What are Music Royalties and More Importantly: Where’s My Money?
The easiest way to understand music royalties and how they work. (So you know who should be paying you!)
Music royalties aren’t the easiest subject in school, but we’re here to break it down as simply as possible. Think of this as your cram course.
What you’ll learn:
- What music royalties are
- What music copyrights are
- What sources trigger a royalty payment
- Who pays royalties
- How to collect royalties on music
- How much publishers take from royalties
- Why Bob Dylan sold his publishing catalog
- Why Taylor Swift is re-recording her albums
- How creators can get paid for their music royalties
- How Good Splits makes royalties payments easy
What are music royalties?
Music royalties are payments made to rights holders for licensed use of their music. Rights holders include creators like composers, songwriters, singers, producers, etc.
There are many types of royalties, including:
- Mechanical Royalties (Purchased songs from digital, CD, vinyl, cassette, etc.)
- Streaming Royalties (Plays on Spotify, YouTube, Apple Music, etc)
- Digital Performance Royalties (Plays on Pandora, Sirius XM, cable TV, etc.)
- Sync Licensing Fees (Usage in movies, shows, commercials, video games)
- Public Performance Royalties (Plays in venues like bars and restaurants and usually go to the publishing copyright owner)
- Neighboring Rights Royalties (Plays in venues like bars and restaurants and usually go to the masters copyright owner) *Not paid in the US.
- Grand Rights Royalties (plays and dramatic stage performances)
- Print Rights Royalties (sheet music and songbooks)
What are music copyrights?
A music copyright is what designates legal ownership of a musical composition or sound recording. The ownership includes rights for redistribution and reproduction and also allows the copyright holder to earn royalties.
Each copyright has their own corresponding royalties, some of which are mandated by government agencies like the US Copyright Office.
- The publishing copyright is for the composition (the song itself, the lyrics, the melody, etc.).
Since Dolly Parton wrote wrote the lyrics and the melody of “I Will Always Love You” she (with her publisher) own the publishing copyright.
- The sound recording copyright (or “master copyright”) is the audio recording that embodies the composition (in other words, you can still experience the publishing copyright in written-word or in a music instruction book, but you can’t hear it unless you have an audio recording. That audio recording is the master copyright).
Whitney Houston’s cover of “I Will Always Love You” by Dolly Parton is definitely a unique version of that song but she sourced the composition (or publishing copyright) from Dolly.
So for the most part, depending on how you heard the song (we’ll talk about sources next), when you hear Dolly’s “I Will Always Love You,” Dolly (and her publisher and distributing label) gets both the publishing and master royalty.
When you hear Whitney’s “I Will Always Love You,” her label that distributed the song gets the master royalty while Dolly gets the publishing royalty.
What sources trigger a royalty payment?
This comes down to where the performance, transaction, or use occurred.
1.Transaction: I bought a song on iTunes.
In this instance both holders of the publishing copyright and sound recording copyright receive a royalty. Owners of the publishing copyright are paid a mechanical royalty. That amount of that royalty is mandated by the appropriate governing body of the country where the sale happens (like in the US and Canada where there is a specific mechanical royalty rate set).
2. Transaction: I streamed a song on Spotify.
Again, both holders of the publishing copyright and sound recording copyright receive a royalty. Sound recording royalties are paid through the aggregator service (eg. Tunecore, Distrokid, etc.) that the holders used to distribute the song.
In order to receive your royalty for the publishing copyright you must be registered with a publishing company who has a licensing agreement with the service. The MLC (Mechanical Licensing Collective) has promised to help in administering these types of payments going forward for self-administered creators (those without a publisher) but it requires signing up for the MLC’s service to receive those royalties.
3. Transaction: I heard a song on terrestrial radio
In this instance the holders of the publishing copyright receive a public performance royalty which is negotiated and collected by one of the performing rights organizations (PRO’s: ASCAP, BMI and SESAC here in the USA). The payout depends on the number of plays and the audience size of the station, which is measured and reported out by third-party tools like Mediabase. Traditionally the sound recording copyright holder is not paid a royalty for this transaction.
- A public performance royalty is pretty self-explanatory and it applies to other things than radio. It’s simply a royalty that is paid for the public performance of a copyrighted work. If you heard Dolly Parton’s “I Will Always Love You” at an Applebee’s, on a Norwegian cruise ship, or covered by any number of people at any number of festivals, they all trigger a public performance royalty.
4. Transaction: I heard a song in a bar.
This instance is pretty similar to hearing a song on the radio (item 3) where the holders of the publishing copyright receive a public performance royalty.
- Something to note: If you buy a song and play it for yourself in your home or your car, that is considered private performances of the work. If you’re a bartender and you hook up your own phone to the restaurant’s stereo and play songs you purchased privately, that is now considered a public performance of the work and royalties are owed. Typically, venues and restaurants just purchase a yearly blanket license to play songs from PRO’s catalogs (BMI, SESAC, ASCAP), meaning they can play music through pretty much any app and cover their butt legally.
5. Transaction: I heard a song on my favorite TV Show.
In this instance both the publishing copyright holder and sound recording copyright holder receives a Synchronization licensing fee for the use of the song in the program. This is different per country (The UK uses a blanket license with a standard fee. But in other places, like the US, both copyright holders can negotiate that fee.)
