What Are Royalties?

It's important to have a thorough understanding of music royalties, so we've written this guide to help explain how they work.

We've all heard of royalty cheques, but what are they?

Quite simply, royalties are one of the main ways songwriters, composers, lyricists, artists and publishers earn money within the music industry.

How Royalties Work

Whenever a copyrighted song or lyric is performed publicly, played on the radio, streamed online, sold as a physical or digital recording, downloaded, broadcast on television, or used commercially, the songwriter and other rights holders may earn royalties.

These royalties generally fall into four main categories:

1. Performance Royalties
2. Mechanical Royalties
3. Printed Edition Royalties
4. Synchronization Royalties

For most songwriters, performance and mechanical royalties are the two primary sources of royalty income.

Performance Royalties

Any establishment where music can be heard, whether through live performances or recorded music, is generally considered a broadcaster or music user.

Examples include:

• Radio stations
• Television networks
• Streaming services
• Nightclubs
• Concert halls
• Stadiums
• Cinemas
• Restaurants
• Shops and retail outlets
• Businesses that play background music

These organisations typically pay licensing fees to performing rights organisations in exchange for the legal right to use copyrighted music.

The money collected from these licences forms a royalty pool that is distributed to songwriters, composers, lyricists and publishers.

How Are Performance Royalties Calculated?

Broadcasters and music users maintain records of the music they play or allow to be performed. These records are supplied to performing rights organisations such as ASCAP, BMI, SESAC and other national collection societies.

The organisations analyse this usage data and distribute royalty payments to the songwriters, composers and publishers they represent.

Performing rights organisations exist to ensure that music creators are compensated whenever their works are publicly performed, broadcast, streamed or otherwise used commercially.

Mechanical Royalties

Mechanical royalties are generated whenever a copyrighted musical composition is reproduced.

Examples include:

• CDs
• Vinyl records
• Digital downloads
• Interactive streaming services
• Other forms of music reproduction

As a songwriter or publisher, you may be entitled to a royalty each time your composition is reproduced or distributed.

In the United States, the statutory mechanical royalty rate for physical and permanent digital reproductions has historically been set on a per-song basis, although rates and streaming calculations can change over time.

Mechanical royalties from streaming services such as Spotify, Apple Music and YouTube are typically much lower per use than royalties generated from physical sales.

Examples

If an artist records one of your songs and manufactures 1,000 CDs containing that song, mechanical royalties may be owed regardless of whether every CD is ultimately sold.

Likewise, digital downloads and eligible streams can generate mechanical royalties that are collected and distributed through collection societies and licensing agencies.

Synchronization Royalties

Synchronization (or "sync") occurs whenever music or lyrics are used alongside visual media.

Examples include:

• Films
• Television programmes
• Advertisements
• Video games
• Online videos
• Documentaries

In these cases, a synchronization licence is negotiated between the rights holder and the producer or company wishing to use the music.

The fee paid depends on factors such as:

• How much of the song is used
• The prominence of the usage
• The size of the audience
• The geographical territory
• The duration of the licence

Printed Edition Royalties

Printed edition royalties are generated whenever printed versions of songs or lyrics are sold.

Examples include:

• Sheet music
• Songbooks
• Anthologies
• Educational publications
• Licensed lyric collections

Summary

The four main sources of royalty income for songwriters and lyricists are:

1. Performance Royalties
2. Mechanical Royalties
3. Printed Edition Royalties
4. Synchronization Royalties

Understanding these royalty streams is an important part of building a successful songwriting career and ensuring that you receive proper compensation for your creative work.