By David Rose
KnowtheMusicBiz.comLike almost everything else in the music business, it seems the ways artists earn royalties and actually get paid is confusing and a bit of a mystery. Below is an overview of how the typical royalty streams for musicians are earned, collected and paid in the music business.
Before we get into the specifics of royalties it’s important to understand the difference between a songwriter and a recording artist since royalties for each are often times different.
A Songwriter is typically the person (or people) who write a song’s lyrics and melody. A catchy guitar rift doesn’t entitle the guitar player to any songwriter royalties unless that person is also credited with contributing lyrics or melody to the song. Ultimately, the people who receive songwriter royalties are the ones that are listed as a songwriter when the song is registered with the US Copyright Office . The majority of royalties in the music business are paid to songwriters. It’s much more viable for a songwriter to build a long-term career in music than it is for a drummer or guitar player who doesn’t write lyrics or melodies.
The Recording Artist is the entity collectively considered “The Band”. This usually includes all members of the band. For example, all the members a band like The Arcade Fire would be considered the “recording artist” for royalty calculations purposes. Recording artist can also mean a solo artist. Even though an artist like Pete Yorn is backed by session musicians in the studio during a recording session, the session players are not usually entitled to recording artist royalties. In this example, Pete Yorn would be considered the “recording artist” for royalty calculations.
Now, let’s take a look at the different types of music business royalties.
Royalties from Sales - Royalties from sales are royalties paid by the record company to the recording artist based on sales from their music. These royalties are typically based on a percentage of sales, 10% for example. The calculations used for determining royalties from sales can be quite complex and are a negotiated as part of the artist’s overall recording contract with the record company. Payments of royalties from sales to the recording artists do not start until the record company has recouped all the expenses they incurred for making, promoting and marketing the record. Recoupable expenses can include the costs of recording, producing, mastering, manufacturing, promoting and marketing the record, tour support, video production and any other related expenses the label includes as part of the recording contract.
It is quite common for a recording artist to never receive royalties from sales (unless, of course, their record is a huge hit) due to the way royalties from sales are structured and the high costs for the record label of getting a new record to market.
Mechanical Royalties - Mechanical Royalties are paid to the songwriter by the record company for the right to reproduce songs for public distribution. Mechanical royalties are paid on a per song basis for physical sales (CD’s, Albums) and permanent digital downloads (iTunes). Mechanical royalties are determined by multiplying the mechanical rate by the number of tracks on each record or CD that is sold. As of January 1, 2006 the statutory rate is 9.10 cents for a composition five minutes or less in length. For example, a record with 12 tracks on it that sells 50,000 copies would generate $54,600.00 in mechanical royalties (12 tracks X $.0910 X 50,000 sold copies) that the record company would have pay to the songwriter. In the US mechanical royalties are collected and distributed by The Harry Fox Agency .
Earlier this year an agreement was reached for limited download and interactive streaming services to pay a mechanical royalty of 10.5 percent of their revenue, less any amounts owed for performance royalties. It is currently unclear how the calculation for paying songwriters from these revenues will be calculated.
Mechanical royalty payments are typically not reliant on the record label recouping their expenses from recording, producing or marketing the record like royalties from sales.
Public Performance Royalties – Public performance royalties are paid to songwriters for use of their songs by radio stations, restaurants, bars, TV / cable networks, retailers, online services or any other establishment that plays / streams licensed music heard by the general public. These royalties are collected and distributed in the US by the major performing rights organizations, ASCAP , BMI or SESAC . Public performance royalties are calculated using several variables and not on a per play basis. Songwriters should register their works online with one of the performing rights organizations in order to receive royalties for their work. However, it’s common for songwriters to not receive any public performance royalties until their song is publicly performed heavily.
Digital Performance Royalties – Digital Performance Royalties are paid to recording artists and copyright holders (usually the record label if there is one involved) when their sound recordings are performed on digital cable and satellite television, music, internet and satellite radio providers. SoundExchange collects and distributes digital performance royalties on a pay per play basis. Recording artists and copyright holders should register their work online with SoundExchange to receive royalties for their work.
Synchronization Royalties – Synchronization Royalties must be paid for a song to be used or “synchronized” with a movie, TV show, commercial or video. Synchronization royalties are usually paid in two parts. First, the copyright holder (usually the record label if there is one involved) is paid a fee for use of the song. Second, since the song will be publicly performed as part of a movie, TV show, commercial or video a public performance royalty must be paid to the songwriter through their performance royalty organization of record. Fees for synchronization range widely and are usually negotiated with the producer of the movie or TV show.
Print Music Royalties - Print Music royalties are paid to songwriters based on sales of printed sheet music. Royalties are typically 10% of the retail price of the sheet music.
Please keep in mind that royalty calculations can be very complex and for the sake of brevity this is only a broad brush overview of how royalties are generally structured without getting into the nuances of copyrights or music publishing .