As a music creator, you probably focus most of your attention on songwriting and performing, and rightfully so. But understanding how royalties are generated, collected and ultimately deposited in your bank account is just as important. The more you know about the business life cycle of a song, the better position you’ll be in to make informed decisions about your work when it’s released.
Copyright Law Protects Songwriters and Performers
With some exceptions for new technologies, the fundamental copyright laws that protected iconic songwriters like George Gershwin, Carole King and Smokey Robinson are still in place today.
Copyright law states that royalties are paid to everyone involved in the creation of a song. That said, songwriters and performing artists each hold separate types of copyright in a work.
In the first instance, the law protects the musical composition or intellectual property—both the written lyrics and the specific sequence of notes and chords—of what will become a recorded song. Songwriters own the performance rights to such compositions, and multiple co-writers can hold percentages in the entire song’s music and/or lyrics.
Then there’s the particular recording of that song (of which there can be an unlimited number). “Master Recording” rights of the song are often owned by record labels, but performing artists—generally the individual(s) the song is released under—sometimes own their own master recordings. In other instances they share ownership rights with the label. Generally, it’s the version you’ll hear when you purchase or stream a particular song by a particular artist.
Royalties are collected on compositions and master recordings in different ways and by different entities. While the collection of master royalties is handled by record labels and distributors and is fairly straightforward, composition royalties, which are handled by publishers or independent rights-holders, can get a bit more complicated.
It’s important to note that you automatically own the copyright of any song you create as soon it’s in a tangible form - it’s not required that you register your song with copyright offices. While registering a copyright does offer additional legal support, songwriters maintain their copyright ownership until they sign them away.
Domestic and International Performance Royalty Collection
Every song has two halves: the composition and master recording. One of the most important things a songwriter should understand is that each half earns different royalties in different ways and each of these royalties are collected and paid out by different entities.
Performance Royalties (Publishing): Songwriters affiliate with pay sources and collection societies, sometimes referred to as Performance Rights Organizations, aka PROs, or Collective Management Organizations, aka CMOs, in their respective territories. These entities are responsible for collecting and distributing composition royalties for a registered song whenever it’s played in public, whether it’s a live performance, via a streaming service or used in a commercial or TV show.
If you’re relying solely on your local collection society for royalty collection, know that these pay sources generally have reciprocal agreements with international societies and organizations to collect performance royalties earned in other countries. These agreements are useful, but can involve additional fees and be limited by each country’s laws and regulations. The other option relies on direct relationships between publishers and each pay source. These relationships offer more direct support for royalty collection and are maintained crucially by a publishing team. Because of these differences, many songwriters opt to work with a publishing administrator, such as Songtrust, for their global royalty collection.
Digital Performance Royalties (Master): Master recording copyrights and royalty collection are typically handled by record labels such as Sony or Warner, or by distributors such as Distrokid or CD Baby. However, digital performance royalties earned from plays on non-interactive streaming services, as well as streaming and satellite radio, are handled by third-party entities such as SoundExchange or Neighbouring Rights collection agencies around the globe. To learn more about neighbouring rights, check out our recap here.
Master Recording Revenue : While songwriters receive writing and publishing royalties, performing artists are compensated with royalties earned from sales of the recorded version of the song. For instance, the purchase of a vinyl album or a download from iTunes or a stream on Spotify entitles the recording artist to master royalties. A distributor will collect royalties directly from the stores and streaming services on behalf of record labels who then distribute royalties to the artist. That said, if the artist doesn’t have a record label, it’s their responsibility to collect recording royalties from the distributor directly.
Domestic and International Mechanical Royalty Collection
Mechanical royalties are paid whenever a physical copy of the song is sold, such as a CD or record, or when a digital copy is downloaded or streamed, anywhere in the world.
Mechanical Royalties (Composition/Publishing): Songwriters receive a type of royalty payment called a “mechanical royalty” from physical and digital sales, including CDs, vinyl, ringtones and interactive streaming.
In the United States, entities such as the Harry Fox Agency (HFA) administer the mechanical license on behalf of the song and collect mechanical royalties from record labels and Digital Service Providers (DSPs) such as Spotify and Apple Music. Songwriters generally must be affiliated with a publisher or publishing administrator, like Songtrust, to receive such payments.
Outside of the US, retailers or distributors are responsible for paying out royalties that come from physical album sales. DSPs pay each international pay source or collection entity who then pays the mechanical royalties to writers and publishers.
Other Forms of Song-Based Revenue
These are just a handful of the many ways songs can be used to generate revenue. Be sure to check our Knowledge Center for more resources and tips.
Sync Licenses And Master Use Licenses: Songwriters and publishers also receive royalties for the use of their song in connection with any visual medium. In the last decade or two, this has become an increasingly important revenue stream for music creators.
Whenever a piece of music is used in the score of a movie, TV show, commercial or a YouTube video, a synchronization (or “sync”) license allows songwriters to collect royalties on the work.
A sync license is also required to use copyright-protected music in a phone message. Sync licenses are granted by the songwriter, publisher or music library; if the licensee wants to use a specific recorded version of the composition, permission is granted by the appropriate record label.
Neighbouring Rights Royalties (Master): We mentioned this earlier, but let’s explain a bit further. The terms “neighbouring rights” or “related rights” sound like the makings of an international dispute, but they actually describe the relationship between a performing artist and a record label which owns the master recordings of the artist’s recorded song(s). These rights are “neighbours” to the performance rights discussed above.
Neighbouring rights royalties are earned when a performing artist’s master recordings are publicly performed or broadcast. An artist earns neighbouring rights when the song is played over terrestrial radio, streaming services like Pandora, over cable TV music channels, in a dance club or in a live performance. To collect these royalties, it’s necessary for the record label or the independent artist to register the master recording with a neighbouring rights organization.
That said, the United States is an outlier in that it does not recognize the concept of neighbouring rights. However, services such as SoundExchange do collect digital performance royalties from platforms like Pandora, Sirius XM, TV music channels, and other streaming services.
Want Help In Making Your Song Work for You?
While understanding how the different types of royalties work isn’t rocket science, it can quickly get confusing. In fact, that’s why we created Songtrust in the first place: A service by and for independent music creators to help manage the business side of making music.
Songtrust helps you easily capture publishing revenues across music distribution methods all over the world. Our team has decades of experience in traditional publishing that we draw on to help you handle complex licensing issues among other exceptional situations. Want to learn more? Reach out.