Understanding Music Royalties: A Guide to the Different Types, How They’re Generated, and Who Collects Them

Clicking one of these links will let you skip ahead to that section in this blog post.

• Intro and Legal Disclaimer

• Royalties Vs. Fees - What's the Difference?

• Assigning Rights to Organizations Who Administer Licenses for Your Music & Collect Your Royalties

• What Are the Two Main Categories of Royalties, and Why Are There So Many Royalty Types?

• Musical Works Royalties Vs. Sound Recording Royalties: Can One Song Generate Both?

• Types of Musical Work Royalties, How They're Generated, and Who Collects Them

• Types of Sound Recording Royalties, How They're Generated, and Who Collects Them

• What About Neighboring Rights Royalties?

• Places Where Music Rightsholders Generate Royalties (Micro-Sync / YouTube Content ID Royalties, Karaoke Royalties, and Ringtone Royalties)

• What Happens to Royalties That Don't Get Collected?

Intro and Legal Disclaimer

As an independent artist or songwriter, royalties are one of the primary ways to generate income along your music journey. Understanding how they work can maximize the value of your music.

Royalties are payments you earn when your copyrighted music is used, but they aren’t all the same. Different types of royalties are generated depending on how your music is used, and they’re collected by different organizations.

Let’s break down what music royalties are, how they’re generated from your work, and where you can collect them to make sure you’re getting paid for your creations.

IMPORTANT: This lesson is a direct follow-up to OCM Academy’s introduction to music copyrights. Music licenses and royalties are products of copyright ownership, so it’s worth your while to know the basics of music copyrights before reading further. Click here to check out "What Every Independent Musician Should Know About Music Copyrights in the U.S.".

Here is the part where I provide a legal disclaimer. This article is for educational purposes only. I am not an attorney, and this article is not a substitute for legal counsel. When it comes to building a business, always go to the professionals for the important decisions – such as an attorney for legal advice or an accountant/CPA for financial advice. Another disclaimer – this article includes affiliate links, so if you use an external link and make a purchase, I may receive a commission (thank you!).  

Royalties Vs. Fees – What’s the Difference?

In general, permission is required to use someone else’s copyrighted work, and permission is granted in the form of a direct, or voluntary, license.

A license is essentially a contract. Depending on the license type and what is agreed upon, the owner(s) may get paid:

• No payment at all

• A fee: these are usually paid up front, before the music gets used by someone else.

• A royalty: these are paid out on the back end, after the music gets used by someone else. Royalty amounts are usually calculated as a revenue share, where total revenue is multiplied by a predetermined percentage, commonly referred to as points in the industry.

• A fee paid up front and royalties on the back end

  
  

There are certain scenarios where permission is not required to use copyrighted music, including compulsory licenses and fair use. Compulsory licenses are different than voluntary licenses in that they do not require direct permission from the copyright owner(s). Instead, an individual or company can obtain a compulsory license and pay the statutory royalty rate set for that license. Statutory royalty rates are set by the Copyright Royalty Board (CRB).

Assigning Rights to Organizations Who Administer Licenses for Your Music & Collect Your Royalties

A core concept of copyright law is that the Author(s) of an original work hold exclusive rights to that work, which include the ability to grant or deny permission for others to use the work (again, with exceptions like compulsory licensing). An Author’s exclusive rights can also be sold, assigned, or inherited.

To maximize your reach and earning potential, you will need to assign certain rights to your music along the way. Independent artists often assign rights to a music distributor like CD Baby or Tunecore, who can distribute registered sound recordings, administer certain licenses, and then collect royalties on an artist’s behalf. Similarly, independent songwriters typically assign their public performance rights to a Performing Rights Organization (PRO) like BMI or ASCAP.

When you register your music with any entity working on your behalf, you assign that entity certain right(s) to do so. This also means agreeing to an organization’s terms and conditions. As you build your music business, you should always be aware of any terms and conditions you agree to along the way.

