COLLECTING MUSIC ROYALTIES 1 “Just Because You Make Introduction Something Doesn’T Mean It’S Has Value.” – R

THE GUIDE TO: COLLECTING MUSIC ROYALTIES 1 “Just because you make Introduction something doesn’t mean it’s has value.” – R. Don’t Skip This Page

One of the biggest mysteries and struggles of the music industry is how to get paid music royalties in the United States. We all too often hear about the cliché starving artist criticism (especially from mom), but what about the artist that eats? How do musicians at the top of their game reap what they have sown? You are in the right place my friend.

Ever since I’ve begun my research, I have followed the steps and am now successfully earning music royalties from multi- ple sources including Spotify, YouTube, Film Music, and Live Performances! Now it’s your turn, I created this guide so that you can be knowledgable of not only how to collect your royalties, but also understand what percentages are fair so that you get paid what you are worth.

I want to take a moment to be clear. Following the steps in this guide is not guaranteed money today, so don’t quit your job just yet. These steps, once implemented, just open the pathways for money to stream into your bank account—but you need to turn on the cashﬂow with your music. The key to a music income is growing your fanbase slowly and steadily, and with the steps below, you will grow your income as you grow your fanbase. Are you ready?

2 2 “Know your craft, know How Music Royalties your industry, know your marketplace.” are Generated – R. One Song, Two Elements

To understand how to monetize the music If you are the rights holder for the sound you make, we first need to understand that recording of your music, you may want to a song isn’t just one copyrightable piece of register that work with the US Copyright artwork. It’s two: The recording, and the Office. songwriting. 2. Songwriting Copyright 1. Sound Recording Copyright So let’s continue pretending that you are This is a little hard to understand at first recording your version of Michael Jack- but it makes sense. The copyright of the son’s Thriller. In order to have permission recorded song (AKA the “master record- to use the music and lyrics in the first ing” or “masters”) belongs to the owner of place, you need to obtain permission to the master sound recording. So just re- use the song itself. Even if your intent is to member this: Master=Recording. Master recreate the recording just as I described rights usually belong to either the artist(s), above, there is still intellectual property record label, recording studio (if the artist contained within the lyrics and the melody is unable to pay for recording services), or of the song that is separate from the intel- any other party that financed the record- lectual property contained in the sound re- ing. The reason that Master Rights exist as cording. In order to get permission to use it’s own copyright is because if you record a copyrighted musical composition, you your own version of Michael Jackson’s need to contact the copyright holder and Thriller, recorded in the style of Ska-Punk, obtain Publishing rights. Publishing rights you are creating a different audio recording belong to the owner of the actual musical with different musicians, at a different stu- composition. The publishing side of music dio, recorded at a different time, with differ- refers to the notes, melodies, chords, ent money, etc. Therefore the master itself rhythms, lyrics, and any other piece of is a different piece of intellectual property, original music. So when copywriting a even though the melody and the lyrics of piece of your own music, or requesting per- the song itself remain the same. It’s the lyr- mission to use a piece of music owned by ics and the melody that take us to the next someone else, you need to keep in mind type of copyright: songwriting copyright. both types of copyright, Sound Recording and Songwriting.

4 Music Copyright and Music Publishing

On the last page, you learned that a re- There is an excellent guide on Legal corded song has two types of copyright. Zoom® for copyrighting music that I want Here is how you protect your art and how to point you to. Check it out here. the music industry is built to control these copyrights. Registering your music for copyright does not grant you access to a single penny of But before you go spending a bunch of your music royalties. In order to get paid, money at the US Copyright Office, let’s continue reading the rest of this guide. make sure that your song is even eligible for copyright. This is straight from the US So What is a Publisher? Copyright Law: A publisher is simply the person or entity who is in control of the Songwriting Copy- “You can copyright music, copyright lyrics, right. Successful artists have publishing or copyright both. You may copyright a companies who through contract obtain new song or a new version or arrangement control over their musical compositions. In of an existing song. The song must be your exchange, the publisher finds opportuni- original work, meaning that it must have ties for a song to earn income for both the been created by you and must show some artist and the publisher via the terms of minimal amount of creativity. their contract. If you are an independent songwriter and don’t have a publishing You can’t copyright a song title or a chord company, you are in charge of your own progression. If you make an audio record- music publishing and can collect publishing of your song, you may copyright in the ing royalties yourself. sound recording in addition to your copyright in the song itself.” Where Do Record Labels Fit In? As you just learned, Publishers control the So just to be clear, you can’t copyright musical composition. Record Labels on your song ideas, only songs themselves. the other hand have control over the Re- To copyright a song you need to register cording Copyright (the master recording). an account at the US Copyright Office via their online portal: eCO.

