What Are Royalties?

If you’re anything like most alive people, you’ll probably want to get paid for your time and energy. If you’re a Recording Artist, you don’t particularly clock in to work or have a salary, so many don’t really grasp how to receive payment for making records. You’ll first need to consider that producing Records for sale, as with anything for sale, makes them quantifiable and therefore comes with specific metrics. Remember, you’re moving “Units” now, not just putting your song out.  When you distribute your music for sale, you’ll be taking part in a process called Licensing. Licensing is intended to ensure that the owners of copyrights on Records receive compensation for instances of their work being used.  When one licenses, they retain the rights to their work but allow other parties to use it. Depending on who does your Distribution, either you or the label will receive compensation for use of your record in Royalties.

A Royalty itself is payment made by the licensee to another that owns a particular asset, for the right to a continuing use of that asset. In this case the asset is your music which means congratulations!  You will and should get paid.  Royalties are split into 3 divisions, all 3 of which are different streams of revenue for a Recording Artist to take advantage of. These are Mechanical Royalties, Sync Royalties, and Performance Royalties. If you’re not receiving a large amount of all three of these in tandem, it’s safe to assume you’re more than likely not reaching massive amounts of revenue as these are the main ways Recording Artists profit.

Mechanical Royalties are the most quintessential Royalty as they’re literally in your job description. Selling Records.  It’s what the industry cares about. These Royalties were originally generated from literal Record sales, meaning pressed on vinyl, packaged, sent to the store, and then purchased. This is the “mechanical” in Mechanical Royalties.   As we moved from Records, to the CD, and now to Streaming, these Royalties now encompass all of those.

Sync Royalties are generated from Audio Visual licensing, meaning an Artist grants permission to release the song in a video format like YouTube, DVDs, or Blue-ray discs. This is a massive amount of revenue that is very underutilized by the standard Recording Artist, but consider how many commercials have music in them. Also, how often do commercials run a day? The answer is many. Each time your Record is licensed by a party for use alongside a visual, you’ll generate Sync Royalties. Alongside these Royalties, the Licensor also pays a sync fee, a one time installment for use of that product. 

Performance Royalties are the other half of your job as a professional Recording Artist, which ensure that you get paid for the “performance” of your music, including bars and restaurants, radio, bar-mitzvahs, elevators, etc. These Royalties are collected by your PRO (Performance Rights Organization), typically SESAC, BMI, or ASCAP, and become another source of revenue for you.  As with all legalese, the fine print is important. “Performances” are defined as any public use of your song which also includes Digital “Performances” like Pandora. This obviously also includes performing at live gigs and venues, as well. 

Now currently, there’s a war raging in the Industry between Recording Artists and their support roles, the Producers, the Engineers, and the Songwriters. If you’re asking yourself, “If I’m not a Recording Artist, am I still entitled to these Royalties?”  then rest assured regardless of what any Recording Artist has insisted, you absolutely are.  

For instance, Interestingly enough the United States government sets Songwriting Mechanical Royalties through what’s called a Compulsory License. This allows Songwriters to receive compensation when their work is chosen by an Artist or Label.  The Label pays the Publisher and the Publisher distributes the Royalties to the Songwriter in congruence with their Publishing deal. In AM/FM radio Songwriters exclusively receive Performance Royalties (as in the Recording Artist receives 0!), as there is currently no government requirement to compensate Recording Artists for this aspect of performance. On the other side, however, Recording Artists receive up to 5 times the amount of Royalties for Digital Performance like Pandora. 

Songwriters are paid through Sync Fees when their lyrics are used, and if a song is being used, no matter how small the portion, a license from the Publisher or Songwriter is always necessary. As a Songwriter, you will not collect Mechanical Royalties through your PRO.  In the United States there is only one agency that will collect Mechanical Royalties for a Songwriter, the Harry Fox Agency, with which you’ll need to register to get paid out. 

Producers fight the uphill battle every day by creating their own leases to ensure that they retain any amount of equity in their own product. In HipHop, beats are taken and used without permission every day, especially with the rise of the ‘Type Beat’, a youtube based International beat catalogue and umbrella term for creating instrumentals with resemblance to professional beat themes and Artist moods. Even with Tagging and Beat-stores, the YouTube-MP3 converter overcomes all needs to even contact the Producer, considering the size of this online catalogue and the amount of views per Beat. Understanding your rights as a Producer will ensure you see your ROI (return on investment) on the valuable time you spend crafting.

Off the bat, Producers are entitled to 3-5% of the Recording Artist’s Master Royalty. This is the Royalty generated from the creation of the Record and its final product. Recording Artists typically get 12-18% of the total Master Royalty from the Label.  Producers receive the 3-5% from this slice of the pie. Depending on the details of a contract or your producer acclaim, this number can go up to 25%, if not any negotiable amount as long as it’s agreed upon by all parties. Unlike Recording Artists however, Producers receive this money prior to any recoup besides their advance which is typically just recording costs. This means you’re paid from the first unit sold whereas Recording Artists only begin making money once all other costs have been repaid. You’ll be paid for the leasing and licensing of your beats, either by Artists needing to use your song (but can’t afford the price of the Exclusive Rights) or through Sync Royalties paid out by your Publisher when they’re used. Generally the Publisher and the Producer will split the sum of revenue 50/50, that 50% being your Royalty share. 

Now as for Engineers? Unfortunately, they are not entitled to any of these Royalties at all, but if you find yourself in a situation where you’re engineering for an acclaimed or famed Recording Artist, the hourly rate and compensation from the Labels that sent the Artist to your studio should be high enough. These hourly premiums are decided by the Engineer themselves as they independently contract through different studios. That being said, entitlement and contract are two separate things. IF you would like to receive these Royalties, you’ll need a Publisher and a previously agreed upon Royalty figure. If you’re registered as an affiliate of said publishing company then you become entitled to these Royalties. 

For any position you decide to play in the Industry, the important part is getting paid. That’s what a job is; the “Profession” in Professional. At any level of song creation, multiple people should be getting paid, not just the Artist alone, but knowing what you’re entitled to is beneficial for all roles. Now go get you a bag.