Music Royalties and Who Collects Them

Understanding what royalties are available and who collects them is essential if you want to be fully compensated for your music...

Music royalty distribution can be confusing, particularly if you’re new to the music industry. However, understanding what royalties are available and who collects them is essential if you want to be fully compensated for your music. Artists grind everyday to make dreams a reality so understanding royalties is crucial. 

Different Types of Music Royalties

Music royalties are payments received by copyright holders in exchange for the licensed use of their music.  As with music copyright (musical works vs. sound recording), there are also several different types of music royalties.

As discussed in greater detail here, a copyright registration for a musical work covers the music and lyrics embodied in that composition, while a registration for a sound recording of a particular musical work (also known as the “master”) covers the performance and production authorship associated with creating that recording. The type of copyright you hold determines what type of royalties you earn.

For copyrights in musical works, the following royalties may be generated:

• Mechanical Royalties: Mechanical royalties are generated when a composition is reproduced through the process of recording, manufacturing, and distributing the work.  While they initially applied to the sale of physical records and CDs, mechanical royalties now also cover music streaming on interactive streaming services like Spotify, or sold on downloading services like iTunes and Amazon Music. The federal U.S. Copyright Act determines the rate at which mechanical royalties are paid.
• Performance Royalties: Performance royalties are generated when a song is played in public, including concert venues, bars, restaurants, online streaming, and radio broadcasts.
• Synchronization Royalties: Synchronization royalties are generated when copyrighted music is “synced” with visual media.  Examples include the use of songs in films, television shows, commercials, online videos, and video games.
• Print Music Royalties: Print music royalties are generated when copyrighted music is transcribed to print, such as sheet music and then distributed via a music publisher. While fairly uncommon for songwriters, these royalties can be extremely lucrative for classical music or film score composers. 

For recording artists and their labels, the royalties available are slightly different. They include:

• Reproduction (also known as “distribution”) Royalties: Reproduction royalties are generated when a sound recording is sold or streamed. Rates are not standardized but negotiated between rightsholders (e.g., record labels) and service providers or retailers.
• Performance Royalties: Performance royalties are generated whenever a sound recording is broadcast over digital or satellite radio services. 
• Synchronization Royalties: Synchronization royalties are generated when a specific sound recording is “synced” with visual media.

While the categories of royalties may seem straightforward, the distinctions often create confusion. For instance, only songwriters and publishers (not recording artists) are paid performance royalties by traditional AM/FM radio stations, also known as “terrestrial broadcasters.” However, when it comes to digital performances, streaming platforms like Pandora and Spotify pay both recording digital performance royalties and songwriting digital performance royalties.

Collected and Distribution of Royalties  

As discussed, copyrighted works generally cannot be used without obtaining a license and compensating rights holders. In most cases, however, users don’t pay copyright owners directly.

What specific organization may collect and distribute royalty payments often depends on several factors, including the type of rights involved and the rights holders.  For instance, SoundExchange represents artists and record labels, while performance rights organizations (PROs) represent songwriters and publishers.

Mechanical Licensing Collective

For mechanical royalties, the royalty payment process depends on the format. The mechanical royalty for physical and digital sales is typically paid first from the retailer to the record label and then passed on to the publisher and songwriter.

The Music Modernization Act (MMA) recently changed the way songwriters and music publishers are paid statutory mechanical royalties when their work is streamed on interactive streaming services like Apple Music or Spotify, or sold on downloading services like Amazon Music. Beginning in 2021, a nonprofit entity designated by the Copyright Office, called the Mechanical Licensing Collective, or MLC, collects and distributes these royalty payments to copyright owners of musical works matched to sound recordings in its database.

Performing Rights Organizations or PROs

Performance royalties are licensed and collected by PROs, which then pay songwriters and publishers. In the United States, the main PROs include ASCAP, BMI, SESAC, and Global Music Rights (GMR).

With respect to PROs, music users, from restaurants to radio broadcasters to streaming services, pay PROs a fee to obtain a license to use a music composition. When issuing a blanket license, the PRO tracks the use of each composition. The PRO then divides the performance royalty into songwriter royalties and publishing royalties, with songwriters and publisher receiving an equal share of the fee.

SoundExchange

SoundExchange collects recording digital performance royalties on behalf of  recording artists and labels. Much like PROs, SoundExchange issues blanket licenses to digital music services in exchange for sound recording performance royalties. It then pays recording artists directly.

Not all digital music services rely on SoundExchange licenses. For those that elect to directly negotiate with record labels, the service pays the record label, and then the record label pays the artist pursuant the terms of their agreement.

Key Takeaway

The legal landscape governing the music and entertainment industry is complex and often causes confusion. As a result, successfully navigating it can be challenging for new artists to veterans of the business.  To protect your legal rights when pursuing copyright registration, retaining an agent, negotiating a royalty agreement, or entering into other legal relationships, it is advisable to work with an experience attorney.

The attorneys of Scarinci Hollenbeck’s Intellectual Property Group have decades of combined experience representing artists, songwriters, composers, publishers, record labels, and other key players in the music industry. We encourage you to take advantage of our vast legal knowledge and industry insight to both protect and advance your interests.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Albert J. Soler, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.