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    Music royalties explained and how musicians get paid.

    As artists, we invest so much energy and cash on music creation and production that occasionally we fail to remember that there are many types of revenue out there that you probably won’t be aware of as musicians. From streaming to radio, TV to download, and synchronization to neighbouring rights, there is a great deal more you really want to be aware of so you can see all potential open doors accessible to you and get compensated.

    What are music royalties?

    Music royalties are the payments that should be received by the rights holders of a piece of music when their musical work is used. The rights holders can be composers, lyricists, songwriters, recording artists, etc. You should receive royalties when your music is played on streaming platforms like Spotify, Deezer, or Apple Music, or broadcasted on a radio station or TV channel.

    How do royalties work?

    In simple terms, artists compose and record music. These recordings are played and streamed, or the compositions are performed or covered. The rights holders get paid. You probably already noticed: There are different rights that can be monetized and you can wear multiple hats as an artist.

    Let’s dive into the different types of music rights.

    Types of music rights

    Master Rights Publishing Rights
    Recording Artist Song Writers
    Record Label Publishers
    Third Party Lyricist

     

    What are master rights? Or a master? Or even a master recording? So many deviations of the term itself. And what about publishing rights?

    Master rights

    The Master Recording (or master) is the original sound of the recording of a song. The recording of composition is owned by the recording artists, record labels, producers or the person who financed the recording. The master rights can be licensed to a record label or third party for a period of time defined clearly in a contract.

    Master rights are automatically created when a song gets recorded, for example in a studio or during a concert. In a lot of cases, the master rights are owned by the recording artists themselves but they can also be licensed to a record label or third party for a period of time defined clearly in a contract.

    One thing to understand: a master right belongs to a recording meaning that if you record another version of the song, it is not the same master right.

    Publishing rights

    On the other hand, publishing rights (or songwriting copyrights) are the rights of the composition of the music and its lyrics (if there are lyrics). Songwriters, composers and lyricists own them. And in Europe they can’t be sold. When you create music or lyrics, you’re the owner of the publishing rights no matter what (well, until 70 years after the death of the individual creator or author if no publisher is involved). However, you can license your publishing rights to a music publisher who will monetize them for you.

    Type of music royalties

    • Digital Sales (Streaming Royalties & Download Royalties)
    • Physical Sales
    • Mechanical Royalties
    • (Public) Performance Royalties
    • Neighboring Rights Royalties
    • Digital Performance Royalties
    • Sync Licensing Fees

    Digital Sales (Streaming Royalties & Download Royalties)

    Digital music consumption has continued to increase in the last couple of years — and there is no end in sight. While the share of revenue from digitally downloaded music is decreasing, revenue from streaming made up 62.1% of the global recorded music industry revenue in 2020 according to the IFPI Global Music Report.

    Digital Service Providers (DSPs) are required to pay royalties to songwriters and publishers; you’ll read more about that later in the ‘Mechanical Royalties’ section. The greater share of digital revenue is generated through streaming royalties and download royalties.

    Streaming Royalties

    Every time a track is streamed on a streaming platform (e.g. Spotify, Apple Music, Deezer, Tidal, Amazon Music, etc.), artists, record labels, and any other third party involved earn money through streaming royalties. You’ll read more about how streaming royalties are calculated below.

    Download Royalties

    Even though digital music consumption continues to move from download to streaming, download royalties can still constitute a considerable share of your income from digital sales. For every track downloaded from digital download platforms (e.g. iTunes, Beatport, Traxsource, etc.), musicians get a share of the amount that the user paid for the download.

    Physical Sales

    While physical revenue continues to decrease, the rate of decline has slowed down considerably in the last couple of years. Within this category, there’s also a shift from CDs to vinyl or tapes — and with that a shift in the meaning and purpose of physical music to become collector’s items that you’re proud to show to your friends.

    Mechanical Royalties

    Whenever a CD, vinyl record, or tape is manufactured, compositions are reproduced. The same goes for digital downloads and streams: Every download or stream is considered a reproduction of a song. For the reproduction of music compositions, mechanical royalties are due for the songwriters and publishers; this money is collected by collecting societies (e.g. GEMA, SUISA) or other rights management agencies (e.g. the Harry Fox Agency) on behalf of the rights holders.

