Unfortunately, most original music authors do not think like entrepreneurs and thus miss out on the less obvious ways to earn creative income. Meanwhile, the global copyright protection system allows music creators (not necessarily popular ones) to have several sources of income for living.
It does not occur to many that such seemingly intangible things as sound recording rights, musical composition copyrights, and lyrics are capital—even more important and valuable than cash money. Just as there is a return on investment in the financial world, royalties from strategically placed music provide a kind of “return on intellectual property” in the world of music royalties.
But let's start with some basics. The word "royalties" comes from a Latin root meaning "royal." It was borrowed first into Old French and then made its way into medieval English. Initially, the term "royalty" referred to things belonging to a king or queen. Today it denotes all the privileges and revenues of the British monarchy.
The second meaning of the word refers to the income and fees derived from using any intellectual property, including copyrights and patents. The proud expression "royalties," as if to suggest, implies that an author is essentially a king and has significant market privileges.
Take a look at this portrait. Meet Henry VIII (1491–1547), the English monarch famous not just for having an abnormal number of wives, but also for... writing music. Specifically, he penned the song "Pastime with Good Company," which became popular in England in its time. Additionally, he played the harp, lute, virginal, lyre, and flute…
"Kingly" income comes in various forms. Let’s take a look at what kinds of royalties authors and performers of music can receive. Keep in mind that anyone who creates literally any sound "hiccup" (sample, vocal hook, guitar phrase, riff, sound effect) in a sound recording automatically receives author and related rights.
Еven the underground scene today is being capitalized upon and provides some passive income. Some musicians with quite sophisticated ingenuity manage to make big money off these "useless" things like very simple, ambient background tracks.
For example, Swedish composer Johan Röhr under multiple pseudonyms released over 2,700 very straightforward instrumental compositions, which were streamed more than 15 billion times (!) on streaming platforms. Nothing is known definitively about the composer's earnings, but the press dug up that they could amount to millions of dollars...
So, let's examine what the main types of music royalties exist in the world in general. However, keep in mind that in different jurisdictions—say, the USA and European Union—there may be some legal differences.
Every musical recording is a potential business asset. It's somewhat like stocks in the investment world. An asset can go up in value, or it can become a "junk bond." Artists themselves (and, where applicable, their labels, producers, publishers, marketers, and other involved professionals) work to increase the value of that asset. A recording can generate several types of revenue for those holding the rights to it. Here are the main ones:
1. On-Demand Streaming or Revenue from Playing Sound Recordings on Streaming Platforms Like Spotify, Apple Music, and Tidal. Most modern musicians are aware of them, although some may struggle initially in choosing a music distributor who will actually collect the money for them.
2. Digital Royalties (Digital Sales) or Electronic Sales. This covers all transactions where a listener pays and downloads a sound recording onto their device. The number one platform in the world providing this service to musicians is BandCamp. It was recently acquired by publishing platform Songtradr, which is conducting now somewhat unclear and concerning experiments with the service.
Another well-known platform is CD Baby. Some similar services work directly with sound recording rights holders, while others use music distributors. Essentially, musicians can sell their recordings on their own—say, through their personal website. The only question is how to attract traffic to it.
Services like BandCamp offer a slight advantage compared to running your own online store because they can generate a small flow of random visitors to artists' "shops." In contrast, an artist would need to attract people to their own internet resource solely through personal efforts.
However, musicians can be devilishly inventive. For instance, in some countries, independent artists have been noted selling their recordings...on USB flash drives. As they say, why not?
3. Digital Performance Royalties – Revenue from Playing Music on "Internet Radio" Like Pandora, SiriusXM, and iHeart Radio. Fewer rights holders are familiar with this aspect. And music distributors might miss out on the trickle of money coming from "digital public performance."
Therefore, there exists at least one international service dedicated to collecting specific royalties from digital radio. It's called SoundExchange and allows registration and payments even for DIY artists not tied to any label contract.
4. Synch Licenses (Master Recording Use), or "Synchronization" of Master Recordings. Simply put, this involves the use of sound recordings in movies, TV series, documentaries, commercial advertisements, TV shows, online videos, games, and even for sampling and remixing. All of this costs money that is paid to the rights holders of the recordings via various channels.
"Synchronization" can happen through a label (which takes its share of the money), through a music publisher (taking its share), or through direct licensing from the artist if they aren't signed to anyone.
5. YouTube Royalties — The name itself is intuitive here. People across the globe create content for the video platform. Often, they use officially released music as background without obtaining a license for it.
