Understanding how royalties work can be one of the most complex and often confusing aspects of being a musician, but it’s imperative to be familiar with them—after all, it’s how you get paid. As music royalties are sliced more ways than a birthday cake, this guide will start with the highest level before delving into the more intricate elements of copyright and royalties, focusing on where the money goes, who it goes to, and how it gets there.

What Are Royalties, Actually?

First, let’s define what royalties actually are: Music royalties are payments received by rights holders of a piece of music (composers, performers, and their representatives) in exchange for licensed use of the work by, for example, a radio station, a television show, or a streaming platform. They are sometimes collected directly by the rights holder themselves, but more often than not are paid through an intermediary called a Performance Rights Organization, generally abbreviated as “PRO.” The most commonly used PRO’s are the American Society of Composers, Authors, and Publishers (ASCAP) and Broadcast Music, Inc. (BMI) We will cover PRO’s and what they do more in-depth in a second article, but all you need to know right now is that they are the intermediary between artist and consumer, responsible for collecting and distributing royalties on behalf of the copyright holders.

The Different Kinds of Music Copyrights

Next, it’s important to understand there are two different kinds of music copyrights and they each generate different types of royalties. They are: publishing rights and master rights. In most basic terms, publishing rights are held by the person or persons who wrote the piece of music and cover harmony, melody, and lyrics. Master rights are concerned with a specific sound recording of the composition e.g. what one would hear on an album, MP3, video performance, etc. Master rights are sometimes held by the record label who paid for the recording session according to the terms of the contract they have with the artist, but independent musicians usually hold the rights to their own masters. 

The Different Types of Music Royalties

Now that we’ve defined music copyrights, let’s look into the different types of royalties paid for them. Depending on which copyright you hold, you are eligible to receive different types of royalties.

• Mechanical Royalties – These are earned from the purchase of a reproduction of a song in physical or digital form, and are paid directly to the songwriters and copyright owners of a particular piece of music. The term “mechanical” is a holdover from the era when music sales were confined to physical media such as cassettes and CDs, but nowadays has been expanded to include digital sales.
• Public Performance Royalties – These are paid out to publishing rights holders whenever a song is performed live or broadcast in any sort of commercial setting e.g. on the radio, at a venue or club, in a shop, at Starbucks, etc.
• Neighboring Rights Royalties – This one sounds trickier than it is. The easiest way to explain them is that they are “next to” public performance royalties in that they are paid to master rights holders rather than publishing rights holders. However, these royalties are also dependent on local legislation. Some countries—notably the United States—does not require neighboring rights royalties to be paid in addition to public performance royalties.
• Digital Performance Royalties – These are royalties due to performing artists whenever their songs are played on non-interactive digital radio stations such as Pandora.
• Synchronization Licensing Royalties – These apply whenever a song is used during advertisements, on television programs, as background music in a movie, in video games etc. If a specific version of the song is used, royalties will be paid to both the holders of publishing rights and master rights.
• Streaming Royalties – The newest type of music royalty, streaming payouts are calculated at a different rate depending on the platform—e.g. Spotify pays a different rate from Tidal, etc.— which is something you should be aware of when deciding which platform to put most of your effort behind. In contrast to the digital performance royalties paid by non-interactive platforms such as Pandora, this royalty applies to “interactive streaming services,” where the user can choose which song they prefer to listen to. You can get more details on the difference between interactive and non-interactive streaming royalties here.
• Printed Royalties – These are royalties paid out for the sale of sheet music. Obviously these are not quite as common as they would’ve been in the past, but they still exist.

How Royalties Work in Action

With us so far? Now, we’ll take a brief look at royalties in action, following the process from beginning to end. This isn’t an entirely comprehensive overview, but it should give you a general idea of how it works. 

We start with the artist (that’s you!) writing a song. Fabulous. Then you record a version of it. Amazing! You have created two copyrightable works and are the proud owner of both the publishing and master rights—that is, unless the terms of your recording contract says that your label owns some of the rights. This stuff is tricky! But for the purposes of this article, let’s assume you own both.

While it’s probably tempting to want to put your song out into the world ASAP, the first step is to register your song with a PRO like ASCAP or BMI. As discussed above, this is an intermediary who will track, collect, and pay out the various royalties owed to you. They’ll do this in exchange for taking a cut from any money generated, but the good news is you’ll be able to negotiate that amount with them. As the owner of the master rights, you will also work with distributors to license your music so it can be heard on the radio, via streaming platforms, etc. 

Great news! Your song is a hit and your music is being played all over the place—television, radio, and Spotify to name a few. This is when it starts to generate several different types of royalties, such as mechanical royalties, public performance royalties, streaming royalties, etc. Cha-ching!

Your PRO of choice now begins to collect the royalties owed along with information as to how those royalties were generated. And then you, along with anyone else you have contracted to help you along the way—be that a record label, a distributor, a PRO—get paid. 

Though this is a very simplified overview of how royalties work, don’t be alarmed if it’s still a bit confusing—it’s a complicated topic! However, even a basic grasp on how earnings from music are divided will put you in a better position to understand how to earn money from your music and where that money will come from. In a follow-up post, we will get more specific about distribution platforms, different PRO’s, and even more in-depth about why holding onto your publishing rights is the key to financial success.