5 But you are an indepenednt artist...

So we went over a lot of stuﬀ on the last page, but if you are an independent artist, you are in luck.

As it turns out, if you are an independent artist, then YOU are the publisher of your music, and YOU are the record label in control of your sound recordings.

This is really good news!

However...

You need to learn a little bit of how a publisher collects music royalties, and the same for record labels if you are indeed going to collect everything yourself.

The beneﬁt to this is threefold:

1. You will never need to split you royalty checks with a label or a publishing company

2. You have full control over your music, how you would like it to be used, and how much it is worth

3. You have complete control over the sound of your music, where it is recorded, and where it is distributed.

The beneﬁts far outweigh the cons of learning a little bit more than you intended today. But don’t worry, you should always be learning about the industry and market in which your music exists.

Are you ready? Let’s go!

vi 3 “Today, every artist is their The Different Types of own record label—act like it.” Music Royalties – R. Mechanical, Performance, Sync, & Print

Most people don’t realize there are differ- This applies to all music formats old and ent types of music royalties and that said new such as vinyl, CD, cassette, digital royalties are generated by a variety of dif- downloads, and streaming services. For ex- ferent ways. First, it is important to know ample, record labels pay a mechanical roy- and understand all the different types of alty to a songwriter every time they repro- music royalties. Then we will discuss how duce and sell a CD of their music. different types of music royalties are calculated, and how to negotiate a fair cut for Mechanical Royalties are usually paid out yourself. by your record label if you are signed, or through your music distribution service if 1. Mechanical Royalties you are independent. Mechanical Royalties are generated through physical or digital reproduction and distribution of your copyrighted songs.

8 2. Performance Royalties will also need to purchase master use li- Performance Royalties are generated cense before using copyrighted music with through copyrighted songs being per- a new audiovisual project. So unless your formed, recorded, played or streamed in plan was to re-record a brand new version public. That’s right, even playing a record- of the song you just licensed, you will have ing of a song is considered a performance. to contact the appropriate record label to So you know the music over the intercom purchase a Master Use License in addition at Starbucks? Yup, those are little perform- to the sync license. YouTube is the only ex- ances happening over your head. This isn’t ception to this rule if the copyrighted work limited to coffee shops but also includes exists in YouTube’s content ID. terrestrial radio (AM/FM), television, clubs, restaurants, bars, live concerts, shopping 4. Print Music Royalties malls, music streaming services, internet Print Royalties are not as common for re- radio, and anywhere else the music plays cording artists but are a common form of in public. payment for classical and film composers. This type of royalty applies to copyrighted 3. Synchronization (Sync) Royalties music transcribed to a print piece such as Synchronization, or Sync Royalties for sheet music and then distributed through a short, are generated when copyrighted mu- print music publisher such as Alfred Music sic is paired or ‘synced’ with visual media. or Hal Leonard. These fees are often paid Synchronization licenses give the license out to the copyright holder based on the holder the right to use copyrighted music number of copies made of the printed in films, television, commercials, video piece. games, online streaming, advertisements, and any other type of visual media. Sync licenses are generally sold by Music Pub- lishers.

Another note, a synchronization license does not include the permission to use an existing recording with audiovisual media. That’s right, if you want to use your favor- ite artist’s version of a song, the licensee

9 Royalties from CD Sales & Digital Downloads

You probably want to dive right into stream- your Publisher, Publishing Administrator, ing royalties, but this is still a big way to Publishing Service such as Songtrust or make money from your super fans. CD Baby Pro.

