The music industry is a vast ecosystem where artists, songwriters, and producers earn income through various revenue streams. Among these, music royalties and licensing play a crucial role. If you’re an artist, music enthusiast, or business owner looking to use music legally, understanding royalties and licensing is essential.
What Are Music Royalties?
Music royalties are payments made to rights holders (such as songwriters, composers, and performers) when their music is used or played. These royalties are collected by organizations and distributed to the appropriate individuals based on agreements and legal frameworks.
Types of Music Royalties
There are four primary types of music royalties in the USA:
Performance Royalties – Earned when music is played publicly, such as on radio, TV, live venues, or streaming services. Performance Rights Organizations (PROs) like ASCAP, BMI, and SESAC collect and distribute these royalties.
Example: If a band performs a cover of a Justin Bieber song at a music festival, the organizers report the setlist to a PRO like ASCAP or BMI. The PRO collects performance royalties and distributes them to the rights holders, such as Bieber’s publisher, Hipgnosis Songs Management, ensuring that the royalties reach Bieber and his collaborators.
Mechanical Royalties – Paid when a song is reproduced or distributed, such as through physical sales (CDs, vinyl), digital downloads, or streaming platforms. In the U.S., organizations like the Harry Fox Agency (HFA) and Music Reports, Inc. handle mechanical royalties.
Example: When Spotify users stream Olivia Rodrigo’s song, Spotify must pay mechanical royalties to her record label and publishing rights holders. Likewise, when vinyl editions of an album are produced, a share of the revenue goes to the songwriter and composer.
Synchronization (Sync) Royalties – Earned when music is used in visual media like movies, commercials, video games, or TV shows. Licensing agreements are typically made between music publishers and media companies.
Example: If a Netflix series features a song by Billie Eilish, sync royalties are paid to the rights holders. A real-life example is when Stranger Things used Kate Bush’s Running Up That Hill, leading to a massive resurgence in the song’s popularity and significant royalty earnings for the artist.
Print Music Royalties – Generated when sheet music is sold or licensed. Though less common, print royalties are still relevant for classical and choral compositions.
Example: When a high school orchestra purchases official sheet music for John Williams’ Star Wars theme, print music royalties are paid to the composer.
Understanding Music Licensing
Music licensing is the process of granting permission for a song to be used in a specific way. It ensures that artists and copyright holders receive fair compensation when their work is used commercially.
Common Challenges Artists Face
Music licensing and royalties are where a lot of misunderstandings and challenges arise, especially for artists who are focused on creating music and don’t always have the time to dig deep into the business side. Here are some key challenges:
Unclear Contracts – Many artists sign record or publishing deals without fully understanding the terms. This can result in losing significant rights to their music, as seen in Taylor Swift’s battle over her master recordings.
Complicated Royalty Collection – Different types of royalties are collected by different organizations. Without proper registration with ASCAP, BMI, or HFA, artists may miss out on earnings.
Streaming Revenue Confusion – Many artists assume streaming pays significant money per play, but in reality, Spotify and Apple Music pay fractions of a cent per stream, requiring millions of plays to generate substantial income.
International Royalties – If a song is played in another country, different collection societies handle the royalties, making it difficult for independent artists to track and claim their earnings.
Composition vs. Master Rights – A major area of confusion is the distinction between composition copyright and master copyright. Songwriters and publishers receive performance royalties, but recording artists and record labels do not unless they own publishing rights.
Performance vs. Mechanical Royalties – Performance royalties are collected when music is played in public, while mechanical royalties are collected when music is reproduced and distributed. Many artists struggle to understand how these two interact, especially in digital streaming.
When Are Performance Royalties Paid?
Performance royalties are generated when a musical composition is:
Played on the radio (terrestrial, satellite, and internet) – Radio stations obtain blanket licenses from PROs and report plays to distribute royalties accordingly.
Streamed on digital platforms – Since users don’t own the songs they stream, each play is considered a public performance and requires royalty payments.
Performed in live venues – Bars, clubs, restaurants, and concert halls acquire licenses from PROs to cover public performances.