In the past, this was considered "piracy" and "unauthorized use," but now YouTube uses an automatic system to recognize sound recordings and their publishers (including DIY artists). If no one reports a particular video for copyright infringement, the video platform shares part of the video's revenue with the master recording's rights holder.
Some labels and music publishers don't worry much about "unauthorized usage" of recordings on YouTube because they get a substantial revenue stream from it.
The above five types of royalties related to master recordings are also paid when a sound recording has multiple rights holders. Related rights may belong to musicians involved in the recording, the music producer who set the tone for production and/or handled it directly, the singer, etc.
Participants' shares are typically specified during the contract signing process with labels and music publishers. In collaborations between DIY artists, performers, and producers, the shares can be specified in a partnership agreement.
As you may have noticed, questions of royalties related to possessing sound recording rights can overlap with issues of royalties linked to authorship of the actual music material. This happens when the music author and the owner of all or partial rights to the sound recording are the same person. This is common in the world of production music, where composers often undertake all stages of music creation themselves.
All this may seem a bit confusing, but let's continue exploring. Authorship is not the same as owning rights or a portion of rights to a sound recording. Sometimes authorship and ownership of the master recording align. But often, a song has performers, producers, arrangers who are not the authors. In this case, the authors are the composer and lyricist.
Author shares are also specified in contracts or partnership agreements between DIY partners. Both authors and sound recording rights holders (such as music publishers or labels) are entitled to additional types of royalties. Let's list some of them, keeping in mind that certain points describe types of royalties that are almost identical to royalties related to owning master recording rights.
1. Mechanical Royalties (Physical) – Royalties associated with selling music on physical media. This includes payments from sales of CDs, vinyl discs, DVDs, tapes, flash drives, etc. PRO organizations do not handle the collection of these revenues. It remains the responsibility of sellers with whom publishers, labels, or DIY artists and authors have agreements.
2. Mechanical Royalties (Digital) – Same as point 1, but when selling files with sound recordings online, digital download platforms like BandCamp collect and deliver revenues to authors (and other rights holders).
3. On-Demand Streaming — The same as point 1 in the section on royalties for master recording rights holders. Music authors and lyricists also have the right to receive payments from Spotify, Apple Music, and all other streaming platforms. Their distributors collect these payments.
4. Songwriter Public Performance Royalties – These are payments to songwriters from any public performance of music (songs). For example, in restaurants, bars, at mass events, festivals, concerts. This applies to both live performances (including cover bands) and playing recordings. It also includes the public broadcast of music on certain types of radio and television (including online). In the world, organizations PRO handle the collection of these royalties.
5. Publishing Public Performance Royalties — The same as point 4, but pertains to works published through a music publisher. Typically, the publisher's share is 50%.
As we recall, in the section on royalties for sound recording rights holders, there was a mention of "synching" music. Well, authors (including lyricists) also have the right to receive payments from all types of use of their works in films, on TV, in games, and so on, provided they haven't shown poor judgment and sold their share under some stupid contract.
6. Ringtones. Did you think the ringtone market died? Nope, it's still generating over $2 billion annually!
Some labels and music publishers specifically cut sound recordings into ringtones and release them. Certain distributors have a similar feature. Ringtones can be created by both DIY artists and signed artists. The shares of income from selling phone melodies are distributed similarly to the shares of mechanical royalties. Remember, the shares for authors and performers are fixed in contracts or partnership agreements.
7. Lyric Display – Royalties for lyricists. In recent decades, websites featuring song texts and translations into different languages have become very popular. The music industry took notice and compelled major theme-based resources to make special payments to poets—through song publishers. It should be noted that the sites resisted for several years before finally giving in.
Because sometimes, completely absurd things happen in the world of royalties. For example, in some countries, local performing rights organizations may collect royalties supposedly for authors...without the authors' knowledge, without contracts with them, and without evidence that the author ever contacted the society.
We listed and briefly explained the most common types of music royalties in general and royalties related to vocal pop music (songs). Most of them are intuitively understandable.
However, aspiring composers and self-released artist-authors should remember: after reading this article and quickly absorbing the information, you will forget about some types of royalties...well, approximately within a week. And in the future, you may miss out on some types of passive author income.
So, if you came into the music industry seriously and for the long haul, you need to refer to reference materials on royalties and other legal matters regularly, communicate with lawyers specializing in copyright at least occasionally, and read the contracts offered to you with a magnifying glass and buried in boring legal books.
