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What Are Royalties and Why Are They Important?
September 15, 2020

What Are Royalties and Why Are They Important?

Music royalties is one of the major ways that artists, songwriters, composers, and publishers get paid for their work. They hold a copyright on the music, which means anyone willing to use their work will have to get permission to do so. That permission is often expressed through a contract and a payment for the use of the music or other art associated with the music, such as lyrics or even CD art. This week, we wanted to get a little deeper on the matter.

Why Should Artists Care About Royalties?

Let’s start from the beginning: if a singer, songwriter, and / or any other music professional wants to make money in the music industry, they should care about music royalties.

When the public does not respect an artist’s copyright, they are not paying royalties as they should. In essence, they are stealing the artist’s work without paying to listen to it, as they are required to do under U.S. copyright law. Royalties are important because that is one of the main sources of an artist’s income. This fact is going to be increasingly true as artists (and the public in general) rely on technology, not just to get their music out to others, but also for live performances.

How Are Royalties Established?

Very basically, royalties are set up via contract. To be able to use (that is to say broadcast, integrate to a project…), you’ll need to get yourself what is called a “license.”

The concepts vary based on the particular role that each person plays. How a song is distributed will be entirely based on the various contracts that an artist or record label creates with each individual distributor.

The general outline of how royalties will work often goes as the following example. Imagine that an artist creates an original piece (which includes creating music and lyrics): 

  1. The artist works with his / her label to distribute the song through a particular group of radio stations.
  2. The label will become the intermediary in setting up deals with distributors, with input from the artist, and will create a contract that sets out how much the label will receive per time the song is played (or a variety of other factors).
  3. Then, once the contract is finalized, the radio will track how often the song is played over a specific period of time.
  4. Royalties are then paid to the label (and any other intermediaries involved), and the appropriate portion of the funds makes its way back to the artist. 

A royalty should be paid back to the artist whenever their work is used in any fashion. If a royalty is not paid, then there is either a problem with a particular contract or the artist (or its label or publisher) needs to take action to stop the copyright misuse.

And I know you are not new to the issue, as royalties can be overlooked by big platforms, or have difficulties to go to the right person in the end. Adding to this, the timeline can be pretty long for artists, meaning a clear strategy has to be put in place (when the resources allow it of course). And for that, you need to understand the different types of royalties.

What Are the Types of Copyright Rights for Music?

Each royalty is based on the type of license that is being used. First, it is important to note that each music copyright is broken down into two portions:

  • Master Rights

These rights belong to the copyright holder, which is usually the artist, but not always. Record labels or others who financed the recording may also be entitled to master rights. 

  • Publishing Rights

The publishing rights belong to the person who owns the music composition, which may not be the person who performed it. This type of right specifically refers to those who wrote the lyrics, chords, melodies, or rhythms.

What Are the Types of Music Licenses?

Remember de licenses we talked about a bit earlier? Well these are based on these two types of rights and can be developed for the use of any of these rights. Each of these licenses are summarized in terms of how they produce royalties in the list below:

  • Mechanical Royalties

A mechanical royalty generates income for the physical or digital reproduction and distribution of the work. This applies to all forms of how music is distributed, including CDs, downloads, and even streaming services.

  • Public Performance Royalties

This type of royalty takes place every time the work is performed, including being streamed in public. Performances increasingly occur online, which makes tracking performances and royalties related to them increasingly difficult.

  • Synchronization Royalties (or Sync Royalties)

A sync license allows someone else to use the music to pair with visual media. Some of the most common examples are films, commercials, video games, and online streaming. 

  • Print Music Royalties

Print royalties aren’t used as often as other types of royalties in pop / commercial music, but they remain an option. They apply when an artist shares their sheet music, for example (it is common in Classical / Chamber Music though).

The Challenge with Royalties for Music Professionals

Royalties are complicated, and the contracts that establish them are even more complicated. Tracking the various contracts with individual distributors and intermediaries can be overwhelming. As record labels and publishers, understanding and keeping up with whatever payments you are entitled to give and receive can be very difficult. That also means that asserting your rights under a particular contract is even harder.

There is also no meaningful way to keep track of all of your various contracts, agreements and obviously accounting. You might have tens or even hundreds of royalty contracts, making them virtually impossible to track accurately. Or at least tedious. Having tools developed internally or using a specifically tweaked software, or spreadsheets will inevitably be prone to human error and may lead to others taking advantage of you and your situation.

Reprtoir is proud to unveil the brand new product of our Software Suite! Royalties Manager is now on a private beta. Our new product, completing our software suite of a CMS dedicated to music business, will allow our customers to manage contracts directly in the dedicated workspace, keep control on the different chains of rights and include accounting. All in one space, to be sure to have the right calculations for every rights holders.

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