Music Royalties Explained: The Ultimate Guide for 2020
One of the biggest mysteries and struggles of the music industry is how to get paid music royalties in the United States. We all too often hear about the cliché starving artist criticism (especially from mom), but what about the artist that eats? How do musicians at the top of their game reap what they have sown? You are in the right place, my friend.
Start with this video:
Why I Made This Guide
Ever since I’ve begun my research, I have followed the steps and am now successfully earning music royalties from multiple sources including Spotify, YouTube, Film Music, and Live Performances! Now it’s your turn, I created this guide so that you can be knowledgable of not only how to collect your royalties, but also understand what percentages are fair so that you get paid what you are worth.
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What This Guide Will Not Do
I want to take a moment to be clear. Following the steps in this guide is not guaranteed money today, so don’t quit your job just yet. These steps, once implemented, just open the pathways for money to stream into your bank account—but you need to turn on the cash flow with your music. The key to a music income is growing your fanbase slowly and steadily, and with the steps below, you will grow your income as you grow your fanbase. Are you ready?
Here is What You’ll Learn:
Check out the table of contents below. Each topic is linked to the information within the guide. Read all the way through for a comprehensive understanding, or jump from link to link for quick reference.
The Different Types of Music Copyright
No Tommy Wiseau, we are not kidding. There are actually two types of music copyright and both are important if you want complete control of your music and your music royalties. The two types of copyright for every song consist of the Sound Recording Copyright and the Songwriting Copyright for the actual musical composition itself.
1. Sound Recording Copyright
This is a little hard to understand at first but it makes sense. The copyright of the recorded song (AKA the “master recording” or “masters”) belongs to the owner of the master sound recording. So just remember this: Master=Recording. Master rights usually belong to either the artist(s), record label, recording studio (if the artist is unable to pay for recording services), or any other party that financed the recording. The reason that Master Rights exist as it’s own copyright is because if you record your own version of Michael Jackson’s Thriller, recorded in the style of Ska-Punk, you are creating a different audio recording with different musicians, at a different studio, recorded at a different time, with different money, etc. Therefore the master itself is a different piece of intellectual property, even though the melody and the lyrics of the song itself remain the same. It’s the lyrics and the melody that takes us to the next type of copyright: songwriting copyright.
If you are the rights holder for the sound recording of your music, you may want to register that work with the US Copyright Office.
2. Songwriting Copyright
So let’s continue pretending that you are recording your version of Michael Jackson’s Thriller. In order to have permission to use the music and lyrics in the first place, you need to obtain permission to use the song itself. Even if your intent is to recreate the recording just as I described above, there is still intellectual property contained within the lyrics and the melody of the song that is separate from the intellectual property contained in the sound recording. In order to get permission to use a copyrighted musical composition, you need to contact the copyright holder and obtain Publishing rights. Publishing rights belong to the owner of the actual musical composition. The publishing side of music refers to the notes, melodies, chords, rhythms, lyrics, and any other piece of original music. So when copywriting a piece of your own music, or requesting permission to use a piece of music owned by someone else, you need to keep in mind both types of copyright, Sound Recording, and Songwriting.
If you are the Publishing Rightsholder, meaning you are the owner of the songwriting copyright, or you have obtained control over the piece of music, you may want to register that work with your Performing Rights Organization.
3. Wait, So What is a Publisher?
A publisher is simply the person or entity who is in control of the Songwriting Copyright. Successful artists have publishing companies who through contract obtain control over their musical compositions. In exchange, the publisher finds opportunities for a song to earn income for both the artist and the publisher via the terms of their contract. If you are an independent songwriter and don’t have a publishing company, you are in charge of your own music publishing and can collect publishing royalties yourself! More on that later.
4. How to Copyright Music
“You can copyright music, copyright lyrics, or copyright both. You may copyright a new song or a new version or arrangement of an existing song. The song must be your original work, meaning that it must have been created by you and must show some minimal amount of creativity.
You can’t copyright a song title or a chord progression. If you make an audio recording of your song, you may copyright in the sound recording in addition to your copyright in the song itself.”
