Understanding Music Royalties

5 Terms You Need to Know

Does combing the ever-confusing topic of music royalties have you ready to run for the hills? Don't take off just yet! Although royalties can certainly be challenging, once you have a few basics down, everything else falls into place. As you begin to learn royalties — so you can get paid — commit these five music industry terms to mind. They'll help you get the lay of the land with this whole royalty business. Click on any of the terms to get a more in-depth look at the topic.

1
Mechanical Royalty

Band performing on stage at music concert
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A mechanical royalty is a royalty that is paid on a physical (or digital) copy of a recorded song — the term "mechanical royalty" comes from the days when records were made "mechanically," which may help you remember the definition. A mechanical royalty is paid by record labels (or anyone releasing an album) to songwriters for the albums they press featuring that songwriter's material — sometimes mechanicals are paid on all of the albums a label presses, and sometimes they are paid on all of the albums that are pressed and distributed (in which case, the label doesn't have to pay on what they don't sell).

The rate at which mechanicals are paid is negotiable and varies from country to country, but there is usually a minimum rate that has to be met. More

2
Performance Rights Royalty

Unlike a mechanical royalty, a performance rights royalty is paid to a songwriter on a live performance of a song (hence the name). Although a live performance of a song can be literally a live performance — like a concert — a live performance can also be a public playing of a recorded song, like a radio play.

These royalties are collected by performance rights societies, such as the American Society of Composers, Authors, and Publishers (ASCAP) or Broadcast Music, Inc. (BMI), which monitor media for live performances of songs. These groups issue licenses that allow a business to host live performances of all of the songs that they represent, and then they distribute the licensing fees among their songwriter and publisher members depending on how frequently that writer's/publishers song was used. More

3
Blanket License

A blanket license is used to give the rights to use a large amount of music for a set period of time in cases where individual song licenses would be difficult to manage. Blanket licenses are used by performance rights societies to give license applicants access to the entire catalogs of their members. For instance, say you are a songwriter who has registered your songs with BMI. Radio stations, television stations, clubs, restaurants and other venues who are awarded a blanket license from BMI then have a right to host public performances of all of the songs registered with BMI, including all of your work. BMI tracks how those license holders use the music, through a mix of monitoring and reporting by the license holder, and then uses those license fees to pay you your performance rights royalty for the public performances of your songs.

Blanket licenses vary in price greatly, depending on how often the applicant uses music and how large of an audience they reach. More

4
Publishing Deal

The easiest way to think of a publishing deal is to consider it a record deal for songwriters. When a songwriter signs a publishing deal, the publishers handle the so-called "administration" of the music. They go out and seek licensing opportunities for their songwriters, issue licenses for their songwriters' works, and in some cases, they even get involved in the creative process with the songwriter. In exchange, the publisher collects a portion of the royalties and other income generated by the songs they represent.

In the case of performance rights royalties especially, publishers usually have memberships in the performing rights groups that their songwriters belong to, and they allow those groups to handle that royalty collection. More

5
Tour Mechandising

In the early days of your music career, your tour merch may be as simple as your friend selling your shirts at the back of your show. As your career grows, however, tour merchandising companies may take over the work. They license your name and likeness and then pay you a royalty on the items they sell. The specifics of these deals can vary greatly, but something in the 30% royalty range is pretty common (at least in the U.S.). The bigger your shows get, the larger the royalty you can negotiate since the companies can sell more products. In fact, to get your royalty, you may be required to play to a certain number of people at all of your shows. Your manager will help you negotiate your tour merchandising royalty. More