An Entertainment Lawyer Breaks Down Music Publishing and Royalty Basics
The music industry has changed a lot since I first entered the game almost 20 years ago. Previously, the majority of a record label’s money came from the sale of physical music in the form of CD’s, vinyl/records and cassette tapes (told you I came into the game a long time ago)! Artists received a large portion of their income from these physical sales but also from doing live shows and touring (which we will discuss in a later blog article). The manufacturing of music, called mechanical royalties, makes up just one of the revenue streams from music publishing. The other publishing streams that we will discuss are performance-based royalties and synchronization, or sync royalties.
Before you can really understand music publishing, you should probably learn about music copyrights. You can check out my article that breaks down the basics in music copyrights right here. But just to recap, a song is broken down into two controlling units: the underlying composition (usually held by the music publisher) and the sound recording (usually held by the label). Futher complicating the copyright, the song itself is broken down into two separate entities; the writers share and the publishers share, and then the writer’s share is broken down into lyrics and music production. From all these shares, called splits, the various royalty streams are generated.
What Are Performance Royalties?
Performance royalties are royalties collected whenever a song is performed publicly. According to BMI, one of the leading PROs (Performance Rights Organizations) “[p]ublic performance occurs when a song is sung or played, recorded or live, on radio and television, as well as through other media such as the Internet, live concerts and programmed music services.” (see BMI’s website)
How Are Performance Royalties Collected?
The main PROs in the US are BMI, ASCAP and SESAC. Whenever a song is played on one of the formats listed above, the PRO’s collect fees from the entity that is playing the song, take out the PRO’s fee and then give the rest to the writers of the song according to the splits as registered with the PROs. This is why it is extremely important to register each and every song that you create with your PRO.
How do I register with a PRO?
Click the following links to go directly to the registration pages for each of the PRO’s listed. To help you research the following companies as well as many others, here is a link to a great blog article exploring the PROs. It is also very important to remember that when you register with any of these companies as a writer, you should also register as a publisher. Consider consulting with a publishing professional or an entertainment attorney to help with this process.
BMI – Registration information
ASCAP- Registration Information
SESAC- Registration Information
What are Mechanical Royalties?
Here is where it gets a bit more complicated. Mechanical royalties are basically royalties paid to an artist/writer whenever a copy of their song is made (such as when a CD or vinyl album is pressed). Each time a copy of the song is made, the artist/writer is entitled to the statutory mechanical rate which is set (in the US) by the government. The current rate for a physical recording or for a permanent digital download is $0.091 (for a recording of 5 minutes or less). The rate for streaming and limited downloads varies by a number of factors which we will discuss in yet another blog article. (Check out Harry Fox Agency’s website for more info) When artists/writers create a song for a record label, they will usually grant the label a mechanical license which enables the label reproduce and distribute the music. Any holder of a mechanical license is supposed to pay for the use of that license. (Click here for more info on mechanical basics)
Who Collects Mechanical Royalties?
In the United States there is a separate collection society (different from the PROs discussed above) that collects mechanical royalties. In the US, the Harry Fox Agency, along with a few others like Loudr and Easy Song Licensing, handle the majority of collections as well as mechanical licensing duties. These companies will collect on mechanical licenses as well as issue mechanical licenses for the license holders.
What is a compulsory license?
It is extremely easy to obtain a compulsory mechanical license from one of the agencies listed above so that you can legally create a cover of a song. A compulsory license is granted to basically anyone that requests one. Each of the agencies has their own fee structures which range from nothing up front to $15 per song (for a “setup fee” in their systems). After that, the licensee (party that acquired the license) must pay the licensor (agency providing the license) the compulsory fee for each time the song is used. Keep in mind that compulsory licenses only cover the composition element of the song, NOT the sound recording itself so you couldn’t use a compulsory license to side-step clearing a sample from someone else’s recording BUT you could record a new version of the song in which you control the sound recording (master). However, you can’t substantially change the song (i.e. lyrics or melody) as this is considered a derivative work and as such, requires negotiation with the composition controller as they have the exclusive right in determining if a derivative work can be published or not. (click here for more details)
What are Sync Licenses?
Have you ever watched a movie, seen a commercial, enjoyed a video streamed online or played a video game while music played in the background? Any time you hear music played in conjunction with moving pictures (video), the use of that music requires a Sync or synchronization licenses.
How do Sync licenses work?
Whenever music is used in a movie, commercial, movie trailer, video game, etc., the party using the music has to negotiate a sync license from all the owners of both the sound recording (usually the record label) and the composition (usually the music publisher). The licensing cost varies depending on factors such as the territory of use (i.e. North America vs. Europe vs. Japan, etc.), the type of use (movie theatres, streaming, TV, etc.), the popularity of the song, and so forth.
How do artists and writers get paid from sync licenses?
Usually, an upfront fee is negotiated for granting a sync license. These fees can range from very little to hundreds of thousands of dollars, depending on the artist, the song and the medium in which it will be used. Residual payments occur whenever the original work using the music, the movie, commercial, etc., is replayed. Thus, if you landed a sync license on a movie such as Eminem’s “8-Mile,” you would receive a payment whenever the movie was replayed on television.
Jason Bost, Esq., MBA, is an award-winning author (his book can be found here), adjunct professor of law, and attorney with a focus on entertainment law. He spent almost twenty years in the entertainment industry as an artist manager, A&R, entertainment executive for independent labels and now as an attorney. He can be reached by email at [email protected] or by phone at (973) 200-1111