Everything You Ever Wanted to Know About Music Royalties

The music biz is a fickle mistress. There’s a metric fuck-ton of money floating around behind the scenes, yet for some reason artists themselves often don’t receive a decent payout. The mysterious industry overlords pick a select few that get to frolic in piles of cash that no amount of glitz and glamor could deplete, while the rest of us are left to scrape by on shitty burritos and cigarettes we find on the street.

Hey! That’s not fair!

U.S. musicians only take home one-tenth of national industry revenues. Despite having some of the most passionate, enthusiastic fans to support them, metal musicians are often notoriously underpaid. The vast majority have to rely on more stable sources of income to keep them afloat, like Darkthrone’s Fenriz, who makes a living sorting mail. The luxurious rockstar lifestyle is a thing of the past, with many bands having to come to terms with the fact that touring is really god damn expensive.

While musicians of the past were able to generate a decent income from record sales, these days there’s not a lot of money to be seen in that department. Record labels set the rate, usually 10-20% (in rare cases as high as 50%), at which artists receive royalty payments for their work. However, if the label offered a big advance (aka upfront payments to artists to cover recording and production costs), all of the royalties will go back into the repayment of the advance until it’s been paid off.

For example, your new band Ass Laceration has decided that you wanna go a step further and sign with a label, Phlegm Inc. Phlegm offers you an advance of $30,000 to record your debut album Human Lasagna, and once the record is finished, Phlegm spends another $20,000 on marketing (advertising, music videos, band photos, etc). Before you know it, Ass Laceration is a household name. The album is selling like hotcakes, but you don’t get to see a penny of the sales until you’ve paid back the $50,000 that you owe the label one record’s royalties at a time. If Human Lasagna sells for $10 a pop (with a label net profit of $6 each) at a royalty rate of 15%, you’d have to sell 55,556 copies ($6 x .15 x 55,556 = $50,000) before your band starts earning money.

Then where does the rest of that money go?

First of all, there are a number of different entities who can have a share of a song’s copyright.

The songwriter is whoever is involved in the composition of the song, including music, lyrics, etc. If there are multiple songwriters, they can negotiate how to split the royalties amongst themselves. The songwriter’s music is then recorded by a recording artist (in most cases, the songwriter’s band), and the resulting “master recording” is then handled by the publisher, record label, and Performance Rights Organization, which we’ll get to later. There can be some overlap between these, for example songwriter/recording artist or label/publisher, or they could all be completely separate and divide royalty payments accordingly.

In order to actually collect royalties, one must have a copyright license for a song. Every song has two copyrights — one for the composition and one for the master recording. Usually, artists will license their music to a publisher in exchange for a share of the royalties (typically 50%). The publisher handles administration of the musical composition, which entails boring stuff like licenses for the use of a song, tracking when and where a song is played or streamed, collecting the royalties, and accounting. The artist can also choose to license their master recording to a record label, which will fund the project by reproducing, distributing, and marketing that recording and paying the band a share of the profits (this is how a traditional record label deal works).

There are a few different types of licenses and associated royalty payments for any given piece of music:

Mechanical licensing gives rights to any mechanically produced media (CDs, mp3s, toys, video games, ringtones and music streaming) or digital downloads for public distribution. Those royalties go to the recording artists, songwriters, and publishers at a rate of 9.1¢ for a songs five minutes or less, and 1.75¢ per minute or fraction thereof for those over five minutes. In the U.S., the Harry Fox Agency is the group that issues mechanical licenses and collects royalties to pay out to the rights holders, and the music publisher typically handles the task of distributing those royalties to the artist.  If somebody wants to cover a song, they can obtain a compulsory mechanical license for rights to cover, the cost of which is negotiated with the rights owner.

Performance licenses allow for a song to be performed or broadcast publicly, paying out the songwriter and publisher every time a song is played live, on the radio, or on TV. Note that none of the royalties from terrestrial radio plays go to the recording artist — kind of a shit deal, but there’s something to be said for “exposure,” or whatever. However, streaming platforms and satellite radio still pay out the artists and rights holder (usually the label), which makes terrestrial radio the only medium that broadcasts music but doesn’t compensate the artist.

Synchronization licensing deals with commercial jingles, video games, film scores — any music that is synchronized with another type of media. The payments for synchronization can vary from a one-time lump sum to recurring payments every time the song goes public.

