Paid in Full: Collecting Your Music Royalties in the Digital Age – J. Seay

Paid in Full: Collecting Your Music Royalties in the Digital Age

John Seay · The Seay Firm LLC · John.seay@theseayfirm.com · www.theseayfirm.com

You recorded an album and released it online. Now you sit back and collect money, right? If only it were that easy. In 2015, a Berklee College of Music report found that between 20-50% of music payments don’t make it to their rightful owners. That’s no big surprise – after all, each recorded song may generate dozens of separate payments, none of which are programmed to automatically reach your bank account without you having to affiliate or register with some kind of service. Especially if you’re an independent artist without a label or publisher, you need to be proactive to collect the payments to which you’re entitled, and that means you need to know which payments are associated with which uses of your songs, and why. At the conclusion of this series of articles, I’m going to provide a flowchart walking you through how to collect payments for certain uses of your songs. But first we need to define terms. So, let’s start with the creation of a song and work our way forward.

Part One: Background Information

Musical Compositions and Sound Recordings

Each recorded song is comprised of two copyrights: (1) the copyright in the musical composition, and (2) the copyright in the sound recording. But what do those terms mean?

Well, a musical composition consists of the music including any accompanying words of a given song. The musical composition is what would be printed on a piece of sheet music. Publishing companies traditionally collect royalties for compositions, unless the songwriter is self-published, in which case the songwriter him or herself collects, or tries to collect, these royalties. When songwriters talk about not giving away their publishing rights, they are talking about retaining their rights in the copyright in the musical compositions.

A sound recording is the recorded version of a given musical composition. Each musical composition can be embodied in an unlimited number of sound recordings (e.g., think of all of the separate sound recordings of the musical composition Yesterday by the Beatles). Record labels traditionally collect payments and royalties for sound recordings, unless the sound recordings are self-released by the artist, in which case the artist, or more likely the artist’s digital aggregator, collects these payments and royalties. The sound recordings are often referred to as “masters.” So, when artists talk about owning their masters, they are talking about retaining their rights in the copyright in the sound recordings.

Exclusive Rights in Copyrighted Works

Easy, right? Now let’s throw another wrinkle into the mix. The owner of a copyright of any given work has the exclusive right to do each of the following things, or to authorize others to do them on his or her behalf: (1) reproduce the work; (2) prepare derivative works based on the work; (3) distribute the work; (4) perform the work publicly; (5) display the work publicly; and, in the case of sound recordings only, (6) perform it publicly by means of a digital audio transmission. Because each recorded song has two separate and distinct copyrights, and because each of those copyrights is subject to these exclusive rights, and also because each of those exclusive rights for each of those copyrights can be, and often are, licensed to different parties, things can get pretty complicated pretty quickly.

Songwriters and Artists

Music payments are also broken down based on whether you’re a songwriter or an artist. These days, most artists are also songwriters, but they don’t have to be. Songwriters write musical compositions. Artists record sound recordings of musical compositions.

Example – Patsy Cline is the artist who recorded her performance of a musical composition written by Willie Nelson. The sound recording was owned by Patsy Cline’s label and the musical composition was owned or administered by Willie Nelson’s publishing company.

Since we know that music payments are paid differently based on whether you are a songwriter or artist (even if you’re both), let’s divide our next sections accordingly.

Part Two: Revenues for Songwriters

If you’re a songwriter, then you need to know about the following sources of revenue.

Performing Rights Organizations

As a songwriter, whenever one of your musical compositions is publicly performed,  e.g., on the radio, television, or in clubs or restaurants, then a royalty is generated. Performing rights organizations (PROs) collect royalties on your behalf. The three biggest PROs in the United States are ASCAP, BMI, and SESAC. All songwriters should join a PRO. You can only join one. Which one you join is largely a matter of personal preference. The PROs take the revenues they receive from public performances of musical compositions and divide them into two. Half goes to the songwriter directly (the so-called “songwriter’s share”) and half goes to the publishing company (the so-called “publisher’s share”). If you signed a publishing deal, then your publisher will collect the publisher’s share, and then pay you your share of the publisher’s share according to your deal with the publisher. If you are a self-published songwriter, then you need to signal to your PRO that you’re entitled to the songwriter’s share and the publisher’s share. How you do that varies depending on the PRO, but the process is easy across the board – just make sure you’ve done it properly.

