What Are Music Royalties?
Music royalties are one the most reliable and valuable sources of revenue for songwriters, composers, and recording artists.
To become a successful musician, you need a lot of talent, more than a little luck, and a keen business sense. Selling out arenas is exciting, but royalties are the more sustainable and reliable source of income when it comes to music. Royalties in music can be complicated — how much money someone gets from a piece of music depends on who they are, where they are, and what their role in delivering the music to the public’s ears is. This guide will get you familiar with the basics of what royalties are in music.
Want to brush up on the fundamentals? Check out Music Royalties: The Ultimate Guide
What are music royalties?
Music royalties are the payments received by individuals or entities who possess the rights to a piece of music in exchange for that piece of music being played, performed, or used in another piece of media. The recipients of music royalties typically include songwriters, composers, recording artists, and the representatives for all of the above. A single person may own multiple rights to a recording, for example, if they are both the songwriter and the recording artist. Simply put, royalties are money earned for helping bring a piece of music to the public’s ears.
Music royalty payment mechanics are fairly straightforward. Depending on a contract, the person who owns rights to the music gets a certain amount of money when that music is used. Where things can get complicated is within the rights themselves. All musical rights refer to one of two aspects of a piece of music:
The Composition: This is the harmony, melody, and lyrics of a piece of music. To qualify as a rights-worthy composition, a musical thought must be recorded to a tangible medium. Humming a melody to your friend over the phone isn’t a composition, but a group of lyrics scribbled on a napkin is.
The Master: This is a particular expression of a composition; in other words, a version of a song. The official recorded version of a composition is the master. Different versions of the same composition, such as when a band covers another artist’s song, can each have their own master.
To put it broadly, Composition rights apply to the writing of a piece of music, and Master rights cover the recording of a piece of music.
How music royalties are generated
As with musical rights, musical royalties can be divided into two general categories: those paid for the licensed use of the sound recording, and those paid for authorized use of the composition. Licensed uses of sound recordings cover everything from adding a song to a music streaming service to putting it in a car commercial, whereas artists who want to record their unique spin on a piece of music pay for the right to use the composition.
A piece of music’s journey from creation to royalty has many possible variations, but for the sake of simplicity, we’ll use a straightforward scenario: a musical artist recording a song they wrote.
The artist writes and records a song, creating two sets of rights: the composition and the master. They typically enter into an agreement with a music label or publisher to promote and distribute the song.
The artist and their representatives work with distributors to license the song and/or contact a performance rights organization (PRO), who will track when the song is played. PROs are the middle-man between the artist and the licensee, and depending on the country, royalties might be handled by a single PRO or a collection of several.
The song gets played on the radio, is added to streaming services, used in movies, and so on, allowing the public to hear it. With a handful of exceptions, every instance of its use creates a royalty.
The intermediaries — the music label and the PRO — collect and distribute the royalties to the rights holders.
Which copyrights generate royalties?
Though the process of receiving royalties is (generally) similar for all rights holders, it’s important to note that there are different types of rights, and not all apply to every instance of a piece of music being played, though rights can overlap. There are many possible variations and combinations of rights, but here are the most common:
Streaming rights are due when a service like Spotify adds to its content library by licensing masters from their owners, be that the artist or other entity. Revenue from the service is split between all rights holders in the library, based on how often their music was played. According to Hypebot, Spotify pays “on average, between $.003 and $.005 (one-third of a penny to one-half of a penny) for each stream,” though that number is likely higher for big-name artists like Ariana Grande. It’s also worth noting Spotify weights listens differently; a Premium subscriber is worth more than a listener using Spotify’s ad-supported version. Streaming rights are, in essence, a combination of mechanical and public performance rights, which we’ll get into below.
Mechanical rights refers to music being distributed in physical form, like a vinyl record. When streaming became the norm for music, mechanical rights grew to include digital distribution as well. Royalties are due for every CD or record pressed, as well as every time someone chooses to listen to a song on-demand. When Spotify keeps playing music after your playlist ends, that’s not a choice on your part, so those songs wouldn’t earn mechanical royalties.
Public performance rights come into play whenever a piece of music is played in public, so that includes live performances, satellite radio, TV, streaming services and the like. These royalty rates are negotiated by PROs or other representatives and will usually vary depending on the nature of the performance. Public performance rights cover the performance of the composition, while the performance rights of the sound/master recording is covered by neighboring rights, which are not paid out in the US (a topic for another day).
Sync rights are one of the most fun examples of music licensing. Composers are entitled to income when their music is set against a specific piece of video or audio content. If a piece of music is licensed for use somewhere in a movie or commercial, that’s called a sync. If the movie is played in a theater outside the US, it generates performance royalties. If the movie is played on TV it also generates performance royalties. When John Cusack hoists a boombox over his head to play “In Your Eyes” for his girlfriend in the movie Say Anything, that placement is a classic example of sync rights. When that same movie is played on TV, it also generates a performance royalty.
Like so much having to do with royalties in music, the question of who receives them and how much they get is best answered by “it depends.” In the simplest cases, the individuals who wrote the song, those who recorded the song, and the bodies distributing the song are accorded shares of the royalties. Those groups can become highly complicated, especially if any of the original rights holders transfer their ownership to someone else, like Stevie Nicks selling a majority stake in her songwriting catalog.
Navigating royalties can be challenging, but it’s important to know what you deserve for all your hard work! Finding a partner you can trust is a great first step. At Trqk, our charter is to help deliver transparency and fairness to the music creator economy because we’re musicians and music execs ourselves. We use data science and business intelligence to provide a holistic view of your performance royalties to highlight trends and new opportunities while our powerful audio content recognition (ACR) system detects on-air works the PROs might have missed. Get in touch to learn more about what Trqk can do to help you unlock new revenue streams!
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