How Music Royalties Work
Making money in the music industry is tricky. Recording contracts are notoriously complicated, and every big recording artist has a small army of legal representatives to translate and negotiate these deals. In this article, we'll look into the world of music royalties and see how money is actually made in this industry.
Who Gets What?
The first thing we need to do is distinguish between recording-artist royalties and songwriter/publisher royalties.
In The Internet Debacle - An Alternative View, Janis Ian, a singer/songwriter, states:
If we're not songwriters, and not hugely successful commercially (as in platinum-plus), we [recording artists] don't make a dime off our recordings.
She's referring to the fact that recording artists and songwriters do not earn royalties in the same way. Recording artists earn royalties from the sale of their recordings on CDs, cassette tapes, and, in the good old days, vinyl. Recording artists don't earn royalties on public performances (when their music is played on the radio, on TV, or in bars and restaurants). This is a long-standing practice that's based on copyright law and the fact that when radio stations play the songs, more CDs and tapes are sold. Songwriters and publishers, however, do earn royalties in these instances -- as well as a small portion of the recording sales.
The only current instance in which artists earn royalties for "public performances" is when the song is played in a digital arena (like in a Webcast or on satellite radio), is non-interactive (meaning the listener doesn't pick and choose songs to hear), and the listener is a subscriber to the service. This came about with the Digital Performance Rights in Sound Recordings Act of 1995. This act gave performers of music their first performance royalties.
We'll go into more detail about the types of licenses and royalties later in this article. But first, let's look at song copyrights.
Song Copyrights
Works Made for Hire If you've written a song as a part of your job (maybe you work for an ad agency and have written a song for a commercial), you don't own that song -- the company does, because you wrote it as part of your job. This is also true if you've been commissioned to write something as part of a collective work. In this case, however, the agreement you sign will specifically state that it is a work "made for hire." |
Copyrights are very important because they identify who actually owns the song and song recording and who gets to make money from it. When songwriters write songs, the songs are automatically copyrighted as soon as they are in a tangible form (like a recording, or fixed as printed sheet music). In order to sue for copyright infringement, however, the song should be registered with the copyright office at the Library of Congress. Registration should always be done before the song is set loose in the public domain (available to hear on a Web site, etc.).
As copyright owner, you have the right to reproduce the copyrighted song, to create derivatives or variations of the song, to distribute it to the public, to perform it publicly, and to display it publicly. (Although we're not sure how you "display" a song.) If you have recorded the song with yourself as the artist, then you also hold the sound recording copyright (a different animal entirely) and have the right to publicly play or "perform" that recording by means of a digital audio transmission.
Copyright licenses
By giving someone a license, you are giving him permission to use your song. Once the song has been recorded and publicly distributed, however, compulsory licensing kicks in and everyone who wants to cover (record) the song can do so without your specific permission. They are required by law to pay you a statutory royalty rate, however, as well as notify you that they're going to release it, and send you monthly royalty statements. They are NOT allowed to make any changes to the words or melody or change the "fundamental character of the song" without the copyright owner's approval. If the song is changed, it is considered a "derivative work." Record companies rarely use compulsory licensing because they don't want to have to provide monthly royalty statements. Instead, they go to the copyright owner and get a direct license so they can negotiate the terms more freely.
Shared copyrights
If you write the lyrics to a song and your buddy writes the music, then you each own 50% of the song. You don't own all of the lyrics and your buddy doesn't own all of the music -- you each own 50% of the total song, music, lyrics and all. This means you can't give someone exclusive rights to the song on your own if you have a fight with your buddy. And, if you make any money on the song, half of that money must go to your partner.
Other forms of shared copyrights come into play when you or your publisher (typically you give control of the song's copyright to the publisher) sign over a portion of the copyright to another publisher for a sampled composition -- a song that uses a portion of another song.
Transfer of copyrights
In most music publishing agreements, there is a requirement that the songwriter assign the copyright of the written song to the publisher. This is known as a "transfer of copyright," or simply "assignment." This, in effect, transfers ownership of the song to the publisher in exchange for the payment to the songwriter of royalties in amounts and time intervals agreed upon in the publishing contract. Typically, song copyrights are held by the music publishers, while sound recordings are controlled by the record companies.
