Demystifying the Concept of Music Royalties
Value-chain players in the music industry rely on royalties generated by licensing copyrighted songs and recordings as a primary mode of payment. A “royalty” is a payment made to a right owner for the right to use that asset. A “royalty interest” is the right to collect a share of future royalty payments.
Music royalties, therefore, are payments made to rights holders, including songwriters, recording artists, and intermediaries like record labels, publishers, distributors, or producers for the licensed use of their work. It is important to note that for every song recording, there are two musical rights: “master rights” and “composition rights.”
The royalties generated by the sound recording copyright are called recording rights (aka “master rights”). Royalties emanating from Composition Copyright are called publishing rights (aka “songwriter rights”). In most cases, both rights belong to the same person.
- Recording Rights allow the copyright holder of a sound recording to control the copying and distribution of the recording, e.g., the music streamed on Youtube, Boomplay, etc.
- Composition Rights are rights that accrue to songwriters and music publishers concerning the melody, harmony, and lyrical composition of a song, i.e., sheet music.
Music publishing is a pivotal aspect of the music business. A publisher is an individual or organization in charge of the songwriting copyright. This is because publishing houses contract with musicians to take ownership of their musical creations. In return, the publisher is empowered by the terms of the contract to explore ways for a song to generate revenue for both the artist and the publisher. An independent songwriter without a publishing house can get publication royalties personally.
Types of Royalties
- Mechanical Royalties
Copyrighted songs can be physically or digitally reproduced and distributed to earn mechanical royalties. All new and old music forms, including CDs, vinyl, cassette tapes, and digital downloads and streaming via digital service providers (i.e., Spotify and Apple Music), are covered under this. For example, every time a record company copies and sells a CD of a songwriter’s music, the songwriter receives a mechanical royalty.
Mechanical Royalties are generated from the following means:
- Royalties from physical CDs
- Royalties from streaming; while streaming royalties fall under the mechanical royalties for performers, they are not as straightforward as mechanical royalties from physical sales. A single stream generates both mechanical and performance royalties.
- Performance Royalties
Performance royalties are generated when copyrighted works are performed, recorded, played, or publicly streamed. This includes terrestrial radio (AM/FM), television, bars, clubs, restaurants, live concerts, malls, and music streaming services. It is important to note that the Performing Rights Organization (PRO) collects these performance royalties for artists. This is similar to the Copyright Society of Nigeria (COSON) and Musical Copyright Society of Nigeria (MCSN), as both organizations administer and manage members’ rights in their respective industries.
- Synchronization Royalties
Synchronization or sync royalties are generated when copyrighted music is coupled or ‘synced’ with visual media. The use of copyrighted music in movies, television shows, commercials, video games, online streaming, ads, and other forms of visual media is permitted by synchronization licensing. Music publishers typically sell sync licenses.
- Print Music Royalties
Print royalties are not as standard for recording artists but are a common form of payment for classical and film composers. This type of royalty applies to copyrighted music transcribed to a print piece such as sheet music and subsequently distributed through a print music publisher. These fees are often paid to the copyright holder based on the number of copies made of the printed piece.
The basic understanding of these concepts of royalties brings to the forefront the importance of music contracts in negotiating parties’ rights to instant lump sum payments and future payments by way of royalties. These contracts help clearly define the rate and percentage of royalties and the quantum accruing to each party to the Agreement.