So just to be clear, you can’t copyright your song ideas, only songs themselves. To copyright a song you need to register an account at the US Copyright Office via their online portal: eCO.
There is an excellent guide on Legal Zoom® for copyrighting music that I want to point you to. Check it out here.
Registering your music for copyright does not grant you access to a single penny of your music royalties. In order to get paid, continue reading the rest of this guide.
The Different Types of Music Royalties
Most people don’t realize there are different types of music royalties and that said royalties are generated in a variety of different ways. First, it is important to know and understand all the different types of music royalties. Then we will discuss how different types of music royalties are calculated, and how to negotiate a fair cut for yourself.
1. Mechanical Royalties
Mechanical Royalties are generated through physical or digital reproduction and distribution of your copyrighted songs. This applies to all music formats old and new such as vinyl, CD, cassette, digital downloads, and streaming services. For example, record labels pay a mechanical royalty to a songwriter every time they reproduce and sell a CD of their music.
Mechanical Royalties are usually paid out by your record label if you are signed, or through your music distribution service if you are independent. To learn more check out our section on How Mechanical Royalties are Calculated.
2. Performance Royalties
Performance Royalties are generated through copyrighted songs being performed, recorded, played or streamed in public. That’s right, even playing a recording of a song is considered a performance. So you know the music over the intercom at Starbucks? Yup, those are little performances happening over your head. This isn’t limited to coffee shops but also includes terrestrial radio (AM/FM), television, clubs, restaurants, bars, live concerts, shopping malls, music streaming services, internet radio, and anywhere else the music plays in public.
Performance Royalties are made up of two parts, Songwriter Royalties, and Publishing Royalties. Click to jump down and learn more.
Performance Royalties are collected by Performing Rights Organizations. Click the link to scroll down to that section.
3. Synchronization (Sync) Royalties
Synchronization, or Sync Royalties for short, are generated when copyrighted music is paired or ‘synced’ with visual media. Synchronization licenses give the license holder the right to use copyrighted music in films, television, commercials, video games, online streaming, advertisements, and any other type of visual media. Sync licenses are generally sold by Music Publishers.
Another note, a synchronization license does not include the right to use an existing recording with audiovisual media. That’s right, if you want to use your favorite artist’s version of a song, the licensee will also need to purchase master use license before using copyrighted music with a new audiovisual project. So unless your plan was to re-record a brand new version of the song you just licensed, you will have to contact the appropriate record label to purchase a Master Use License in addition to the sync license. Again, this goes for any audiovisual media—even YouTube.
4. Print Music Royalties
Print Royalties are not as common for recording artists but are a common form of payment for classical and film composers. This type of royalty applies to copyrighted music transcribed to a print piece such as sheet music and then distributed through a print music publisher such as Alfred Music or Hal Leonard. These fees are often paid out to the copyright holder based on the number of copies made of the printed piece.
How Are Artist Royalties Calculated?
When talking about music royalties for performing artists, there is a range of acceptable amounts based on your clout as an artist. By clout, I mean how many fans you have, and your command over earning an income from those fans. If you are a new artist your clout will be low, but if you have a lot of buzz this can quickly increase your clout level to compare with other mid-level Artists. And then finally we have the superstars who are already commanding millions of streams and making lots of money for their managers and labels.
How Are Mechanical Royalties Calculated?
The rate for Mechanical Royalties in the United States is set by the US government and is $0.091 per CD and digital download. That’s 9.1 cents to the composition owners every time the sound recording is pressed to a CD or downloaded from an online store. This rate can only change if the government legislates it higher or lower (hopefully higher) and is paid out by your Publisher, Publishing Administrator, Publishing Service such as Songtrust or CD Baby Pro.
1. Royalties from Physical CDs
Physical CDs might be on their way out, but if you are signed to a major or independent record label, they will probably still be an ingredient in your royalty income for years to come. And even if CDs go the way of the dinosaur, you can ironically apply this same concept to vinyl sales.
Here is the basic concept:
Number of Sales
Total Royalties Earned
A real-world example: if you are selling an album at a wholesale price of $10 and your royalty rate is 15%, you earn $1.50 per album sale. The remaining $8.50 would go to your record label (assuming you’ve paid off your advance).
