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How Music Royalties Work: Types of Music Royalties

May 8, 2023
3 min read

Music royalties are one of the most common ways to monetize your content. However, securing a steady income from music isn't always straightforward in this industry. For independent artists, royalty payments are crucial for staying afloat as they forge a career.

Provided your material is copyrighted, royalties are paid out whenever your music is played or reproduced. There are four main types of royalties you'll encounter, with mechanical royalties and performance royalties being the most common. However, synchronization royalties are becoming increasingly important in the digital age. Print royalties offer another revenue stream if you're copyrighting sheet music. 

Who Receives Royalties? 

Every piece of recorded music has two types of copyrights. The first is the sound recording copyright, otherwise known as the master copyright. While this copyright is attached to the recording itself, it doesn’t cover things like music and lyrics. 

Then there’s the compositional copyright. This covers elements like lyrics and music, along with any additional content that might be embodied in a particular song. 

As such, it’s possible for a piece of music to have multiple copyright owners. In some cases, a single person, or rightsholder, can own both of these copyrights. 

Different Types of Music Royalties

If you're an independent musician who's serious about making money, you'll need to get a handle on song royalties. Although mechanical and performance royalties are the most bankable, all royalty types can yield revenues. 

Recording Royalties

Rightsholders earn recording royalties whenever a sound recording is used or digitally reproduced. This can include a recording being sold in physical format, downloaded, or streamed via an on-demand service. In many cases, only record labels themselves benefit from these royalties as they’re the sole rightsholder. 

If an artist has financed and distributed their music completely independently, they remain the sole rightsholder. In these scenarios, artists themselves are then in a position to collect recording royalties. 

Even if an artist is tied to a distributor or record label, they can still generate revenue from recording side royalties. Non-featured performers can also earn a cut. However, this only applies if the terms have been agreed to.

Mechanical Royalties

Mechanical royalties can be traced back to the earliest days of the recording industry. Back then, mechanical royalties were paid out whenever a copy of a song was made. Nowadays, the industry doesn't rely on mechanical reproduction like it, but mechanical royalties are still around. 

In the current era, streaming services are the root of most mechanical royalties. Whenever a song is streamed directly by a listener on Spotify or downloaded via Apple Music, a mechanical royalty payment is made. 

In the case of Spotify, the Mechanical Licensing Collective (MLC) collects these royalties. In the United States, these mechanical royalties are then paid out to publishers. However, elsewhere in the world, mechanical royalties from streaming may be distributed to both publishers and songwriters alike. 

Royalty rates are pretty paltry. For every 100 streams, artists can expect to receive around $0.06. These rates aren't going to pay the bills if you're just starting out. However, once the number of streams crosses the million mark, those mechanical royalties can start to stack up. 

Collective management organizations (CMOs) and mechanical rights organizations (MROs) recoup royalty payments in the United States, distributing them back to artists and publishers. Blanket licenses with service providers like Deezer and Spotify typically cover streaming royalty. 

Performance Royalties

If your song is merely replayed rather than reproduced, this is classed as a performance. Your track might be getting some radio airtime or being covered at a live music event. It can also apply to when a song is played on a streaming radio service like Apple Music. In this case, you'll recoup both mechanical and performance royalties. 

However, you don't start earning performance royalties automatically. To start making money, you'll need to first register with a performance rights organization (PRO). If you're partnered with a publishing company, performance royalties will be split between songwriter and publishing royalties. 

Synchronization Royalties

Copyrighted music is constantly used in video games, TV shows, and movies. However, content creators can't use your recordings for free. Every time your music is synched to other content, you can earn synchronization royalties. 

Most of the time, these royalties are a one-off payment. However, if a top-tier brand is looking to use your music for a commercial campaign, these royalties can prove incredibly lucrative to rightsholders.

In recent years, the concept of micro-synchronization royalties has become more common. When music is synchronized to content on social platforms like YouTube and Instagram, you can potentially receive both mechanical and performance royalties.

Print Royalties

When it comes to sheet music, a different kind of royalty is called for. Print royalties are usually distributed between publishers and songwriters. In order to profit from these, you'll need to actually release your material as sheet music first. 

Most of the time, musicians never get around to this. Instead, they focus on performance and mechanical royalty payments. Admittedly, print royalties aren't going to make you a fortune. If someone wants to learn how to play one of your songs, they're more likely to stream it or follow a tutorial video. While print royalty revenues are minor, they're still worth exploring if you're a composer. 

