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Explainer: How music royalties are earned and shared

Explainer: How music royalties are earned and shared

The emergence of streaming services and platforms like Boomplay, Apple Music, and Spotify has greatly impacted the music listening experience in Nigeria and globally. With this development, an artist now earns royalties based on the number of streams their songs have garnered on the streaming platforms.

According to the Recording Industry Association of America, revenues from streaming music grew 26 percent to $5.9 billion in the first half of 2021, accounting for 84 percent of total music revenues for the period and a 4 percent climb from 2019 levels. It is safe to say that the pendulum has fully swung in favor of digital and streaming.

The streaming industry has changed the music industry, from the quality of the music to the distribution and how music listeners access and consume music.

Also, a study conducted by Statista in Nigeria revealed that the music sector’s revenue grew from $26 million in 2014 to $34 million in 2018. This figure, according to the research and projection by Statista, is expected to grow to $44 million by 2023.

The statistics from these studies reveal that the music industry possesses both the capacity to support millions of teeming youths and generate considerable revenue for the economy.

Music royalties

Music royalties are the payments made to rights holders, including songwriters, recording artists, and intermediaries like labels, publishers, or producers for the licensed use of their work.

Royalties are generated depending on the type of usage and licensing. For every song recording, there are two different sets of music rights which are master and composition.

Composition

This is when songwriters and their music publishers own the copyright for the harmony, melody, and lyrics. Composition copyright is obtained whenever an authentic and unique musical work is committed to a tangible medium, whether it’s a notepad, sheet music, or even a single tweet.

Master

Master refers to when the copyright for the particular expression of a composition is created when the composition is turned into a sound recording, and owned by recording artists and their record labels

The six different types of royalties

Streaming royalties

The rise of streaming services has made royalties more critical than ever for recording artists; when recordings are licensed to streaming platforms, payments for digital streams are considered royalties. Labels and recording artists collaborate with distributors to get recordings onto streaming platforms and get back royalties due.

Digital streaming platforms negotiate global payout rates with content owners and the revenue pool is split between all artists with music on the platforms.

The split is determined by “share of content” or the number of streams a given artist has on the platform divided by all streams on the platform.

Neighbouring royalties

Neighbouring royalties are paid out to the copyright holders of the sound recording performing artists and or recording labels. These rights are collected by PROs in their respective markets and then distributed to sound recording owners. That is, if a combination of the recording artist’s nationality, public performance type, and country where the recording has been created make the public performance eligible for neighbouring royalties collection.

Digital performance royalties

Digital performance royalties are dues paid to performing artists each time a sound recording is streamed on non-interactive digital streaming services like Pandora, iHeartRadio and SiriusXM. These digital performance royalty services are classified as non-interactive because the individual songs that are played are all chosen based on an algorithm, though stations are selected by the user.

Sync royalties

Sync licensing fees are royalties paid to the right owners whenever a song is synced to another content. The licence allows the licensee or the purchaser the right to use the music in a visual piece such as movies, TV shows, games commercials, YouTube, or other similar content.

Public performance royalties

Performance royalties are royalties that are collected when a song, featuring a specific composition, is played in a commercial environment. Essentially, the entire landscape of public performance royalties can be divided into two parts: the royalties paid out by streaming services and royalties generated by more conventional public broadcasters like radio and TV channels.

Mechanical royalties

Mechanical royalties are royalties that are generated each time a musical composition is reproduced, whether physically or digitally via on-demand streaming or download-to-own services. They are due every time a copyrighted composition is reproduced or distributed in either physical or digital form.

Distribution of royalties

There are many parties involved, including rights holders who are the ultimate recipients of royalties and middlemen who collect royalties on behalf of rights holders and take a cut. Here is a breakdown of who is paid.

Recording artists

Recording artists are partial owners of a master recording; so they get a share of all royalties on the master side (this includes the featured artists, who get the lion’s share of the royalties, and non-featured artists). The exact percentage of the royalties that recording artists receive is stipulated in the deal they signed with the record labels and distributors.

Recording artists receive different types of royalties including streaming royalties, neighbouring royalties, digital performance royalties, and sync royalties

Record labels

These royalties are typically split between the recording artists and the record labels, given there’s a recording deal in place. Typically, record labels finance release marketing and or production, taking a sizable stake in the future master royalties.

Accordingly, record labels earn a share of all different types of royalties due to recording artists.

Read also: Nigerian female artists take centre stage on music global scene

Distributors

The distributor’s job is to get an artist’s music onto the digital streaming platforms, promote the artist’s content across the digital storefronts and collect streaming royalties on behalf of the artists.

In exchange, the distributors take a percentage of the royalties or a flat fee for each payout. However, since distributors (most of the time) work exclusively on the streaming side of things, they won’t partake in sync fees or neighbouring royalties.

Licensing companies and sync agencies

Sync agencies build connections between rights owners and music users, helping the artist find a sync placement in the latest blockbuster, or, inversely, helping the movie producers find the song to fit the scene; licensing companies usually take a cut on all sync fees passing through them.

Songwriters

Songwriters are owners of the composition and receive a percentage of all composition royalties.

For any music work created, two equal shares of copyright are assigned: the writer’s share and the publisher’s share (each worth 50 percent, though this is US-specific). The writer’s share is paid out by PROs directly to the authors, but only publishers can collect the publisher’s share.

Publishers

As stated above, the songwriter receives 50 percent of the performance and mechanical royalties. The other 50 percent is the publisher’s share. Now, this doesn’t mean that the publisher keeps 50 percent of the royalties, it means that it’s the publisher’s duty to collect this share. Typically, the publishers take a cut from this share in exchange for the administrative and or promotion services, involved in collecting and maximising the composition royalties on behalf of the songwriter.

The exact cut that the publisher takes depends on the specific terms of the publishing deal they have with the songwriters.