What Are Royalties and How Are They Divided?

Every artist or poet we study in school and every creative soul we admire, shares a common trait: originality. This quality is especially evident in music. Think of iconic bands like Queen, The Beatles, or legendary performers such as Tina Turner. Their unique style and musical talent continue to inspire us. Whether you’re a songwriter, a hobbyist musician, or simply curious about the business side of music monetization, understanding how music royalties work is essential.

What Are Royalties?

Royalties are earnings that are rightfully due to the owners of a patent, intellectual property, or copyright when their creative works are used for commercial purposes or profit. These payments go exclusively to copyright holders; without ownership of the rights, no royalties can be earned. In this article, we’ll explore how royalties are generated and explain how they are divided among songwriters, music publishers, record labels, and distributors.

How Are Royalties Divided?

Royalties derived from the copyright of a song are generally divided into two main categories: Recording Rights and Publishing Rights. Each of these categories is further subdivided into specific types of royalties, as explained below.

Recording Rights

Recording rights, often referred to as master rights are divided into:

• Digital Performance Royalties
• Master Recording Royalties

These earnings are primarily shared between the artist(s) and the record label that financed or distributed the recording. For example, when a track is played on non-interactive digital streaming services like Sirius XM or Pandora, the owner of the master recording (not necessarily the songwriter) receives payment. (Learn more about the mastering process.)

Publishing Rights

Publishing rights, also known as composition rights, are broken down into:

• Mechanical Royalties
• Public Performance Royalties

These royalties are typically shared between the songwriters and music publishers. For instance, whenever a song is sold, streamed, or performed in public, such as on the radio or at a live venue, Performing Rights Organizations (PROs) like ASCAP, BMI, or PRS for Music collect and distribute these payments.

Digital Performance Royalties (Recording Rights)

Digital Performance Royalties compensate the owner of the master recording when the track is used on non-interactive digital platforms. In these services, such as Pandora and Sirius XM, the song is played as part of a curated stream rather than being directly selected by the user. In contrast, platforms like Spotify and Apple Music (which allow user choice) fall into the interactive category. Revenue from these royalties is split between the artist(s) and the record label involved.

Master Recording Royalties (Recording Rights)

Master Recording Royalties are earned whenever a sound recording is streamed, downloaded, or sold in physical formats such as CDs or vinyl. These royalties are collected by record stores and streaming platforms, then divided between the artist(s) and the record label that holds the master rights.

Public Performance Royalties (Publishing Rights)

Public Performance Royalties are collected by Performing Rights Organizations (PROs) whenever a song is played in public settings, whether on the radio, TV, or at live events. For example, every time you hear a classic track on the radio, the station pays a licensing fee to a PRO, which then distributes the earnings to the artist(s) and music publishers. This system ensures that both the creative and production sides of music share in the revenue.

Mechanical Royalties (Publishing Rights)

Mechanical Royalties are generated each time a song is reproduced, whether it’s sold as a physical copy or digitally downloaded. These royalties are collected by copyright management organizations and distributed (usually on a biannual basis) between the artist(s) and the music publishers. This system helps ensure that even when music is copied, the creators are compensated fairly.

Synchronization Royalties (Sync)

Synchronization Royalties (or sync royalties) are earned when music is used in audiovisual productions such as films, TV series, commercials, and video games. Essentially, a sync license is permission from the music publisher (or directly from the artist if there is no publisher) to use the track in visual media. Unlike other types of royalties, sync royalties are negotiated on a case-by-case basis. For instance, in an advertisement, the artist might negotiate a percentage of product sales, or in a movie, a share of the box office revenue. This model allows for flexible and often lucrative deals.

Final Thoughts

Music royalties offer a variety of earning opportunities beyond just streaming, radio, or CD sales. However, the system can be complex. Earning a living through music is challenging, and only a few manage to achieve the financial stability they need. The competitive nature of the music industry means that every contributor, whether they’re responsible for the lyrics, the instrumental arrangement, or the overall production, must negotiate their royalty share carefully to avoid disputes later.

As artists like Taylor Swift have pointed out in interviews, understanding your royalty structure is key to ensuring fair compensation for your work. While passion and dedication remain the heart of music, a clear grasp of how royalties are divided helps ensure that every creative endeavor is financially sustainable.

For further reading and up-to-date statistics on music royalties, check out resources from the Mechanical-Copyright Protection Society (MCPS), SoundExchange, and industry reports from the Recording Industry Association of America (RIAA). These sources provide insights into the evolving landscape of music monetization in the digital age.