Primer for Artists & Team: Streams of Revenue for the Recording Artist
Before an Artist can truly become a business, they have to understand and stay ahead of the business or they will get taken advantage of in a very cruel industry. Knowing this, I wanted to put out a primer for Artists and their team to understand all of the different streams of revenue available, including royalty and publishing payouts in a extremely complicated streaming era. The entertainment industry is generating more revenue than ever has in the past and the opportunities for creative partnerships in all arenas exist and leveraging your Intellectual Property is key in building an empire. Let’s Begin!
Every song is split into two separate copyrights: composition (lyrics, melody) and sound recording (the audio recording of the song).
Master Recording Royalties
This is the most known and understood royalty. This royalty is paid out to artists and labels every time their master recording is downloaded or streamed (I have attached a chart below that shows which streaming services have the largest payouts). If you are completely independent and not working with a distributor or label, this money goes directly to the artist. If you are signed to an independent label, you are likely splitting the proceeds 50/50. If you are signed to a major label, you are only receiving 10% to 18% of your master recording. It is important to remember that any money the label advances to you must be recouped before you receive any money from the master recording payout. Because of this, most artists never even recoup. Another thing to remember is that you often sign your copyright to the master recording away in a major label deal (this is what people are referring to when you hear “own your masters”). Famous and talented producers also normally get points on a master recording, thus some of that 10% to 18% will be given to your producers if they negotiate and warrant a percentage.
Public Performance Royalties
Public Performance royalties are earned when a song is broadcasted or performed publicly. Performing rights organizations (PROs) such as ASCAP and BMI collect and distribute these royalties on behalf of songwriters and publishers. Specifically, you earn these when you song is played on traditional radio (i.e. 98.9 FM, 100.3 FM, etc.), played or performed at a live venue, bar or club, played in businesses and retailers of all kinds (hotels, restaurants, retail stores, big offices, etc.) as background music and when broadcasted on TV. It is important to remember that for broadcast radio, master recording owners aren’t paid, only songwriters. It is also important to note BMI and ASCAP are governed by consent decrees, which means an arm of the US “rate-court” can set the rates (per radio play, per stream, etc.). BMI and ASCAP collect for songwriting performance royalties. In exchange for the right to collect on behalf of songwriters across America, the rate court does not leave them with much room to negotiate.
Mechanical Royalties are paid to songwriters and artists when music is sold (downloads) and streamed (streaming mechanicals). You are collecting a mechanical royalty when your song is reproduced and sold as a ringtone, streamed through on demand streaming services (Spotify, Apple Music, Tidal, etc.) and sold for digital download (iTunes, Amazon, etc.). The word “mechanical” stems from the early days of the music industry when compositions were physically, or mechanically, manufactured and reproduced onto physical products for public consumption. Songwriting mechanical royalties are set by government through what’s called a compulsory license, which right now is $0.091 per reproduction of a song. Outside the U.S. the royalty rate is around 8 percent to 10 percent, but varies by country.
Mechanical collection societies (Harry Fox Agency) make it hard for independent songwriters who are not signed to collect their mechanical royalties. Thus you need to register your compositions with every single mechanical collection agency in the territories you’re generating high download sales and streams.
Digital Performance Royalties
See the language below provided straight from the SoundExchange website.
Digital royalties are fees that service providers such as Pandora, SiriusXM and webcasters are required by law to pay for streaming musical content. These royalties are paid by the services to SoundExchange, and accompanied with playlists of all the recordings played by the service provider.
It is our role to take these payments, allocate the fees to the recordings according to how often each song was played, and then pay the featured artist(s) and rights owners of those recordings. We have paid out more than $5 billion in royalties since our first distribution.
How Royalties are Divided
Under the law, 45 percent of performance royalties are paid directly to the featured artists on a recording, and 5 percent are paid to a fund for non-featured artists. The other 50 percent of the performance royalties are paid to the rights owner of the sound recording.
Webcasters and digital services that broadcast recordings over the Internet (e.g. Pandora, iHeart Radio), cable (e.g. Music Choice), and satellite (e.g. SiriusXM) in radio-style programming where the end users/listeners have limited to no control over the selection of music (non-interactive) pay a royalty for the digital performance of sound recordings to SoundExchange. This royalty is not for songwriters but for artists and copyright holders.
