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What About Royalties? A Sound Guide for Musicians

November 2006 (Creativebias)

Royalties are the standard method of payment for songwriters and performers whose work is used on a recording. Most professional musicians rely on royalties for a large proportion of their income, but the system can be extremely complex, and many lose out as a result. This guide gives a general introduction to the royalty system: what royalties are, where they come from, who they go to and how they get there.

 

Writers' Royalties

Every time a song is recorded, performed live or broadcast, the writers are entitled to a payment, or royalty. There are different royalties for different uses of a song. One payment comes from what is legally known as the 'Performing Right' - the right to be paid for a performance of your song. The Performing Right Society (PRS) collects and distributes royalties due for public performances of songs in clubs, pubs, concert venues, cruise ships, and anywhere else that uses live music to attract customers. These businesses pay the PRS for a license to play live music. The PRS then passes the money on to the publishers of the songs. The publishers in turn pass a share on to the writers (see Sound Guide, "What about Publishing?" for more on this).

TV and radio stations, and film and video companies also have to pay to use songs. Broadcasters have to submit playlists to PRS, who then pay the publishers accordingly. PRS also monitor broadcasts to check that the playlists are accurate.

Film and video companies must pay for a license if they want to use a song. This is known as the Synchronisation Right, because the music is synchronised - in time - with the pictures. They will pay the publisher directly for the license.

A second kind of royalty comes from what is known as the Mechanical Right. This means that every time a recording of the song is made (a mechanical process), the writers should get paid. The Mechanical-Copyright Protection Society (MCPS) negotiates agreements on behalf of publishers, with record companies, broadcasters, computer game designers, and anyone else who wishes to record music. MCPS then collects and distributes mechanical royalties to publishers. Mechanical royalties are generated every time the music is copied on to CD, cassette, vinyl, or any other format.

Performers' Rights

So far we have concentrated on the writers' royalties. However, the musicians used on a recording will also earn money from its use, from what are known as the Performers Rights - as opposed to performing rights. The Performers Rights are owned initially by the people actually playing the instruments. In order to use your performance on a recording, the person who is making the recording needs your permission. If you are an artist or part of a group your contract may include a royalty payment for each use of the recording (but don't assume this!). In theory, this means that the musicians should get paid every time a CD or record is manufactured. What happens in practice is they get paid a percentage of the profits for every CD or record sold in the shops. Distributors and retailers pay the record companies directly for the copies they sell. Owners of public places where recorded music is used to attract customers, such as clubs, bars, shops and hotels pay for a license to use those recordings. TV and radio broadcasters also have to pay for a license to use recordings. A company called Phonographic Performance Ltd (PPL) collects the license money and then passes a share on to the musicians. Royalties Reunited is the simple way for you to claim airplay royalties that are owed to you. To find out more about this visit www.royaltiesreunited.com

Often session musicians and backing vocalists are asked to sign a standard consent from (drafted by the Musicians Union and Equity respectively). This waives their rights to be paid each time their performance on a recording is used. Instead they get a one-off payment for the session. This has been an area of dispute in the past - where a really notable performance by a session player has radically changed the direction of a song.

Songwriting Splits

When writing with other people, each of you has a claim on the copyright of the song and you will need to agree how to divide the royalties, so it is important to confirm in writing what share each of you has written. Two broad rules of thumb have developed to help you work this out. The first and most common is that the words /lyrics of a song attract 50% of the copyright and the music attracts the other 50%. The second school of thought says that the words attract one third, another third goes to the writer of the melody and the remaining third goes to the writer(s) of the rest of the music. It is up to the writers to decide what they feel is fair.

When it comes to bands, this sort of thing can cause huge tensions. The copyright in the songs is what generates most of the money in music. You can end up with one or two members who are raking it in, while the non-writing members are still broke. It's especially contentious with a band, where the bass player, for example, may write the bassline but not get a credit as a writer. Some well known bands have credited every member on every song so that each receives an equal royalty. Others have used voting systems to decide how big a contribution each member made. And some, famously, have chosen not to be so generous.

How much do I get?

This depends entirely on the deal you have agreed with your label or publisher. Typically, labels will offer artists a royalty rate between 10 - 20%, although this of course is negotiable. This means that for every record sold, the artists receive between 10 - 20% of the money, which they will then have to split between themselves. The question is, 10 - 20% of what? Your contract should specify whether it's the retail price, wholesale (distributor) price, or some other figure. Bear in mind that record companies will often try to include clauses in their contracts with artists that reduce the amount they have to pay them. These might include deductions for free copies, promos, breakages (a hangover from the early days when vinyl was much more fragile), unsold returns from retailers, advances, recording and video costs, producer fees, art-work, design... the list goes on. You should always check a potential contract thoroughly and seek independent legal advice before signing.

One way of getting a bigger share of the profits, at least in the early stages of your career, (or maybe towards the end), is to release your records yourself (through a distributor), either alone, or in partnership with another act. That way you can just split the profits. Profit-sharing deals are also common with smaller independent labels, who have less money to spend on flash recording studios for you to use. Bigger labels offer the opportunity for better studios and greater exposure, but will usually want a larger piece of the pie in return. And remember, you won't receive a penny in royalties until you've paid back any advance the label has given you. The same goes for publishers, though their rates tend to be a lot more generous.

