[Note: Performance royalties are distinct from mechanical royalties and sync license fees.]
Any time a copyrighted song is performed in public, performance royalties are due to the songwriter and publisher of the underlying composition, as well as to the recording artist who made the actual recording, and their record label. These entities are known as the rights holders, and generally speaking each of these four entities receives one fourth of the total royalty payment.
In today’s music industry these four roles often overlap in the same person or group, in which case, that entity receives each of the corresponding shares of the royalty payment.
A public performance of a song can be a live performance by an artist on stage, or a playback of a sound recording in any public context, including but not limited to AM & FM terrestrial radio stations; television stations; restaurants, bars, or sports arenas; internet sites; digital streaming services; even businesses that feature hold music on their telephone lines. All of the above are referred to as licensees. Licensees are defined as the entities that play the public performance of the song.
Songwriters and publishers register their compositions with a Performing Rights Organization (PRO). In the United States, the main PROs are BMI, ASCAP, and SESAC. These organizations collect royalty payments from all licensees, with the exception of digital streaming services.
- Restaurants and bars pay a flat rate “blanket license” to each PRO for unlimited use of all songs they represent. The PROs then calculate how to pay out these funds to songwriters and publishers based on analysis of trends on terrestrial radio stations in each market.
- Television and radio stations are tracked automatically by digital tracking systems and also by their own logs of what was played.
- Live performances are tracked by set lists that are submitted to the PROs by artists, managers, or venues. In the case of a live performance, no record label is paid.
Digital streaming services such as Pandora and Spotify use their own internal tracking of songs played to determine royalty payouts. These services pay performance royalties directly to recording artists through an independent service called Soundexchange. The streaming services pay writers, publishers, and labels via the PROs, at a negotiated rate which varies. Several major labels also own equity in Spotify, and thereby generate income that is not paid out to writers, publishers, or recording artists.
The royalty rates paid to rights holders by the PROs are determined partly by the U.S. Copyright Act, partly by negotiation, and partly by industry standard practices. Most of these are based on the historical practice of written sheet music (hence the role of “publisher”), and are increasingly difficult to apply to today’s complex world.
One notable exception to this system is that AM & FM terrestrial radio stations do not pay royalties to the recording artist and record label for songs they play. They only pay the songwriting and publishing royalties. This is based on historical practice.
Royalties are a huge and complex issue. For further reading, see the following online resources.
On music royalties:
Performance vs. Mechanical Royalties:
AM/FM Radio stations and why they don’t pay recording artists and labels royalties:
Performing Rights Organizations (PROs):