How Does Music Royalties Work in the Download and Streaming Era?

The rise in streaming services has made it simpler for artists to reach global audiences. However, this makes the matter of royalties far more complex. Although revenue from downloads and streaming technically falls into the mechanical category, things aren't as simple as they are with physical sales. 

Every stream generates performance and mechanical royalties. Performance royalties vary between PROs and streaming services. A significant number of streams is needed for an artist to make money. To receive just $1, a song needs to be streamed 78 times on TIDAL. With Apple Music, you're looking at around 125 streams. Meanwhile, on Deezer, a song needs to be streamed more than 900 times to recoup the same amount in royalties. 

Many factors come into play when determining royalties from streaming.  Let's take Spotify as an example. How many premium users are paying for the service at any time is one factor. Revenue from in-app advertisements is another one. Furthermore, as pricing tiers vary between countries, the location of the listener also comes into play. 

Mechanical royalties from downloads are easier to determine. In the United States, a flat rate of $0.091 is paid out every time a recording is downloaded. 

Copyright Law and Royalties

Royalties are built on the concept of copyright. Original music is a valuable asset. As such, it needs to be copyrighted if you intend to make a profit from it. Copyrighting your music not only protects your intellectual property but also grants you exclusive rights to your work. Unless someone has a paid-for license to use your music, they'll be breaching copyright law if they do. 

Copyrighting your content is one of the easiest ways to start earning as a music creator. As the holder of copyright music, you're entitled to royalty payments every time your songs are performed live, broadcast over digital radio, or played in public.  

When's the best time to assert copyright? There's no one-size-fits-all answer here. Some creators choose to copyright their content as soon as they've written down lyrics. Others wait until music has been composed and a recording has been produced. The U.S. Copyright Office makes it fairly easy to protect your content. However, filing fees do apply. While making an application is straightforward, it can take more than six months to complete the process. 

Once you've secured the copyright of your songs, you can start making some real money. You're now free to reap the rewards from streaming platforms. You can also now enlist a PRO to take charge of collecting performance royalties for you. 

Music Publishers and Collection Societies

To receive all those royalty payments, you'll need to work with various organizations. Mechanical royalties from physical sales are generally passed on to music publishers from record labels. This is after a cut has been set aside for retailers. Mechanical royalties for streaming and downloads are a little different. This is where the Mechanical Licensing Collective (MLC) comes into play. 

Launched in 2021 to simplify streaming royalties, platforms pay for a blanket license with the MLC. It's then down to the MLC to dispense royalties to music publishers and songwriters. 

PROs take charge of collecting performance royalties. As already mentioned, you can only start collecting these once you're registered with a PRO. In the US, two of the biggest PROs in the business are ASCAP and BMI. There's also SESAC, although you can't simply opt in to this organization. Instead, SESAC tends to only approach established artists. 

Tips for Music Creators on Maximizing Royalties

If you want to start making money from your work, it's never too early to partner with a PRO or CMO. Once you're registered with one of these organizations, you'll be added to the Interested Parties Information (IPI) database, allowing you to profit from international royalty sources. 

As an independent artist, it's easy to put a premium on exposure. However, you shouldn't undervalue your work at the negotiating table. To ensure you're safeguarding future revenue streams and royalties, protect your publishing rights as much as possible. Ideally, you'll want to retain a 50% share. It's also important to outline who owns what. To make life easier, use a music management platform like IndieFlow to take care of everything from publishing admin to handling royalty splits. 

Master Music Royalties To Maximize Your Revenues

Every musician and artist manager needs to understand how music royalties work. The music industry has changed considerably in the past 10 years. Streaming services have redefined how artists can engage audiences, but this has significantly impacted royalties. 

To optimize profits, you need to have a solid understanding of the different types of music royalties. For most artists, mechanical and performance royalties will yield the biggest revenues. However, to do this, you'll need to copyright your content and sign up with a performance rights or collective management organization. 

Once your music has been recorded, copyright your content as quickly as possible. Online filing fees are negligible, but it's not the quickest of processes. Securing an IP number is also vital if you want to unlock global royalty streams. Independent artists are unlikely to make a fortune from downloads and streaming. However, some platforms are more profitable than others. 

To ensure everyone's getting their fair cut, it's best to use an all-in-one music management platform. This way, you can be confident that you're collecting royalty payments from all the right places. Furthermore, managing royalty splits is made simple.

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