Get the Lowdown on Download Royalties

The word “royalty” dates back to the Middle Ages, when the noble class (royals) granted far less privileged individuals the right to extract minerals from the land they owned—for a fee, of course. So if you feel like a peasant every time you open one of your music streaming royalty checks, know that there’s longstanding precedent for that.

But understanding how streaming royalties work is an important step to generating revenue from your music and of becoming a fully functioning adult in the music industry today. So let’s take a look at the basics.

In order to generate any royalties at all from digital streaming of your work, your best bet is to engage a digital music distribution service. Digital distribution services work in much the same way as physical distribution services do, but instead of getting your CDs into record stores, your digital distributor gets your music on popular streaming services like Spotify, Apple Music and Napster. When it comes to distribution, you can try to go it alone, but the cost in terms of time and effort generally will be more than offset by the fees you pay to distributors are well worth the investment.

Copyright laws confer rights on both songwriters and performance artists. If you are both the writer and performer on a song, you are entitled to collect royalties on both accounts. Otherwise, you are only entitled to some of the royalties generated by your work.

In music, there are three kinds of royalties:

Mechanical royalties are paid for the physical or digital reproduction and distribution of copyrighted works. In other words, vinyl, CDs, and digital downloads all generate mechanical royalties. Record labels pay mechanical royalties every time they press a CD or vinyl copy of your recording. Music streaming services pay mechanical royalties with every digital download of your songs.

Performance royalties are paid when copyrighted works are performed, recorded, played or streamed in public. When another musician covers your song in concert, you are entitled to performance royalties. Same goes when a bar streams Spotify for their customers and your music is on the play list. Performance royalties, frankly, are hard to collect in full because many businesses ignore their responsibility to pay licensing fees to the organizations that collect performance royalties. You’d be surprised how many bar owners cheat. If it’s any consolation, when they get caught, they’ve got significant headaches. Signing up with a Collective Management Organization and/or a Performance Rights Organization is the easiest way to collect all the royalties due to you.

Synchronization royalties are paid when your work is—you guessed it!—synchronized with audiovisual materials. If a yoga instructor wants to create an educational video and uses your music to sweeten it, you are entitled to a synchronization royalty. Unlike mechanical and performance royalties, synch royalties are typically paid as one-time licensing fees. Unfortunately, you don’t earn more when the yoga teacher gets a lot of hits on YouTube, but you do get a nice lump sum payment up front.

The amount you will earn from digital streaming royalties varies according to a number of factors. Each streaming site has its own way of figuring royalties. Services that allow listeners to customize their listening—interactive sites like Napster and Apple Music—usually pay a higher rate than non-interactive sites like Pandora. Paid subscriptions sites tend to be more generous that free sites.

Music streaming sites typically use one of two royalty payment models. The “service-centric” or “pro rata” approach pays artists by figuring the site’s total monthly revenue, dividing that by the total number of streams they facilitate, then multiplying that number by the number of streams your songs specifically generate. The “user-centric” model uses a less complicated calculus. It determines royalties based on the fee each listener pays per month, divided by the percentage of their usage represented by your songs. Proponents of the user-centric model contend that it gives up-and-coming artists a fair shake, rather than favoring established artists. Others defend the pro-rata model, citing the complexity of administering the user-centric model as a factor in driving up overall costs.

Choosing the streaming services you target based solely on higher royalty payments can be tempting. Napster and Tidal earn top grades when it comes to per-stream payouts. Of course it makes sense to compare royalty rates before signing on any dotted lines. But there are other considerations to take into account. The widest reaching (often free) sites—like YouTube, for example—may pay a lower royalty rate but they make up for it by making your music much more discoverable. You have a far better chance of experiencing that magical, viral moment when your pool of potential listeners is thousands of fathoms deep.


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