A very common word in the music business, royalties represent the amount of money paid to an artist, when someone wants to publicly use that artist’s work.
The word royalty usually makes us think of something related a king. And, in a way, that is true. It is some sort of “payment to the king” – the legal owner of a certain product.
So what are royalties in music?
It’s the amount of money an artist receives whenever and however it’s music is used by anyone other than the music right’s holder. For example, to open a franchise of any brand, you must pay royalties to the owner of that brand. That payment gives you the right to use and sell their products.
Generally, royalties have to do with rights to use natural resources, patents, franchises, brands or products. So, if we really want to know how royalties work in music industry, first we need to look at some copyright laws.
US LAWS AND CATEGORIES OF ROYALTIES IN MUSIC
In the US, there are different categories of royalties. The main ones are:
Songwriter Royalties: This is the royalty paid to the artist who wrote the song. It is related to the sheet music, before the recording. Normally, only the songwriter gets paid. But sometimes a songwriter has a contract with a publishing company. In this case, the publisher gets the royalties instead.
Mechanical Royalties: Refered to the phonogram. The recorded version of the song. It can have many different formats: CD, DVD, MIDI, games and films. Even ringtones have to pay royalties. It is important to say that, in the case of a phonogram, another agent joins in: the record companies. They are the ones responsible for paying royalties to songwriters and publishers.
Performance Royalties: This is related to the performance of the song. That can be at parties, TV shows, on the radio, in bars, religious events and many other activities. In this case, only songwriter and publishing company get paid.
Synchronization Royalties: Granted through sync licensing. To synchronize is to perfectly adjust sound and image in a video. So, synch royalties are paid when a song is used in soundtracks for TV ads, film, theatre.
Digital Royalties: The most recent and challenging type. Digital royalties came to existence because of the large use of music on the internet. It is related to digital playing of songs in social media, streaming platforms and online distribution. It’s closely related to mechanical royalties.
THE COPYRIGHT ACT
To understand what are royalties in music, we must know a little bit abour laws.
The Copyright Act, from 1976, is the North American law that regulates everything concerning copyrights. Despite going through updates and amendments, it is the most important document on the sunject.
The United States are also part of the Universal Copyright Convention (UCC) and of the Berne Convention. Both events discuss the protection of works of art worldwide.
THE MAIN COPYRIGHT ORGANIZATIONS
The first thing you need to know about copyrights, is that if you want to use someone else’s song, publicly and commercially, you will need a license. You can get that license from one of the Performing Rights Organizations (PROs).
The most important PROs in the country are:
- BMI (Broadcast Music, Inc)
- SESAC (Society of European Stage Authors & Composers).
Those institutions work as copyright protection associations.
They are in charge of inspecting where the song is played. And then sharing the royalties between the songwriters and the publishers. The PROs also negotiate licenses with people and companies that want to use a song. Including radio stations and TV channels. Each PRO’s has their own method to do it.
North American law is different in some aspects, even though it follows international standards. For example, in case of performance royalties, only songwriter and publisher get paid. Even if the performance is of a phonogram, the record company does not receive anything. That happens because behind it, there is an understanding that, the act of playing a record will boost record sales. And that benefits the record company.
When we talk about the internet, the situation changes. In this case, record companies and interpreters have right to royalties.
The artist must be a member of a Performing Rights Organization to receive the appropriate royalties. If the artist only wants to protect the copyrights, it is possible to register the song on US copyright Office. But, that does not make the artist entitled to get any money.
ROYALTIES IN MUSIC – WHAT IS FAIR USE?
When we think about what are royalties in music, we come accross the term “fair use”. That is when there is a possibility of using a song for free. But that use must be limited and must have a positive contribution to society.
Fair use still generates a lot of controversy. And it is based on 4 key points:
- Purpose of use – Teachers, researchers, critics and scientists have preference.
- The nature of the work intended to be used.
- Percentage of the work used.
- Its effects on the industry, on society and on the appreciation of the work.
HOW ARE ROYALTIES SPLIT ON A SONG?
The royalties split is what we call the shared percentage between the parts. And it depends on the deals made between those parts.
Normally, it follows a very basic logic: the bigger the artist is, the higher the royalties will be. An artist with a high number of record sales or internet play, will get a bigger check.
The percentage can also change according to the different kinds of royalties:
Performance Royalties: Here the Performing Rights Organizations are responsible for collecting and distributing the royalties. And we have two parts involved – songwriter and publisher. Both receive an amount, usually shared 50/50.
Mechanical Royalties: One of the bigger and most important institutions for licensing, collecting and distributiing royalties, is Harry Fox Agency. They charge 6% of commission on collected royalties. But there are other companies growing in this field. Like Rights Flow. They pay between 10 to 25% of the recording value. Without fees, expences and taxes.
ROYALTIES AND COPYRIGHTS ON THE INTERNET
The internet has its own dynamics regarding what are royalties in music. There is no fixed percentage for music played online. Take Spotify, for instance. To figure out the royalties, they have to think about many different factors. Like the country where the listener is or the number of premium users listening.
To make things easier, there are some online calculators for streaming. That can give you a good notion of what to expect.
Besides, US law has the Digital Millennium Copyright Act (DMCA). That act criminalizes the creation and dissemination of any technological resource intended to deceive the control on protected works.
Institutions work to restrain modifications and unauthorized distribution, as well as to prevent copies and illegal downloads. Using what they call Digital Restriction Management (DRM).
This subject is the source of a lot of controversy as well. Because the DRMs end up limiting use formats for content that is legally purchased. And that jeopardizes the crative industry. Even so, DRM is an important tool against music piracy.
THE IMPORTANCE OF ROYALTIES IN MUSIC
There is a lot if information that must be understood, to know what are royalties in music. All the different kinds, the laws to protect it and who gets what and when.
But one thing is important to keep in mind. The payment of royalties is fundamental for the arts to survive all around the world. A big productive chain is involved – from songwriters and musicians to record companies and distributors. So many people in that chain depend on it.
So it doesn’t matter what type of royalties and what are its percentages. The important thing is that it goes to the people who should get it. For the good of music and those who live from it.
COLLECTING ROYALTIES FROM DIGITAL STREAMING PLATFORMS
To collect royalties from the DSPs such as Spotify, Deezer, Apple Music, Tidal and others you must upload your songs through a digital music distributor company, the so called music aggregators. There are several on the market, and Magroove is one of them.
We distribute your music to all the majors DSPs and you get 100% of your royalties! Magroove charges only an annual fee that certainly fits your pocket.
We also provide a website builder tool for you with band merch such as customizable t-shirts for selling. And for that service, we take care of production, payment and global shipping.
Magroove is also a music recommendation service. Once in our database your songs will be classified and recommended to people searching for their next favourite song!
Don’t loose that opportunity!