Typically, a Performance Rights Organization (PRO) will keep track of these sales and plays so artists don’t have to. The two main performing rights organizations in the United States, BMI and ASCAP, cover pretty much all of the music that anyone could possibly care about. A blanket license will grant the licensee rights to a PRO’s entire catalogue for a set fee. This is especially useful to radio stations, music venues, and other places where a variety of music is played publicly.

Long story short, there’s a lot of people involved in the music-making process, and they all want a slice of the cake. However, the exponential rate of humanity’s technological advancements means that the business is long overdue for some renovations. Even though streaming is by far the most popular way to consume music, there’s hardly any money to be made at all through digital plays. As of May 10th, 2018, the payout from a single Spotify stream was $0.0038, which means an artist’s songs would need to garner about 366,000 streams per month to generate a minimum-wage income for one person. However, between all the different streaming services besides Spotify, like Apple Music, YouTube, Pandora, and others, it’s feasible that they could collectively provide a decent chunk of a band’s income. Payment varies between services depending on their subscription model and share of the market — this infographic from Information Is Beautiful gives a good idea of the differences:

Looks like the industry is still trying to catch up with the digital age. As we adapt and try to stay ahead of changes in technology and in society’s relationship with music, things will likely level out a bit. We can expect some positive changes thanks to the recently signed Music Modernization Act, which, according to Rolling Stone, will ensure that “music creators will be paid more and will have a more secure way of collecting all that they’re due.” Here’s a more thorough description from Music Business Worldwide:

“The Music Modernization Act reforms mechanical licensing through the creation of a Mechanical Licensing Collective (MLC), paid for by digital companies, which will offer digital streaming services a blanket license in return for improved payments to songwriters and copyright owners.

“The bill also improves the rate standard by which songwriters’ mechanical rates are considered and makes improvements to the ASCAP and BMI consent decrees. Additionally, the bill ensures pre-1972 legacy artists are paid for their work when played on satellite and digital radio and codifies the process through which producers and engineers are paid.”

Huh?

So: this new Music Modernization Act will address a few of the out-of-date customs that have been preventing many music-makers from being paid fairly. First, the bill is set to create a new organization to handle the revenue from digital streams as well as ensuring that producers/engineers receive proper credit and compensation via Sound Exchange, an organization that’s similar to a PRO but deals exclusively with digital royalties and distributes them to recording artists and copyright owners. It will also improve royalty payouts for songwriters by creating a new legal standard that judges can use to set rates, which factors in a song’s free market value (how much a song brings in when placed in a commercial or television show) and how much a record label is paid for a similar license. And lastly, it closes a federal copyright loophole that previously allowed internet radio companies to play songs recorded before 1972 without paying royalties. Everyone wins!

Sweet. While it’s great that there’s a big step towards everyone getting paid fairly, what’s the best way for an artist to actually stay afloat in this cold, cruel world in the meantime?

Besides the aforementioned synchronization licensing, which can bring in pretty good chunks of cash in the right circumstances, one could also go the route of works made for hire. These are specific works made to suit a client’s needs, and the client will have full ownership over the music. Works made for hire usually involve a both an up-front payment and a percent of the royalties.

There’s also advertising and brand partnerships, which is a relationship between a brand and an artist for exposure on both ends. A musician could be directly in a commercial product endorsement (i.e. Nike, Coke, or what have you), or they could form a low-key relationship with a brand, for example, free stuff in exchange for the occasional social media shout-out.

And, of course, merchandising, especially in the metal world. Randy Blythe himself said that he’s “just a glorified black T-shirt salesman”, and given that he’s leading one of the most recognizable metal bands in the world, I’m inclined to believe him. Good merch is by far the easiest way to get people to throw money at you, AND it promotes exposure and brand recognition.

Finally, there are ways to circumvent the whole “giving the majority of your royalties to someone else” thing, but it can be a lot of work. In order to secure complete ownership of their music and get all the royalties, an artist would have to start their own publishing company, release their work independent of a label, and keep track of all plays and purchases and report those to the a PRO. However, if they’re willing to take a small pay cut, there are companies that will handle royalty tracking — leaving the artist to focus more on marketing, booking tours, etc. But that still doesn’t leave a lot of spare time for actually making music. If a band can manage to get signed, a label’s funding and marketing force can be worth the initial debt.

If you’ve found all this info incredibly discouraging, fret not. The music industry is likely to level itself out eventually and start paying artists what they deserve — the question is just when that’s going to happen. Hopefully, this new Music Modernization Act will play out in our favor and make some positive changes for musicians. But in the meantime, keep creating dope tunes if it makes you happy, and cross your fingers that someday, it might actually make you a buck or two.