The Major Players
Songwriter - The songwriter is the person (or people) who write the lyrics and melody for songs.
· Publisher - The publisher is the person (or company) who works with the songwriters to promote their songs.
Publishers usually get either partial or total ownership of the song copyright, known as "assignment" or "transfer" of the copyright. They pitch the songs to record labels, television or movie producers, or anyone else who may be interested in it. They then license the rights to use the song and charge fees. Those fees are typically split 50/50 with the songwriter.
Publishers usually get either partial or total ownership of the song copyright, known as "assignment" or "transfer" of the copyright. They pitch the songs to record labels, television or movie producers, or anyone else who may be interested in it. They then license the rights to use the song and charge fees. Those fees are typically split 50/50 with the songwriter.
· Performer - Anyone who licenses the song in order to publicly perform it is the performer, or performing artist. The performer doesn't have control of the song (it's controlled by the songwriter or publisher) or the recording (it's controlled by the record company).
· Recording company (record label) - The recording company creates, markets and distributes the recordings.
· Performing rights organization (PRO) - A performing rights organization is an association, corporation, or other entity that licenses the public performance of nondramatic musical works on behalf of the copyright owners. The major performing rights societies are:
· Mechanical rights agency: The right to record a song -- mechanical rights -- for most publishers is obtained through the Harry Fox Agency in the United States, or the Canadian Mechanical Rights Reproduction Agency (CMRRA) in Canada. These agencies issue the mechanical royalties for songs, keep track of them, make sure the users pay, and provide statements to the publishers. They charge a set percentage of gross royalty collections for their service.
Types of Rights and Royalties
Licenses and their corresponding royalties fall into four general categories:
1. Mechanical licenses and royalties - A mechanical license refers to permissions granted to mechanically reproduce music onto some type of media (e.g., cassette tape, CD, etc.) for public distribution. The music publisher grants permission for the musical composition to be reproduced. The mechanical royalty is paid to the recording artist, songwriter, and publisher based on the number of recordings sold.
2. Performance rights and royalties - A performance-rights license allows music to be performed live or broadcast. These licenses typically come in the form of a "blanket license," which gives the licensee the right to play a particular PRO's entire collection in exchange for a set fee. Licenses for use of individual recordings are also available. All-talk radio stations, for example, wouldn't have the need for a blanket license to play the PRO's entire collection. The performance royalty is paid to the songwriter and publisher when a song is performed live or on the radio.
3. Synchronization rights and royalties - A synchronization license is needed for a song to be reproduced onto a television program, film, video, commercial, radio, or even an 800 number phone message. It is called this because you are "synchronizing" the composition, as it is performed on the audio recording, to a film, TV commercial, or spoken voice-over. If a specific recorded version of a composition is used, you must also get permission from the record company in the form of a "master use" license. The synchronization royalty is paid to songwriters and publishers for use of a song used as background music for a movie, TV show, or commercial.
4. Print rights and royalties - This is a royalty paid to songwriters and publishers based on sales of printed sheet music.
In addition to these royalties, the Audio Home Recording Act of 1992 brought about yet another royalty payment for songwriters and performers. This act requires that the manufacturers of digital audio recording devices and the manufacturers of blank recording media (blank cassette tapes, blank CDs, blank DVDs, etc.) pay a percentage of their sales price to the Register of Copyrights to make up for loss of sales due to the possible unauthorized copying of music. There are two funds set up where this money is funneled. One is the Sound Recording Fund, which receives two-thirds of the money. This money goes to the recording artist and record company. The other fund is the Musical Works Fund, which receives the remaining one-third of the money to split 50/50 between the publisher and the songwriter.
Foreign Royalties
The licenses we mentioned above (mechanical, performance, synchronization, and print) are also issued for the use of U.S. copyrighted material in foreign countries. The foreign agents, or sub-publishers, are responsible for managing the licenses in their countries and paying royalties to the songwriter and U.S. publisher.
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