Royalties: the issue that every single content creator out there struggles with. Whether it is images, videos or music, royalties are one of the most important things when it comes to creating content to be released. This topic is very complicated, so we will try to make it easy and simple to understand since royalties are essential for those who are in the music or entertainment business. In this article, we will be talking about royalties, trying to explain what they are, the different types, and how they work.
Music royalties are payments generated by the recording songwriters, artists, composers, publishers and any other copyright holder for the right to use their music. We can define it as fees that are paid to the right holders every time their music is used. This means that anyone that wants to use music that has copyright, needs to pay for each use of the song, as stated under the copyright laws. This is one of the main sources of an artist’s income and is an essential part of their work since royalties make up an important slice of the music industry.
But understanding royalties is not as easy as it seems. Calculating royalties can get really tricky, you may hope it is as simple as seeing how many people played a song on Spotify and giving a percentage of that to the artist but in reality, it is very far from it. If we follow this example, Spotify would pay different royalties for each play, and we need to take into consideration all the companies and people that stand between the artist and Spotify, like the record label, the distributor, the publisher, the collective manager, etc. And in between these parts, there are multiple deals and calculations that determine how much the artists will actually earn. Complicated right?
We have explained a little about what royalties are in music, and since it’s a complex subject we will start by the beginning. What does Royalty mean? Royalties refer to payments made to the owner of the right to use an asset. They are legally binding payments made to companies or individuals for the ongoing use of their work, royalties buy the right to use their property.
Now we can go back to explaining how royalties work in the music industry, and for better understanding, we will explain the different types of song copyrights, licenses, royalties and a list of the parties that get paid.
There are two components in music copyrights:
These are the rights that belong to the owner of a master sound recording. When we say master recording we are referring to an original sound or song used for reproduction and distribution. The master rights usually belong to the person or company who financed the recording, whether it’s the artist, the recording studio, the record label or another party. They can also be called Recording rights.
These are the rights that belong to the owner of the music composition, it refers to the chords, melodies, notes, lyrics, rhythm and any other part of the original music. They are sometimes called Songwriter rights.
Each of the song copyrights has a different type of license and generates different royalties based on the use of the composition or sound recording.
Before listing the six different types of royalties, it is important to highlight that even the same type of royalty can be paid out differently, depending on how the music is used. We know this makes it even more difficult to understand but royalties are a very complex topic. Understanding the different types of royalties will help a lot to get the idea of their work as an income for musicians.
1. Streaming Royalties
Thanks to the growing popularity of technology and streaming services, it is vital for artists to be able to monetize their music on these types of platforms. Recordings are licensed to streaming platforms, and the payments they receive are royalties.
2. Public Performance Royalties
These are the royalties earned when a song with a specific composition is played in a commercial environment. Nowadays we can divide them into two parts, the royalties paid by the conventional broadcasters like TV, radio, clubs, restaurants, venues, etc, and the royalties paid by streaming services.
3. Neighbouring Royalties and Rights
They are public performance royalties earned by the sound recording copyright holder. Above we stated that there are two different types of song copyrights, one for the recording of the song and the other for the composition. The recording copyright pays to the artists and the record label. The name is very confusing, but neighboring refers to the similarity to the performance royalties and how they go aside each other.
4. Digital Performance Royalties
Digital internet radio, cable radio and satellite radio have to pay the master’s owner, since the rule of not having to pay royalties to sound recording owners only applies to AM or FM radio. They could be considered neighboring-rights but it is simpler to just separate the term. So any radio that is not AM or FM needs to get a license from SoundExchange (royalties collection society) to use licensed music, as well as labels and recording artists, need to register to be able to collect the royalties.
5. Sync Licensing Fees
These royalties need to be paid when the music is synchronized to any other type of content, for example, TV shows, movies, video content for ads or video games. So anytime a song is used as a component of any other form of content, sync licensing fees apply.
6. Mechanical Royalties
These royalties are said to be the cousins of public performance royalties since they are paid to copyright owners and songwriters for the use of musical compositions. What sets them apart is that they are generated in different situations. While public performance royalties are meant to compensate for the exclusive right to perform music in public, mechanical royalties are compensation for songwriters for the reproduction of their compositions. In some cases, like music streaming, the two types of royalties go together.
So to make it simpler, mechanical royalties are generated whenever a musical composition is reproduced digitally or physically via on-demand streaming or download-to-own services.
-Licensing companies and sync agencies
-PROS or any other collective management organization
As much as we would love to go into details and explain this subject, it is incredibly complicated since royalties are paid in different ways depending on the context, the type of royalty, the platform, the country and many more factors. So we will try to give you a generalized view of how royalties work and are paid out.
1. Artists create
This is the first step of the process, when a songwriter writes a composition and an artist records a song, creating both parts of the music copyright (composition and master). After this the artist usually looks for a partner to promote and monetize his work.
2. Intermediates are contacted by artists and their representatives
Now the work needs to be distributed and registered to be able to earn potential royalties. This means licensing music to streaming platforms on the master side, and registering with the PRO (so it can collect royalties) on the composition side.
3. Music is played
Well, this one pretty much explains itself, it refers to the music consumption itself. But it can take millions of shapes and forms.
4. Royalties are collected and distributed by intermediaries
Once again this step can take very different forms depending on the music use and type of royalties, but the basic idea is that intermediaries collect payments and data on how and when the music was used, and with this information, they distribute the money collected to the right owners.
6. Rights holders get paid
Lastly, the songwriters and artists get paid and split the revenues with their partners ( record labels and publishers). On one side, the artists and record labels receive a part of digital performance royalties, sync fees, streaming royalties and neighboring royalties. On the other side the songwriter and the publisher receive the performance royalties, mechanical royalties, and sync fees (PROs and distributors take their cut).
And now that we are over with the heavy part, let’s share some funny facts about music. You won’t believe that every time this song was played it paid royalties, but the number one position goes to Happy Birthday by The Hill Sisters, who wrote this song for a kindergarten class and almost 130 years later we all keep singing it. It was bought by Warner for 22 million dollars and it was estimated to generate 2 million dollars per year. But in 2016, Warner went to court for owning the rights to this song and after the court ruling found that they were not the owners of the song lyrics, only to some musical arrangements, they offered to settle and pay. So months later the judge agreed to the settlement and declared it public to everyone.
Before this it made 2 million dollars a year, and experts say it made around 50 million dollars in total, making it the song that made more royalties in the history of music.
As you can see, royalties are not an easy subject to understand, yet alone to pay for. Content creators and filmmakers need to be very careful when using copyright music, since it can bring very serious issues if it is not done following the rules. And they need to calculate how much using a song will cost and if it is possible depending on the budget, since it can be extremely expensive to get a license to use popular songs.
That is why in Hooksounds we offer a vast collection of music and sound effects that are exclusive and original, created by top-class artists from all over the world to enhance content. And of course, it is 100% royalty free. This means that by buying a single license or getting a subscription you can use our music with no copyright claims nor subsequent payments (PRO payments or any other hidden fees)
Our goal is to make the process easy and safe while also making the content stand out by offering high-quality tracks for every type of content.
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