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What are music royalties, and how do they work?

What are music royalties

Jonathan Papan

March 5, 2024

If you’re reading this, you probably understand that music is not just an art form, it’s a business. Behind every tune is an ecosystem of potential earnings for the artist. With a catalog of great songs comes more merch sales, more performance opportunities, and, of course, more streams. What are music royalties, and how do they work? 

Streaming services get their fair share of (well-deserved) flack from artists. The convenience of having millions of songs available on your phone caused a significant dip in physical album sales and with each stream paying out only fractions of a cent to artists, songs themselves are, for most, no longer a viable way to earn a living. 

However, there is an opportunity for artists to maximize the earnings of their music through royalties. Many independent artists have no idea that every play of their song has a small financial kickback on top of what the streamers pay. There are an estimated 250 million dollars in unclaimed artist royalties sitting in what’s known as the “black box.” After a certain period, these unclaimed “black box” royalties get redistributed to major labels and artists. 

That’s right. Your rightfully earned unclaimed royalties might end up in the pockets of Drake, Taylor Swift, Justin Bieber, and other multi-million artists. We’ll dive into music royalties, how they work, and how you can take advantage of them to maximize your earnings. 

What Are Music Royalties Anyway?

Music royalties are payments earned by rights holders of a specific piece of music. These payments are typically generated through various channels, including sales of physical copies, digital downloads, streaming services, public performances, and licensing for use in films, commercials, and other media. The distribution of royalties depends on the specific rights held by different parties involved in the creation and distribution of the music including songwriters, performers, record labels and more.

Music Publishers and Performing Rights Organizations (“PROs”) play a crucial role in collecting and distributing royalties on behalf of songwriters and performers. 

Songwriter Royalties

Songwriter royalties are earned when your song is performed live, broadcasted on radio, film, or television, or streamed online. Your songwriter royalties are collected by PROs who monitor public performances and broadcasts, collecting fees for songwriters and publishers. BMI and ASCAP are the two most popular PROs in the United States while SOCAN is most popular in Canada. 

PROs will collect these royalties every time your song is performed live, broadcast on public radio, streamed online, or even played as background music within a public setting (like a restaurant, cafe, or mall). 

If a song has multiple writers attached, they will receive different royalty amounts. In a band setting, the core lyricist and composer might take on the vast majority of the songwriter’s royalties. Other bands might decide to split things up evenly regardless of who did the majority of the songwriting. 

It’s good to note that if someone covers your song, records it, and releases it, you are entitled to songwriter royalties. The more your song is covered, the more royalties you are entitled to. As is the case with The Happy Birthday Song, which earns 2 million dollars a year in royalties.

*Want to track your radio airplay in Canada so you can see what royalties you might have in the future? Head to MTR to learn more about radio monitoring in Canada. Expanding in more music markets soon! 

Performance Royalties

Slightly different from songwriter royalties, performer royalties are, as the title might suggest, given to anyone who performed on a track, regardless if they were involved in writing it. If you are a writer who also performs on a recording, you will receive both songwriter and performer royalties. The amount of performer royalties is influenced by factors like the artist’s contract with the record label and the specific terms negotiated, but they are generally distinct from songwriter royalties.

This does open the door for some complications. For example, if you took part in recording a hit song in the early 2000s, left the band, and the song was re-recorded in 2024 without you, you may not be entitled to the performance royalties on the new recording. 

Another slight difference is performance royalties are only collected from digital performances like streaming and CD sales. Performance royalties are not collected through AM/FM radio. 

SoundExchange is the most popular collector of performance royalties.

Mechanical Recordings

Mechanical royalties are the ones most of us have already dealt with. All the money you see in your Distrokid account, for example, would be from mechanical royalties. Mechanical royalties are payments made to songwriters and music publishers when their songs are reproduced or distributed. This happens when music is sold in physical formats like CDs or vinyl, as well as through digital downloads and streaming services. 

The amount of mechanical royalties is typically a percentage of the revenue generated from the sale or distribution of each unit, and this rate is often determined by agreements between songwriters, publishers, and record labels.

The way mechanical royalties work can be a bit confusing. We would recommend taking a look at this resource to learn more about mechanical royalties and all the ways you can utilize them. 

Sync Licensing Royalties

Sync is one of the most profitable ways to earn money with your music. Sync licensing is when your music is used in a film, TV show, commercial, video game, or other audio-visual production. 

Sync fees can vary in earnings depending on the size and scale of the production. For example, popular classic-rock band Led Zeppelin, who often rejects the use of their music in feature films, was paid 2 million dollars for the use of their track “Immigrant Song” in Thor: Ragnarok. 

There are many services and agencies out there for artists to find sync placements. Some can earn you a couple hundred dollars while others can go up in the thousands. Music libraries like Artlist and Epidemic are good options for smaller artists looking to break into this world with small-scale productions. 
Sync agencies are another great option for artists, though there is a bit of a process to get picked up by one. Click here to read more about sync licensing and options for artists.

Master Recordings

Have you heard of artists fighting labels to “own their masters”? A master recording is the ultimate representation of a song, serving as the final recording intended for distribution and reproduction. Unlike performance royalties or composition royalties, which compensate the creators of the music, master royalties are earned on the final recording itself. The owner of the master recordings holds significant control over how the songs are disseminated, whether through physical copies, digital platforms, or commercial uses and stands to receive some of the most financial gain from their use. 

In the music industry, labels traditionally retain ownership or majority ownership of master recordings, giving them considerable power over the use of an artist’s music. However, in recent years, artists have increasingly sought ways to reclaim ownership of their work. Taylor Swift’s high-profile decision to re-record her early albums as “Taylor’s Version” is a notable example of an artist taking proactive steps to regain 100% ownership of the rights to her music.

In conclusion, getting a hold on your music royalties can unlock many opportunities and revenue streams for artists. By understanding and proactively managing your performance, songwriter, mechanical, sync, and master recordings, you can capitalize on the use of your music and find income streams far beyond the basic avenues most artists are aware of. 

Want royalties? Do you have a new recording that you want to promote to radio, media, music supervisors, curators, and more? Learn more about Play MPE’s music promotion distribution tool Caster here.

Just want to get started on promoting your music?! Fill out this form to connect with our industry relations team for a 1:1 consultation.

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