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Music Royalties: All You Need to Know

What are Music Royalties?

Here’s a simple universal definition: Music royalties are payments made to the owners of the copyrights (also rights) to a record/song by institutions who request permission to use the record on varying platforms and avenues.

Let’s tell it like you’re 5, shall we?

The first point is when an artist records and releases a song. You should already know that when it comes to recording and releasing a song, it is not only the artist that maintains full rights to the song. All contributors in a record are generally referred to as Songwriters, they may include composers, producers, instrumentalists, A&R representative(s), even your gateman sef! Royalty percentages (also known as points) are agreed upon using Split Sheets.

What Next?

Now the Artist and other contributors have released the record and all parties have their agreed points/royalty percentages. After release, depending on the success of the record, institutions begin to use the record. These institutions include streaming platforms (also known as Digital Service Providers) such as Spotify, Apple Music, Boomplay, AudioMack, TV, Radio, Performing Centres, Open Spaces (Bars & Lounges), and the list goes on…

Payment Processes for Music Royalties

As you must have gathered by now, music copyrights entail ownership of a sound recording and/or musical composition. This means that every song has two copyrights: sound recording (also master) and musical composition (lyrics, music).

How are royalties collected for each copyright type?

Actual royalty payments to rights owners come in several ways, two of which are primary and linked to the copyright types earlier discussed – Performance Rights and Mechanical Rights

Performance Rights – This is a payment made by Digital Service Providers (DSPs) for the permission to play a record in public through the live streaming platform. Simply put, payment is made because you, a Spotify user, has played Davido’s Stand Strong a million times. These payments are typically made to an intermediary body, one of which is the Copyright Society of Nigeria (COSON). Read more on CMOs here. These CMOs collect these payments and pay an agreed percentage to the rights owners.

Following a legal suit won last year, the Musical Copyright Society of Nigeria (MSCN) is the present body responsible for collecting payments from DSPs on behalf of rights owners.

Mechanical Rights – This is payment made by Digital Service Providers (DSPs) for the permission to reproduce the record (say from a CD to the Apple Music App), through the process of manufacturing, recording and distributing. These payments are made directly to distribution companies and record labels that work directly with the rights owners. The distribution company or record label then pays the rights owners.

What’s more?

Sometimes, a listener’s choice on a DSP platform such as Spotify may activate these two forms of payments. For example, whenever an Apple Music User chooses a song for streaming, Apple pays a (public) performance rights fee seeing as the listener doesn’t actually own the song. Also, because Apple Music has to have reproduced the composition of the song on to the App before the listener can play it, then the mechanical rights fee are also triggered.


Different Types of Music Royalties

Mechanical Royalties

Mechanical royalties allow copyrighted works to be reproduced and distributed physically or digitally. This category includes music downloads, CDs, cassettes, vinyl, and streaming services.

A subset of Mechanical Royalties are also known as Streaming Royalties. This basically outlines the payment of and for digital streams. Labels and their artists work with distributors to put the record on streaming platforms. Payments are made by DSPs to Record Labels or Distributors, who then in turn, pay artists and songwriters.


Public Performance Royalties

When you play music in front of an audience or when your music is played in front of an audience, you receive royalties for the composition. Examples are live performances at concerts, TV and Radio broadcasts, as well as background music in restaurants, shops, bars, and nightclubs.


Synchronization Royalties

When copyrighted music is combined with visual media, synchronization royalties are generated. Visual media includes video content for TV shows, Commercials, Online Streaming, Video Games, Ads, Movies, and sometimes, audio-only sync. A good example of a sync fee being triggered would be Tems singing No Woman No Cry in the official movie trailer for Black Panther: Wakanda Forever.

To use copyrighted music in an audiovisual project, a master use license and a sync license are required. The master use license is given by rights owners of the sound recording (which is the actual song).  The sync license is given by rights owners of the composition (which refers to the songwriters).


Neighboring Rights and Royalties

Keep in mind that copyright holders who own the musical composition receive payments for public performances of their works.

However, neighboring royalties are paid to the recording companies and/or performing artists who own the copyright to the sound recordings.

As a result, they are considered neighbors to performance rights from a legal standpoint, hence the name “neighboring rights”. The money is also collected by a third party, such as a CMO, and given to the people who own the rights to the sound recording. However, not all nationalities or performance types are always eligible for royalties. It’s a lot to keep up with, we know 😰.


Processing Royalties 

As an artist, you’re unsure about which types of royalties you’re entitled to, consult with an entertainment Lawyer. It can be difficult to determine what applies to your situation and which steps to take.  Music royalties are generated by the use of various music copyrights. New royalty streams are emerging as the music industry and technology evolve. They protect your intellectual rights, and create new ways to generate revenue.


Royalti.io can help you account for your Royalties

Royalti.io is an all-in-one platform that simplifies the management of catalogue, contracts, royalty and accounting, for modern artistes and music companies. Using Royaltio.io, you can have an all-in-one view of all royalties accrued, payouts and earnings. You also get personalized dashboard as an Artist and Record Label Rep.

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