Music Royalties 101: How the Different Types of Music Royalties Work
Royalties. The mere mention of the word scares most inexperienced musicians away from even attempting a career in this industry. Some think the process of collecting money from their music is much, much simpler than it is, while many others realize it can actually be much, much less direct than it ought to be. So, are music royalties really that complicated? Well…yes, in a word. It can take a lot of looking at definitions over and over in order to understand what’s going on and what money comes from where, and many in the business don’t even have a proper grasp on what’s happening (so don’t feel you’re alone in your confusion). However, if you’re going to make it as a musician, you need to have at least a base-level understanding of what music royalties are, how they are generated, who collects them, and why.
I could write 10 articles on this subject and still not cover every aspect of this technical side of the business, but here is a rundown of the basics, for those who could use a little help.
We’ll cover the following types of music royalties:
- Master-generated royalties
- Recording royalties from download sales and streams
- Neighboring rights royalties
- YouTube recording royalties
- Publishing-generated royalties
- Performance royalties
- Mechanical royalties
- Print royalties
Before We Dive In
There is a lot to discuss when it comes to music royalties, but before we can dive in too deep, we have to start by explaining one thing upon which the entire royalty system is based: every song you hear has two separate components, at least as far as music royalties are concerned. One is the master copyright and the other is the publishing copyright. Here’s a quick explanation of which is which: A master copyright is the sound recording (typically just called the master or the sound recording) you actually hear. It doesn’t matter if it’s on a vinyl record or on Spotify — what you hear is the master. The publishing copyright concerns the pieces that make up your favorite songs. This specific copyright focuses on the lyrics, the melody, the composition. If you’re a bit confused, perhaps you can think about it like this — you can steal a master by ripping it straight from YouTube (which remains a huge problem). If you do that, you have the song in your possession. You can steal the publishing parts if you sample a song without permission, use the same progression of notes, or even a section of lyrics, all without getting the a-okay from whoever owns the copyright. It is vital you understand the difference between publishing and the masters, which is how I will refer to them from here on out in this article.
. Say for example we’re looking at Adele’s “Rolling in the Deep.” If someone listens to this song on their local top 40 radio station, a performance royalty is created.
Every musician knows royalties are important…but what exactly are they? Put simply, a royalty is an “agreed portion of the income from a work paid to its author, Composer, etc., usually a percentage of the retail price of each copy sold,” according to Dictionary.com. Royalties pay a rights holder for the use of some kind of intellectual property, so while they don’t only pertain to music, that’s obviously what we’ll focus on in this piece. Back in the day, music royalties were very simple, as much of the music industry was a simple retail business. People would walk into a record store and buy something, and there was only one kind of radio. In just the past decade or two, royalties have become incredibly complex, and now there are a number of kinds of music royalties coming in from dozens, if not hundreds, of sources. As the industry continues to change, new types of music royalties pop up and their value shifts. They have taken over from pure sales in regards to how the business functions and how many musicians and Songwriters (not to mention their teams and even their record labels) make their money. There are two kinds of music royalties, which are based upon the two different components discussed above: the master and the publishing. Each one of those has three specific royalties which fit under one of the two labels which we will dig into.
Up first are master-generated royalties.
These royalties are generated whenever the master is used in some way. Sounds simple enough, but there are a few different kinds of master-generated royalties to look at.
1a. Recording Royalties From Download Sales and Streams
These are perhaps the most basic and simple to understand of all music royalties. Whenever you buy a song on iTunes or Amazon, a music royalty is generated. Those are very straightforward, and it’s almost like when things were truly easy to grasp, back when stores were the primary way people bought music. The same thing happens whenever people stream a song on Apple Music, Spotify, or any of the dozens of other sites, though the royalty is much lower.
This money is typically collected by the company distributing the music, which is then usually paid to the label, and a part of that is paid to the artist. These days, many up-and-coming musicians work directly with the distributor, cutting out the label entirely.