    (Public) Performance Royalties

    A public performance is when you play music in public, or when your music is played in public. You get royalties for the composition (e.g. for live shows) or the master AND the composition (e.g. on TV, Radio; at DJ events). Obvious examples are live shows at concert events or festivals. At these events, you might have to fill out a tracklist for the event promoter or producer because money gets paid to the songwriters of each song that you’ve performed. But there’s more: TV, radio broadcasts, or background music in restaurants, shops, bars, nightclubs, etc. are considered public performances. For all of this, you might be eligible to receive performance royalties through your Performance Rights Organization (PRO).

    Neighboring Rights Royalties

    Neighboring rights (or related rights) are public performance royalties due to the sound recording (master) copyright holder. So when a sound recording is publicly broadcasted or performed, the master rights holders need to be compensated and this goes by neighboring rights. For example, it can be clubs, restaurants, TV, radio stations, streaming radios, or any public space where the music work is broadcasted.

    Digital performance royalties

    Digital royalties are payments to the recording owners for radio airplay on platforms such as Pandora, SiriusXM, and internet radio stations. There are royalties for the featured artists (45%), the rights owners (50%), and the non-featured artists (5%). Digital performance royalties are specific to the US as they don’t use neighboring rights. The official collection society for this is SoundExchange. Digital or internet radio stations must get a license from SoundExchange to use licensed music, and on the other side, the artist(s) must be registered with SoundExchange to collect those royalties.

    Sync Licensing Fees

    Sync is short for synchronization. Synchronization of what? This is the operation of two things at the same time and here, it can be for motion pictures and other audiovisual products such as TV, movies, Netflix Series, advertisements, video games, TV Shows, DVDs, Blu-Ray, etc. The producer of this audiovisual product synchronizes your music with this other product (video, moving images…) and will get a license to be allowed to do so. It’s often an upfront fee and in certain cases, you get a % of the sales – it really depends on the deal. This payment is called sync licensing and you need to register your music in order to be in a position to collect the fees paid for the use of your copyrighted music.

    How are music royalties calculated?

    Now that we know what kind of music royalties exist, we have to understand who the stakeholders are, who gets paid, at what percentage, when, and how?

    Who gets paid for music royalties?

    Depending on how many people are involved, from your label manager to the one who wrote your lyrics, several parties need to be paid. Apart from songwriters and artists, there might be many more entities operating as intermediaries on your behalf, assisting you to collect all the royalties you’re eligible to claim.

    Main actors

    Recording Artist/Band; They are the ones who record the song in the studio (or live). It can be the songwriters themselves, it could be a third party, there could be featured artists involved and other non-featured members.

    They own:

    • Master rights

    They will receive money from:

    • Digital sales (Streaming royalties & download royalties)
    • Physical sales
    • Neighbouring rights royalties (or Digital performance royalties)
    • Sync licensing fees

    Songwriters; The songwriters are the one who wrote the song: they own the music composition. They created the melody, arrangement, and lyrics.

    They own:

    • Music composition rights

    They will receive money from:

    • Mechanical royalties
    • (Public) Performance royalties
    • Sync licensing fees

    Intermediate entities

    Record Labels; There are different types of record labels and some will provide more resources or budget than others. There are record labels that will pay for the recording studio and the whole production, and they will acquire some rights. They can also make a deal with the artist to acquire the master rights even if they haven’t financed it as they will provide a budget for the marketing and the promotion of the recorded product.

    They own:

    • Master rights

    They administer the following royalties, and forward a share to their (performing) artists/bands:

    • Digital sales (Streaming royalties & download royalties)
    • Physical sales
    • Neighbouring rights royalties (or Digital performance royalties)
    • Sync licensing fees

    In some cases, artists are not signed to any label. These artists get all the above-mentioned royalties without any label share deducted.

    Publishers; Publishers take care of the administration and the collection of mechanical royalties and public performance royalties. They make sure your songs (music works) are properly registered, that you, as a songwriter, are properly registered to a collection society, and that you receive the money you deserve.

