Music royalties are notoriously complicated: if you were hoping for a cut-and-dry “a song got this many plays on Spotify, so the artist gets this much $” type situation, then you’re in for a rude surprise. There are a ton of different players, some of whom have partial ownership of copyrights, and some who are just middlemen collecting royalties and taking a cut. Take, for example, if you’re a singer/songwriter with music on Spotify: Spotify will pay out several types of royalties for each play, and between you and Spotify, there will likely be a record label, publisher, distributor, and a collective management organization. And then, to complicate things even further, between all these players, there are multiple layers of deals and calculations that determine exactly what you end up with.
How does this all sync up? How do royalties travel through the pipeline and ultimately end up in the artist’s pocket? Let’s find out:
What are Music Royalties?
Music royalties are compensatory payments received by rights holders (songwriters, composers, recording artists, and their respective representatives) in exchange for the licensed use of their music. These royalties are paid out by institutions that use the music (from TV channels, radio stations and venues to streaming platforms and beyond), and collected on behalf of rights holders by intermediary bodies — most of the time. Sometimes, the user will pay out the royalties directly to rights holders — if we’re talking the major label collecting its streaming payouts, for example. But let’s not get ahead of ourselves. Before we really get into different types of music royalties, we need to lay out the two subsets of music rights.
Composition: songwriters and their music publishers own the copyright for the harmony, melody, and lyrics. Composition copyright is obtained whenever an authentic and unique musical work is committed to a tangible medium — whether its a notepad, sheet music, or even a single tweet.
Master: the copyright for the particular expression of a composition, created when the composition is turned into a sound recording, and owned by recording artists and their record labels (if there’s a recording deal in place).
Accordingly, there are two general types of music royalties: royalties paid out for the licensed use of the sound recording, and royalties paid out for the authorized use of the composition. Unfortunately, from there, the waters get even murkier.
The 6 Different Types of Royalties
So, there are quite a few different types of royalties — but what makes this whole topic extremely complicated, is that even the same type of royalty can be paid out in different ways, depending on the context of use. Public performance royalties, for example, are paid out by both your local cafe and global streaming heavyweights — but, as you might’ve guessed already, the processes there are very different. Then, to complicate things even further, the rates and payout processes also vary greatly depending on the country. There are even some royalty types that are present in one country, and not in the other (for example, in the US, master rights holders don’t get royalties for radio airplay, while in much of the rest of the world, they do).
It’s nearly impossible to cover every country in one go, so in this article, we will focus primarily on the US. First, let’s start with royalties on the master side:
1. Streaming Royalties
The rise of streaming services has made royalties more important than ever for recording artists: where once music was primarily monetized by selling records (which isn’t exactly a royalty), these days recordings are licensed to streaming platforms, and payouts for digital streams are therefore royalties. Labels and recording artists work with distributors (or aggregators) to put the recording on streaming platforms and get back royalties due.
2. Neighbouring Rights (and Royalties)
Remember, there are two types of copyright in music, one for the composition and one for the sound recording. Public Performance royalties are paid out to copyright holders who own the musical composition (see: #5 on this list) for, you’ve guessed it, public performance of their compositions. Now, neighboring rights are very similar, except that neighboring royalties are paid out to the copyright holders of the sound recording performing artists and/or record labels. So, from a legislative perspective, they sit next to performance rights — hence the term “neighboring rights”. Yes, we know, the logic behind the term is a bit confusing.
3. Digital performance royalties
Here’s where it gets trickier (we warned you): the US rule of not having to pay sound recording owners for radio airplay applies ONLY to AM/FM terrestrial radio. That means that digital internet radio, satellite radio stations and cable radio DO pay the master owners. That means that the digital performance royalties can be considered neighboring rights payments — but since the use is very specific, it’s easier to use a separate term and keep up the idea that the US doesn’t recognize neighboring rights.
4. Sync Licensing Fees
Sync licensing fees are paid out when music is synchronized to any other type of content, including video content for ads, TV shows, movies, video games, and — though this is pretty rare — audio-only sync. Anytime a song is used memorably as a component of any other type of content — think Iggy Pop playing over the opening scene of Trainspotting — sync fees are paid out.
Unlike other forms of royalties, where music users pay for the blanket right to use nearly all music in the world (see: Public Performance royalties below), sync is a 1:1 deal, which turns sync licensing into a sub-industry of its own.
5. Public Performance Royalties
Performance royalties are royalties that are collected when a song, featuring a specific composition, is played in a commercial environment. Essentially, the entire landscape of public performance royalties can be divided into two parts: the royalties paid out by streaming services and royalties generated by more conventional public broadcasters — radio, TV channels, venues, clubs, restaurants, and everything in between.
6. Mechanical Royalties
Mechanical royalties are due every time a copyrighted composition is reproduced or distributed in either physical or digital form. Historically, that meant mechanically producing a physical media — cassette, vinyl, CD and so forth — hence the name. Today, though, the bulk of mechanical royalties are generated by digital streaming platforms. Any time a user CHOOSES to play a specific song on-demand — forcing a reproduction of the underlying composition — the streaming service pays out the mechanicals. That also means that the non-interactive streaming of Pandora, for example, doesn’t generate mechanicals.
As you can see, earning royalties depends on the synchronized efforts of a whole bunch of different players: PROs, publishers, record labels, distributors, mechanical rights organizations, you name it. The bottom line is: due to the nature of how artists make money in the post-streaming era, all players in the music industry have to rely on the network of partners to succeed. Those partners won’t always be aligned, but they have to work together to reach the common end goal — building music careers and allowing music talent to find the appreciation (and pay) that they deserve. The music business is built on collaboration.