Example – Willie Nelson is affiliated as a songwriter with BMI. BMI collects performance royalties whenever any version of the musical composition “Crazy” is played on the radio or in a bar or restaurant. It pays half to Willie’s publishing company, Sony/ATV, which then pays Willie his percentage of the publisher’s share according to his deal with Sony/ATV, and half to Willie Nelson directly as the songwriter. Note that even if the version of the musical composition “Crazy” is Patsy Cline’s famous version, neither Patsy Cline nor her record label get anything because, in the United States, there is no terrestrial broadcast performance right for sound recordings or compensation set aside for artists featured on those sound recordings.

Mechanical Royalties

Okay, this is a big one. These are royalties generated through the licensed reproduction of recordings of your musical compositions. In other words, whenever a sound recording embodying your musical composition is manufactured for sale in a CD, downloaded from a music retail site, or streamed from a music-streaming site, you are owed mechanical royalties, also referred to as “mechanicals.” In the United States, the rate you are paid is generally equal to 9.1 cents per reproduced “copy” of the song. This is the “statutory” rate set by Congress, although parties are free to contract at a lower rate.

Your mechanical royalties are paid to you directly if you are self-published, or to your publisher if you have signed a publishing deal. Note that your PRO does not collect mechanical royalties – they only collect performance royalties. The person or entity that has reproduced your composition (e.g., the record label who is releasing the album) pays mechanical royalties. You are owed a mechanical royalty even for sales of your own albums, assuming those albums contain your own songs. If you’re self-releasing, obviously no money has to change hands, but if you are releasing an album through a label, then, unless you agree otherwise, your label must pay mechanicals.

I really don’t want to get too complicated here, but interactive streaming services pay both a mechanical royalty and a performance royalty for use of your musical compositions. Your PRO will collect the performance royalty, but the mechanical royalty goes to a mechanical licensing agent (e.g., Harry Fox Agency), or directly to major publisher. If you are an independent artist, then there is an extremely good chance that you are not receiving your mechanical license from interactive streams because you are not affiliated with a mechanical licensing agent or a major publisher. So what can you do? One option is to affiliate with an administrative publishing company, including the publishing programs offered through services like Tunecore, SongTrust, CD Baby, and Audiam. Those companies can also help you to collect foreign mechanical royalties, which is a whole other can of worms but something you should think about if you have global sales and streams.

Example – You are an artist and a songwriter and are releasing a 10-song album through a record label. You wrote all 10 songs. In your record deal, your label agreed to pay you 75% of the statutory rate, i.e., 75% of stat, which is 6.825 cents. For each 10-song album, your label owes you 6.825 cents. If they pressed 1,000 CDs, then they owe you $682.50.

Synchronization License

Typically referred to as a “sync license.” If someone wants to use your song in a television show, commercial, or movie, then they need to obtain a synchronization license from you, assuming you own the copyright in the musical composition, or your publisher. The “synchronization” is for them to use the musical composition that is embodied in a sound recording.

Part Three: Terms Related to Songwriter Revenue

Harry Fox Agency

Harry Fox Agency (HFA) calculates and pays out mechanical royalties to publishers. They also issue mechanical licenses (for if you’d like to record a cover version of a musical composition on your next release). HFA represents some 48,000 publishers. Can you sign up for HFA? Not unless you are a publisher and have songs released via a third-party label (i.e., self-releases don’t count). So, how do you collect mechanical royalties if you aren’t affiliated with HFA? As discussed above, your label will pay these to you directly, but for other mechanical royalties owed to you by services like Spotify, basically, you need to sign up with an administrative publishing company, which will then collect your mechanical royalties for you, often from HFA. Otherwise you will not receive them (and this is the subject of the lawsuit recently filed by David Lowery against the streaming companies).

