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HOW MUSIC ROYALTIES WORK IN THE MUSIC

INDUSTRY
BY RORY PQ (HTTPS://ICONCOLLECTIVE.EDU/AUTHOR/RORYP/) | PUBLISHED MARCH 30,
2020 | UPDATED MAY 30, 2020

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Learn how music royalties work and how to get paid. This guide breaks down the
complexities of music royalties and music copyrights in the music business.
 TABLE OF CONTENTS 

1. What Are Music Royalties?

2. What Are the Types of Music Royalties?

3. Music Streaming Royalty Calculator

4. How Do Music Royalties Work?

5. The Breakdown of Copyright and Licensing

6. Conclusion

WHAT ARE MUSIC ROYALTIES?

Music royalties are payments that go to recording artists, songwriters, composers,

publishers, and other copyright holders for the right to use their intellectual property. U.S.
copyright laws give artists these exclusive rights to their work.
Music Royalties are also generated for various types of licensing and usage. The four
main royalty types include mechanical, public performance, synchronization, and print
music.

The music industry relies on these royalties as a primary form of payment to musicians.
Contracts then define royalty agreements between the creator and the distributor.

WHAT ARE THE TYPES OF MUSIC ROYALTIES?

There are four different types of music royalties. Each type also has separate and
distinct copyrights. The four sources of royalty revenue in the music industry are:

1. MECHANICAL ROYALTIES

Mechanical royalties generate music income for the physical or digital reproduction and
distribution of copyrighted works. This applies to all music formats such as vinyl, CD,
cassette, digital downloads, and streaming services.

For example, record labels pay mechanical royalties to songwriters every time they press
a CD of their music. A copyright owner can also collect mechanical royalties from a
digital music distributor service if they are independent.

2. PUBLIC PERFORMANCE ROYALTIES

Public performance royalties generate music income for copyrighted works performed,
recorded, played, or streamed in public. This includes terrestrial radio, television, bars,
restaurants, clubs, live concerts, music streaming services, and anywhere else your music
plays in public.

Performance Rights Organizations (PROs) collect performance royalties. PRO

organizations such as ASCAP (https://www.ascap.com/), BMI (https://www.bmi.com/),
and SESAC (https://www.sesac.com/#!/) negotiate licenses for public performances and
monitor their usage. They also collect and distribute the royalties generated to the rights
holders.
To collect public performance royalties, you must first register with a Performance Rights
Organization. Be aware, the songwriter and publisher of the work split these royalties
50/50. Therefore, you must register as both the writer and publisher to receive 100% of
the performance royalties.

3. SYNCHRONIZATION ROYALTIES (SYNC)

Synchronization royalties generate income for copyrighted music paired or ‘synced’ with
visual media. Sync licenses grant the right to use copyrighted songs in films, television,
commercials, video games, online streaming, advertisements, music videos, and any
other visual media.

However, a synchronization license does not include the right to use an existing recording
with audiovisual media such as a YouTube video. A licensee will need a master use
license before using copyrighted music with a new audiovisual project. This is an
agreement between the master recording owner, such as a record label, and the person
seeking permission to use the recording.

Any use of protected music in an audiovisual project will need a master use license and a
sync license. It doesn’t matter if it’s a full song or short sample. For example, you need
both a master and sync agreement before syncing up the latest Jauz track with your
wakeboarding video on YouTube.

4. PRINT MUSIC ROYALTIES

Print royalties are the least common form of payment a copyright holder receives. This
royalty applies to copyrighted music transcribed to a print piece such as sheet music
and then distributed.

Additionally, the copyright holder pays out these fees based on the number of copies
made of the printed piece.

HOW DO MUSIC ROYALTIES WORK?

Music royalties and copyrights is a complex subject. This guide outlines the basic rights
and usages of musical compositions.
TYPES OF SONG COPYRIGHTS

Music copyrights have two components: master rights and publishing rights.

Master rights belong to the owner of a master sound recording. A master recording
is an original song or sound used for reproduction and distribution. Master rights
typically belong to either the artist(s), record label, recording studio, or any other
party who financed the recording.
Publishing rights belong to the owner of the actual music composition. The
publishing side of music refers to the notes, melodies, chords, rhythms, lyrics, and
any other piece of original music.

WHAT ARE THE EXCLUSIVE RIGHTS OF COPYRIGHT?

Copyright law grants six exclusive rights to control the use and distribution of
copyrighted work. The copyright owner has exclusive rights to:

Reproduce and make copies of the original work. For example, a digital music
download and physical formats like a CD or vinyl.
Prepare derivative works based on the original work. For example, a new original
product that includes aspects of an existing song. This consists of a cover song,
remix, or any altered version of an existing song.
Distribute copyrighted work to the public. For example, release the song through a
music distributor, digital download, or record label.
Perform copyrighted work publicly. For example, live concerts or live performances
in a public setting.
Play copyrighted work publicly. For example, through music streaming, satellite
radio, music videos, FM radio, a TV show, etc.
Display the copyrighted work publicly. A public display means to show a visual copy
of the work to others. For example, sheet music or photos from performance pieces.

