What Are Music Royalties and How Do They Work?

Understanding the investments in Music Royalties and how do they work?

April 25, 2024

What Are Music Royalties and How Do They Work?

We all believe that the music industry is glorious and glamorous, but we hardly understand the intricacies that lie behind it.

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How do musicians earn?

Who are publishers?

Who are record labels?

How does a songwriter earn?

What is streaming royalties?

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Behind all these enchanting worlds there’s a complicated system that makes sure the creators and artists get paid for their work. This system circles around music royalties, which is the important part of their income that fuels the entire music industry.

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If you are an aspiring musician, a music enthusiast or you are just curious about how the music industry works then you need to know that music royalties are the utmost important part that keeps this industry alive.

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Today, we will understand the intricacies of music royalties. We will also understand more ways to earn royalties both indirectly and directly.

Understanding Music Copyrights

Let’s understand the foundation of the music industry - music copyright.

Each and every song that you listen to, is secured by the copyright law, it’s basically an important right to control how your creative work can be used. There are two parts to a song’s copyright:

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Composition Copyright:

Composition Copyright covers all the underlying tunes, bass, music, and lyrics, which are usually owned by the songwriters and their publisher.

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Sound Recording Copyright:

Sound Recording Copyright applies to the final recorded version of the song, which is usually owned by the recording artist and their record label.

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Both of the copyrights can generate royalties but it depends on how the song is used.

Types of Music Royalties: Where Does the Money Flow?

Now that we understand copyrights, let's explore the various ways music generates income through royalties:

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Streaming Royalties:

Today, we all stream songs on Spotify and Apple Music, now everytime when you play your favorite song, a small royalty is generated. These royalties are then collected and shared to the copyright owners (songwriter and artist/label) based on their agreements.

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Streaming royalties are complex. It is often based on a number of factors like how many subscribers there are or the number of streams and also platform-specific calculations.

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Performance Royalties:

Now Performance Royalties are when your song is played publicly, like on a live event, concert, or on the radio and TV, you would get royalties.

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Companies like Broadcast Music, Inc. (BMI) and the American Society of Composers, Authors, and Publishers (ASCAP) act as middlemen, they track these plays and distribute royalties to the copyright holders.

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Synchronization Royalties (Sync Royalties):

You might have noticed some familiar song in a TV show, commercial, movie or a video game, right? Now Sync royalties come into play when a song is used in synchronization with the visual media. These royalties are negotiated between the copyright holders and the licensee (a film producer) and can be much more profitable than streaming royalties, mainly for popular songs used in movie productions.

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Mechanical Royalties:

Let’s assume that you would love to create a physical copy of a song (like on a CD) or a digital copy for download, well you need to pay a mechanical royalty to the copyright holder who is usually the songwriter/publisher. This royalty applies to any new copies of the musical composition, not just the original recording.

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These are the major types of royalties, but there are others like print music royalties (from sheet music sales) and even public broadcasting royalties that may be relevant depending on the specific rights available and how the song is used.

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Music Royalty Payments: Unveiling the Mystery

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So, how do artists and songwriters get their royalties? The procedure can be complex, but we will understand them easily here:

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Tracking and Collection: Companies like BMI and ASCAP play an important role in tracking the song usage through live events, online platforms, and radio broadcasts. Record labels and publishers also have their own tracking systems.

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Distribution: When the tracking is completed, the collected royalties are distributed to the copyright holders based on the intricate formulas. These formulas are based on factors like the streaming frequency, songwriter/artist share agreements, and sometimes even the subscriber’s location.

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Artist/Songwriter Royalties: The specific amount the songwriter or an artist receives generally depends on their contract with their record label or publisher.

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Understanding Music Royalties: Why Does It Matter?

Understanding music royalties empowers both fans and creators.

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For Fans: It usually encourages an appreciation for the complex system that keeps artists creating the music we love. When you know where your money goes, it can influence how you choose to listen to music - opting for platforms with fairer royalty structures can make a difference.

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For Aspiring Artists: Understanding the contracts are the most important part of your career, to get daily compensation for your work, registering your copyrights with a professional publisher is a must.

How to Earn Music Royalties

Now that you understand the different types of music royalties, you might be wondering how to get involved and potentially earn some yourself. Here are a few:

Direct Earning through Music Creation:

Become a Songwriter/Composer: Hey, if you have a knack of writing poems and songs then yes you can earn from it. Just register your original songs, pitch your songs to artists, publishers or production companies that are film. TV, commercials and earn from it. This is the most direct route.

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Be a Recording Artist: If you are an aspiring recording artist then you have to release your music through streaming platforms, digital downloads or physical sales. While streaming payouts might be low per stream, building a fan base can allow you for greater earnings in the run.

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Performance Royalties: As a performing artist (solo or band), you can earn royalties through live gigs. Additionally, if your music gets played on the radio or through streaming services with live performance features, you might be eligible for performance royalties through a PRO membership.

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Indirect Earning through Music Investment:

Music Royalty Investment Platform: SongVest allows investors to buy fractional shares of music royalties from established artists or catalogs. This offers a chance to earn a portion of the royalties generated by those songs.

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Music Publishing Companies: Some music publishing companies offer royalty participation opportunities. This might involve investing in a songwriter's future earnings or a specific song catalog.

Ready to Explore Music Royalties in a New Way?

SongVest offers a unique platform for investors to participate in the music industry by acquiring shares of music royalties from established artists and catalogs. This can be a compelling way to diversify your portfolio and potentially earn a return on your investment while supporting the music you love.

Visit SongVest today to learn more about available investment opportunities and see if fractional music royalty ownership is right for you.