How Royalties Work for Musicians

December 24, 2019

Royalties are profits paid to musicians and songwriters from the sales and commercial use of their music. Several factors will affect the final amount artists are entitled to.

Broadly speaking, there are two different ways to categorise royalties. These categories are based on which elements of the song are copyrighted. The first category is the musical composition, ie. the lyrics and melody. Composition royalties are rewarded to songwriters. The second category is the audio recording, which assigns royalties to record labels. These royalties are then allocated to the musicians they represent.

An artist can record a track, but do not have artistic ownership over the lyrics or melody. If a musician covers a song, they own the intellectual property of their unique recording. However, the original songwriter will also be entitled to royalties. If a musician wrote and recorded an original song, they are entitled to both royalties.

Within these two categories there are several types of royalties, depending on how the song has been used commercially:

Mechanical Royalties

Mechanical royalties are royalties awarded from the production and distribution of copyrighted songs. Mechanical royalties are paid when a song is reproduced via a CD or downloadable track. In the UK, mechanical royalties are paid to the Mechanical Copyright Protection Society (MCPS), which represents over 17,000 artists and composers.

Do Songwriters Get Mechanical Royalties?

Yes, mechanical royalties will be paid to a songwriter when their music is reproduced. However, if the song was recorded by a band, a songwriter may wish to divide royalties between the bandmates. If there is a publishing deal in place, a portion of the mechanical royalties will also be paid to the publisher.

What is the Current Mechanical Royalty Rate?

In the United States, songwriters receive around $0.091 per reproduction. Outside of the U.S, songwriters are paid around 8 to 10% per reproduction. This total can vary across different countries.

Performance Rights Royalties

Performance rights royalties are generated through songs being performed or streamed in public. This covers live performances and broadcasts, as well as songs played in venues or as part of DJ sets.

Do Songwriters Get Performance Royalties?

Songwriters and musicians are entitled to royalties when their songs are performed or played in public. Later in this article, we will explain the process of royalty payments in further detail.

Synchronisation Royalties

Synchronisation royalties (or ‘sync royalties’) are paid when a copyrighted song is used for a film, TV show, video game or an advert. If a production company wishes to use a song, they will have to purchase a ‘sync license’ from a music publisher.

Master use license vs Synchronisation license

If a license holder wishes to re-record a song for a project, they would require a sync license. A master use license will permit use of a pre-existing record with the original artists.

How to Collect Music Royalties

To be eligible for royalties, musicians must be confirmed as the song’s ‘publishing rights holder’. This can be done by registering with a Performing Rights Organisation (PRO)

The UK’s two leading PROs are PRS for Music Limited and the Phonographic Performance Ltd Society (PPL). Musicians can sign up to both of these organisations online.

PROs are responsible for collecting royalties, to be shared amongst record labels and performers. In 2019 alone, PRS collected a record £746m for over 140,000 songwriters, an increase of over £30m from the previous year.

How are Music Royalties Calculated?

Performing rights organisations such as PPL will first collect royalties from licensees. They will then work with collective management organisations to calculate the total sum. The total sum will be distributed to record labels and publishing companies, who then allocate royalties to the artists. Royalties are distributed based on sales figures, or the number of times a song has been played.

How are Music Royalties Paid?

Royalties are paid by performing rights organisations to publishing companies and record labels. Record labels manage a song’s audio recording, whereas publishing companies work with songwriters and composers.

Songwriters give music publishers copyright ownership of the song in exchange for royalty rights. The royalties will then be split between the publisher and the songwriter. Record labels will promote and distribute recordings, generating mechanical and performance royalties. A percentage of these royalties will then be paid to the recording artist.

When are Music Royalties Paid?

Once registered, artists will receive an annual sum from PPL based on their UK income. Any international royalties will be paid out at intervals over the year. Royalties can also be backdated for up to six years. This is the maximum amount of time that royalties are allowed to go unclaimed.

Music Streaming Royalty Rates

Spotify now provides streaming services to over 248 million paid monthly users. 2019’s most-played artist, Post Malone, boasted over 6.5 billion streams this year alone.  Spotify also announced in May that they were increasing their pay-per-play rate to $0.00437 (£0.0033). To put this into context, 100,000 plays on Spotify generates a total of £330 in royalties.

Many of this year’s most-streamed songs were created by UK songwriters and composers. This is reflected in figures provided by PPL. They reported a 17% increase in royalty income from digital platforms in 2019, to a total of £145.7m.

Digital streamings generate both mechanical and performance royalties. These royalties will be shared amongst the contributors to the song. The percentage share, however, depends on how the song has been used. If the song is played on a streaming service, royalties are split evenly across mechanical and performance royalties. However, if the song has been permanently downloaded, 75% of the funds are allocated to mechanical royalties.

Who Pays Royalties for Live Music?

Whether it’s a bar, nightclub, or live music venue, organisations require a license to play music. This can be obtained via a PRO, or by negotiating a deal with streaming services. This ensures artists receive royalties from their songs being played at venues. Musicians are also entitled to royalties generated from ticket sales.

Live Performance Royalty Rates

Live music venues have two options for playing copyrighted music. They can pay either a flat annual fee or a percentage of revenue made from ticket sales. As of July 2018, PRS for Music charge venues a 4% minimum of their box office receipts. This is then divided based on the number of seconds a particular song is performed.

Are you a musician aspiring to begin a lucrative recording career? Before you start thinking about royalties, you need a top quality recording to pitch to record labels. 

We’ve provided professional studio recording services to some of the UK’s biggest artists, including Amy Winehouse, Stereophonics and Marina and the Diamonds. 

Contact Kore Studios today to book a recording session.