Now, remember when I talked about artist clout? That is how your royalty rate is determined. If you are a new artist, you might fall anywhere from the 13-16% range. For a mid-level artist who has sold over 100,000 albums (not streams, we are talking about cold hard sales), you can command 15-18%. The superstar artists that are at the top of the industry can command upwards of 18-20%. Never will you see a 50% cut from a major record deal, but if you sign to an Indie Record Label, your cut could be as high as 50%. Check out the graphic below:
If you are NOT signed to a record label, you can ignore the above and instead trust that your Digital Distribution Service (CD Baby, Distrokid, Tunecore, etc.) is paying out roughly 90% of what is owed to you, depending on which service you use.
2. Royalties from Streaming
While streaming royalties are still under the category of Mechanical Royalties for performers, they aren’t as straightforward as mechanical royalties from physical sales. A single stream generates both Mechanical and Performance Royalties. Performance Royalties are negotiated in private between the streaming service and Performing Rights Organizations, so we will continue to focus on Mechanical Royalties. However, streaming services such as Spotify are not very straightforward about how much a single stream is worth—in fact—their royalty system is not based upon a fixed “per play” rate.
Instead, Mechanical Royalties from Streaming are calculated as:
10.5% of the gross revenue of the company, minus the cost of public performance.
This means the following factors are at play:
In which country fans are streaming an artist’s music
Spotify’s number of paid (premium) users as a percent of total users; the more premium users, the higher “per stream” royalty rate
Relative premium pricing and currency value in different countries
An artist’s royalty rate based off of in-app advertisements
So that pretty much gets us to a number we will never know. Especially since there are more free users signing up for Spotify every day—essentially the royalty rate is dropping as we speak.
Spotify used to give an estimation of their royalty rate on their FAQ page, but have since taken that page down. Fortunately for you guys, I have it saved in this guide for you. But who knows if these numbers are still accurate—Spotify surely isn’t saying anything:
"Recently, [the above] variables have led to an average “per stream” payout to rights holders of between $0.006 and $0.0084. This combines activity across our tiers of service. The effective average “per stream” payout generated by our Premium subscribers is considerably higher."
Take this with a grain of salt, I know I will. Here is a cool Spotify royalty calculator you can bookmark if you are having a hard time remembering these decimals. This calculator assumes the Spotify royalty rate is $0.0045 per stream which might be closer to reality. Also, here’s a link to some tissues so you can wipe your tears after discovering how little you will be making from Spotify streams.
If you want to learn more about Spotify and how it works, check out this guide here.
Mechanical Streaming Royalties are NOT collected by your Distributor or Performing Rights Organization. They are collected by another party called a Mechanical Licensing Agent. The most popular being Harry Fox Agency (HFA) and SongTrust. To learn more about how to collect from Mechanical Licensing Agents, check out the video and infographic below.
Just a quick note, all this is only true for the United States. In other parts of the world, such as Europe, the powers that be have decided to consider a stream roughly 75% public performance and 25% mechanical reproduction, while a download is the exact opposite. If only it were that easy in the US.
How Are Performance Royalties Calculated
Performance Royalties are generated when copyrighted works are performed, recorded, played or streamed in public. This includes radio, television, bars, restaurants, clubs, live concerts, music streaming services, and anywhere else the music plays in public. As I mentioned earlier in the guide, Performance Royalties exist in two parts: Songwriter Royalties, and Publishing Royalties. Both are collected and paid out by your Performing Rights Organization (PRO).
Performing Rights Organizations (PRO)
Performing Rights Organizations collect Performance Royalties for artists that affiliate with their organization. In the United States, there are three major Performing Rights Organizations: BMI (Broadcast Music, Incorporated), ASCAP (American Society of Composers, Authors and Publishers), and SESAC (now it only stands for “SESAC”). BMI, ASCAP, and SESAC all pretty much do the same thing except that SESAC is drastically smaller that it’s other counterparts and only has about 10% of America’s performing artists. SESAC is also the only exclusively invite-only PRO. BMI and ASCAP anyone can join and are non-profit organizations so you will most likely choose one of these two when you start out (especially with SESAC being invite-only). If you are not affiliated with a Performing Rights Organization, you are missing out on two valuable music royalties: Songwriter Royalties, and Publishing Royalties. Once you are affiliated with a PRO, register your songs to begin receiving your songwriter and publishing royalties. Here is a guide on exactly how to do that.
