Under federal law, a person or group of people who write or record a song hold a copyright in their work. A copyright provides a set of exclusive rights, such as the right to reproduce, distribute, or perform a work. Copyright protection for works created in 1978 or later lasts for 70 years after the death of the creator, or the last surviving creator for works that were created jointly.
Royalty = paying someone who owns an asset for permission to use it
Copyrighted works cannot be used without getting a license from the copyright owner, which involves paying royalties to them. The licensee usually makes royalty payments at regular intervals, and they must pay the copyright owner before issuing profits received from the use of the asset to anyone else. Royalties drive the American music industry, since licensing songs and recordings forms its main source of revenue.
Types of Music Copyrights
The first of two copyrights attached to a piece of music is the composition copyright. This is a copyright in the written form of the song, including the musical notes and the lyrics. The songwriter usually holds this copyright at the outset. If several people collaborated to write a song, each of them holds a royalty interest in the composition copyright. Royalties based on the composition copyright are known as publishing royalties, or songwriter royalties.
The second copyright attached to a piece of music is the sound recording copyright. This is a copyright in the song as people hear it. The musician or band who first records the song usually holds this copyright at the outset. Sometimes the same person owns the composition copyright and the sound recording copyright, but this is not always true. Royalties based on the sound recording copyright are known as recording royalties, or master royalties.
Who Actually Collects Royalties?
Songwriters and musicians usually do not maintain exclusive control over royalties. Songwriters typically assign ownership of the composition copyright to a publisher, which manages licensing and royalties. The publisher usually will distribute half of the royalties to the songwriter. Meanwhile, musicians often assign ownership of the sound recording copyright to a record company, which pays them under their contract.
Publishing Royalties for Music
Royalties based on publishing rights come in three forms:
Mechanical royalties: these cover the right to reproduce and distribute a song for a profit
Performance royalties: these cover the right to publicly perform a song, including not only performances at concerts but also music played at restaurants, streamed online, or used on the radio
Synchronization royalties: these cover the use of songs in films, TV shows, commercials, online videos, video games, and other situations in which the music is combined with visual images
Royalty rates are standardized for mechanical and performance royalties. The Copyright Royalty Board determines rates for mechanical royalties every five years, while performing rights organizations such as ASCAP negotiate performance royalties. By contrast, rates for synchronization royalties are customized and fully negotiable. These are one-time payments, while the other royalties are likely to be recurring payments.
Recording Royalties for Music
Royalties based on recording rights also come in three forms, which are similar but not entirely the same:
Reproduction royalties (or distribution royalties): these are required when the sound recording is sold or streamed
Performance royalties: these are required when the sound recording is broadcast on digital or satellite radio
Synchronization royalties: these are required when a film, TV show, commercial, or similar visual work uses a specific sound recording of a song
Reproduction royalties for recording rights are somewhat different from mechanical royalties for publishing rights because the royalty rate is negotiated rather than fixed. Rates for reproduction royalties tend to be considerably higher than rates for mechanical royalties.
Performance royalties for recording rights are also different from performance royalties for publishing rights. Rights holders do not collect payments for performance royalties based on the sound recording when the music is broadcast in public venues or on traditional radio.
Synchronization royalties for recording rights essentially resemble synchronization royalties for publishing rights. However, the record company receives the payment, rather than the publisher of the song.