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Royalties

Royalties from Sales

Royalties from sales are royalties paid by the record company to the recording artist based on sales from their record. These royalties are typically based on a percentage of sales from the record, 10% for example. The calculations used for determining royalties from sales can be quite complex and are a negotiated as part of the artist's overall recording contract with the record company.

Royalties from Sales

Royalties from sales are royalties paid by the record company to the recording artist based on sales from their record. These royalties are typically based on a percentage of sales from the record, 10% for example. The calculations used for determining royalties from sales can be quite complex and are a negotiated as part of the artist's overall recording contract with the record company. Payments of royalties from sales to the recording artists do not start until the record company has recouped all the expenses they incurred for making, promoting and marketing the record. Recoupable expenses can include the costs of recording, producing, mastering, manufacturing, promoting and marketing the record, tour support, video production and any other related expenses the label includes as part of the recording contract.

It is quite common for a recording artist to never receive royalties from sales (unless, of course, their record is a huge hit) due to the way royalties from sales are structured and the high costs for the record label of getting a new record to market.

Mechanical Royalties and Licenses

Mechanical licenses are the rights granted by the copyright owner or publisher to reproduce songs for public distribution. Money paid by record companies to manufacture and sell records is called mechanical royalties. Mechanical royalties are paid to the publisher who pays the songwriter accordingly. Mechanical royalties are typically determined by multiplying the mechanical rate by the number of tracks on each record or CD that is sold.

Mechanical royalty payments are typically not reliant on the record label recouping their expenses from recording, producing or marketing the record like royalties from sales.

Compulsory Mechanical Licenses were introduced as part of the Copyright Act of 1909 and allow anyone to reproduce a previously recorded work as long the copyright holder is notified, provided monthly royalty statements and paid the royalty rate set by law, called a statutory rate or stat rate. What this means is that you can record a cover version of a song without explicit permission of the copyright holder as long as the song has already been recorded and distributed, you don't substantially change the song's lyrics or music, and you comply with the licensing and reporting requirements. As of January 1, 2006 the statutory rate is 9.10 cents for a composition five minutes or less in length, or 1.75 cents per minute, rounded up, for songs over 5 minutes, per copy.

Record companies often negotiate down mechanical royalties from the statutory rate, for example, 75% of statutory rate.

A record with 12 tracks on it and a negotiated mechanical rate of 75% of stat ($.0.06825) that sells 50,000 copies would generate $ 40,950 in mechanical royalties (12 tracks X $.06825 X 50,000 sold copies) that the record company would pay to the publisher.

The Harry Fox Agency is the primary mechanical rights administration organization in the United States that issues mechanical licenses, collect royalties, and provide reporting for almost 35,000 music publishers. They are paid a percentage of gross royalties collected for their services.

Public Performance Royalties and Licenses

Public performance royalties are paid to songwriters or their publishing company for use of their songs by radio stations, restaurants, bars, TV / cable networks, retailers, online services or any other establishment that plays / streams licensed music heard by the general public. These royalties are collected by the major performing rights organizations, ASCAP, BMI or SESAC and distributed to the songwriter's publishing company. Most music users obtain a blanket license from the performing rights organizations versus licensing individual tracks. The performing rights organizations play an important role for both artists and those wanting to license music by acting as a central clearinghouse for licensing and collecting royalties since it would be virtually impossible for those wanting to use the music to arrange licensing deals with each individual artist or publisher.

Licensing fees from the performing rights organizations range from hundreds of dollars per year for a small club to millions of dollars per for a TV network. Public performance royalties are calculated using several variables and are paid to the songwriter or their publishing company. Record companies and recording artists do not receive royalties from public performances.

Songwriters can register their works online with one of the performing rights organizations in order to receive compensation for their work.

Synchronization Royalties and Licenses

Synchronization Licenses are required for a song to be used or synchronized with a movie, TV show, commercial or video. Fees for synchronization licenses range widely and are usually negotiated between the producer of the movie or TV show and the music publisher. Songwriters or their publishing company often receive synchronization royalties from their performing rights organization of record. Companies like PumpAudio and Rumblefish offer services for independent artists that licenses their work for use in advertising, TV and film.

Digital / New Media Royalties

The emergence of the Internet as an important distribution channel for music in various forms has challenged long standing copyright law. One example is the debate about whether mechanical royalties should be applied to downloads from iTunes since music sold in that format is digitally reproduced instead of mechanically reproduced like records or CD's.

Record companies are now including separate sections in their recording contracts covering royalty payments on digital or new media sales that are part of the overall contract negotiation.

The Digital Performance Rights in Sound Recordings Act of 1995 and The Digital Millennium Copyright Act of 1998 allow the sound recording copyright owners to license digital public performances of their works. This right covers interactive services, digital cable audio services, satellite music services, and commercial online music providers.

SoundExchange was formed to collect digital performance royalties on a pay per play basis and distribute them to sound recording copyright holders (usually the record company) and recording artists.

Print Music Royalties

Print Music royalties are paid to songwriters or their publisher based on sales of printed sheet music. Royalties are typically 10% of the retail price of the sheet music.

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