How Do Music Royalties Work?

You make music. You compose, you produce, you write songs—and you want to get paid for it. This means you need a working knowledge of the music industry’s bread and butter: copyrights and royalties. Luckily for you, this stuff is easy.

Just kidding! Copyright law and royalty structures are notoriously byzantine, almost by design. It’s almost as if the people who came up with them don’t have artists’ best interests at heart...

So yes, if you want to figure out how the money should flow from the streaming giants to your pockets, you’ve got your work cut out for you. We’re going to try to make this as easy to digest as possible. The word “try” is doing a lot of the heavy lifting here.

But nevermind all that. You got into music to make something important, not to be perplexed by legalese—so let this be a simple starting place for an exceedingly laborious subject.

Copyrights

For every song, there are two copyrights. One covers the actual composition (melody, lyrics, etc.) while the other covers a specific recording of that song.

This divide is the source of infamous news hits, such as the Michael Jackson decision to buy the publishing rights to a bulk of the Beatles’ recordings (ending his friendship with Paul McCartney in the process). There’s also the time Cracker re-recorded an album of greatest hits to compete with Virgin Records’ competing Cracker compendium—a move that Taylor Swift has now followed with her own catalog.

Immediately, these two copyrights plunge us into murky waters: the songwriter may own the copyright to their hit song, but chances are that this song is administered by a publishing company, which means they take a cut for their services. Similarly, the recording copyright has its own cabal of people who take a chunk out of the profits, namely music labels.

Complicating matters further are multiple types of payouts nested inside these categories of copyright—such as mechanical royalties, performance royalties, and sync fees. Each of these addresses a specific copyright (either composition, recording, or both), which means various organizations and collection agencies are involved at every turn.

Let’s take a look at some of these licenses and royalties now. 

Sync licensing

We’ll start with the sync license, because in some ways, it’s the easiest to understand. You might hear that Sync is where the money’s “at” these days, and perhaps this is correct.

But what do people mean when they say “Sync”?

Imagine you’re watching a Wes Anderson movie. Any one will do. Either Andrew, Owen, or Luke Wilson is walking toward the camera in slow-mo, wearing a single-color tracksuit, while some probably British song clatters away in the background. You, my friend, are witnessing a sync license.

In order to get permission to use that song, Anderson’s people had to negotiate a sync license with the artist—or the people who represent the artist’s composition and their recording copyrights.  So, a sync license covers one thing and one thing alone: your song being “synchronized” to other media, such as TV shows, movies, video games, etc.

To make a sync license valid, the person seeking out your material has to secure the rights to both your composition and the recording of your composition (again, two different copyrights). This means everyone involved in both copyrights should see a payout.

Lastly, these licenses are negotiated on a one-to-one basis: a single sync license encompasses one song backing up one piece of media.

Mechanical royalties

When a song streams online, a mechanical royalty is due. When a CD is purchased from a store (this used to happen in the Old Days), a mechanical royalty is due. Anytime a record is bought from a shop, or some sheet music is purchased from Guitar Center—that’s right: a mechanical royalty is due. 

Any time anyone makes the active choice to access your song, a mechanical royalty is due: this is the royalty you should expect when your composition is sold or streamed in the marketplace—or, at least you ought to expect it. The amount paid out via mechanical royalties is actually a statutory rate set by governmental bodies in each country, rather than a negotiated rate like with sync.

Theoretically, however, the money should travel through a byzantine system of intermediaries to your publisher, who should give you a split no lower than 50% for the composition.

As methods of consuming music change, different types of mechanical royalties have reared their heads. This doesn’t change one fact: the payout for mechanicals are notoriously low. It’s gotten slightly better in recent years (certainly since 2015, when I helped write this article) largely due to things like the Music Modernization Act passed in 2018, resulting in the formation of the Music Licencing Collective, which tracks down mechanical royalties for artists.

Public performance royalties

You hear a song on the jukebox in your favorite bar. You hear your favorite band performing in a mid-sized venue. You’re minding your own business in the supermarket, trying really hard not to have the latest pop song siphoned into your brain. In all of these cases, you are witnessing a Public Performance Royalty in action.

Any time a composition is played in a venue—be it live in a bar, reproduced on a restaurant’s stereo, or played over the radio—a Public Performance royalty is owed to the copyright owner of the composition.