CD Mechanical Royalty Rate Royalties From Physical Sales The rate for Mechanical Royalties in the If you want to be signed to a record label United States is set by the US government some day, you will need to accept the fact and is $0.091 per CD and digital down- that for every CD sold, you will most likely load. That’s 9.1 cents to the composition get the smaller part of the cut. owners every time the sound recording is pressed to a CD or downloaded from an Your cut is called the “Royalty Rate” and is online store. This rate can only change if completely separate from the Mechanical the government legislates it higher or Royalty Rate mentioned to the left. lower (hopefully higher) and is paid out by

10 Here is the basic concept: If You Decide To Stay Independent Congratulations, you get to keep almost all Number of Sales of your Physical Sales and Digital Down- Wholesale Price loads so you can ignore the above and in- Royalty Rate stead trust that your Digital Distribution X ______Service (CD Baby, Distrokid, Tunecore, Total Royalties Earned etc.) is paying out roughly 90% of what is owed to you, depending on which service A real world example: if you are selling an you use. album at a wholesale price of $10 and your royalty rate is 15%, you earn $1.50 per al- What Is The Best Digital Distributor? bum sale. The remaining $8.50 would go That is like asking what is the best car. to your record label (assuming you’ve paid Choose what works best for you. Some oﬀ your advance). distributors such as Distrokid charge Your royalty rate is determined by your “Art- monthly and give you unlimited uploads. ist Clout” A.K.A. how many fans, and how Others, such as CD Baby only charge you much money-making potential you have. for the songs you release. I personally don’t like the idea of paying for a subscrip- If you are new artist, you might fall any- tion until the day you die. Distrokid takes where from the 13-16% range. For a mid- your music down as soon as you stop pay- level artist who has sold over 100,000 al- ing, so the one that makes the most sense bums (not streams, we are talking about for me is the pay-once model and your mu- cold hard sales), you can command 15- sic can live on forever. 18%. The superstar artists that are at the top of the industry can command upwards So Where Do I Sign Up? of 18-20%. Never will you see a 50% cut 1. Mechanical Royalty Collection from a major record deal, but if you sign to Songtrust.com, CD Baby Pro an Indie Record Label, your cut could be 2. Digital Distributors as high as 50% CD Baby, TuneCore, DistroKid, AWAL Record Labels take the same approach to 3. Physical Distribution (CDs, Vinyl, etc) your digital download sales as well. Disc Makers

11 Royalties From Interactive Streaming Services (Spotify, Apple Music, Amazon Music, etc)

Fair Warning: This Get’s Complicated fact—their royalty system is not based While streaming royalties are still under the upon a ﬁxed “per play” rate. category of Mechanical Royalties for per- Instead, Mechanical Royalties from Stream- formers, they aren’t as straightforward as ing are calculated as: mechanical royalties from physical sales. A single stream generates both Mechanical “10.5% of the gross revenue of the and Performance Royalties. company, minus the cost of public performance.” Performance Royalties are negotiated in private between the streaming service and This means, the following factors are at Performing Rights Organizations, so we play: will continue to focus on Mechanical Royal- ties. However, streaming services such as • The country fans are streaming an artist’s Spotify are not very straightforward about music how much a single stream is worth—in

12 • Spotify’s number of paid (premium) users Take this with a grain of salt, I know I will. as a percent of total users; the more pre- Here is a cool Spotify Royalty Calculator mium users, the higher “per stream” roy- you can bookmark if you are having a hard alty rate time remembering these decimals. This calculator assumes the Spotify royalty rate is • Relative premium pricing and currency $0.0045 per stream which might be closer value in diﬀerent countries to reality.

• An artist’s royalty rate based oﬀ of in-app So this is important. Mechanical Streaming advertisements Royalties are NOT collected by your Dis- tributor or Performing Rights Organization. So that pretty much gets us to a number They are collected by another party called we will never know. Especially since there a Mechanical Licensing Agent. The most are more free users signing up for Spotify popular being Harry Fox Agency (HFA) and everyday—essentially the royalty rate is SongTrust. This is complicated so here is a dropping as we speak. checklist for you: Spotify used to give an estimation of their royalty rate on their FAQ page, but have So Where Do I Sign Up? 1. Mechanical Royalty Collection since taken that page down. Fortunately Songtrust.com, CD Baby Pro for you guys, I have it saved in this guide for you. But who knows if these numbers 2. Digital Distributors are still accurate—Spotify surely isn’t say- CD Baby, TuneCore, DistroKid, AWAL ing anything: 3. Physical Distribution (CDs, Vinyl, etc) "Recently, [the above] variables have Disc Makers led to an average “per stream” payout to rights holders of between 4. Performing Rights Organizations (PRO) $0.006 and $0.0084. This combines BMI, ASCAP, SESAC activity across our tiers of service. The eﬀective average “per stream” 5. Spotify For Artists payout generated by our Premium subscribers is considerably higher." 6. Mechanical Licensing Agent The Harry Fox Agency