What Are the Two Main Categories of Royalties, and Why Are There So Many Royalty Types?

How and where music is used determines the royalty type(s) that will generate. Music can be performed and reproduced in a number of ways, and the different types of royalties provide a way to compensate the copyright owner(s) for nearly any scenario.

In music, royalties split into two main categories:

• Musical Works Royalties: Paid for use of the song composition (lyrics, melody, arrangement). These royalties are paid to songwriters. If a songwriter has a publisher, then the publisher may receive what is generally known as the publisher’s share.

• Sound Recording Royalties: Paid for use of the recording of a song, aka the master recording. These royalties generally go to performing artists and producers. If one has a record deal, the label may receive some or all of recording royalties.

Musical Works Royalties Vs. Sound Recording Royalties: Can One Song Generate Both?

In most cases, yes! There are tons of scenarios where multiple licenses are required for a single use of a song, which leads to multiple royalties. The most common scenario? It’s as simple as streaming a song.

Think of it this way - you can’t listen to a sound recording without simultaneously hearing the underlying song composition. Therefore, use of a sound recording implies use of a musical work. If both works are protected by copyright, then each work must be licensed for use, which usually generates a royalty. At least one royalty goes to the owner(s) of the musical work, and another royalty goes to the owner(s) of the sound recording.

Let’s revisit our example of streaming a song through an interactive service like Spotify or Apple Music. Each stream generates a streaming royalty for the sound recording and a separate mechanical royalty for the musical work.

Here’s another example. Let’s say a production company is filming a commercial and wants to include a well-known song. A sync license would be required for use of the song composition and would generate compensation for the songwriter(s). A separate master use license would be required to sync the sound recording in the commercial.

If you’re an independent artist or songwriter, this is exactly why you’ve got to know the different royalty types and make sure your music is registered in the right places. Otherwise, you might literally be leaving money on the table.

Types of Musical Work Royalties, How They’re Generated, and Who Collects Them

There are four types of royalties for musical works (songs), often referred to as publishing royalties.

Independent songwriters are considered self-published, meaning you are responsible for registering your music where appropriate, but this also means you receive all of your publishing royalties.

If a songwriter is signed to a publisher, the publisher registers music with the applicable organizations listed below. The publisher can also grant licenses directly. The publisher then collects and distributes any publishing royalties owed to the songwriter, often keeping the portion of royalties known as the publisher’s share.

Let’s take a closer look at the four types of publishing royalties:

1. Mechanical Royalties

   • How are these royalties generated? This royalty is generated when a song is reproduced, including physical sales (CDs, vinyl), digital downloads, and interactive streams (Spotify, Apple Music, etc.).

   • Which music licenses generate this royalty? Mechanical licenses, including compulsory mechanical licenses. A blanket license may also generate mechanical royalties.

   • Who administers these music licenses and collects royalties? There are several entities that collect mechanical royalties, and they vary in what they collect and from where.

     1. Mechanical Rights Organizations (MROs) - Mechanical Licensing Collective (MLC), Harry Fox Agency (HFA), and Music Reports (MRI)

     2. Publishing administrators like Songtrust, and distributors that offer publishing admin services, including CD Baby and TuneCore Publishing

     3. Publishers

As mentioned above, not all of these organizations operate the same. For example, MLC does not collect mechanical royalties for physical sales and only collects for U.S. streams. Songtrust, on the other hand, collects for global sales and streams. Another example - HFA currently only affiliates with publishers, so self-published songwriters are unable to join. It’s important to know which agencies collect what and from where. It may be necessary to join more than one organization to maximize the collection of your mechanical royalties.

2. Public Performance Royalties

   • How are these royalties generated? This royalty is generated when a song is played publicly, whether performed live or streamed digitally in a public place like the radio, in restaurants and stores, at venues, etc.

   • Which music licenses generate this royalty? A public performance license or a blanket license can generate public performance royalties.