How do I know I'm getting the right amount?

The label will probably pay your royalties every six months. Thanks to some high-profile cases record labels have a rather dubious reputation when it comes to paying artists what they're owed. Thankfully, now that people are wising up to the industry things are improving, but you should always check your contract carefully. Among other things, it should include a clause that allows you to inspect the record company's accounts at least a couple of times a year, provided you give them reasonable notice. You can use this to check up on them if you suspect you're being seriously underpaid.

Of course, the labels and publishers are relying on the collection societies such as PRS and MCPS to supply them with accurate figures and payment. The UK societies have agreements with others across the globe to ensure that all monies are collected and distributed appropriately. They claim to be pretty accurate but the system isn't perfect; there are so many radio and TV stations that they can only monitor samples of what each is playing. Similarly, set lists in clubs and at concerts should be reported but very rarely are. Here's an example of what happens at a major live event:

Promoters buy a license from the Performing Right Society (PRS) to use music in public. DJs and bands should submit set lists so that PRS can use them to divide up the license money among the writers and producers of the music that's been played. That's ALL the music. Whether it's a 30,000 imprint dance-floor smash or a one-off dub plate, somebody somewhere is due some money if you play their record or cover their song. There are two snags with this system. Firstly, few DJs and not all bands report their set lists, so PRS don't know who to pay. And secondly, not many underground producers are members of PRS, and PRS can only pay royalties to its members. So even if the DJs and bands do their bit, PRS may not be able to pass the money on.

The issue hit home to drum'n'bass don Adam F at the Millennium Dome party on New Year's Eve 2001. He finished playing and went to hand in his set list. As a producer and DJ, Adam is well aware of the value of PRS income. The promoter, however, was amazed. No one else had bothered and Adam realised he had to do something:

"Really what triggered it off was when PRS wrote me back a letter saying "Thanks very much. You were the only person who filled out a form that night, which enabled us to distribute some royalties."

Which means that 95% of the royalties that night were not able to be distributed.

The typical license fee is around £20,000 for a large club and well over £150,000 for a big festival or dance event. But if only one set list is submitted, the money is split evenly among the tunes on thatlist. If that's a superstar DJ who's filled their list with their own tunes and dubs, they'll pocket most of the license fee. Worse still if no-one submits a list at all, the money goes elsewhere, as Adam explains:

"It's not that it sits in a big pot building up interest. It actually gets distributed to the top writers in the country, who are obviously doing fine anyway. A DJ set at a festival can generate £2,000 and the point is that it's better to distribute it through our scene, even if only 70% of the information is right, than to have it go to another side of the industry."

Unfortunately there's no workable alternative to this situation, so for the moment you'll just have to rely on them doing their best. If you feel that there may be some royalties out there due to you, it's worth checking out www.royaltiesreunited.co.uk, which holds details of all monies owed to musicians as Performers Royalties. If your name's on the list you can register instantly and claim your cash on the spot.

Useful Links and Further Information

  • A.L.C.S. (Authors Licensing & Collection Society). Association of collection societies for royalties from publishing the written word. www.alcs.co.uk T: 020 7395 0600 F: 020 7395 0660
  • British Academy of Composers & Songwriters (BAC&S), formerly BASCA - British Academy of Songwriters, Composers and Authors - representing the interests of composers & songwriters - may be able to put lyric writers in touch with composers, or vice versa, or to assist in finding a publisher. www.basca.org.uk T: 020 7629 4828 / 020 7436 2261
  • Joe Keene (2002) Songwriting: From Ideas to Royalties Skyward Publishing Company
  • Mechanical Copyright Protection Society (MCPS). Collects and distributes royalties paid by record manufacturers for the right to record copyright works. www.mcps.co.uk T: 020 8378 7575. F: 020 8378 7580
  • Musicians Union (M.U.) www.musiciansunion.org.uk. T: 020 7582 5566 F: 020 7582 9805. The Business Advice Department will advise on contracts being considered by members. T: 020 7437 8506
  • Performing Rights Society (PRS) Collects and distributes royalties paid to songwriters for use of their work. www.prsformusic.com T: 020 7580 5544 F: 020 7306 4050
  • Phonographic Performance Ltd. (PPL) Representing the rights of the makers of sound recordings. www.ppluk.com T: 020 7437 0311 F: 020 7734 9797

SOUND GUIDE SERIES


© 2004 MMDA


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2 Comments

  1. I understood more after reading this than I knew before! I can seethis as being very useful for some of our performing arts students.
    Thanks
    Brian
  2. Musicans need to be aware that nowadays there are increasing opportunities to gain additional revenues from other royalty based businesses who work directly with businesses instead of the traditional performing rights and composition rights societies. These newer music libraries (such as www.melodypods.com, www.ambientmusicgarden.com etc) are more dynamic and focus on marketing to particular market segments. Additionally they are able to pass on more of the fees earned than the traditional societies because they have lower operating costs (less payroll and executive salaries for example) and also have far more data on what music is being used by each business.