Monetizing Music Royalties: A Guide for Artists

BMI, MLC, Spotify, Harry Fox Agency — Who Pays What, When, and Why?

Understanding how royalty music generates can help artists scale their earnings and grow in the music business.

In this article, we'll explain how royalties are generated and how you can collect your royalties from different organizations.

What's the difference between master, publishing, and writer's rights?  

Let's dive in.

Making music as an artist can be challenging and complex. With multiple people to deal with, confusing contracts, and a lack of transparency, it can be difficult for beginner or professional artists to understand royalty compensation. Yet, creating original music is necessary for licensing and royalties because it allows artists to retain more control and earn more money for their work. The different types of royalties artists can earn are performance royalties and mechanical royalties.

Services such as Spotify and Apple Music are the two biggest digital service providers (DSPs) for artists, driving income from the music's exposure to worldwide audiences. However, these DSPs are not paying fair rates, making it essential for artists to know how to extract their royalties and how much they are entitled to for their art.

Mechanical Royalties vs Performance Royalties

Before we discuss the details of royalty extraction, let's define performance rights and mechanical rights.

Performance rights belong to the composition's writers, whether lyricist or composer. This includes the melody, lyrics, and instrumentation.In some cases there are multiple songwriters attached to the composition copyright song.

Mechanical rights (or master rights) are the sound recording copyright that protects only the recorded performance of a song. The recording owner is entitled to the mechanical rights, whether he is a label, artist, or rights holder. Michael Jackson

When you sign recording contracts or a publisher deal means you're registering a publisher as a 50% or less rights holder. The publisher cannot take more than %50% of the performance rights. So when the publisher takes ownership, it could take ownership of up to half of the performance royalties. Publisher rights can be sold, and a growing market for rights acquisitions exists.

For example, in 1985, Michael Jackson bought the publishing rights to the Beatles' massive catalog for $47 million. Bruce Springsteen sold the master recordings and publishing rights for his whole catalog to Sony Records for $500 million.

It's important to indicate that the composer's rights cannot be erased or replaced. The musical composition writer and the lyricist will always be written as the performance rights owners, while a publisher can re-register or be replaced. There could be multiple stakeholders and different publishers for one composition.

What is a PRO?

A Performing Rights Organization (PRO) primarily administers and collects public performance royalties. So, whenever music is aired on TV, at a venue, streamed, or played at a store, PROs must track and collect these performances and activities to distribute payments to songwriters and publishers. PROs also help protect your copyright and fight for songwriter rights on your behalf. They can also offer financial support in grants, networking opportunities, and workshops to help uplift an artist's career. A single artist cannot track and collect all of their performing rights royalties. A centralized entity allows PROs to ensure that they adequately compensate songwriters and serious musicians for their hard work. To join, you must have one song written and publicly published. Yet, when choosing which PRO to join and sign up for, there are many factors you, as an artist, must consider.

By the way, multiple songwriters could be attached to each song; they don't need to be registered at the same PRO to collect royalties.

Which PRO should you register with?

The three primary considerations artists starting in the United States should consider are ASCAP, BMI, and SESAC. GMR is another available PRO, yet its primary usage is for superstar artists. It is important to note that all three of these PROs divide royalties between the writer and the publisher evenly, split between the two; they all offer distribution of royalties quarterly, they all offer a variety of discounts and benefits, and there is generally a 6-9 months delay payout. And there are a variety of distinctions between these three.

ASCAP

Structure: A nonprofit board of songwriters, composers, and music publishers.

Membership: Free to all

Fees: Free for writers, yet there is a $50 application fee for publishers. (*Note: If you apply as both a writer and a publisher, you will have this waived.*

Contract: One-year Contract

History: The oldest PRO in the United States, founded in 1914 

BMI

Structure: A for-profit board of executives, businessmen, and women

Membership: Free to all

Fees: No registration fees for songwriter or composer

Contract: Two-year Contract

History: Largest PRO, founded in 1939

SESAC

Structure: Invitation only, for profit, board of executives, businessmen, and women

Membership: Invite-only

Fees: There are no registration fees for songwriters or composers, yet licensing music to other businesses is not free

Contract: Three-year Contract

History: Smallest PRO, founded in 1940

It is crucial for artists to read the terms and the individual benefits that each PRO presents and to find the best one that works for them and where they are in their careers. The same consideration applies to artists in countries outside of America, such as those represented by SOCAN or Re: Sound in Canada, PRS in the UK, and GEMA in Germany. As an artist, you must consider your options based on the current momentum of your career and the discounts and memberships provided. 

Licensing Deals

Another way to earn royalties in music is through music licensing. Licensing occurs when a commercial entity uses your music to promote its product or service. This happens after a deal is signed between the artist and the commercial entity or the artist's representative, whether it's a label or an agent.

With organizations like BMI and ASCAP, artists can collect performance royalties whenever and wherever their music is publicly streamed. So, in a licensing deal, artists earn twice.

The first payment comes from the licensor, and the 2nd is the royalties generated from the broadcast.

In some cases, the artist can. Additional payments could come from mechanical royalties, which will be directed to the recording owner.

