How Royalties Work In Music- Beginner’s Guide

A picture of a record player, a record, headphones, a guitar and cassette tapes: How Royalties Work In Music
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If you’re a music artist, then the chances are that you’ve heard about royalties. Maybe you’ve heard the news about artists living off their royalties or those who don’t get paid enough royalties. Despite hearing about it, the real question is, do you understand what royalties are about? If you’re wondering how royalties work in music, you’re not alone. However, as a music artist or one that’s aspiring, you need to learn the basics. If this is what you’re looking for, you’ve stumbled to the right place. We’ll be covering all the essential information you need to know about royals and how they work in music. This article is a comprehensive beginner’s guide for music artists; let’s take a look.

How Royalties Work In Music – Types of Copyright

You must already think there’s only one copyright to music; there are two types. You need to have the copyrights to music before you can begin to enjoy the royalties. It is an integral part of how royalties work in music; let’s find out what the two types are.

How Royalties Work In Music – Sound Recording Copyright

Most people don’t understand this copyright but follow it carefully as we break it down. Understanding sound recording copyright helps you get a view of how royalties work in music. The sound recording copyright belongs to the owner of the master sound record. The master rights can either belong to the recording studio, artist, or the record label. It falls to the studio only when the music artist cannot pay for their recording service.

The sound recording copyright could also belong to anyone who paid for the recording. This copyright exists because when you create your version of a song, you need to create a new audio recording with a different set of artists in a studio and not at the same time as the original song or with the same money. That’s why the master is also a piece of intellectual property. This feature stands whether the melody and the lyrics remain the same as the original version or not. The next type of copyright covers this section. 

How Royalties Work In Music – Songwriting Copyright

Songwriting copyright is the ownership of a piece of music. That’s why it plays a significant role in how royalties work in music. For anyone to create a version of your song, they need to obtain permission to use your song because they’re your intellectual property. Songwriting copyright gives you publishing rights as the copyright holder. That’s why anyone who wants to use a copyrighted piece of music needs to contact the copyright holder. They will need to obtain publishing rights from you, including notes, rhythms, lyrics, melodies, and many other parts of original music. Knowing the types of copyright will help you when you want to copyright your music or ask for permission from another artist to use copyrighted music. 

How Royalties Work In Music – Types of Music Royalties

Now that clearly you understand the different types of copyrights you will need to begin receiving royalties for music, let’s explore the different types of royalties. Most people think that there’s only one music royalties type and do not know they vary. This information will help you determine the music royalties that apply to you. 

Publishing Rights Royalties

Among the royalties you’re entitled to as a music artist, publishing rights royalties is one. Knowing this will give you a better idea of how royalties work in music. They usually stem from the songwriting copyright and goes to whoever owns publishing rights to the song. The owner could be a single songwriter, a band, or just a couple of songwriters. The Performing Rights Organization usually collects the publishing rights royalties. These organizations include the ASCAP, SOCAN, BMI, and SESA. The performing rights organization then distributes it to songwriters who register under their platform.

Mechanical Royalties

Mechanical royalties are another type of music royalties that music artists get to enjoy. It is essential to understand how royalties work in music thoroughly. You earn these royalties per unit; this is when you sell a song physically. However, these days, mechanical royalties are rare because of technological advances and the evolution of streaming and digital downloads. The word mechanical comes from a period when artists produced music artists produced music mechanically. However, things have evolved, but the name remains the same. The mechanical royalty belongs to the songwriter, and the record label facilitating the song’s sales pays it. It covers vinyl, CD, cassette and many more. If you’re both the songwriter and your record label, then you get all the money.

Performance Rights Royalties

This type of music royalties comes through whenever your song plays in public. It is an integral part of how royalties work in music. It could be live performances, business place playing, TV broadcast, online streaming, internet radio, or online streaming services. As a music artist, keeping track of all the places where your song gets played can be difficult. That’s why the job falls to the Performance Rights Organizations (PROs). When you sign up for digital distribution, you can register with any PRO you want. As a music artist, we advise that you do this because you can play your music anywhere. 

Every time your music gets played in clubs, restaurants, bars, shopping malls, and any other plays, you’re entitled to your music royalties. The performance rights royalties apply to any song performance, including cover performances. However, the performance rights royalties usually consist of the songwriter royalties and publishing royalties.

Synchronization Royalties

Synchronization royalties or sync royalties come through every time your music receives pairing with visual media. A synchronization license gives its holder the right to use copyrighted music. This includes commercials, online streaming, films, advertisement, video games, television, and all kinds of visual media. Most times, a synchronization license gets sold by the music publishers. It does not cover the right to use an existing record with audiovisuals. If you want to use your artist version of a song, you need to purchase a master use license before using it. It means you need a new set of licenses, except you want to rerecord a new version of the song you licensed. Knowing how this works helps you understand how royalties work in music.