13 Performance Royalties and Performing Rights Organizations (PRO)

How Are Performance Royalties paid out by your Performing Rights Organi- Calculated? zation (PRO). Performance Royalties are generated More On PROs when copyrighted works are performed, re- Performing Rights Organizations collect corded, played or streamed in public. This Performance Royalties for artists that aﬃli- includes radio, television, bars, restau- ate with their organization. In the United rants, clubs, live concerts, music stream- States, there are three major Performing ing services, and anywhere else the music Rights Organizations: BMI (Broadcast Mu- plays in public. As I mentioned earlier in sic, Incorporated), ASCAP (American Soci- the guide, Performance Royalties exist in ety of Composers, Authors and Publish- two parts: Songwriter Royalties, and Pub- ers), and SESAC (now it only stands for lishing Royalties. Both are collected and “SESAC”). BMI, ASCAP, and SESAC all

14 pretty much do the same thing except that 2. PUBLISHING ROYALTIES SESAC is drastically smaller that it’s other Publishing makes up the other 50% of the counterparts and only has about 10% of Performance Royalty and, unlike Song- America’s performing artists. SESAC is writer Royalties, Publishing can be as- also the only exclusively invite only PRO. signed to outside entities called publishing BMI and ASCAP anyone can join and are companies. Music Publishing Companies non-profit organizations so you will most temporarily take ownership of your songs likely choose one of these two when you and manages the lifespan and monetary start out (especially with SESAC being in- potential for you music. But if you are not vite only). If you are not affiliated with a Per- signed to a publishing deal with a Publish- forming Rights Organization, you are missing Company, you might be missing out on ing out on two valuable music royalties: 50% of your Performance Royalties! To Songwriter Royalties, and Publishing Royal- avoid this, you can enlist the services of a ties. Once you are affiliated with a PRO, Publishing Administration Company who register your songs to begin receiving your will collect your Publishing Royalties on songwriter and publishing royalties. your behalf.

The Two Types Of Royalties PROs So Where Do I Sign Up? Collect 1. Mechanical Royalty Collection Songtrust.com, CD Baby Pro 1. SONGWRITER ROYALTIES 2. Digital Distributors When registering a song with your PRO, CD Baby, TuneCore, DistroKid, AWAL you will notice that your Performance Roy- alty is actually split 50/50 into two sub- 3. Physical Distribution (CDs, Vinyl, etc) royalties: Songwriting and Publishing. Disc Makers Songwriter Royalties will always be paid out to the credited songwriters of the com- 4. Performing Rights Organizations (PRO) position. There is absolutely nothing any BMI, ASCAP, SESAC record label, publisher, producer, manager, 5. Spotify For Artists or bandmate can do to take this royalty away from you. If you are credited prop- 6. Mechanical Licensing Agent erly, you will get paid. The Harry Fox Agency

15 Music Royalties Generated From Usage of the Sound Recording

The Other Side Of The Coin your music distributor, but what about col- We’ve covered earlier that a song consists lecting the rest of them? of the musical composition and the master recording when it is distributed and con- Mechanical Royalty Collection sumed in it’s ﬁnal, listenable format. If you’ve already followed my advice earlier in this guide, you would have already While Performing Rights Organizations, col- signed up for a Mechanical Royalty Collec- lect the Performance Royalties for the use tion Service such as SongTrust, CD Baby of the composition, they do not touch the Pro, and Music Reports. This would have royalties owed to you for the use of your you covered. Let’s dive into these a bit Sound Recording. more so we understand what is going on.