In addition, to add to the complexity of royalty distribution, multiple band members, producers, and session musicians are entitled to a percentage of each royalty stream of the songs they participated in, and it is up to all parties involved to be proactive on their compensation.

Getting Back to Mechanical Royalties

Mechanical royalties are the physical or digital copies of a song; these include CD sales, digital downloads, and streaming. These royalties are usually paid to the recording owner, the songwriter, or the publisher. For example, they are calculated as a percentage of the total revenue generated by the sale or streaming of the song. DSPs such as Spotify or Apple Music undergo a process in which mechanical royalties are generated and paid to the rights holders every time a song is streamed. Mechanical royalties represent a significant portion of an artist's income from their music, so it is crucial to understand how music royalties work.

How Mechanical Rights Are Collected

To better understand mechanical royalties, this section will explain how they are collected.

Mechanical rights organizations, like the Harry Fox Agency (HFA) or Collective Management Organizations (CMOs), collect mechanical royalties. These organizations work closely with music publishers and songwriters to collect their mechanicals from record labels, streaming services, and other music distributors. Once collected, these organizations distribute songwriters' and/or publishers' mechanicals. These organizations create a centralized process of collecting mechanical royalties and ensuring protective compensation among all stakeholders.

Depending on your country, different mechanical rights organizations are affiliated with other countries. Be sure to look up your own and read through its intricacies to be aware of how and when you will be compensated for your creations.

What is the Mechanical Licensing Collective?

With every stream, you earn separate royalties as an artist and a songwriter. Artist royalties come from your distributor, while music rights organizations collect songwriter royalties. The Mechanical Licensing Collective (MLC) pays digital mechanical royalties, while performance royalties go to the performance rights organizations (PROs) like ASCAP, BMI, GMR, and SESAC. If you want to collect all of your US mechanical streaming money for your song, you should join the MLC.

Under US Copyright Law, songwriters and composers create musical works, while recording artists and producers create sound recordings, typically distributed or owned by record companies.

To obtain all the mechanical royalties and receive royalty payments, artists must sign up with the Mechanical Licensing Collective, also known as the MLC. The MLC is a public music work database that distributes and organizes ownership information. It collects US digital mechanical royalties and sound recording usage data from digital music providers. It will then match the sound recording usage data with the MLC's ownership data of musical works and distribute US digital mechanical royalties to the rights holders. By administering a new blanket compulsory mechanical license available to eligible digital music providers operating in the United States, the MLC provides a centralized system and way to obtain all digital audio royalties.

Yet, it's important to note that the MLC does not replace a PRO. Artists must sign and administer their works through a PRO and the MLC to maximize their royalties.

Considering that the MLC is not responsible for collecting mechanical royalties from DSPs outside the United States is crucial. So, if you are based outside of the US, you can join the MLC or your local home country's mechanical rights organization to collect your mechanical royalties. It is up to individuals to read these organizations' terms and benefits to find which would best represent and fit their situation.

Who should become a member of the MLC

Suppose you are a record label or mechanical rights organization based outside the US. In that case, you can collect US digital audio mechanicals from a licensee, so you must become an MLC member. If you are self-administering the mechanical rights and haven't signed a record deal before, you must become a member of the MLC to gain your entitled royalties. Yet, if you work directly with a music publisher or administration service, the publisher will register, collect the royalties, and then pay you.

Global Mechanical Rights Organizations

While the MLC exclusively works in and for the United States, other countries have organizations dedicated to extracting and collecting mechanical and performance royalties. Collective management organizations (CMOs) or collecting societies perform a similar function to the MLC within national or regional frameworks. For example, the United Kingdom has MCPS, which handles mechanical royalties, while PRS for Music manages performance royalties. In countries like Canada, the CMRRA collects the mechanical royalties, and SOCAN collects the performing rights. Artists should know this and register with their national collecting society to maximize all attainable royalties. Many organizations have reciprocal agreements with foreign institutions, allowing international royalties to be collected and distributed. Artists and publishers should be proactive in their work and handle these registrations thoroughly to maximize their compensation for every stream, download, or worldwide broadcast

to ensure that compensation for every stream, download, and worldwide broadcast is collected.

Key takeaway

Understanding royalties in all their details is important, as they are the basic knowledge in the music industry. Royalties are generated from various sources, such as streaming platforms, physical sales, live performances, and radio plays.

By understanding how the music industry works and how the organizations that interact in royalty compensation work, music industry players are able to maximize and scale their income.

When you sign a recording deal, be aware of the rights you keep to yourself and the ones you give away. Understanding how to manage your royalties is essential in the current music industry landscape.

Whether through a PRO to collect performance royalties or through the MLC to collect digital mechanical royalties, artists must take on this responsibility to ensure they are properly registered and represented. These organizations exist for these creators, so you must take advantage of them. Yet, this can only happen if you sign up and engage with them. Navigating the royalty landscape can be tricky and confusing, but the groundwork early in your career can set you up for greater financial sustainability. Once you get your royalties paid, you will appreciate your work and accomplishments. Creativity is your power; make sure you're getting compensated for it.

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