What are music royalties?
UPDATED: February 20, 2013
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Royalties have been defined legally as an agreement between a creator and someone who uses that creation. A royalty can be a percentage of future profit from sales or regular income, and will be settled by an agreement (usually in writing) between the parties. Songwriters in particular are given the right to license or sell their copyright to others in exchange for specific monetary compensation. For the music industry, this money earned is called a royalty.
Music Royalties and the U.S. Copyright Office
For some music royalties, the U.S. Copyright Office has set up specific rates of royalty payments. Mechanical licensing fees (e.g., for songs played over a radio or sold on CDs) are among these. For these fees, the play rate is 9.1 cents per song or 1.75 cents per minute for songs over 5 minutes long. Internet broadcasters have lower rates than radio, but these rates have been steadily creeping upward for years. Note that though there are specific royalty rates (e.g. - the mechanical rate), the reality is that U.S. copyright rates are only used as guidelines…and are often not followed. This is because there is no easy or completely accurate way to keep track of all public uses.
US Copyright law gives songwriters the exclusive right (for a limited period) to transfer, lend or even sell part or all of their exclusive copyright protections. In return for these licenses, grants, assignments, and/or sales, the copyright owner receives "royalties." Thus, music royalties are generally considered monies earned from songs and/or sound recordings.
How Royalties Are Promoted and Enabled
The music publisher is usually the key player in promoting and tracking profits from several types of licensing:
•Synchronization Royalties: music that’s placed in movies and multimedia.
•Mechanical Royalties: physical product sales containing your music, e.g., CDs.
•Print Music Royalties: printed forms such as sheet music/ arrangements.
•Grand Rights: this is the "show music" category.
These royalties are generally collected in two ways. One way is through direct payments, usually for a specific use, and is negotiated on a case-by-case basis. Live performances or television specials are two common examples of this. The second way is through professional groups, which represent artists or recording companies for the specific purpose of collecting royalties. The largest group that represents record companies is called SoundExchange, and has aggressively sought to calculate and collect profits from Internet and satellite broadcasters. The largest groups collecting for individual artists include: SESCAP, BMI, and ASCAP.
The process can get complicated because everyone in the process wants to negotiate their cut of the royalties: the artist negotiates with the music publisher, the music publisher negotiates with radio stations, the radio stations negotiate with record companies, and so on.