You will already get some of your sound re- If you are acting as the Publisher and the cording royalties that are paid out through Record Label of your music (meaning you are an independent artist), you’re basically

16 paying yourself a mechanical royalty to royalties to Music Reports (who use your own composition. In this case, in gives 100% straight to you), or you sign up the US and Mexico, stores like iTunes will with HFA directly, you’d be missing out on bundle your own mechanical royalty with all your mechanical royalties (even your the download sale and pass it back to your own mechanical royalties for using your distributor (like CD Baby or TuneCore). own composition) that are “withheld” in You’ll end up getting that mechanical roy- all countries. alty bundled with your payment from your distributor. In other countries, those same Therefore, since you’re most likely not get- stores will send your mechanical royalty ting your overseas mechanical royalties, portion to the mechanical licensing serv- you are probably missing out on 3-5% or ice in that country (and not to you). In of uncollected mechanical royalties (de- other words, if you sell your own recording pending on the amount of overseas popu- of a song you wrote, your own mechanical larity you have). royalties you “pay yourself” to use your Signing up for one of the services below own composition will be kept by those in- will solve that problem and allow you to ternational collection agencies, instead of collect all worldwide music royalties. being passed back to you through your distributor. So Where Do I Sign Up? 1. Mechanical Royalty Collection So, if you’re based in the US, that means Songtrust.com, CD Baby Pro that you are already getting back your mechanical royalty portion bundled with your 2. Mechanical Licensing Agent distributor income for any digital download The Harry Fox Agency sales of your own music in the US. For all other royalties, including interactive streaming in and outside the US, they are sent to collection agencies around the world.

How To Get International Royalties So how then do you collect these international royalties? Unless the service in ques- tion is in the US and pays your mechanical

17 Performing Artist Royalties and Registering on Sound Exchange (Pandora, SiriusXM, etc.)

Seldom Heard, Seldom Collected to hear at any moment, Non-Interactive There is another PRO so to speak called Streaming resembles traditional radio. Siri- SoundExchange that is fairly new to the usXM for example is not a terrestrial radio music industry. SoundExchange isn’t a provider (such as AM/FM). The platform is true performing rights organization and entirely digital, however, listeners do not doesn’t replace your membership with get to pick the songs they hear, only the BMI, ASCAP, or SESAC, but in addition to station or category of songs. Because the your current PRO aﬃliation, SoundEx- platform is non-interactive, it is subject to change can help you collect those pesky a diﬀerent royalty structure. Non-Interactive Streaming Royalties. SoundExchange What is Non-Interactive Streaming? The digital royalties that service providers Unlike Spotify and Apple Music where lis- such as Pandora, SiriusXM and webcast- teners can select the exact song they want ers are required by law to pay for stream-

18 ing musical content are paid by the serv- - 50% to the right’s holder of the Sound ices to SoundExchange. Much like a tradi- Recording (Record Label Usually) tional PRO, playlists of all the recordings played by the service provider are submit- This means that if you are an independent ted and royalty calculations are deter- musician (and you are your own record la- mined based off of those reports. bel) singing your own music, and recording your own music yourself, will earn you SoundExchange takes these payments 100% of the performance royalty for Non- and match the usage reports to the exact Interactive Streaming. recording. Then SoundExchange pays out royalties to the featured artist(s) and rights Cover Songs owners of those recordings. Now here’s the great part, if you sing and record a cover song (with permission from What Does This Mean? the original writer’s publishing company) SoundExchange pays out a Performance you definitely want to be signed up for Royalty much like a PRO, but because of SoundExchange. Since you created and the nature of Non-Interactive Streaming, performed a new sound recording, you are the royalty splits are different than what we entitled to 100% of the Non-Interactive covered earlier in this guide. Streaming Royalty even though you did not write the song! Under the law, 45 percent of performance royalties are paid directly to the featured So Where Do I Sign Up? artists on a recording, and 5 percent are 1. Sound Exchange paid to a fund for non-featured artists. The other 50 percent of the performance royalties are paid to the rights owner of the sound recording.

Here is a real world example:

- 45% to the Performing Artist/Band

- 5% to backup singers and session musicians

19 Recap on everywhere you need to sign up:

Mechanical Royalty Collection Songtrust.com, CD Baby Pro

Digital Distributors CD Baby, TuneCore, DistroKid, AWAL

Physical Distribution (CDs, Vinyl, etc) Disc Makers

Performing Rights Organizations (PRO) BMI, ASCAP, SESAC

Spotify Artist Dashboard Spotify For Artists

Mechanical Licensing Agent The Harry Fox Agency

Non-Interactive Streaming Royalties Sound Exchange

Additional Useful Registrations United Masters - Digital Distribution and Audience Growth Metrics

All Music - Song Metadata Registration for Digital Catalogs (TV Radio, Google, etc)

SoundScan - Register your Music for the Billboard Charts

SoundDrop - License and Release Cover Songs to Spotify