Publishing Companies and Administrative Publishing Companies

Generally, there are two different types of publishing deals: a co-publishing deal, and a publishing administrative deal. In a co-publishing deal, you typically transfer 50% of the copyright in the musical compositions to the publisher, typically in exchange for an advance, and then they collect all royalties and payments generated by those musical compositions and try to increase the overall size of the royalty pie by securing placements of your music in film and television. The publisher takes its share of the revenue and pays you the remainder after your advance has been recouped.

In a publishing administration (“admin”) deal, the admin company takes no ownership interest in your musical compositions, and therefore may pay little to no advance. Admin companies simply administer your rights for you so you don’t have to, in exchange for a smaller participation in the revenues that they collect. Although some admin companies get involved in trying to secure placements, many do not. As mentioned above, you can even enter into a publishing admin relationship with companies like Tunecore, SongTrust, CD Baby, and Audiam, in addition to numerous other respected publishing admin companies. Remember that to collect mechanical royalties from interactive streaming sites, you may need to go through a publishing company or at least a publishing admin.

Part Four: Revenues for Artists

If you’re an artist, then you need to know about the following sources of revenue.

Retail Sales

This is so intuitive that I’m not going to dive into it – you obviously get paid whenever someone buys your music. These payments may be collected directly by you, for example, at your shows or online, or it may come from your digital aggregator or record label.

Digital Performance Royalties (SoundExchange)

As mentioned above, whenever a song is played on terrestrial radio, songwriters and publishers get paid, but not the record labels and artists. In other words, we compensate the people associated with the musical composition, but not the people associated with the sound recording. Why? Back in the day, it was thought that radio play drove sales, which would then compensate the record label and artist, so there was no need to make a separate payment. The United States is one of only four industrialized countries in the world that does not have a terrestrial broadcast performance right for sound recordings (we are in the esteemed company of North Korea, Iran and China). If you have significant overseas radio play, then you may want to look into something called “neighbouring rights” in an effort to claim some of your foreign performance royalties, since most developed foreign countries do pay for public performances of sound recordings.

But, since 1998 at least, we do recognize a digital performance right for sound recordings. Now, every time a sound recording is streamed online through non-interactive streaming services, i.e., over internet radio, Sirius XM, and Pandora, a payment is generated which is collected by SoundExchange. If you want to collect these royalties, then you must affiliate with SoundExchange. Your PRO cannot collect these royalties (SoundExchange is technically a PRO, but it collects a different royalty). SoundExchange collects royalties for sound recording copyright owners and featured performers. As discussed above, sound recording owners are record labels or artists who self-release. They get 50% of the royalties collected by SoundExchange. An additional 45% goes to the featured performer, i.e., the artist (bands typically divide this revenue amongst themselves). The final 5% gets placed in a fund for session musicians, i.e., non-featured musicians on the track (that revenue is administered by AFM and SAG-AFTRA). If you’re a self-released artist, then you need to register both as a sound recording copyright owner and as a featured performer.

Example – “Crazy” gets played on Pandora. Willie Nelson and his publisher get paid from their PRO. But this time, Patsy Cline (or her estate) gets paid as the featured performer, and her record label gets paid as the sound recording copyright owner (and some of that money may also trickle through to Patsy pursuant to her deal or the interpretation of her deal). The guy who played drums on the track may also claim his share of the 5% fund through AFM.

Interactive Service Payment

These are payments generated when your sound recordings are streamed on interactive services like Spotify, Apple Music, and Tidal, and paid to artists by the artist’s record label or digital aggregator, as the case may be.

Master Use License

If someone wants to use your sound recording in a television show or movie, then they need to obtain a master use license from you, assuming that you own the copyright in the sound recording, or your record label if you have a record deal. The “master use” is so that they can use the particular recorded version of a musical composition. Synchronization fees for the musical composition go to the songwriter.

