Mechanical vs Performance Royalties

Songtrust: Mechanical vs Performance Royalties

Every musician knows they can make money from playing a gig or selling merch, but they don’t always know the difference between the revenue their songs can earn. When you’ve finished a song (written, produced, or composed) and start to distribute your music, you're due royalties anytime your song is reproduced, used, or performed. These revenues are split up into sound recording or master recording royalties (the actual recording of the song) and composition or publishing royalties (the underlying composition--lyrics and melody).

For the purpose of this article, because our business is music publishing, we’ll focus only on the royalty types earned from your composition. To learn more about master recording royalties, check out this help article

Composition royalties are split into two main types of royalties: performance and mechanical royalties. As a songwriter, it’s important to know the difference between these royalties and how you can collect them -- whether they are earned from streams on Spotify or a live performance at your local coffee shop. These publishing royalties make up a significant part of your revenue as a songwriter, performing artist, or songwriter representative. 

As with all publishing royalties, your performance and mechanical royalties are based on a songwriter’s ownership share of the song and should be discussed, determined, and agreed upon by all contributors on the song. Once the ownership share is agreed upon and finalized by all parties, it's best to put that information on a split sheet or some type of shared document.

The Seldom Talked About Royalty: Mechanical

Before the advent of music streaming services, mechanical royalties were generally licensed and collected between record labels and music publishers. Because of the name “mechanical,” and this historical relationship, many songwriters don’t realize that there is a mechanical royalty payable every time your music is streamed. 

Broadly, mechanical royalties are generated when your song is reproduced in any form. When your song is reproduced in a physical format, like a CD or LP, or a permanent digital download, like an mp3, your record label (or sometimes your distributor) is responsible for securing the license to reproduce your works, as well as paying mechanical royalties to you (or your publisher) for each physical copy sold. Because a music stream, via a service like Apple Music or Spotify, is considered a reproduction, a mechanical royalty is earned for every stream, but in this case the service itself is responsible for licensing your compositions and paying mechanical royalties to you or your publisher. These mechanical royalties are collected and distributed by a mechanical rights organizations (MRO) or an organization like the Harry Fox Agency (HFA) or Music Reports (MRI), who administer mechanical licenses in the US.

Outside of the US, mechanical royalties may be collected by a Collective Management Organization (CMO), which handles both performance and mechanical royalties collection. In some territories, mechanical royalties are split between the songwriter and the publisher - while in the US, mechanicals are payable entirely to the publisher.

You can learn more about mechanical royalties in this blog post.

Mechanical Royalty Sources

While physical music products like CDs dominated the marketplace 20 years ago - and earned mechanical royalties for songwriters for every unit sold - today the primary source of mechanical royalties is music streaming. There are two types of music streaming services - interactive streaming services like Spotify or Apple Music, where the user entirely chooses what music is played, and non-interactive streaming services, like Pandora Premium or Tunein, where the user doesn’t choose everything played, for an experience a lot more like listening to the radio. For non-interactive streaming (much like broadcast radio), there is no mechanical royalty paid, only performance royalties. 

The rate at which songwriters and their publishers are paid mechanical royalties by streaming services are generally set by the government, or are determined by negotiations between publishers, collection societies, and streaming services. These pay rates will vary based on what type of streaming customer is using the services (i.e. paid or “freemium” customer) and what country the stream occurs in.

To learn more about mechanical streaming rates, check out this deep dive.

The organizations responsible for administering the mechanical licenses and collecting mechanical royalties, and those like them around the world, work closely with streaming platforms, like Spotify, to ensure you’re collecting what is owed to you when your music is streamed. There can be a catch here: in order to collect these mechanical royalties, you generally need to have a music publisher or publishing administrator, or your own personal publishing entity. Traditional publishers or publishing administrators typically have relationships with these societies, making it easier to access these royalties, whereas an independent creator will not have direct relationships making it more difficult to easily collect what they are due. 

YouTube is another important source when it comes to mechanical royalties. Because YouTube content is often audiovisual, they earn what is called ‘micro-sync’ royalties. If your music is synced in a video, it is technically a ‘reproduction’ of your work, earning you mechanical royalties any time a monetized video plays your song on the platform in addition to the micro-sync royalties. Similar to interactive streaming, you must have a publisher or publishing administrator to collect these publishing micro-sync royalties for you.

To learn more about this type of royalty type, check out this blog post

You’ll also need to cover your mechanicals outside of the US and, as an independent creator, this must be done through registering with each mechanical rights organization (MRO), or collective management organization (CMO), in the country your song is being physically or digitally consumed in. Attempting to do this yourself can be tedious, costly, complex, and, if done incorrectly, a disaster. 

Other often overlooked ways you can earn mechanical royalties include:

  • Ringtones/ringbacks
  • Recorded cover songs (only if your song is covered)
  • Film soundtracks (depending on your deal)
  • Karaoke recordings
  • Interactive greeting cards

Performing for Performance Royalties

Performance royalties are generated from public performances such as live performances, terrestrial (FM/AM) radio play, tv/film/advertising usage, and streams (both interactive and non-interactive). These royalties are collected and paid out by a writer’s performance rights organization (PRO) or collective management organization (CMO). PROs and CMOs license the songs in their catalog and use performance data collected to allocate money to publishers and songwriters. Performance royalties are then paid out in two halves: Writer’s share and publisher’s share. (Note: in some countries outside of the US, performance royalties are split differently between writers and publishers, whereas in the US and in most cases it’s 50/50.)

Remember that performance royalties (as are mechanical royalties) are determined through split sheets and the conversations you have with any co-writers on a song. Depending on what type of publishing situation you’re in, you may only see a portion of the publisher's share of the performance royalties. However, you’ll always collect 100% of your songwriter royalties, or the writer’s share, directly through your home collection society. 

When your song generates performance royalties outside of your home territory, your domestic collection society will obtain these royalties through reciprocal agreements with the collection societies in those territories and countries. However, these are just data-sharing agreements, and may not guarantee that you’ll collect all of your performance royalties worldwide. 

Other ways you can earn performance royalties include:

  • TV (royalties are paid by the TV station for the broadcast of a show, film or commercial that includes your music. This is not to be confused with the sync license fee, which is determined and paid up front to secure the music usage.)
  • Streaming (Interactive and Non-Interactive)
  • Internet/Terrestrial Radio
  • Live Performances
  • Stores/Restaurants
  • Elevator music services
  • Gyms
  • Digital Jukeboxes like TouchTunes

Don’t forget that to get paid for your live performances, you must submit your setlists to your collection society

Wrapping Up Royalties

There are so many ways to collect royalties nowadays that it’s important for songwriters and musicians to know how their songs can earn money. The music industry can be overwhelming and confusing to new writers (sometimes even to professionals) and having a good system to check your revenue streams is vital. Keep track of where your songs are being used, make sure you’re affiliated with your local collection society, and have your publisher or publishing administrator collect your domestic and international mechanical and performance publishing royalties.

When you sign up with Songtrust, you know that you’re covered for royalty collection, and you can see exactly where your royalties are coming from. You can be sure that a dedicated team of publishing experts are working hard to provide resources on all the aspects of the music business and ensuring you’re accessing what you’re due. Our team is here to support all music professionals who own and control the rights to compositions - from new writers working independently, to established musicians and their representatives.

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