Paying Out Music Royalties- Music Licensing at a glance

Spotify. YouTube. Live Performances. Advertisements. Video Games. Digital Downloads. Movie Trailers. And on, and on, and on.. Music is in so much of what we consume and use day to day.

With the hordes of avenues that music can be applied, how can you be sure that the intellectual property rights are managed and music royalties are paid properly?

This quick guide will give you everything you need to know about the essentials of music licensing and music licensing royalties.

Music Copyrights

Six months after President George Washington signed the first federal copyright law, Andrew Adgate paid 60 cents to copyright a collection of “psalm tunes, hymns, and anthems.” That 1790 law did not expressly protect music. That wouldn’t happen federally until 1831. Since then, the music copyright has become more complicated, the music industry has only gotten bigger

Today, there are two music copyrights that can be obtained: musical compositions and sound recordings. Confusion is bound to happen as sound recordings are considered a separate copyright from musical compositions even though a sound recording is based off a musical composition. According to the U.S. Copyright Office, here are the distinctions:

Musical Compositions Copyright

What it covers: Music (melody, rhythm, and/ or harmony expressed in a system of musical notation) and accompanying words (lyrics).
Who is the author: Composers, lyricists, and songwriters.
How it is fixed: Copy (sheet music, either print or digital such as pdf) and phonorecord (e.g., mp3, CD, LP).
The owner has the exclusive right to:
- Reproduce the work.
- Prepare derivative works.
- Distribute the copies or phonorecords of the work to the public by sale or other transfer of ownership, or by rental, lease, or lending.
- Perform the work publicly.
- Display the work publicly.

Note that a registration for a musical composition will cover the music and lyrics (if any) in that composition, but will not cover a recorded performance of that composition. So, the composition for “Yesterday” and the Beatles recording of “Yesterday” are two different copyrights.

Sound Recordings Copyright

What it covers: Fixation of a series of sounds (e.g., a particular performance).
Who is the author: Performers, producers, and sound engineers.
How it is fixed: Phonorecord (e.g., mp3, CD, LP).
The owner has the exclusive right to:
- Reproduce the work.
- Prepare derivative works.
- Distribute the copies or phonorecords of the work to the public by sale or other transfer of ownership, or by rental, lease, or lending.
- May only perform the work publicly by means of a digital audio transmission.

Note that the registration for a sound recording of a performance will not cover the underlying musical composition.

And different recordings will have different copyrights. A live recording of “Yesterday” will have a separate copyright from a studio recording of “Yesterday.” And neither of these copyrights will cover the underlying musical composition.

While the general rule is to apply for separate copyrights, there are occasions when a single application for musical composition and sound recording can be submitted in one application.

That’s usually when a songwriter performs and records their own composition or when a record company owns both the composition and recording.

Browse the U.S. Copyright Office’s list of copyrights to discover who has the copyright to some of your favorite music.

Music Licenses

Now that we know what can be copyrighted, how are royalties paid on those copyrights? Music licensing!

While the answer to the question may have been simple, like everything else with music licensing, the process gets a little more complicated.

First, you need to know what type of license is being used. And there are several ways music can be licensed according to BMI, the largest music rights organization in the United States.

Public Performance License:

Mechanical License:

Copyright owner authorizes the reproduction of a musical work as in a record, cassette or CD, usually to a record label company.

Synchronization License (“Synch License”):

Copyright owner grants the right to synchronize the musical composition in timed relation with audio-visual images on film or videotape, usually to a producer.

Digital Performance Right in Sound Recordings:

Music Royalties

Now that we know the types of licenses, we can dive deeper into the types of music royalties that are paid out.

Performance Royalties:

When copyrighted songs are being performed, recorded, played or streamed in public a performance royalty is received. This can be through a live concert performance, airing on a radio station, or simply hearing an audio recording playing at your local coffee shop. If the music is playing in a public place, there’s a performance royalty involved.

Performing rights organizations like BMI, ASCAP, and SESAC handle the licenses for the majority of public performance licenses. The license rate is negotiated between the copyright owner and the venue.

Mechanical Royalties:

Mechanical royalties are received when the mechanical license is used in physical phonorecords; permanent downloads; ringtones; limited downloads; and interactive streaming. According to the U.S. Copyright office, the current mechanical royalty rates are:

Physical phonorecord deliveries and permanent digital download: 9.1 cents or 1.75 cents per minute of playing time or fraction thereof, whichever is larger.
Ringtones: 24 cents per ringtone.
Limited downloads and interactive streaming: Formulas for determining these rates may be found in 37 C.F.R. §385.10 through §385.17.
While streaming royalties are a mechanical royalty, their rate isn’t as clear. It’s based off a per-stream rate that pays decimals of a penny per stream. For example, an artist would need to have over one million total plays on Pandora Premium to earn around $1,400.

Synchronization Royalties:

Sync royalties are paid when the copyrighted musical composition in synchronized in timed relation with audio-visual images on film or videotape. These are the royalties paid when the music is used in movies, television shows, video games, commercials, and other forms of visual media. The license rate is negotiated between the copyright owner or music publisher and a producer.

Managing Music Licensing & Royalties

Managing music royalties can be cumbersome for music publishing companies, composers, records labels or the artist themselves. There are many third parties involved depending on what kind music royalty payment is going to be processed. In addition to royalty management and other financial commitments, it’s also important to keep track of IPs and business deals.

The entertainment industry in the United States is getting bigger, the laws and rules for processing music royalties are getting complicated as well.

Having an integrated database system that is built for music publishers is key to keeping a handle on all the moving parts involved with music licensing.

Dependable Solutions’ integrated royalty management solution is built with specific features for music publishers, record labels, artists, music composers, Video-on-Demand media streamers, and digital entertainment companies.

It takes only one solution to process a mountain of data and synthesize into easy to digest information that makes managing royalty payments a breeze. See exactly how much you owe to artists, producers, agents, brand owners, and other parties all in one place.

View your rights by platform, territory, sales type, and more. Pull and track sales data electronically from major entities like Amazon, Apple iTunes, HBO+, Hulu, Google, Disney+, Spotify, YouTube, and more.

Music royalties made simple. That’s music to everyone’s ears.

Learn more about Dependable Solutions’ music & media royalty management system here.