1. Songwriter Royalties
When registering a song with your PRO, you will notice that your Performance Royalty is actually split 50/50 into two sub-royalties: Songwriting and Publishing. Songwriter Royalties will always be paid out to the credited songwriters of the composition. There is absolutely nothing any record label, publisher, producer, manager, or bandmate can do to take this royalty away from you. If you credited properly, you will get paid.
2. Publishing Royalties
Publishing makes up the other 50% of the Performance Royalty and, unlike Songwriter Royalties, Publishing can be assigned to outside entities called publishing companies. Music Publishing Companies temporarily take ownership of your songs and manages the lifespan and monetary potential for your music. But if you are not signed to a publishing deal with a Publishing Company, you might be missing out on 50% of your Performance Royalties! To avoid this, you can enlist the services of a Publishing Administration Company who will collect your Publishing Royalties on your behalf. To learn more about this, check out our section on Independent Musicians.
Behind the Scenes Royalties
Sometimes it feels like a kick in the gut when the artist gets all the fame and kudos for a song that you poured your heart and soul into producing. But you can still earn your fair share of royalties off the stage.
Some producers are paid a flat fee through a Work for Hire Agreement or an advance from a record label for their work. But another way to pay a producer is through a music royalty known as points. Producer points are also commonly referred to as points, album points, producer percentage, or producer royalties. One point is equal to 1% of the revenue earned by the song. Points can be awarded in a few different ways:
They might be paid on the entire album. Example: producer gets 3 percent of the music royalties a record earns. (3 points)
They might only be paid on particular songs on an album. Example: If the producer gets 2 points on 5 songs on an album that includes 10 songs, he would get 5/10 of 2 percent of the music royalties earned by the album; equalling only 1%.
Points and songwriting credits are not the same things. However, it is possible for a producer to earn songwriting royalties. It occasionally happens that a producer will take a hand in tweaking an existing song, or helping to create one from scratch. In this case, the producer might be entitled to a songwriting credit in addition to points for his other work on the project. Pretty sweet deal!
Session Musician Royalties
Usually, session musicians are paid a flat rate through a Work For Hire Agreement. To receive a free printable work for hire agreement, click here. What this means is the music that session musicians play is as a service only, and once they are paid in full they have no claim to the copyright of the song.
However, when it comes to Major Record Labels, there is sometimes a 1-2% royalty for session musicians on a track or album. However, music royalties for session musicians are not required in the U.S. so definitely grab a copy of the work for hire agreement below.
Record Label Royalties
We are going to go much more in-depth into Record Label Royalties and the percentages in the next section How Does the Money Flow. As a quick reference, record labels can keep a cut anywhere from 50-90% of your earnings. It is an industry norm for a new artist to only receive 10-16% of their sales. The reason for this incredibly high (or low depending on your point of view) percentage is Record Labels take on all the financial risk that Artists never could imagine taking on their own. Marketing and breaking a new artist costs a lot of money and it’s no secret that most artists that labels sign don’t even turn a profit, meaning that Labels need to rely on their successful acts to pay the debts of the failed acts. To learn more about how the money flows, check out the next section.
Artist Manager Cuts
An Artist Manager is one of the most important people in your life. They guide your business decisions such as deciding whether or not to do a record deal. They also are a part of the creative process such as selecting a producer. They are also your number one fan and biggest cheerleader (other than mom of course.) It is because of their huge importance to an artists’ career that they warrant a 15-20% cut of your earnings as a new artist. These percentages are applied to your gross earnings, meaning that this is a percentage off the top of what you make (not what you keep). Managers also receive 15-20% of music royalties you earn from past songs and opportunities, even if they weren’t your manager at the time. This might seem a little strange, but your manager is supposed to propel your career to the next level. If that’s not happening, try to find another manager.
