Song royalties are the music industries system of payment for songwriters, publishers and performers, when their copyrighted work is used by broadcasters and other end-users.
Famous and platinum record musicians earn millions through royalties. However, it is not all rosy, as many musicians also find themselves squeezed by recording contracts. In this article I plan on giving you an overview of how royalties work.
Below are the major types of song royalties:
Song Royalties Explained
Every song has 2 components for which royalties are paid out.
- The first component is paid to the original writer (or writers) of the song for composing it.
- The second is paid for the sound recording made by the publisher to whom the original writer has licensed his song for commercial exploitation.
Keeping this in mind, we now know that song royalties broadly consist of:
- Writer’s Royalties
- Publisher’s Royalties
Whenever a song is recorded, re-recorded, performed live-in-concert, or broadcast over radio and TV, writers of the original song gets paid for it. These royalties are of different types such as royalties collected by the Performing Right Society against Performing Rights of your song, for whenever a song is used in any public place.
These places pay the PRS for a license to use the music. Out of this the PRS gives your publisher a share, who then passes on to you, your share of the royalty. Similarly broadcasters, movie studios and video makers also pay royalty to the PRS, for obtaining a license for Synchronization Rights, a portion of which goes to the publisher and the writer.
Apart from this another type of royalty is the one which accrues to the song-writer and the publisher by way of sales of physical units of CDs, or whenever a song is recorded by video games, music distributors, AD Agencies etc., known as Mechanical Rights.
Strictly speaking, the musicians who work on the song recording are also entitled to a share of the royalties known as Performers’ Rights. However it is common practice to pay them a lump-sum and get their consent to waive their rights for future royalties from each sale made.
At this point of time you are probably saying, “All of that is fine, but how much do I make”?
What you make as a songwriter depends in its entirety on the deal you have signed with your publisher or record label when granting them a license to exploit your song commercially.
Typical royalty rates range from 10-20%.
10-20% of what, you might ask. Good question. Retail prices of CDs are often jacked up by 80%. If your royalty is a percentage of the wholesale price, you might earn as little as $1 for that CD selling for $18. This will further get split between your manager, co-writers or other band members.
Also remember that recording labels will deduct any advance that they paid you for recording the song, as well as any expenses incurred on promoting the song from the royalty due to you.
Expenses range from deductions for freebies, promotional material, breakages, unsold CDs, music video costs, art etc..
Once all the expenses are deducted from your share of the royalty, they cut you a check for the remaining amount.
You can try and release your music yourself if you wish to keep a greater share of the profits. This can be done through a profit-sharing deal with an independent label, publisher or distributor.
You can specify a 50:50 profit sharing deal with a publisher, who will then approach end-users on your behalf to sell licenses for exploiting your work commercially. Smaller labels too will be eager to enter profit-sharing deals since they rarely have the budget to take care of all the promotional and marketing activities required to sell your music on their own.
Regardless of the deal you have signed, remember that any advances that are given to you are likely to be recoupable. Don’t sign on a contract just because you have been offered a million dollar advance. Those million dollars will be deducted from all future royalties that your work generates. Only after that will you get any payment.
At this point you are probably wondering who is keeping track of how many times your work has been used commercially, how many CDs have sold, what the royalty is, how much your publisher gets paid, how much you get paid etc.
Performing Rights Organizations
However, the system is far from perfect, since a lot of events, performances and broadcasts simply don’t get recorded or reported to these organizations.
Besides, these organizations can only track and pay to members, they do not cover the underground music scene for example.
Your recording label will pay you your share of royalties out of their share of the royalties every quarter or half-yearly.
Make sure that your contract stipulates the exact terms of payment, as well as necessitates that your publisher or record label regularly sends you a copy of all the accounting related to your work, like the number of CDs sold every month in each territory, number of times your song has been broadcast etc.
In case you run into a dispute, it will be difficult to access and audit these records later. As always, keep a competent attorney at hand before you sign any contract or agreements.
Hopefully this article will have provided you with a few insights into how song royalties work. Armed with this knowledge you can set out to estimate your future earnings out of the commercial exploitation of your work, and also sign a contract that lets you keep a larger share of your rightful profits.