Played in TV, film, or advertisements – If a song is used in a commercial, show, or movie, public performance royalties are due in addition to sync fees.
Performance Royalties vs. Mechanical Royalties: What’s the Difference?
While both types of royalties are often collected together in digital streaming, they have different purposes:
Performance Royalties – Paid for the right to publicly perform or broadcast a song.
Mechanical Royalties – Paid for the right to reproduce and distribute a song (physical copies, downloads, streaming).
Who Receives Public Performance Royalties?
The main role of Performance Rights Organizations (PROs) and Collective Management Organizations (CMOs) is to collect licensing fees from entities that use music, such as radio stations, streaming platforms, venues, and TV networks. These organizations then distribute the collected fees as performance royalties to the songwriters and music publishers who hold the rights to the music.
However, if songwriters or their music publishers are not registered with a PRO or CMO, they will not be able to receive any performance royalties owed to them. Registration with these organizations is crucial, as it ensures that their music usage is tracked and that royalties are properly collected and distributed.
How Digital Streaming Impacts Performance Royalties
Digital streaming platforms have transformed the music industry in a multitude of ways. One of them is that they’ve created a new revenue stream of performance royalties for songwriters. However, while digital streaming has generated new interest in performance royalties, it’s still only one part of the pie: radio plays, performances in live venues, and performing as a part of a TV broadcast, movie, or advertisement all generate performance royalties.
How to Earn PRO Royalties on YouTube
YouTube has become a major platform for music, and you can earn royalties through your PRO (Performance Rights Organization) when your music is used. Here's a quick guide on how to get paid:
Content ID System
YouTube uses Content ID to identify music in videos by creating digital fingerprints of sound recordings. When your music is used in any video, the system detects it and automatically claims the royalties on your behalf, through your PRO.
Getting Your Music in Content ID
With a Record Label: Your label submits your music to Content ID.
Without a Label: Use an approved distributor to get your music into Content ID.
Once registered, YouTube tracks performances of your music and your PRO collects royalties for you.
Earning Royalties
YouTube sends data about performances to your PRO, which then claims royalties based on video views and usage. These royalties are paid by YouTube and distributed by your PRO.
What You Need to Do:
Register your music with your PRO.
Upload videos to YouTube featuring your music.
Ensure your distributor or label adds your music to Content ID.
Promote your videos to increase views and royalties.
International Royalties
While data from YouTube mostly covers U.S. views, most PROs worldwide have agreements with YouTube, so you may receive royalties for international views as well.
Real-Life Case Studies
Kate Bush’s Revival: When Stranger Things featured Running Up That Hill in a key scene, the song topped global charts again, earning millions in royalties. This shows how sync licensing can significantly boost an artist’s earnings.
Taylor Swift’s Masters Controversy: Taylor Swift famously re-recorded her old albums to regain control over her master rights after her original recordings were sold without her consent. This highlights the importance of understanding master licenses and ownership.
Lil Nas X’s Old Town Road: The viral hit started as an independent release, meaning Lil Nas X handled royalties without the backing of a Collective Management Organization (CMO). After signing with Columbia Records, licensing agreements were established to ensure proper royalty distribution, including payments to rights holders like Nine Inch Nails (due to a sample). This highlights how signing with a label changes how royalties are managed and distributed.
Conclusion
Music royalties and licensing can seem complex, but they are essential for ensuring artists get paid for their work. Whether you’re a musician, producer, or someone looking to use music legally, understanding these concepts helps navigate the industry better. By properly managing rights, registering with PROs, and exploring licensing opportunities, artists can optimize their earnings and protect their creative work. While this guide covers the essentials of music licensing and royalties for complete works, many artists also need to understand how to legally incorporate portions of existing recordings into new music. For a detailed exploration of this important topic, check out our companion guide Sample Licensing: Understanding Its Importance, where we break down the sample clearance process, potential legal pitfalls, and success strategies for both independent and established artists.
Are you an artist looking to monetize your music? Stay informed and take the necessary steps to secure your royalties and licenses!
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