The future of music

Music Royalties: What Are They & How Do They Work?

March 23, 2023
music royalties

If you want to start a career in music, you need to understand how music royalties work.

There are different types of royalties though, and all the copyright rules and processes may seem a bit overwhelming.

So in today’s article, we will tell you all about music royalties and how to collect them.

And then you’ll see it’s not that complicated at all. 

What Are Music Royalties?

You’ve probably heard a lot about music rights and music royalties.

But how are royalties paid out, and who has the right to collect them?

Generally, music royalties are the payments generated from the usage of songs.

And these payments are made to rights holders, including songwriters, artists, and intermediaries like record labels, publishers, or music producers.

So whenever a certain song gets played or streamed, the right holder generates money.

And copyright is a legal term that refers to specific rights held by artists over their original works.

Now, there are two types of copyright you need to understand:

  1. Master rights – the rights related to the original sound recording – they belong to the recording artist, the record label, and/or the recording studio
  2. Publishing rights – the rights related to the lyrics and melody of a song – belong to the songwriter and/or the publisher

And depending on the usage of these rights and the country, there are different types of royalties.

And that’s probably the most confusing part about music royalties – there are usually numerous stakeholders involved, and royalty payments are shared based on the contract.

But if you’re an independent or unsigned musician, you can collect all of your royalties.

a glass full of coins with a plant

On the other hand, musicians who sign a recording contract have to share their royalties because they basically gave the label their music’s master rights.

And if a songwriter signs a deal with a music publisher, the publisher takes ownership of the publishing rights and collects the royalties. 

If multiple songwriters are involved, each will get a percentage of the collected royalties. 

So, the amount of money you’re going to earn as a signed artist depends on the contract.

Types of Music Royalties

Although there are several factors you need to take into account when establishing music rights, music royalties can be divided into two categories:

  1. Master recording royalties – payment made to recording artists, labels, and producers whenever the song is streamed, downloaded, or bought physically
  2. Neighboring rights royalties – royalties generated from public performance or broadcasting – this includes radio, TV, digital services, cinemas, public places, and cable music channels

So, who receives music royalties is determined by the type of music royalties involved. 

Recording artists and songwriters as the owners of the master rights can receive money from digital sales (streaming and download royalties), physical sales, neighboring rights royalties, and sync licensing fees.

And publishing rights owners will receive money from mechanical royalties, performing royalties, and sync licensing fees.

Now, let’s clarify what these other types of music royalties mean.

Mechanical Royalties 

Mechanical royalties are earned through the reproduction of music in digital and physical formats.

In other words, whenever your copyrighted work is played or streamed, you will generate money. 

So, you’ll generate mechanical royalties through:

  • Physical sales (CDs and vinyl)
  • Digital streaming (Spotify, Apple Music, Tidal, etc)
  • Downloads of your tracks 

Getting royalties for streaming is one of the most common ways of earning money as a new musician nowadays.

Streaming royalties are generated by having your music available on music streaming and social media platforms like Spotify and Apple Music.

That said, if you want to learn how to make money from music in an easy way, distributing your music to large streaming platforms is a good way to go.

a cellphone playing music on Spotify.

Public Performance Royalties

As the name suggests, public performance royalties refer to payments made to songwriters and publishers whenever their music is broadcasted publicly.

These payments are made by Performing Rights Organizations (PROs), which are generally responsible for collecting income on behalf of songwriters and music publishers.

Performing right royalties may include:

  • Public and live performances
  • Radio airplay
  • Public broadcast
  • Digital streams

Digital Performance Royalties

Digital performance royalties refer to fees that webcasters and service providers (such as Pandora and SiriusXM) are required to pay for streaming musical content. 

This is usually done through SoundExhange.

Sync Royalties 

Synchronization royalties are generated when a copyrighted music composition is shared in a video format.

Sync licensing includes music that is used in movies, TV shows, commercials, video games, music videos, audiobooks, and so on.

Generally, a sync license gives a brand or company the right to use your music in their content, and sync royalties are what you’re going to earn as an owner of that piece of music.

How to Collect Music Royalties 

Now that you know who receives music royalties, it’s easier to understand what rights you might have as an artist. 

Music rights and contracts are actually pretty straightforward, as long as you know how everything generally works. 

But how do music royalty payments really work?

lots of music albums in a record store.

Royalty payments usually happen once a month.

But the exact process of getting royalties depends on the individual case. 

Some indie musicians opt for music marketing services so the amount of money they get depends on the service they’re collaborating with. 

Some music distribution services collect all the royalties, and others allow their artists to keep their creative rights. 

But a general process of collecting music royalties would include:

  • Creating and distributing music
  • Your music being played (physically or digitally)
  • Royalties are collected and shared amongst rights holders.

When it comes to digital streaming, if a user plays 30 seconds or more of your tracks, royalty money will be generated and the platform will collect the money, take their share, and distribute the percentage back to your distributor. 

Physical sales, on the other hand, work in a slightly different way – a part of the money from CD and vinyl sales will go to the physical distributor, they will then take their share and deliver the rest to you or your record label.

Also, physical sales generate mechanical royalties for songwriters and publishers.

Music Royalties – Final Thoughts 

Music royalties are not so complex, but understanding them does require you to learn more about music rights in general.

The important thing is to become familiar with different types of music royalties, such as mechanical royalties, performing right royalties, and so on.

And how music royalties really work also depends on your individual case and whether you’re a signed or independent artist. 

Either way, we hope the whole process seems much clearer now! 

You may also like: How to Make Money from Music

Will Fenton

Will, the founder of MIDDER, is a multifaceted individual with a deep passion for music and personal finance. As a self-proclaimed music and personal finance geek, he has a keen eye for futuristic technologies, especially those that empower creators and the public.

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