If you are an artist or copyright holder, register online with Sound Exchange to receive royalty payments that may be due to you. Registering is free, easy and fast.
“Synchronization,” aka synch royalties are tied to the reproduction of a song when coordinated with advertisements, television, film, or another system. It is important to know that both the artist and the songwriter will get paid under synch licensing agreements. These agreements are negotiated without the guidance of statute and are paid based on variety of factors including popularity of the song or artist, amount of song used and how crucial it is to the project. Thus, for movies where a crucial scene uses a song to shape a mood, a film company might have to pay the artist and songwriter a bit more.
Because an audio/visual project producer needs to contact both the owner of the sound recording (record label or artist), and the owner of the composition (songwriter and/or publishing company), if one party chooses not to agree then they can’t use that particular version. Producers with tight budgets can elect to use a cover version of a particular song in order to save money.
Print Music Royalties
This is a royalty paid to songwriters and publishers based on sales of printed sheet music. Print royalties are earned when a composition is transcribed onto sheet paper, printed in songbooks, and published for the general population to purchase and play your music at home on their personal instruments for fun. Print licenses are usually non-exclusive and limited to three to five years in duration. For a single-song sheet music, publishers are usually paid 20% of the marked retail price.
Live Music has become the top and key revenue stream for recording artists. With music festivals booming and ticket sales at a premium, an artist must capitalize off of this stream of revenue. It’s important to do shows early to promote your music and build a personal fan connection. As highlighted above most artists don’t even recoup off of their music if they are signed to a major label thus this is the premium source of revenue. It is important to make sure you are creating a personal and always improving live experience to build off of. This should be any and every artists focus.
Rihanna with Puma. Drake with Jordan. These are examples of artists who have leveraged their music to partner with conglomerates to create creative products. While most artists aren’t as big as Drake and Rihanna, their are plenty of local and national businesses that make sense for an artist to work with. It is important to have an agent and business manager who understands your brand and aligns you with brands that have a similar agenda. These partnerships can open new doors and create new fans for artists.
An artist can share the profits with YouTube for videos that they upload to the service which are original and owned by the artist, YouTube attaches an advertisement to these videos which creates a royalty. If you’re a master rights holder (i.e. a label or performing artist on a recording), and your recordings are on YouTube – whether on your own channel, your label channel, or anyone else’s channel – you have the ability to earn YouTube royalties via Content ID. The more views, the more revenue you generate. Psy’s “Gangnam Style” reportedly made $2 million from 2 billion YouTube views. Lyor Cohen, YouTube’s head of music, wrote in a blog post last year that YouTube’s payout rate in the U.S. is as high as $3 per 1000 streams.
If you are a touring artist or simply an artist creating local buzz you need to have merchandise at your shows and online but most importantly at shows. If you talk to anyone in the music industry who has any knowledge of touring they will stress how important shows are but even more important is having merch tables at these concerts. T shirts, hoodies and caps are all cheap to produce so brand them with your logo and start selling them at your shows. If you get 200 people to your show (which is a lot) and 75 people buy a product or two, understand you have maximized your revenue. Merchandise also allows you to creatively partner with brands to create memorable tour and online gear that fans love.
Like any other person who is generating money an artist should look at themselves as a business. While the music industry is amazing and seems to have figured itself out after a lapse, artists who use their money to invest in business and technology become moguls like Diddy and Jay Z. An artist who simply views themself as an artist is not maximizing earning income. Invest your money! See Chamillionaire.
Register with ASCAP/BMI, Harry Fox Agency and SoundExchange to make sure you are collecting your royalties.
Speaking of collecting your royalties, Create Music Group is trusted by the world’s largest artists, labels and brands to collect more royalties, pay out more quickly and provide more transparency than anyone else. Work with companies like them to help make sure you do not miss a dime!
Touring is important and crucial if you want to build a real career in music.
Selling Merchandise at shows will easily double your income.
Have an understanding of the music industry so you can not be taken advantage of!
Learn how to write and produce as much of your music as you can. Artists like Russ and J Cole who write and produce much of their own music collect royalties from every avenue imaginable.