Print Royalties

This type of music royalties is uncommon, and you might never get one as a music artist. However, you must know about it to understand how royalties work in music. They are the royalties songwriters receive whenever you buy the music book. This royalty type was popular in the 20s. However, technological advancement has eroded this type of royalties away. If you ever collect a print loyalty, then you must be a big deal as a music artist.

Master-Generated Royalties

A type of sound recording creates this type of royalty. It means when you make a song cover, and it becomes popular, you will become rich. However, all the money generated through the publishing right goes to the songwriter. There are many instances where artists don’t own the masters to their songs because of their signed contract. That’s why you need to understand it to know how royalties work in music. If you don’t own the publishing rights to your song, then collecting these royalties would be difficult. However, if you wrote and recorded your song and you also turn out to be the master of your music, then you get it all.

Recording Royalties

This royalties type is the most basic type that all music artists receive. These royalties come through every time fans make a purchase, or someone streams your song. These funds usually go to the distributor first and then moves to anyone who owns the master. It could be the artist or the label artist you sign to. 

Neighboring Rights Royalties

These royalties are pretty similar to the performance rights royalties. However, they only apply to specific sound recordings. These royalties come through whenever they play a specific sound recording on the TV, internet radio, advertising, and more. However, you get this royalty when someone plays your sound recording somewhere. It is significant in understanding how royalties work in music. This money is quite different from the money earns from selling your song.

YouTube Royalties

This royalties type varies from other royalties because YouTube has its system of keeping track. YouTube has a user ID that gives your songs a virtual fingerprint. Once your fingertips enter the YouTube music database, YouTube keeps track of every time your music plays and pays you. This process also helps them identify when someone is trying to upload your song without permission from you. What YouTube does is put an ad on that music and allows you to make money from it. Some companies collect your YouTube royalties on your behalf. You should use them as you have no idea how to calculate them. 

How Royalties Work In Music – How to Calculate Artist Royalties

Now that you know how royalties work in music, you should discover the payment rates. There are different acceptable amounts as royalties are usually based on your level of popularity when it comes to music royalties. If you’re new to the music scene, your popularity is low and could affect your royalties. The recording label calculates the rates by your number of fans, command over earning. Let’s find out how they calculate artist royalties.

How to Calculate Mechanical Royalties

For the United States, Mechanical royalties are at a rate of $0.091 per CD or digital download. That’s about 9.1 cents to the composition owners every time someone downloads a sound recording from an online store or is pressed to a CD. This rate remains fixed till the government makes it higher or lower. The publisher or publishing administrator receives payment of these royalties. 

Royalties for Physical CDs

Physical CDs might be your ticket out, especially if you sign to a major record label. You could still be receiving royalties for many years to come. Below is how to calculate royalties from physical CDs.

Number of sales

Wholesale Price

Royalty Rates

= Total Royalties Earned

If your royalty rate is 15%, then the rest of the 75% goes to your record label. The calculation depends on the wholesale price and not retail. This part is where the artist’s popularity comes into play. The royalty rate often depends on how popular you are. Therefore, if you’re new to the music scene, your royalty rate will fall between the rate of 13-16%. However, for mid-level music artists with over 100,000 album sales under their belt, the rate is usually within the range of 15-18%. On the other hand, Superstars are the industry leaders and usually receive 18-20% as their royalty rate. Record labels will never give you up to 50% as your royalty rate.

Streaming Royalties

Streaming generates mechanical and performance royalty. Performance rights royalties are usually a negotiation between the PRO and the streaming service. However, streaming services like Spotify are not that straightforward. Streaming royalties are under mechanical royalties but are not as clear as the physical CDs sales. When calculating the mechanical rates for streaming, it is usually 10.5% of the company’s gross revenue minus fees for public performance. Factors like fans’ country, paid premium users, premium pricing and currency, and royalty rates come into play.

How to Calculate Performance Royalties

These royalties come through every time someone records, streams, performs, or plays a copyrighted piece of music in public. They divide it into songwriter royalties and publishing royalties, and the PRO collects it. The PRO splits into two halves, with songwriting making one-half and the publishing royalties making the second half. Songwriters who got credit for the composition get a payment of songwriting royalties. No record label, manager, producer, or publisher can take these royalties away from you if you receive credits. The publishing companies receive the publishing royalties because they take temporary ownership of the song. If you have no publishing deal, you could be missing out on this 50%. Therefore, it is best to get in touch with a publishing administration company that could collect these royalties on your behalf.

How Royalties Work In Music – Conclusion

To fully get your royalties, you must register under a Performance Rights Organization in every part. It would help you generate more money and more income. Understanding how royalties work in music can be challenging, but this beginner’s guide for music artists simplifies it. We touched on the types of copyright, royalties, and how their calculation methods. Behind-the-scenes royalties like producer royalties and many more can agree through a work-for-hire agreement.

The significant royalties that will count when you kick off your music career are what we have explained in this article. Most of your royalties will be coming from digital streams, so keep your eyes on that. Hopefully, you have a clear idea of how royalties work in music after reading this. Remember that the goal is to get your music out there; that’s the only way you can access the various royalties types.

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