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Music Royalties breakdown for professionals

Music Royalties breakdown for professionals

Music royalties can be tricky to fully grasp. For any music professional, their understanding is primordial. Music rights are changing at a really fast pace, considering the accelerated digitalization of the music industry. Record labels and music publishers are at the forefront of these new practices, and have to understand how to manage the new digital streams of revenue in music, the impact on copyright and how to keep up with music royalties management.

Let’s start at the beginning: what are music royalties? How does music rights management work?

What are Music Royalties?

Let’s go back to basics for a second: what are music royalties? Here is the short version: music royalties are payments perceived by Rights Holders (artists and their intermediaries such as labels or publishers for instance) as compensation for the use of their creations. 

A longer version would be this : copyrighted tracks and audio recordings generate what we call Music Royalties. This is basically a payment for the right to use a song, a track or any creation by an artist, a cut from the whole revenue generated from the use of an asset. The fees are distributed between the Rights Holders (artists, composers, performers, producers... Any contributor to the creation of the track). This can only work if the music is copyrighted or licensed (in France, you’d have to register at Sacem), and music rights are generally paid by the various organisms using music (such as media, streaming platforms or public spaces…).

Music royalties work based on copyrighted content. This takes us back to the concept of intellectual property; “copyright” is the legal term for rights held by creators over their original works. Copyright laws then offer artists exclusive rights on their tracks, making copyright licensing the very basis of music rights and royalties management.

Of course, copyright includes some nuances depending on the country we’re talking about. Trust me, I know that France is a specific case, but we’ll get to this in another article. For now, let’s focus on a brief music royalties breakdown.

Music royalties breakdown: the different types of music rights

Now let’s dig a little deeper. Music royalties can be divided in several categories. I’ll sum them up here, and you’ll be able to find specific articles that we’ll release for the next few weeks.

First things first, we need to keep in mind that there are two types of music rights: the Master and the Composition. The Composition is the copyright based on the lyrics, harmonies, arrangements… In brief, the composition of the track. The Master is the sound recording’s copyright, so basically what you can hear, the way the track is played.

That being said, let’s take a look at the different types of music royalties.

Mechanical Royalties: making copies of a specific content

Well “making copies” might trigger a few questions here. Music rights legislation is old, and we are talking less and less about selling copies and CD, more and more about digital revenues. What we call Mechanical royalties are payments due every time a track is distributed, sold or streamed. It’s called mechanical because, well, before it was mainly due when a disc was sold. Today, we’re mainly talking about streamed music.

Streaming royalties and digital sales would be the main stream of revenue if we’re looking at the latest music industry’s numbers. In all logic, streaming royalties are payments coming from the number of streams on a platform. Artists and record labels work with distributors to release their music online and get back their royalties (another topic I’ll address in a later post).

Distribution Royalties: perform or broadcast creations

Let’s start on distribution rights with performance royalties. Keep in mind that there are two types of copyrights in music (Composition and Performance). Performance royalties are coming from the broadcast of tracks in a public way: either through streaming platforms or more traditional broadcasting means. This goes for TV and radio for example, but also for live concerts, which are managed by performance rights organizations, but we’ll get to that later.

As for Neighboring royalties, they’re the rights specifically paid out to the owner of the Master copyright. They’re called that way because they’re considered to be the royalties sitting right next to the Performance royalties (legislation’s logic).

That’s not all. Since the Copyright rules are very specific for radio, there could be some confusion. See, the US doesn’t recognize Neighboring rights when it comes to radio. The copyright model doesn’t require AM/FM radio to pay Master copyright owners, but they do when it comes to digital, satellite, cable radio. These are called Digital performance royalties (a bit confusing, I give you that).

Synchronization Royalties: linking a track to visual content

This one is easy: when music is linked to a visual content, artists get paid in royalties. This goes for movies, ads, TV shows etc. Everytime a track is to be used in that kind of content, they have to get a license from the Composition and Master owners. The rights between them can sometimes change and the Master owners can perceive a “master use licensing”.

Sync royalties work a bit differently than the rest of music rights. Sync deals are made directly with the music rights owners, making the sync industry way more independent.

Royalties Manager by Reprtoir

Obviously, managing all these music rights can be a bit of a brain teaser for artists partners and teams (record labels and music publishers). Since digital music revenue is becoming even more complicated if we’re including new usages such as livestream, a royalty accounting tool could be helpful. This is exactly what we built at Reprtoir with our Royalty Accounting Solution, let us know if you’re interested in a free demo by our team!

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