Some songs make their writers a lot of money. The more a song gets played, the more money it makes, so if you’re walking through the grocery store and you find that you know all the words to a pop song, you can guess that’s one tune that’s earning its keep.
But not every song generates enough revenue to live off of. Sometimes entire albums or careers don’t cut it and that can leave you with the question, “How do music royalties really work?”. Apparently Rolling Stones bassist Bill Wyman can’t live off royalties, and neither can Metallica. The main character in About a Boy was able to do it, which you might think is just artistic license, but every time “American Pie” plays in the grocery store, Don McLean earns money – so is it possible?
Every young musician dreams of living off their music, just as every young writer wants to pen the next Harry Potter. So how do those potential music royalties work? Each time a song is played, it earns royalties – but that doesn’t mean it is easy money. However, even though it’s only a few cents at a time, building royalty assets is possible for singers and songwriters. If you’re into the creative arts and you want to make a living from it, you’ve got to be able to answer the question, “How do music royalties work?”.
What Are Music Royalties and What Other Industries Use Royalties?
A royalty is a payment made to anyone who owns property – physical or intellectual – in exchange for use of the property. Legally binding contracts regulate the amount and frequency of payments. For example, when a CD is sold or a track is used in a movie, someone pays the record company. The record company must then make payments to the producers, the writers, and any other people involved in the music. Although music is easily the most recognized industry that makes use of royalty payments, royalties can be paid to any patent, franchise, or natural resource owner. Publishing houses and photographers also earn royalties, as do the owners of artworks and oil pipelines.
Types of Rights and Song Royalties
There are many different types of royalties. In the music industry, which we are focusing on, song royalties are broken down into a variety of rights.
Mechanical Licenses – This is the physical component of music, including CDs and downloads. Every time a physical reproduction of music is sold, whether it’s a data file or a vinyl record, the songwriter earns a royalty payment. The United States heavily regulates CD sales, and songwriters earn 9.1 cents per song or 1.75 cents per minute, whichever is greater. This means that every time a single of “Boom Boom Pow” is sold, the 4 minutes and 12 seconds of that song earn 9.1 cents, but Don McLean earns 14 cents for every single of “American Pie” sold. This amount is smaller for data downloads and digital streams. Mechanical licenses play a large part in how music royalties work.
Performing Rights – When a song is played on the radio, the songwriter earns a performance royalty. It’s not just radio play either – songs are entitled to income if they’re played at the grocery store, in a stadium when a hockey team scores a goal, or over the phone while you’re waiting for a customer service agent to pick up the line. Determining the rates of payment for performing rights can be complicated, as it is based on the number of listeners and the location of use. “American Pie” is apparently played somewhere in the world 500 times a day (and Don McLean earns every time it airs).
Synchronization Rights – If a song is used in a movie or on television (whether in a show or a commercial) it earns synchronization royalties. In this instance, the person making the movie, TV show, or commercial pays a flat rate for the use. This is negotiated based on the intended viewership and distribution. Songs can earn about $50,000 for appearing on TV shows, six times that amount for movie use, and a virtually unlimited amount as the theme song of a show. Just think about how many times you’ve heard the theme song from Cheers.
Other Rights – In addition to these common music royalty packages, there are a number of other rights and rates of payment that play into how music royalties work. Royalties are paid on print rights to songs when copies of the score are sold. Authors receive book royalties based on the distribution and sale of titles. The owner of a piece of land can negotiate a natural resource lease to offer rights to the resources the land contains, then receive royalty payments based on the sale of those resources.
Who’s Making What?
These days, a hit song earns $600,000 to $800,000 in radio play royalties. That doesn’t include mechanical or synchronization rights. “Boom Boom Pow” has earned each of the four band members around $215,000 (yes, that’s per person). That doesn’t count all the other hit songs Black Eyed Peas have released.
Some songs last a lifetime when you consider how music royalties work. Don McLean still earns roughly $300,000 annually for “American Pie”. But, while a lasting hit song is the dream, it’s not possible for every artist. According to a recent interview with Kirk Hammett of Metallica, the band can no longer live off their royalty checks (though it is likely that their idea of “living” is a little more expensive than musicians touring in vans and begging fans to buy merchandise). If nothing else, Metallica is closer to the rags to riches story that every artist strives for, just like J.K. Rowling and the Harry Potter series (which has earned her about £560 million).
If you’ve got the gift, writing a hit song or penning the next bestseller may turn out to be the easy part. Fortunately, once you’ve done it, there are professionals who manage royalty earnings and know how music royalties work. You just need to be aware of your rights. These days, you probably won’t even need to open your mailbox to retrieve your check. Despite being known as “mailbox money”, royalty payments are more and more directly deposited into the bank accounts of songwriters and authors.
You also need to keep working at your craft, because the bigger your library, the more song royalties you will earn. Of course, you can always follow the basic rules outlined by Gerry Rafferty in a recent BBC documentary. He claims your best chance at writing a royalty-winning song is to write a Christmas song, a timeless love song, or to get your song featured in a movie.
Artists should be prepared to put in the time and effort to build music royalty assets. If you’re looking for a business you can do just for the love of it without putting in the work, you’re better off speculating in the oil industry – it’s a “Mad World” out there. Speaking of which, the title song of Tom Cochrane’s hit album must have earned more royalties than expected with the release of Donnie Darko.
MetaComet Systems knows how music royalties work and is ready to help you every step of the way. Take a look at our royalty products or fill out our contact us form and we will reach out and take inventory of all of your needs.