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Understanding Music Royalties


Music Royalties

There are four (4) different types of royalties, each derived from a separate and distinct copyright. The four potential sources of royalty revenue in the music recording and publishing industry are: (1) Mechanical royalties: paid from record companies for record sold based on the exclusive to reproduce and distribute copyrighted works. (2) Public performance royalties: paid by music users for songs in the operation of their businesses and broadcasts based on the exclusive right to perform publicly copyrighted works. (3) Synchronization fees: paid by music users for synchronizing music with their visual images based on the exclusive right to reproduce and distribute copyrighted works and to prepare derivative works of copyrighted material. (4) Print music income: paid by music printers for sheet music and folios based on the exclusive right to distribute copies of copyrighted material.

What are music royalties?

Royalties have been defined legally as an agreement between a creator and someone who uses that creation. A royalty can be a percentage of future profit from sales or regular income, and will be settled by an agreement (usually in writing) between the parties. Songwriters in particular are given the right to license or sell their copyright to others in exchange for specific monetary compensation. For the music industry, this money earned is called a royalty.

How Royalties Are Promoted and Enabled?

The music publisher is usually the key player in promoting and tracking profits from several types of licensing:

•Synchronization Royalties: music that’s placed in movies and multimedia.

•Mechanical Royalties: physical product sales containing your music, e.g., CDs.

•Print Music Royalties: printed forms such as sheet music/ arrangements.

•Grand Rights: this is the "show music" category.

These royalties are generally collected in two ways. One way is through direct payments, usually for a specific use, and is negotiated on a case-by-case basis.

Live performances or television specials are two common examples of this. The second way is through professional groups, which represent artists or recording companies for the specific purpose of collecting royalties. The largest group that represents record companies is called SoundExchange, and has aggressively sought to calculate and collect profits from Internet and satellite broadcasters. The largest groups collecting for individual artists include: U.S. Performing Rights Organizations; SESCAP, BMI, and ASCAP.

The process can get complicated because everyone in the process wants to negotiate their cut of the royalties: the artist negotiates with the music publisher, the music publisher negotiates with radio stations, the radio stations negotiate with record companies, and so on.

Who collects my royalties?

Royalties are collected depending on the nature and source of the revenues. There are four (4) potential types of royalties in the music recording and music publishing industry: (1) Mechanical Royalties: Domestic mechanical royalties are collected by domestic record companies for records sold, or by Songwriters & Publishers that own Copyright “Works”. Foreign mechanical royalties are collected from foreign Performance Rights Organization ("PRO") by sub-publisher(s) for records sold in their territory. (2) Performance Royalties: Domestic performance royalties are collected by Performance Rights Organization: PRO’s issue blanket licenses to music users for publicly performing their songs in the operation of their businesses and broadcasts. To ensure prompt and timely payment of performance income from a PRO, each songwriter and music publisher must first join as a member and properly register their songs and current whereabouts. Foreign performance royalties are collected by foreign, government-owned PRO’s (Royalty Boards or Tribunals). To ensure prompt and timely payment of performance income from a foreign PRO, each songwriter and music publisher should enter into a "sub-publishing" agreement and properly register their songs and current whereabouts with the sub-publisher in each territory their songs are performed. The foreign performance societies contact each sub-publisher in their territory and request they designate an agent for the performance rights in all their songs. They then contact the users of those songs in their territory (e.g. local radio stations, nightclubs, TV, etc.), and grant them performance licenses to use all the songs of all the sub-publishers they represent.

(3) Synchronization Fees: Synchronization fees are collected by the song writer and/or music publisher that grants a synchronization license to users or broadcasters of the songs, which then create a derivative audiovisual work in the form of movies, TV programs, commercials, etc. (4) Print Music Income: Print music income is collected by the song writer and/or music publisher that grants a print music license to music printers which then prints sheet music or folios.


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