Part Five: Terms Related to Artist Revenue

Digital Distribution Company

Also called “digital aggregators.” These are the companies who help you get your music on Amazon, Spotify, iTunes, and dozens of other services. If you are self-releasing, then you will probably go through a digital aggregator such as CD Baby, Tunecore, Catapult, DistroKid, etc. You typically pay an upfront fee (something in the tens of dollars range per album) and then they collect payments from the aforementioned services, take out their fee (typically around 9%) and then pay you the rest. If you’re a bigger artist or label, you may seek out a partnership with a digital distributor such as The Orchard, which will take a larger fee, something like 15%, in exchange for distributing your songs. Some of these digital aggregators now also offer publishing admin services, as discussed above.

Part Six: Other Terms Relevant to Both Songwriters and Artists

Licensing (or Placement) Company

These are companies who work with you on an exclusive or non-exclusive basis to get your songs used in television and films, video games, commercials, etc. You should pretty much never pay anyone for this service, absent from really compelling reasons and after consulting with an attorney. Licensing companies typically take between 30% and 50% of your master use and synchronization money, and some may take a percentage of your backend PRO royalties. Note that there are also so-called music library sites, like Marmoset, Soundstripe, Music Bed, etc. These companies issue cheap licenses, typically for smaller businesses and uses, like wedding photographers, people in charge of presentations at small companies and churches, indie film makers, etc. These are great sites to throw up your instrumentals or other toss-away tracks, assuming you have the right to do so given whether you’re signed to a record label or publisher. You won’t make $40,000 per sync, but you may get a few hundred bucks here and there. These sites are free to join.

Part Seven: How to Get Paid In Full

Finally, the payoff! Now that you have a working knowledge of the above, I can tell you where to do to get the payments to which you’re entitled based on the use of your song.

Help! I’m an artist and…

My song was played on terrestrial radio!

Too bad, so sad. You don’t get any royalties as the artist. You may, however, be entitled to foreign royalties for plays on terrestrial radio overseas.

My song was played on a non-interactive digital platform like internet and satellite radio!

SoundExchange pays these royalties. Remember to consider whether you should be registering as a sound recording copyright owner and/or featured performer.

My song was played on an interactive digital platform like Spotify, Apple Music, or Tidal!

Your record label or digital distribution company pays you these royalties.

My song was downloaded on a site like iTunes, GooglePlay, and Amazon!

Your record label or digital distribution company pays you these royalties.

My song was played on YouTube!

YouTube pays content owners and sound recording copyright owners. Therefore, either your record label or digital distribution company (if you opt-in through your digital distributor) pay you these royalties, or you can sign up with an independent YouTube revenue collection company like Audiam, AdRev, or InDmusic.

My song was used in a television show, movie, commercial, or video game!

Your record label pays you your share of the master use license money after it gets filtered through your record deal (i.e., if you’re un-recouped, you won’t see a dime typically), or the music supervisor, ad agency, production company, game company, etc., as the case may be writes you a check directly as the sound recording copyright owner.

My song was used in a television show, movie, or commercial, and you can hear my voice!

SAG-AFTRA pays these royalties. Not discussed above, but good for you to know.

Help! I’m a songwriter and

My song was played on the radio (FM/AM and digital), in a restaurant, on an interactive and non-interactive streaming service), live concert, etc.!

Your PRO pays you these royalties. If you’re not represented by a publisher, then you’ll get the publisher’s share too. If you are represented by a publisher, then you’ll get your songwriter’s share directly, and your share of the publisher’s share will get filtered through your publishing deal first (i.e., if you’re un-recouped, you won’t see a dime, typically).

My song was streamed, downloaded, or purchased!

If you’re self-published, then you will collect mechanical royalties yourself from your record label if applicable. Good luck collecting mechanicals from streaming sites. If you’re concerned about this revenue stream, better for the time being to go through a publishing company or publishing admin.

My song was played on YouTube!

Your PRO pays you your performance royalties from such plays. For your YouTube mechanical royalties, again, good luck collecting these on your own. Better, depending on your situation, to go through a publisher or publishing admin.

My song was played on the television, in a movie, commercial, or video game!

Your publisher pays you your share of the synchronization license money after it gets filtered through your publishing deal (i.e., if you’re un-recouped, you won’t see a dime typically), or the music supervisor, ad agency, production company, game company, etc., as the case may be writes you a check directly as the musical composition owner.