   • Who administers these music licenses and collects royalties? Similar to mechanical royalties, different types of organizations offer performance royalty collection:

     1. Performing Rights Organizations (PROs) - BMI, ASCAP, and SESAC are the main PROs in the United States. Songwriters only need to join one PRO.

     2. Publishing administrators

     3. Publishers

        
        

3. Synchronization (Sync) Fees & Royalties

   • How are these fees / royalties generated? This payment is for the right to synchronize a song with visual media – films, TV shows, ads, video games, etc. A sync deal may or may not actually generate royalties. While it is possible for a sync license to pay royalties on the backend, sync deals are usually structured as a one-time fee to cover the lifetime of the visual media piece the song is in.

   • Which music license generates this royalty? A synchronization (sync) license.

   • Who administers this music license and collects fees / royalties? Sync fees and royalties are a bit different than the mechanical and performance royalties noted above. It is not uncommon for the licensing party (like a TV network or production company) to negotiate with and make direct payment to a publisher. Independent songwriters might prefer to work with a publishing administrator or other third party agency, like a sync agent or music library.

     
     

4. Print Royalties

   • How are these royalties generated? This royalty is generated from the digital or physical reproduction of printed music, whether as sheet music or printed lyrics. Since most music is digital these days, printed music is much less common. For most songwriters, income earned from print royalties will be insignificant compared to mechanical and public performance royalties.

   • Which music license generates this royalty? A print license.

   • Who administers this music license and collects royalties? Usually, publishers and publishing administrators grant print licenses and collect royalties. There are additional third-party licensing agencies who can administer print licenses and collect royalties, like EasySong.com.

Types of Sound Recording Royalties, How They’re Generated, and Who Collects Them

There are three types of royalties for sound recording:

1. Recording Royalties (Streaming Royalties)

   • How are these royalties generated? This royalty is generated when a sound recording is reproduced by means of physical sale, digital download, or stream through an interactive streaming service (Spotify, Apple Music, etc.)

   • Which music licenses generate this royalty? Blanket licenses account for most streaming royalties. Depending on the licensing agreement, a master use license may also generate these royalties.

   • Who administers these music licenses and collects royalties? Distributors like TuneCore, CD Baby, DistroKid, Ditto Music, United Masters, and many more. Major record labels also have in-house distribution services, so they collect (and often own) these recording royalties.

     
     

2. Digital Performance Royalties

   • How are these royalties generated? This royalty generates for each stream on “non-interactive” digital services (internet radio like Pandora or satellite radio like SiriusXM).

   • Which music license generates this royalty? Digital performance licenses, which are analogous to the public performance license for musical works. Digital performance licenses are compulsory. Blanket licenses also generate these royalties.

   • Who administers these music licenses and collects royalties? SoundExchange.

     
     

3. Master Use Fees & Royalties

   • How are these fees / royalties generated? This royalty is generated when a sound recording is used (or “sampled”) within another original work, which could be audio or visual. If you’ve ever heard about an artist getting clearance to use a sample, that’s a master license in effect. Just like sync licenses, a master licensing deal may or may not yield royalties. Payment here might be a fee paid up front, royalties paid on the back end, or both.

   • Which music license generates these fees / royalties? Master recording license (aka a master use license).

   • Who administers this music license and collects fees / royalties? Master use licenses are frequently negotiated directly between the copyright owner(s) and the party seeking to use the copyrighted work. Sync licensing deals also commonly include a master use license. 

For a signed artist, the record label grants master use licenses and collect royalties. Independent artists might work with their distributor, a sync agency, or other custom licensing agencies like Easy Song.

What About Neighboring Rights Royalties?

You may have heard about neighboring rights, but these rights do not exist in the U.S., so we will not focus on them here. Internationally, this is the term used for the public performance rights of a sound recording, and they generate royalties when a song is either played publicly or broadcast. In the U.S., no royalties are paid for sound recordings played by AM/FM broadcast.

