Here are the most prominent ways to receive music royalties:
Physical or Download Purchases
The most traditional way of receiving royalties for music is from physical or digital sales (from a digital standpoint, this means anything that is a permanent download for the consumer to keep). There are typically different rates for the various types of sales for albums, which break down into LP (which stands for long-playing vinyl, which is synonymous with a full album) or EP (extended play album, which has up to five songs and is often used for promotional purposes). If you are contracted under a music label, there is a negotiated artist rate that typically falls between 13–20% of the wholesale price of a purchased album or single song. The wholesale price typically falls between $7–10. This is the price before the digital service providers add their markup to sell it at retail price. The most popular digital service providers for downloadable music today include iTunes, Amazon and Google Play.
Audio Streaming
Audio streaming services allow consumers to choose songs to play at will on the cloud. Revenue is generated from advertising and subscription fees. The royalties are calculated based on the negotiated compensation that the record label receives per subscriber. The royalties due to the label is based on the negotiated subscriber rate multiplied by the proportion of streams from the label against the total number of streams for each subscriber. The label then further distributes what is due to the artist based on their artist rate against the portion of the number of streams by that artist over the total number of streams from the label. If this sounds small, you aren’t wrong, as the range goes from .001 to .007 per stream. Here’s an article discussing the range of royalty rates among major streaming channels. These digital service providers includes Spotify, Apple Music, Napster and Amazon.
Performance Society
Performance societies collect royalties of public performances from radios, nightclubs, live venues and more. Performance societies negotiate the fees for the license, licenses the songs, collect the royalties due and distributes them to the necessary parties. While artists typically get their revenue from the ticket sales, performance societies are still due their cut to pay the necessary parties involved behind the performed songs. The well-known performance societies include ASCAP, BMI and SESAC, which are specific to paying performance royalties to songwriters, publishers and composers. SoundExchange is specific to digital performance royalties (from such sources as SiriusXM and Pandora) and pays music labels and artists.
Sync
Sync royalties are royalties due from licenses to use music in a film, TV show, commercial and video games. These are typically a flat-fee license for a negotiated term of usage.
Compilations
Compilations are albums that include multiple artists, such as movie soundtracks or themed albums like hits from a certain era. The royalties are based on a pro-rata royalty, where you receive royalties based on your portion of songs on the soundtrack (i.e. the album royalties divided by portion of the artist’s one song of the album’s total ten songs). As usual, the artist is then paid their artist royalty negotiated with the music label and/or compilation contract.
Ringtones
Royalties are due from a certain portion of the ringtone price from each downloaded ringtone, then distributed to the artist based on your rate with the record label.
There are over a dozen major digital service providers (and over 100 more that are smaller providers and international providers) to which music content can be licensed to receive royalties. Many music labels work with distribution companies to help streamline the effort of receiving reporting and collecting royalties from such numerous providers. However, as the margins become smaller and more convoluted with the increasing complexity of royalty structures, it becomes ever more difficult for new artists to become profitable.
As technology progresses, one of the persistent issues in the ever-evolving music industry is transparency. We at Soundeon are working to help artists gain clarity on their performance across multiple providers. This helps artists gain more autonomy, as well as improve reach with their audience due to an increasing visibility of the vast terrain of digital service providers, concert ticket sales and video content.
For a more thorough understanding of royalties, a great source for any artist, music label, producer or other music industry professional is All You Need to Know About the Music Business by Donald S. Passman.
If you would like to keep an eye on our project, follow us on Facebook or Twitter. We will keep you posted!
