Royalties

In-Depth Explanation

What are Royalties in Music?

In the simplest terms, Royalties are the rent that someone pays to use your intellectual property.

When you write and record a song, you create a piece of property protected by Copyright law. If someone else wants to use that property—whether to play it on the radio, stream it on Spotify, or put it in a TV commercial—they must pay you for the privilege. That payment is called a royalty.

The music industry is notoriously complex because a single song is not just one copyright; it is two. Therefore, a single stream or broadcast generates multiple different types of royalties that are paid out to different groups of people.

The Two Halves of the Music Copyright

To understand royalties, you must understand the "split" copyright system.

1. The Composition (The Song): The underlying lyrics and melody. Owned by the songwriter and their Publisher.
2. The Sound Recording (The Master): The actual, physical (or digital) audio file of a specific performance. Usually owned by the Record Label or an independent artist.

When music is played, both sides of the copyright must be paid.

The 4 Main Types of Music Royalties

1. Mechanical Royalties

• Who Gets Paid: The Songwriter and Publisher.
• How They Are Generated: Whenever the composition is physically or digitally reproduced. This includes manufacturing CDs/vinyl, downloading an MP3, or the temporary digital reproduction that occurs when a user streams a song interactively on Spotify or Apple Music.
• How to Collect: Through a mechanical society like The MLC (in the US) or a Publishing Administration service.

2. Performance Royalties (Public Performance)

• Who Gets Paid: The Songwriter and Publisher.
• How They Are Generated: Whenever the composition is broadcast or performed in a public space. This includes AM/FM radio, TV broadcasts, live concerts, background music in restaurants, and digital streaming.
• How to Collect: Through a PRO like ASCAP, BMI, SESAC, or PRS.

3. Master Recording Royalties

• Who Gets Paid: The Record Label (and the performing artist, after Recoupment).
• How They Are Generated: Whenever the actual sound recording is sold physically, downloaded, or streamed interactively on platforms like Spotify and Apple Music. This is the largest chunk of money generated by streaming.
• How to Collect: Through your Digital Distributor (like DistroKid or TuneCore) or your record label.

4. Neighboring Rights (Digital Performance of the Master)

• Who Gets Paid: The Record Label and the Performing Artists (including session musicians).
• How They Are Generated: Whenever the sound recording is broadcast on non-interactive digital radio (like SiriusXM or Pandora). In most countries outside the US, this also includes terrestrial AM/FM radio.
• How to Collect: Through a Neighboring Rights Society like SoundExchange in the US or PPL in the UK.

The "Black Box" Problem

The music industry processes trillions of micro-penny transactions every year. If an independent artist does not proactively register themselves with all four of the collection pipelines listed above, their money gets stuck in the system.

Uncollected royalties sit in a theoretical "Black Box." If the rightful owner doesn't claim the money within a few years, the collection societies legally liquidate the funds and distribute them to the major publishers and labels based on their market share. Understanding how royalties work is the only way to ensure you are capturing 100% of the money your music earns.