Places Where Music Rightsholders Generate Royalties

Now that we’ve established the different types of music royalties, let’s talk about some specific areas where use of your music generates one or more of the royalties discussed above.

Micro-Sync / YouTube Content ID Royalties

Micro-sync royalties are an increasingly significant source of income for artists and songwriters in recent years. Whereas sync royalties are paid when a copyrighted song composition is used in large-scale visual media projects – like movies and video games – as the name suggests, a micro-sync occurs when a song is used, or micro-synced, in smaller scale visual media. This includes small film projects (indie films, visual media for a church, wedding films, etc.), social media content, YouTube videos, and other user-generated content (UGC).

So why not list micro-sync as one of the royalty types discussed above? That’s because there is no license or royalty specifically for micro-sync. Instead, most platforms rely on blanket licensing, and micro-sync of a copyrighted song generates mechanical royalties and performance royalties. 

Take YouTube, for example. YouTube videos with enough watch time and channel subscribers allow uploaders to monetize their videos, earning them a portion of the ad revenue generated. But what about when a video uses someone else’s copyrighted music? Millions of videos are uploaded to the platform daily, making it virtually impossible for rightsholders to keep up with licensing requests. YouTube Content ID is YouTube’s automated system for content claims and is another pathway for independent artists and songwriters to make money from their music.

Content ID acts as a digital fingerprinting system, taking reference files (i.e. your music) and comparing them against new and existing YouTube videos. When the system detects a monetized video using your music, Content ID allows you to track the video’s analytics, block the video (which issues a copyright strike against the uploader), or monetize the video. When you choose to monetize the video, you can then begin collecting a portion of the ad revenue in the form of mechanical and performance royalties.

There are multiple ways to collect Content ID royalties. Rightsholders can collect directly through a Google AdSense account. There are also plenty of organizations and third party service providers that offer YouTube Content ID services, including PROs, MROs, many distributors, and companies like Audible Magic, FUGA (formerly AdRev), Symphonic, Identifyy, etc.

Karaoke Royalties

Music registered with some Mechanical Rights Organizations like the MLC or a publishing admin can bring in mechanical royalties when used for karaoke, usually paid at the statutory mechanical royalty rate. Venues that offer karaoke (like bars and restaurants) use “karaoke versions” of songs, where main vocal tracks have been removed the track – these are considered derivative works.

Ringtone Royalties

Although less common, ringtones are another potential revenue stream for your music. Ringtone downloads can generate mechanical and performance royalties. Payout also depends on whether the ringtone is polyphonic (a ringtone that does not use a sound recording) or a mastertone (a ringtone that uses a sound recording). At minimum, ringtone downloads will generate the statutory mechanical royalty for ringtones, set by the Copyright Royalty Board (CRB). 

What Happens to Royalties That Don’t Get Collected?

Copyright owners are responsible for registering their music in the right places to ensure they receive all royalties owed to them. But what happens if your music is not registered, and you don’t collect your royalties? Or what happens if you registered your music with incorrect metadata, preventing you from receiving payouts?

Unclaimed and unallocated royalties end up being held by the collection organization for a certain period of time (usually 2-3 years) before ultimately being redistributed to other rightsholders. These are known as black box royalties. If you do not claim your royalties within that holding period, then after time is up, you can no longer claim them. These royalties usually get redistributed to the top earners for that organization. That means, if left unclaimed, your hard-earned royalties might end up getting paid to others who don’t own your music.

Closing

Royalties are a significant income stream, but only when you know where and how to collect them. By educating yourself on the types of royalties, how they’re generated, and the organizations that collect them, you’ll be well-equipped to take charge of your earnings. Remember – you must register your music with these organizations in order to receive the royalties they collect!

If you don’t register your music appropriately, you may be leaving your royalties on the table for others to collect.

With this comprehensive list of royalty types and the organizations that collect them, this forms a blueprint for you to ensure you’re collecting all of your royalties when your music is used.

-Rachel