The way this royalty is executed and collected is, as you would expect, complicated. Performing Rights Organizations (or “PROs” for short, such as ASCAP, BMI, and SESAC) collect blanket licensing fees from any place publicly broadcasting music, including radio, TV, venues, shopping malls, airlines, bars, restaurants, and more. The PRO enters into a licensing agreement with the venue (or radio station, TV channel, what have you) in order to grant them access to the material.

So, if you’re signed with ASCAP, BMI, or SESAC here in the States, you should report your setlist to a venue any time you play it; theoretically, the venue would forward the setlist to the PRO in question, and the PRO should issue you a royalty for performing the song in public.

Streaming also generates a Public Performance Royalty, though the structure is a bit different.  Public Performance Royalties join Mechanical Royalties in a festival of remuneration called the “all-in royalty pool.” This is the total sum a streaming service has to pay to songwriters and music publishers for both Mechanical Royalties and Public Performance Royalties.

How these royalties are calculated varies by country—and yes, it’s complex. The split on them also changes depending on whether you’re repped by a major label, an indie label, or if you self-release. Typically deals are better for self-releasing, though unless you’re Radiohead, it’s an uphill battle to get noticed, let alone paid; there are no guarantees in the self-releasing world either, and no advances.

Whatever the deal, the public-performance side of the all-in royalty pool passes to the PRO, which then divvies the profits amongst the various shareholders.

Differences between mechanical and performance

So here’s where things get—say it with me—even more complicated. These complexities stem from a dualistic issue: we’re talking about two types of copyrights, one for the composition and another for the recording. But we’re also covering two different kinds of royalties: mechanical and performance.

The mechanical royalty is issued to the owner of the composition copyright, but is generated based on the use of the recording (click here for a deeper dive). The public performance royalty can apply to either copyright, but whether you’re paid out on the recording depends on the avenue of performance: theoretically, you’ll see a performance royalty for a sound recording played over English radio—but that won’t be the case here in the States. US Radio doesn’t pay out performance royalties on the side of the owner of the recording copyright.

That’s just terrestrial US radio, though. You are entitled to a digital performance royalty on the recording side for non-interactive streaming platforms (Pandora and SiriusXM, mostly). These royalties are collected through SoundExchange, a collection society designated by the US government for the sole purposes of getting you your internet money, or lack thereof.

So how do I get my money?

There are a multitude of organizations involved in this game, and different players are involved in payouts for compositional vs. recording copyrights holders.

As it relates to the composition, you have your publishers, which you hire to administer your compositional copyright (because as we’ve seen, this stuff is complicated, and if you spent time doing it, you wouldn’t have time for the actual music part). You have PROs, which collect performance royalties and pay the compositional copyright holders (publishers and songwriters). And you have mechanical licensing administrators specifically devoted to collecting mechanical royalties (such as the Music Licencing Collective and the Harry Fox Agency).

On the recording side of things, you have record labels and digital distributors (e.g. TuneCore, CD Baby, etc.), who administer payments derived from the use of the recorded music, specifically paid to the artist(s) / recording copyright holder(s).

I can tell you how the money ought to flow, but it’s probably easier to understand through a series of charts. The charts available at this website do a great job of explaining it.

Final tips

Let’s end this article with a list of things you can do to help you stay on track of what’s owed. I’ll keep it short, because I know this article is more like vegetables than ice cream.

Make sure your material is copyrighted. That’s the first thing. Join a PRO—that’s the second. Third, if and when your career builds up enough steam to start moving towards a full-time gig, you’ll probably want to hire a manager, who will help you build your team of specialist representatives (publisher, lawyer, etc.) These specialists can work these channels on your behalf so you can stay focused on the music while trusting your royalties are coming in.

Next, try to drive listeners to avenues that support you directly. You’ll notice that much of the music I mix and master is available on Spotify, but I point people to Bandcamp whenever possible. And always on the first Friday of the month, if possible.

You can also window your releases to take advantage of these more lucrative platforms: make your single, EP, or album available exclusively in one direct channel before subjecting it to the cold world of streaming and microcent payouts. David Lowery, of Cracker fame, wrote lengthily and cogently on this subject.

This by no means is an exhaustive exploration of copyrights and royalty structure. This is a subject that is taught in schools over the course of semesters. Indeed, copyright law is its own speciality. I hope this article gives you a starting point for how to break these concepts down. At the very least, it should let you know how much you may not know, and inspire you to learn more.