights. Composition rights involve the writing of a piece of music, namely the harmony, melody, and lyrics. For something to be covered by composition rights, it must be committed to some form of media, like a notepad or an iPhone voice memo. Master rights refer to a specific audio recording of a piece of music, the one the artist deems the “true” version.
How do music royalties work?
The process of generating, calculating, and receiving song royalties can be very complex because even the most straightforward examples involve several key players. In addition, the rights to a song — which determine who earns royalties from it — can change hands over time. For example, they might rest with a publisher for a specified number of years then revert to the songwriter. The simplest example of how music royalties work is:
An artist writes a song.
An artist records the song.
An artist and/or their representatives connect with intermediaries who manage royalty collection and distribution.
The song is played.
The intermediaries collect royalty payments and distribute them to the rights holders.
The process of earning, collecting, and distributing music royalties involves two distinct groups of interested parties: those who create the song, and those who handle the collection and distribution of royalties for it. The number of people in either of those groups can vary depending on factors like who actually played the music and what country it was recorded in. Let’s tackle the creative team first.
How do musicians get paid royalties?
It all starts with a song. A song has to be written, recorded, published, and distributed before it can generate any royalties. The parties involved usually include:
Songwriters: Songwriters are the people who write the harmony, melody, and lyrics for a song. It can be a single individual or a group.
Performers: Performers are the musicians whose performance becomes the official audio recording of the song. The performers of a song are sometimes also the songwriters, but not always.
Publishers: Publishers are representatives who work as intermediaries between songwriters and royalty distributors. Publishers receive a share (sometimes 100%) of the songwriting royalties. A publisher is typically a corporate entity but can be an individual.
Record labels: Record labels market and distribute the recorded song. They earn royalties from physical recordings (i.e. records and CDs) as well as performances.
Digital music distributors: Digital music distributors perform a similar function to record labels, but for services like iTunes and Spotify. They also tend to work with independent artists and smaller record labels that don’t have the same resources as major labels.
How are royalties paid to musicians?
Once the song is written, recorded, and sent out into the world to be heard, the royalty process is taken over by groups that track how often and in what context the song is performed. They then collect the royalty payments and distribute them to the rights holders. To add another layer of complexity to this already complicated process, they each monitor different kinds of royalties:
Performance royalties: Performance royalties are generated whenever a song is played in public, whether that’s on Spotify or in a TV commercial. The US is something of a global outlier in that music in a movie shown in a theater doesn’t initiate performance royalties, but that same movie played on television does. A Performance Rights Organization (PRO) collects public performance royalties and distributes them to the songwriter and publisher, serving as the intermediary between the users of the music and the creators of the music. PROs of note in the US include ASCAP, BMI, and SESAC.
Note: Outside the US, performance royalties for recorded music are handled under neighboring rights. For the sake of simplicity, this guide only refers to how music royalties work in the US.
Mechanical royalties: Mechanical royalties originally referred to the song’s inclusion on pieces of physical media, like vinyl records or CDs, but has since evolved to include plays on streaming services. Royalties are due for every record pressed or instance when a user chooses to play the song on a streaming service. The Mechanical Licensing Collective, created by 2018’s Music Modernization Act, collects and distributes the royalties.
Sync royalties: Sync royalties are due when a song is licensed to appear in a movie, commercial, video game, or other visual media product. A sync licensing agency (there are many) obtains the sync rights from the publisher or record label, processes the licenses granting use of the song in a visual medium, then collects and distributes the royalties to whoever owns the song’s master recording rights.
The generation, collection, and distribution of song royalties is an intricate process with many possible variations. Musicians deserve to feel confident that they’re receiving what they’re owed so they can focus on more important things, like that next song. We’re musicians and music execs ourselves at Trqk, so we have first-hand experience with the unique challenges of the royalty process. Our powerful music information retrieval (MIR) system gives musicians an accurate picture of their performance royalties while also highlighting new opportunities for generating revenue. Let us help you see the big picture of your performance royalties by asking for a demo today.