The ultimate guide to music royalties

Let’s take it from the top. If you’re a musician and hold copyrights to your work, you can (and should) earn music royalties.

So what are music royalties? They’re the payouts you and your collaborators get any time a streaming platform, radio station or other music institution when use your tracks. A third party usually collects these payments and sends a check to copyright holders. Simple enough, right?

Royalty income, in theory, is a simple concept. But to really understand how music royalties work, you’ll want to learn about the types of royalties and unpack some copyright legalese. Ready to have it all explained in a music royalty breakdown? Keep reading to learn everything you need to know about copyrights, royalties and how to calculate your share of the revenues.

The types of music copyrights

Royalties are payments on copyrighted work. So to understand royalties, you have to understand copyrights. The music industry has two primary types of copyrights: master rights and publishing rights. Let’s delve into what each covers:

• Master rights: Also known as sound recording copyrights, master rights belong to the owner of a master sound recording. Musicians and producers transform compositions into the songs people hear on the radio or their favorite streaming services, so artists, labels and studios usually own master rights.
• Publishing rights: Publishing rights, sometimes called a songwriting or composition copyright, belong to the owner of the musical composition. These rights cover melodies, lyrics, chords, notes and rhythms.

The types of music royalties

Now that the types of copyrights are crystal clear, let’s tackle four common kinds of music royalties:

• Mechanical royalties: Physical and digital media like CDs, vinyl, cassettes, downloads and streaming plays generate mechanical royalties. In the U.S., the Harry Fox Agency (HFA) collects all mechanical royalties and pays them to rights holders based on the rates set by the Copyright Royalty Board.
• Public performance royalties: You might think a “public performance” happens when you’re jamming out on stage. But public performance royalties cover more than just live shows. You get paid any time a radio, TV station or venue plays your track for a public audience. A performance rights organization (PRO) collects these royalties.
• Sync licensing fees: Synchronization licensing refers to the process visual content producers must follow to obtain the right to use music in movies, TV shows, video games and ads. The party using the music makes a one-time payment to the copyright holder.
• Print music royalties: If your hit track is transcribed onto sheet music, you’ll make a kickback from the sales based on the number of copies printed.

Who earns royalties?

Do songwriters get royalties? Yes. What about labels? Yup! Pretty much everyone involved in the creation, production and distribution of a song earns royalties. Here’s a list of the most common stakeholders:

• Songwriters: Not every musician is a singer-songwriter – sometimes one person’s writing songs and a whole other group is playing them. So how do songwriters get paid? You probably know what we’re about to say – royalties. The lyricists and musicians who compose songs get songwriting credits, which earn them mechanical, performance and sync royalties. When multiple minds come together to make new songs, the artists involved should create a split sheet that stipulates what percentage of the song royalties each person will earn.
• Publishers: Publishing companies ensure songwriters receive royalties, and these businesses also take a cut of the royalties and any licensing fees earned.
• Record labels: Record companies help run musicians’ careers. They often hold master rights to a jingle, which means they can earn mechanical and public performance royalties. They then pay a percentage of the royalties to the artists they represent.
• Digital music distribution services: In a day and age when many listeners get their music on streaming platforms, digital music distribution services play an essential role. They act as a middleman between independent artists and platforms like Apple Music, Pandora, Spotify and iTunes. Part of their role is to collect mechanical royalties on downloads, album sales, online streaming and live performances. Distributors earn money by either charging artists flat fees or holding onto a percentage of the royalties.
• Mechanical rights agencies: Mechanical rights agencies like HFA collect mechanical royalties and keep a certain percentage of them.

How do music royalties work?

Some questions in life don’t have simple answers. Wondering how musician royalties work? Well, it’s complicated. The details change based on the region of the world you’re in, your role in the music creation process and how you distribute your music. Here’s a 30,000-foot view of the steps involved to give you a basic idea:

1. Create your music.
2. Team up with a distributor, label or other intermediaries to get your tracks out into the world.
3. Let listeners stream, download and purchase your recordings and perform your music at live shows.
4. Sit back as your intermediaries collect royalties and cut you a check for your share.

How are royalties calculated?

Different types of royalties are calculated differently, but one thing is true across the board: the calculations are complex. Royalty calculations consider several factors like the type of record label, rights ownership, music format and even the popularity of the performing artist. We’ll give you a high-level view of the process.

How are mechanical royalties calculated?

Artists, music publishers, songwriters, distributors and studios all take a cut on the sale of physical or digital media. That’s a lot of hands in the cookie jar, right? To keep things fair, the government regulates how much songwriters and publishers can earn per CD or digital download (currently 9.1 cents). Labels outline the artist's royalties and what percentage of sales each party will retain. Streaming royalties follow even more complicated calculations with ever-changing variables, so read up on how the streaming platforms you use pay artists or talk with your distributor to get a better picture of how it all breaks down.

How are performance royalties calculated?

Good news – performance royalties are much easier to calculate. Royalties are split down the middle between the songwriter and publisher. Remember that PROs handle royalties collection for performances, so fewer hands dip into that cookie jar.

Do your homework

Royalties can get complicated, but here’s the most important info to keep in mind: Copyright your intellectual property and carefully read the terms you’ve established with your distributor or record label. Royalty calculations are complex and laws change from region to region. So every artist’s experience of royalty earnings will look a bit different. But if you work hard at your music career and play the game right, you’ll be making money before you know it.