Music Royalties 101

Summary

This presentation offers an in-depth look at music royalties, explaining the concept, types, and how they generate income. It distinguishes between royalties and copyrights, highlighting the different revenue streams such as synchronization, mechanical, and performance royalties. The script delves into the distribution process, the role of publishers and labels, and the historical context of royalty earnings, providing insights into the music industry's financial landscape.

Takeaways

• 🎵 A royalty is a payment made to the owner of an asset, like a song, for the right to use that asset in the music business.
• 📝 In music, there are two types of copyrights for each song: one for the composition (written song) and one for the sound recording (recorded version).
• 👥 Multiple contributors to a song can have a royalty interest and collect royalties as compensation for their efforts.
• 💰 Royalties are paid out at set intervals and are based on the use of the music, not company performance, and are earned before stockholders' dividends.
• 🔄 There are different types of music royalties, including synchronization, mechanical, and performance royalties, each dependent on the use of the song or recording.
• 🏦 Royalties are collected and distributed by various entities, such as publishers for songwriters and labels or distribution services for artists.
• 📈 Copyright terms for music determine the length of time royalties are paid, with the current U.S. term being the lifetime of the last surviving author plus 70 years.
• 📊 Public performance royalties are common and are collected by performing rights organizations (PROs) like ASCAP or BMI for songwriters and publishers.
• 💿 Mechanical royalties are paid to songwriters when their music is reproduced and sold, with rates set by the Copyright Royalty Board.
• 🎬 Sync royalties are paid for the use of music in visual media like TV shows and commercials, with rates negotiable based on various factors.
• 📊 The global recorded music market has seen growth, with streaming revenues accounting for more than half of the total, and physical sales declining.

Q & A

What is the main difference between a royalty and other types of investments?

A royalty is a payment made to the owner of an asset for the right to use that asset, and it is paid out at set intervals based on use, not company performance, whereas other investments like stocks may pay dividends based on the company's performance or profits.

How many types of copyrights does a song have?

A song has two types of copyrights: one for the musical composition (as it is written) and one for the sound recording (as it is recorded).

What are the different types of music royalties?

The different types of music royalties include synchronization royalties, mechanical royalties, and performance royalties, each based on how the songs and recordings are used.

Who typically collects and distributes the royalties for sound recording copyrights?

Sound recording royalties are typically collected and distributed by record labels or distribution services, which then pay the artists according to their contracts.

How does the public performance royalty work for the composition copyright?

Public performance royalties for the composition copyright are collected by performing rights organizations (PROs) like ASCAP or BMI, which monitor and collect royalties from various sources and then distribute them to publishers and songwriters.

What is the role of a music publisher in the royalty collection process?

A music publisher signs a publishing deal with a songwriter, owns the copyright, and is responsible for exploiting the copyright to generate royalties through sync, mechanical, and performance rights.

How are mechanical royalties calculated for streaming services?

The mechanical royalty rate for streaming services is much lower than for physical sales, calculated at approximately 0.0006 cents per song, with rates set by the Copyright Royalty Board.

What is the significance of sync royalties in the music industry?

Sync royalties are payments made for the rights to use music in TV shows, commercials, movies, or online videos, and they are fully negotiable with custom rates for each use, contributing to a significant part of the music industry revenues.

How has the music industry revenue changed over the years according to the IFPI report?

According to the IFPI report, the global recorded music market has seen growth, with streaming revenues accounting for more than half of the global recorded music revenue, while physical sales and digital downloads are falling.

What are the main sources of public performance royalties as reported by BMI?

The main sources of public performance royalties reported by BMI include cable and satellite (30%), digital sources like streaming (28%), TV and radio broadcast (24%), and venues, live events, bars, and restaurants (18%).

How can an investor learn more about music royalties and the royalty exchange marketplace?

Investors can download the ultimate guide to buying music royalties from the website, register for office hours Q&A sessions, explore the investor resources section of the blog, or subscribe to the marketplace update newsletter.