The copyright owner can transfer these exclusive rights or parts. The two methods of
transfer are licensing and assignment. Transfers must be in writing and signed by the
copyright owner or an authorized agent.

WHO GETS MUSIC ROYALTIES AND ADMINISTERS THEM?

The following roles either receive or distribute royalties for copyrighted music:
1. SONGWRITERS

Songwriters are those who write both the music and lyrics for a song. They receive either
mechanical, performance, or sync royalties depending on the usage of their recordings.

If multiple songwriters contributed to a song, they would need a split sheet. A songwriter
split sheet (https://iconcollective.edu/songwriter-split-sheet/) is a written agreement
that identifies each contributor to a song and establishes ownership percentages
amongst them. The agreed percentages determine how much each contributor will
receive from the royalties generated by their music.

2. PUBLISHERS

The publisher is the person or company responsible for ensuring copyright holders
receive payment for using their music. For example, a music publisher will obtain the
songwriting copyright in exchange for royalty privileges.

A publishing company will also issue licenses for using music they represent. They also
monitor them and collect licensing fees. These publishing royalties get split between the
publisher and the songwriter.

3. RECORD LABELS

Record labels market and distribute an artist’s original work. They often have the master
rights to a recorded song, but not the publishing rights.

Record labels generate income from mechanical and public performance royalties. They
issue contracts that allow them to exploit the recordings in exchange for royalty
payments over a set length of time. The artist then receives a flat rate or percentage of
these record label royalties.

4. DIGITAL MUSIC DISTRIBUTOR

Digital music distribution (https://iconcollective.edu/digital-music-distribution/) services

help independent artists and labels get their music on major online music stores and
streaming sites worldwide. These digital aggregators distribute music on iTunes, Apple
Music, Spotify, Beatport, Amazon, Google Play, Pandora, and other leading music
platforms.

A digital music distributor collects mechanical royalties for every music purchase,
download, or stream. They also collect public performance royalties generated from the
public performance of your song, such as a live performance or radio broadcast.

5. PERFORMING ARTISTS

A performing artist is anyone who performs the songwriter’s original work. Performing
artists do not have publishing rights unless they are also the songwriter.

Public performances of copyrighted music generate performance royalties for

songwriters. These fees are often collected by a Performing Rights Organization such as
ASCAP, BMI, or SESAC.

6. PERFORMING RIGHTS ORGANIZATION (PRO)

A Performing Rights Organization collects public performance royalties and distributes

them to the songwriter and music publisher. These organizations also monitor
performances and broadcasting of registered music played in public.

The PROs in the United States include ASCAP, BMI, and SESAC. You must register with
one to collect performance royalties.

7. MECHANICAL RIGHTS AGENCY

Mechanical rights agencies manage mechanical licensing rights for the music publisher.
They also issue those rights to anyone reproducing and distributing copyrighted musical
compositions.

These agencies often charge a set percentage of gross mechanical royalties collected
for their services. In the U.S., the Harry Fox Agency (https://www.harryfox.com/#/) is the
group that issues mechanical licenses and collects royalties on behalf of the rights
holder. A percentage of gross mechanical royalties collected are then paid to the
publisher of the song or music composition.

8. SYNC LICENSING AGENCY

Sync licensing agencies acquire the rights from record labels and music publishers to
issue licenses for syncing music with visual media. They also distribute royalties for sync
licenses to whoever owns the master recording rights.

Music users typically work with a music supervisor (https://iconcollective.edu/music-

supervisor/) for sync licensing. A music supervisor oversees all music-related aspects of
television, film, advertising, video games, and other existing or emerging visual media
platforms. They also serve as middlemen between the artists and the companies or
directors licensing the music.

THE BREAKDOWN OF COPYRIGHT AND LICENSING

Here is a brief breakdown of the copyright and licensing uses covered in this guide:

Every song has two copyrights: Composition rights and master rights. Music composition
copyrights include the underlying music and any lyrics. Master copyrights include the
reproduction and distribution of the master recording.

There’s a difference between licensing and royalties. A master license grants a music user
permission to use intellectual property owned by someone else. Whereas royalties are
the payments generated from using that intellectual property.

Artists issue exclusive rights to a publishing company for the use of their recordings in
exchange for royalties. The music publisher may then release the recording or issue rights
to either a record label or mechanical rights agency.

Additionally, artists can assign the master sound recording copyright to a record label.
This agreement allows the label to reproduce, distribute, and license that recording in
exchange for royalties.

Lastly, all parties involved in the production receive a percentage of royalty payments.
The royalty amounts are often negotiated upfront and then defined in a legally binding
agreement.
CONCLUSION

Various music copyright usages generate royalties. New royalty streams also emerge as
the music industry and technology continue to evolve. They protect your music while also
providing a revenue stream.

However, learning how to navigate the complexities of royalties can seem overwhelming.
I hope this guide gave you a better understanding and the confidence to enter the
music business.

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