There are more triggers and way more ways to earn money from your music, but this covers the basics.
Who pays royalties?
Usually the one broadcasting (or “performing”) the work will pay the royalties (the radio station, TV Production, streaming service, etc.)
How do I collect royalties on music?
The easiest way to collect publishing royalties owed for your compositions is to partner with a publishing company. There are many great ones out there and folks usually enter into publishing agreements based on their specific needs. If you are just looking to make sure you are collecting royalties owed to you, we’d suggest an administrative deal through a company like Kobalt or Songtrust.
If you are looking for a more involved relationship, helping with cowrites, strategy and song pitching you might benefit better from a traditional co-publishing agreement with a company like Concord Music Publishing or Universal Music Publishing Group .
Before you get too far down these roads make sure you have a great attorney representing your interests (we love folks like Jeff Colvin, Matt Cottingham and TD Ruth, but there are many great ones out there).
For your sound recording royalties, make sure your metadata is correct and you are registered with all appropriate agencies (like Sound Exchange and PPL). Be sure you are set up correctly to claim any uses on services like Facebook, YouTube, and TikTok. Most of the time you can do this through your aggregator service you are also using to publish to iTunes, Spotify, etc.
How much does the publisher take?
Publishing deals vary. Administration deals usually charge anywhere from 10–15% to collect in every territory. In other instances where a writer needs more services from the publisher, they can take as much as 50–100% of the earnings. These are more commonly referred to as co-publishing (50%) or full publishing (100%) deals.
What does this have to do with Bob Dylan selling his publishing catalog or Taylor Swift re-recording her old music?
Have no doubt about it, when Bob Dylan sold his control of his publishing catalog to Universal Music in 2020 for a reported $300 Million, some fans were surprised. The deal included some complicated estimates of his potential year-over-year earnings, but all things considered, Universal simply believes more artists will still want to cover his songs now and long after he’s gone. The change? When a new artist covers “Watchtower,” instead of Dylan receiving the royalties for the publishing copyright, those goes to Universal Music.
Why did he sell control? We can’t speak for Bob, but it’s a smart move for his estate (and $300 million is just a helluva lot of money). Read more: Bob Dylan Sells His Songwriting Catalog in Blockbuster Deal.
When Taylor Swift’s former music label Big Machine sold her master sound recordings in 2019, they were also looking for the highest bidder. That ended up being Scooter Braun’s Ithaca Holdings company for a reported $300 million which he then turned around an re-sold. Ouch.
Swift might have not been in the running for highest bidder, but she might end up having the last laugh. She began re-recording her first six studio albums and re-releasing them under new (but mostly the same) names. By creating her own versions of the masters, it helps drive down the value of the catalog that Big Machine sold.
Both Dylan’s and Swift’s catalogs are assets that generate growing revenue over time. And anything that can produce earnings over time is up for auction these days if the seller is motivated enough. Which makes managing your earnings even more important.
We created Good Splits to make it easy to stay on top of earnings. Once you know what you’re really earning for your music (after your collaborators are paid out their shares), you’ll know what is a fair (or not so fair) deal when the time comes to sell off your catalog for millions, too.
How do creators currently get paid for their music royalties?
Well, it’s not pretty, and it’s far from perfect, but most all music payments come down to the distribution.
1. Songs are distributed via a DSP.
In order for a song to be shared or streamed on the popular services, a creator uploads the song to a Digital Service Providers (DSPs) like iTunes and Spotify through an aggregator service like Distrokid, AWAL, CD Baby, Tunecore, and oneRPM.
2. Royalties are calculated and paid to whomever distributed the song.
If that song generates revenue through sales (downloads) or streams, the aggregator collects the revenue and pays the sole individual who originally submitted the song, typically on a monthly basis.
3. The individual who collected the earnings must payout collaborators.
Typically, whoever originally uploaded the song receives 100% of the earnings from the DSP. But they’re also the ones responsible for paying co-creators their share. And we know it takes more than one person to make a song (eg. co-writers,, producers, musicians, and sound engineers, etc.) And they could each be owed a different percentage of the song’s earnings.
4. Song creators pay other people to do the math (or wing it themselves).
Typically big artists (people you’ve heard on the radio) will hire a business manager to do this. But most of the little guys (80% of the music industry) do it themselves. But the more music you make (and the more widely distributed it is…hello, Europe!), the more unwieldy that spreadsheet gets.
There’s no way for their co-creators to audit them since they didn’t distribute the song and can’t check the data. That leaves a lot of unpaid people in the music business. If they are paid, it’s usually six to nine months before they see a paycheck (if at all)!
But we built a good replacement for step 4: Use Good Splits!
Good Splits is a simple tool that allows creators to quickly and easily calculate royalties from any aggregator service with any sales report. It’s free and easy to use. You can even pay your collaborators directly from the tool. All you need are your sales reports (documents from your aggregators), and the splits for each song.
Learn more at goodsplits.app.
Well, now you’re an expert. Go forth and spread the music royalty know-how! Then send your friends to Good Splits so everyone can stop asking “where’s my money?!”