Booking Agent Cuts
Artist Managers and Booking Agents often get grouped together, but they couldn’t be more different. Unlike Artist Managers who are involved in every aspect of your music career, Booking Agents primarily deal with booking live concerts and other personal appearances. Another large distinction between Artist Managers and Booking Agents is that while anyone can become a manager (for better or for worse) a career as a Booking Agent is a highly regulated field. Booking Agents are regulated by the unions: AFM (American Federation of Musicians) for musicians, SAG-AFTRA (Screen Actors Guild and American Federation of Television and Radio Artists) for vocalists and actors on recorded media, and Actors’ Equity Association for live stage. These unions put a cap on how much the agents can charge, roughly 10%. The contracts are also provided by the unions so read them carefully to make sure you’re not signing anything that you will regret.
How does the money flow?
Earlier we covered how money flows from Record Labels and Digital Distributors in the Mechanical Royalties section. But there is more money out there for you to collect and this could be the difference between being able to pay rent or not! The bad part is that this is where it starts to get complicated when it comes to on-demand streaming platforms such as Spotify, Rdio, Beats, or Rhapsody. Depending on your status as an artist (meaning whether you are signed to a Major Record Label, Independent Label, or are an Indie Artist yourself) the flow of money changes drastically. Let’s take a look at how the money flows.
1. Major Record Labels
This chart does a great job of splitting up the Two Types of Copyright clearly by the horizontal dashed line—Songwriting Royalty on top and Sound Recording Royalty on the bottom.
Let’s start above the dashed line in the red where we deal with the Songwriting Copyright. The streaming music royalty for the music composition is split between PROs as a Performance Royalty and publishers as a Mechanical Royalty after the publisher takes their cut for collecting the money in the first place. PROs then subsequently pay the appropriate splits to the songwriter and publisher of the song.
Sufficiently confused? Good thing the next part is much easier.
Below the horizontal dashed line on the graphic, we have the flow of money for the Sound Recording Copyright. This is paid directly to the record label and then depending on the details of your record contract, you will receive 10-50% just as we discussed above in the Record Label Royalties section.
2. Indie Record Labels
Now that we’ve gone through how money flows for Major Record Labels you will be pleased to find that it is incredibly similar for Independent Labels. The biggest difference that you will find is that there are a few more middlemen that snatch (okay maybe too strong of a word) some of your money along the way.
For independent labels, Mechanical Royalties pass through a mechanical licensing or publishing administrator. Publishing Administration takes 15-20% depending on the service agreement and then the Publisher, just like before, takes another 50% on top of that before hitting the songwriter's bank account.
The flow of money for the Sound Recording also has an extra player. Aggregators are a conduit to help distribute your music globally through digital stores and streaming platforms, basically like CD Baby but on steroids. Aggregators take a percentage of every sale before the funds reach the record label’s bank account. Lastly, the artist gets paid their cut—which is usually much higher when compared to Major Record Labels.
3. Independent Musicians
Lastly we have independent musicians. Although it’s fun and important to learn about the music business at large, this section here is most likely what will apply to you the most. I’ll go a little extra in-depth so that you can feel completely confident in how your money comes in.
For Songwriter Royalties, independent musicians act very similarly to independent record labels. The major difference is that you will need to seek out your own mechanical licensing agent or publishing administrator—this is no small task. Landing a pub admin deal is based on your clout as an artist, as well as your ability to earn dolla dolla bills. An excellent alternative for many artists is a publishing administration service such as CD Baby Pro, Songtrust, or Tunecore. For a small fee, publishing administration services collect publishing on your behalf while retaining an additional percentage of everything they collect. This is an excellent option for independent musicians who need to outsource their publishing.
For Sound Recordings, indie musicians are again very similar to independent record labels. The difference is that aggregators for independent musicians are limited to digital distribution. For a small fee, a digital distributor such as CD Baby, Distrokid, or Tunecore will digitally release your music across a variety of streaming sites and music retailers. Same as before, digital distributors might take a percentage of every sale before the funds reach your bank account, but this percentage is usually under 15%. Usually, your record label would take a hefty cut of your earnings at this point, but the benefit of being independent is that you get to keep everything.