    They own:

    • Publishing rights

    They administer the following royalties, and forward a share to their songwriters:

    • Mechanical royalties
    • Neighbouring royalties
    • (Public) Performance royalties
    • Sync licensing fees

    The same goes for sub-publishers who might have a deal for certain territories. In some cases, songwriters have not transferred any publishing rights to a publisher. These songwriters get all the above-mentioned royalties without any publisher share deducted.

    Digital Distributor; Digital distributors are in charge of delivering your music on streaming and download platforms such as Spotify, Apple Music, iTunes, Beatport, Amazon Music, etc. They are the relation in-between the owner of the master rights and the streaming shops.

    They own:

    • Not Applicable

    They will collect and reverse the full or partial amount of money from:

    • Digital sales (Streaming royalties & download royalties)

    Physical Distributors; Physical distributors are in charge of distributing your CD, Vinyls and tapes to retailers in a certain region or worldwide. The deal is often a % on top of the broker deal. There are also fees for storage for unsold products.

    They own:

    • Not Applicable

    They will receive and reverse a part of the money from:

    • Physical sales

    Sync Agencies; If you own the master and publishing rights, it’ll be easier to work with a sync agency as they need to have 100% of the rights to work with your songs. They are the one in-between those two parties and the music users such as the music supervisor looking for a new song for a Netflix series or a movie, or to have your song on the new Grand Theft Auto.

    They own:

    • Not Applicable

    They will receive money from:

    • Sync licensing fees

    Collection Societies; They collect performance royalties and mechanical royalties on behalf of songwriters and publishers, and neighboring rights royalties on behalf of recording artists and labels. These organizations can be separate entities like Performance Rights Organizations (PROs) that only take care of performance royalties, or Mechanical Rights Organizations (MROs); but in some countries, PROs and MROs are combined to form a CMO, or Collective Management Organization (e.g. GEMA, SUISA).

    Depending on the country you’re from or where you want to be registered, it can be one or several agencies you need to be signed up to. For example, in the UK, you need to register at PPL & PRS. If you don’t have a publisher, you might do this work yourself by registering your music works and registering yourself as a songwriter.

    You’ll need to give some information such as:

    • ISRCs
    • % of each composer/author and the % of the publisher if there is one with the IPI numbers
    • Name of the work (song)

    They own:

    • Not Applicable

    They will collect money from:

    • Mechanical royalties
    • (Public) Performance royalties
    • Neighboring rights royalties (or Digital performance royalties)

    Booking Agencies; Perhaps you have some favorite venues or festivals you’ve always dreamt about playing at. So, once you’ve got your songs ready, you reach out to them, asking if they’re willing to book you for a show. Or venues and event promoters might even reach out to you themselves and offer you a concert slot.

    Depending on your ambitions, it makes sense to collaborate with a booking agency. Usually, they know where you’ve got a chance to get booked, they can negotiate to get better deals, and they can organize live tours — this leaves you with more time to rehearse your live show.

    They own:

    • Not Applicable

    They will collect money from:

    • Show fees

    When do you get paid for your royalties?

    We know what you can get paid for, but when are you actually paid?

    Streaming & Downloads

    You get paid when someone plays or downloads your music on streaming services such as Spotify, Deezer, Traxsource, or other download or streaming platforms. When the user plays more than 30 seconds or pays to download your track, the money is due and the shop will collect this money, take their share, and reverse a large amount to the distributor and to the collection society as streaming also generates mechanical and performance royalties. There might be a record label in between the distributor and you, an artist/songwriter, so they will collect this money, take their share, and give your part as agreed upon in the artist/label contract you’ve signed.

    Types of royalties involved:

    • Digital sales (Streaming royalties & download royalties)
    • Mechanical royalties
    • (Public) Performance royalties

    When do you get paid?

    About 3-4 months after the stream or the download is confirmed by the shop.

    Important note: some shops might delay some payments and that’s why it’s quite hard to reconcile what you could see on your Spotify for Artists account or our Music Analytics tool.

