Music Royalties – What Are They And How Do They Work

The Fundamentals You Need To Know

Whether you’re a musical artist, a songwriter, or just someone working in the music business, chances are you’ve heard the word royalties thrown around a time or two. For those who have not been exposed to the publishing world, this may be an unfamiliar topic to talk about or understand. 

Honesty it took me quite a while to really understand what royalties are and how they work. I saw it as something I personally did not deal with too often, so out of sight out of mind took place for quite a few years. 

However, as my career grew little by little, I noticed royalties play a massive part in the modern-day music business, and it’s important to know what they are and how they benefit you. 

From the start, the music industry has focused much of its attention on the copyright owner of an artist’s music. Labels sign artists and then own the copyright of said music which in turn pays the label and the artist. 

When we break down what a royalty truly is, it’s a payment made to the owner of an asset and in this case, the copyright is that asset. The current copyright laws give exclusive rights to the creators of the original work. If someone wants to use that piece of work they must obtain a license from the copyright holder. 

The Copyright Act

When music is created today it is protected by the current copyright law saying “the work is protected when it is fixed in a tangible medium of expression”. Since the current copyright act was put into place on January 1st, 1978, any composition created after this date is protected for the lifetime of the last surviving author (usually the songwriter) plus an additional 70 years. 

There are many different types of royalties with their own independent systems of payment that depend on how the copyright is used. 

Every Song Has Two Copyrights

First is the composition copyright. This is comprised of both the lyrics and melody. Both of these parts are determined by the songwriter in most situations. 

The second copyright is for the actual sound recording. The sound recording is what you hear, the song with all the instrumentation, lyrics and melody. Many refer to this as the master recording. 

Until the song is recorded there can’t be a copyright on the sound recording. Once that song is recorded, the second copyright of the sound recording will be issued. This copyright is usually held by the record label to recoup expenses related to the artist, but we’ll save that for another time. 

Getting Paid Off Royalties 

Once the two copyrights have been created for both the composition and the sound recording, it’s time to start getting paid. Both copyrights will create royalty income in the three main categories depending on how they are used. 

Public Performances

Whenever and wherever you hear music, it’s likely someone is being paid for that play of their recording. Most bars and venues have what’s called a blanket license that they have put in place with the major performance rights organizations, otherwise known as PRO’s. These licenses cover any music whether original or cover played in the establishment. 

Licensing

Licensing can pay big depending on what and where your music is placed. Music is licensed for TV shows, Movies, Video-games and so on. If your song is the title track for the next big triple-A game coming to PlayStation, chances are there’s a large check to follow that. 

If your song is placed in a small part of an action scene in a movie as “background” music, chances are the paycheck will be significantly smaller. None the less it’s important to know, music licensing is a huge part of the music industry. 

As a writer, licensing is a great way to boost your income, assuming your music is placeable. 

Streaming and Sales

Streaming is more commonplace now than sales, however, both are very important. When looking at streaming and sales, reproduction royalties are produced every time that song’s sound recording is sold or streamed. 

A mechanical royalty will also be issued for the composition itself. It’s important to remember that there are two sides to every song and each party will be paid separately. 

Composition Copyright 

There are three rights that can be collected on under the composition copyright.

1. Synchronization Rights

These rights are when the song is played in a film, used in a commercial and played on TV. With a sync license, the writer will receive a percentage of royalties based on their ownership of the song. This will depend on how many songwriters there were and the overall agreement between the writers. 

The music publisher will also collect their share of royalty revenues which is usually 50%. If the songwriter does not have a publisher, they will collect the publisher’s share as well.

2. Mechanical Rights

These rights are when the song is sold in physical format, downloaded or streamed over streaming services like Apple Music and Spotify. The royalty splits between songwriters and publishers remain the same as stated above. 

3. Performance Rights

These rights are when the song is played in a restaurant, on the radio, or performed live. The royalty splits between songwriters and publishers remain the same as stated above. 

Sound Recording Copyright

The sound recording consists of the recording of a performance of the composition created by the songwriter. The rights to use the sound recording are referred to as Recording Rights. Royalties are paid whenever the music is sold, streamed, or performed publicly 

1. Synchronization Rights

These rights are when the sound recording is played in a film, used in a commercial and played on TV. The recording artist or band that performed the song is entitled to collect their royalties which is referred to as artist royalty. This percentage is agreed upon when the contract is signed.

2. Reproduction Rights

These rights are when the music is sold in a physical form, as a digital download or streamed on streaming services. The record label that owns the copyright is entitled to collect their royalties, These royalties are shared with the performing artist based on the contractual agreement in the artist’s contract. 

3. Performance Rights

These rights are collected when the sound recording is broadcasted to consumers. Owners of the sound recording copyright have already been paid their royalties so at this point the only individuals able to collect are the musicians and singers who do not own a piece of the copyright. 

The world of royalties is no easy concept to break down in one simple blog. The royalty system is complex and ever-changing as new mediums are introduced and technology advances. 

Hopefully, after reading this blog you will be able to realize where you fall in the breakdown of royalties and can focus your time and efforts on making sure you are paid correctly for your work. 

I suggest doing extensive research to learn as much as you can in regards to royalties and copyright law. If you are interested in learning more about copyright you can check out our blog on the subject here. 

Royalties and copyright registration may not be the most glamorous parts of the music business but if not understood, could end up costing you in the long run! 

Tie It All Together

If you are interested in an audio engineering or music business career, Dark Horse Institute’s Audio Engineering or Music Business Programs are a great way to take things to the next level!