How Music Royalties Work: Everything You Need to Know

Streaming services 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% to $5.9 billion in the first half of 2021, accounting for 84% of total music revenues for the period and a 4% climb from 2019 levels. It is safe to say that the pendulum has fully swung in favour 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.

From the above stats, we can see that music royalties are a crucial aspect of the music industry, providing compensation not only to artists but to songwriters, and publishers for the use of their intellectual property. While the concept may seem straightforward, the intricacies of music royalty systems can be quite complex.

In this blog post, we will delve into knowing how music royalties work, various types of music royalties, how they are collected and distributed, and the factors that influence royalty payments.

What are 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.

Types of music royalties

There are primarily three main types of music royalties:

1. Mechanical royalties: These royalties are paid for the physical reproduction or digital distribution of a musical composition. This includes CDs, vinyl records, digital downloads, and streaming services.
2. Performance royalties: These royalties are paid for the public performance of a musical composition. This can occur in venues like concert halls, nightclubs, and radio stations, as well as online platforms.
3. Synchronization royalties: These royalties are paid for the synchronization of a musical composition with a visual medium, such as a film, TV show, or commercial.

The role of collection societies

Collection societies play a pivotal role in collecting and distributing music royalties. They are organizations that represent the rights of songwriters, composers, and publishers, and they negotiate with music users to secure fair compensation. Some of the most well-known collection societies include ASCAP, BMI, SESAC, and SoundExchange.

Read Also: Impact of Social Media on Nigerian Music Industry

How Royalties are Collected and Distributed

The process of collecting and distributing music royalties involves several steps:

1. Registration: Artists, songwriters, and publishers must register their compositions with a collection society. This provides the society with the necessary information to track the usage of their works.
2. Monitoring: Collection societies monitor the usage of music across various platforms, including radio stations, television networks, streaming services, and live venues.
3. Data collection: Data on music usage is collected and analyzed to determine the appropriate royalty payments.
4. Distribution: Royalties are distributed to artists, songwriters, and publishers based on their share of ownership in the composition. The distribution process can be complex, especially when multiple parties are involved.

Factors Affecting Royalty Payments

Several factors can influence the amount of royalties an artist, songwriter, or publisher receives:

• Usage: The frequency and duration of a song’s usage directly impact royalty payments. A song that is played frequently on the radio or streamed millions of times will generate more royalties than a song that is rarely heard.
• Composition: The complexity and originality of a composition can also affect royalty payments. Songs that are more complex or innovative may be valued more highly.
• Market Demand: The popularity of a song or artist can influence royalty payments. Songs that are in high demand and have a large fan base are likely to generate more revenue.
• Licensing Agreements: The terms of licensing agreements between artists, songwriters, and publishers can also impact royalty payments. These agreements may specify the rates at which music can be used and the fees that must be paid.

Challenges in the Music Royalty System

Despite the advancements in technology and the efforts of collection societies, the music royalty system still faces several challenges:

• Unreported usage: It can be difficult to track all instances of music usage, especially in the digital age. This can lead to underreporting and lost revenue.
• International licensing: Licensing music across international borders can be complex and time-consuming. Different countries have varying laws and regulations governing music royalties.
• Data accuracy: Ensuring the accuracy of data on music usage is crucial for fair royalty distribution. Errors in data can lead to disputes and financial losses.
• Technological advancements: The rapid pace of technological change can make it difficult for collection societies to keep up with new methods of music distribution and consumption.

The Future of Music Royalties

As the music industry continues to evolve, so too will the systems for collecting and distributing music royalties. New technologies and business models will present both opportunities and challenges. It is essential for artists, songwriters, publishers, and collection societies to adapt to these changes and ensure that creators are adequately compensated for their work.

Conclusion

Music royalties are a vital component of the music industry, providing compensation to those who create and distribute music. While the system can be complex, understanding the different types of royalties, the role of collection societies, and the factors that influence payments is essential for artists, songwriters, and publishers. By navigating the challenges and embracing the opportunities presented by the evolving music landscape, creators can ensure that their work is valued and rewarded.