    Physical Sales (Vinyl, CD, Tape and other products)

    The consumer will pay a price to buy your vinyl, CD, or tape and it can be different depending on which shop, which country, and which currency. A part of this money will be transferred to the physical distributor which will take its share and deliver the rest to either you as the artist or to your record label if they’re the one dealing with it. A physical sale generates mechanical royalties.

    Types of royalties involved:

    • Mechanical royalties

    Other payment:

    • % agreed with the record label or distributor from sales

    When do you get paid?

    It depends on the contract, some physical distributors wait for your royalties to accumulate to a specific amount before sending your money but otherwise, it is about a couple of months.

    Netflix Series, Video Game or other Sync Placements

    Your sync agency will promote your music to music users so it can be placed in a product. When it happens, the sync agency deals with this user to get you the best deal possible as they will also receive a cut (%) from it. You will receive an upfront fee (sync licensing fee) and neighboring royalties.

    Types of royalties involved:

    • Sync licensing fees
    • (Public) Performance royalties (once the audio/visual product is broadcasted)
    • Neighboring rights royalties (or Digital performance royalties)

    Other possible payments:

    • % from sales or views from this final product

    When do you get paid?

    The fee will be almost instant once the sync agency and you have signed the contract with the user. Neighboring rights can take up to 2 years depending on the country in which you are registered and the country in which the music is used.

    Live Show, Concert, Festival & Other Outdoor Music Events

    You will play your songs live in front of a public audience. This generates royalties on top of the fee you will receive from the promoter of this event.

    Types of royalties involved:

    • Public Performance royalties

    Other payment:

    • Fees paid by the promoter organizing the event

    When do you get paid?

    It can take up to 2 years for the performance royalties to arrive, depending on the country you are registered in and the country in which the event is taking place.

    On the other hand, the fee you receive from the promoter is usually paid right after the event.

    Radio Plays

    Your song will be broadcast on the radio and in many cases, this will generate great exposure for you depending on the reach of the radio station. Even better, it generates money for you. Depending on if you’re from the US or not, there can be different types of royalties when it comes to different types of radio (i.e Pandora or internet radio stations).

    Types of royalties involved:

    • Public Performance royalties
    • Neighboring rights royalties (or Digital performance royalties)

    When do you get paid?

    It can take up to 2 years depending on the country in which you are registered and the country in which the radio station is based.

    How are each type of royalties calculated?

    How much do you get paid for one stream?

    Colorful Graphs Streaming Shops Black Background

    In our guide How To Make Money on Spotify, we mentioned that the average revenue per stream on Spotify is $0.00437. This is an average only taking into account Spotify and it changes every month depending on how much music is streamed, where your music is streamed, and from which user’s subscription (freemium, premium). This might give you some headaches.

    On Information is Beautiful, you can have a look at the average artist revenue per stream from the main shops such as Napster, Tidal, Spotify, Deezer, etc.

    How is a music download calculated?

    Music download shops like iTunes, Beatport, or Amazon have their own price-tiers, and usually set the price for tracks or whole releases themselves, based on their own price policy. The shop takes its cut and sends the rest to the aggregator (or music distributor), and a small part to the collection society (e.g. for mechanical rights). You will get about 50 to 70% of the price that’s displayed in the shop.

    How much do you earn from CD or vinyl sales?

    This one is tricky. If you sell your CD and vinyl alone without a record label or distributor, you get the price that you sell it for. If you deal with a record label, you will get a smaller cut, and the record label might have a deal with a distributor which lowers the share.

    An artist usually gets about $ 1.50 to $ 2.00 for a CD sold. If you’re dealing with an independent label, you might get a bigger part of the pie (i.e $ 5.00 to $ 7.00).

    How much do you earn from a sync placement?

    So many possibilities that we can’t really put a figure on this but you could easily earn around $50,000 to license your music for a Netflix series.

    Conclusion

    There’s a lot to understand and a lot to do but as a songwriter, artist or band, be sure to sign good deals with your partners like a record label or a publisher or even a sync agency, and be sure to be registered to a collection society to get the money you’ve earned.

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