1b. Neighboring Rights Royalties
The entity that owns the sound recording (usually a record label or the artist themselves, which is common with underground acts) earn what is called a neighboring rights royalty anytime a song is played publicly. This may mean your tune is chosen to air on Pandora or SiriusXM, on TV, or perhaps even in a restaurant or store — though unless it’s a major chain or well-known business, the owners may not be doing so legally, and if it’s not registered, no royalty is generated.
1c. YouTube Recording Royalties
While payout rates are notoriously small, every royalty generated matters, and YouTube can be big business for some artists who get lucky. When an advertisement is added to a video (any kind of ad, and there are a number of them), the Google-owned company makes money, and so do the rights holders behind the sound recording.
Just as master royalties are generated from any use of the master, the same can be said for publishing royalties. But when would the publishing copyright be utilized? Here are three examples that differ from the ones we just went over in the previous section…though in some instances, both kinds of music royalties will be paid, so keep an eye out for repeats. Also, if something appears to be in both sections, it means the performers and the Songwriters and Producers are being paid, which isn’t the case for all kinds of royalties.
2a. Performance Royalties
Performance royalties are generated whenever a specific song of any form (a remix, the original, a cover, etc.) is performed in public or broadcast in some way. Say for example we’re looking at Adele’s “Rolling in the Deep.” If someone listens to this song on their local top 40 radio station, a performance royalty is created. If the song is remixed and included in the set of a DJ at a club, a music royalty is generated. If the single is performed by a Cover Band on America’s Got Talent, the same thing happens. If Adele’s version is used in an advertisement or played in a bar or soundtracks a TV show, Adele and her co-writers make money.
These music royalties are collected by what are known as PROs, but we’ll get into this later.
PRO stands for performance rights organizations, and they are typically (not always, but usually) responsible for facilitating the use of copyrights and collecting music royalties for their owners. These organizations take the money when, say, a song is played in a restaurant, but not when a CD is sold or a track is featured prominently in a movie.
2b. Mechanical Royalties
This kind of music royalty gets its name from when music was actually replicated mechanically, such as when vinyl and CDs ruled the world. Every song had to be reproduced, and the same process now happens when a tune is purchased digitally or streamed, as it is all the same song, just reproduced over and over again. Mechanical collection societies gather all these royalties and pay them out to the proper Songwriters and Producers regularly.
2c. Print Royalties
These are perhaps the rarest and least valuable kind of music royalties around today, but they’re still worth going over! Print royalties are generated whenever music is reproduced in print, such as when a Piano Teacher buys a book featuring the notes to a well-known song or when a young music lover buys the sheet music for their favorite Billie Eilish song on a particular instrument. As you can imagine, print royalties don’t drive the industry like the other forms do.
Performance Rights Organizations
Okay, so now we know how music royalties are generated and the many different forms they take…but where does all this money go? Is it being wired straight into your bank account, or do you need to go somewhere to collect it? I mentioned PROs above, and here’s where they come in.
PRO stands for performance rights organizations, and they are typically (not always, but usually) responsible for facilitating the use of copyrights and collecting music royalties for their owners. These organizations take the money when, say, a song is played in a restaurant, but not when a CD is sold or a track is featured prominently in a movie. PROs also lobby for the rights of Songwriters and attempt to make the industry fairer for smaller artists, though we won’t get too far into it, as that could be an entirely separate piece. (You can read our recent blog on how the Music Modernization Act plays into all this here.)
In the U.S. (we’ll stick to one country for now), there are four groups you should be aware of, as they handle the vast majority of these kinds of transactions. You will likely work with at least one, if not all, of the following if you end up collecting music royalties from a number of different projects over a long period of time: ASCAP, BMI, SESAC, and SoundExchange.
So those are the basics, but if you want to learn more, or perhaps if you want to read what I’ve just put down in different words (sometimes that helps!) here are some places where you may get the help you need. I suggest you start with the PROs, which all have explanations of what they do and what music royalties are, which I have found helpful in the past.
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