Keen on Music Publishing

How are royalties created?

There are six sources of income, called, "royalties" that can flow from a song to the writer and their publisher if they have one. They are known as:

Mechanical Royalties

Performance Royalties

Synchronization Royalties

Print Royalties

Grand Rights

Foreign Royalties

Digital Royalties

Many exciting royalty opportunities are developing from the digital transmission of music. You will read about them throughout this chapter and at the end of this chapter in a section marked "Digital Royalties."

BEFORE YOU SIGN ANY CONTRACT OR DOCUMENT TRANSFERRING ANY OF THESE RIGHTS (COMMONLY CALLED A PUBLISHING CONTRACT) WE STRONGLY ENCOURAGE YOU TO ENGAGE THE SERVICES OF AN ATTORNEY QUALIFIED IN THIS FIELD WHICH IS KNOWN AS "INTELLECTUAL PROPERTY".

Mechanical Royalties are earned whenever a copy is sold that contains music that can be played. Examples would be a Digital download, CD, cassette or wind up doll that plays a song. The royalty rate is set by the Unites States Congress and is currently $0.091 (9.1 cents) per song per unit sold. It is referred to as the Statutory Mechanical Rate. It is explained in more detail below.

Mechanical royalties (called, "Mechanicals") from the sale of vinyl records, cassette tapes and compact discs use to be the largest single source of income for most publishers in the 20 th century. They came about in 1909 as a result of the invention of piano rolls some years earlier [1]. Until this time, a publisher's primary source of income was sheet music and most publishers created their own. Music was an entertainment choice that occurred in a live setting. Families gathered around a piano or stringed instrument, the best parties included group singing and playing. Patrons at a restaurant, tavern or night club were treated to live music strategically selected by the owner to enhance their experience. Theater shows launched many "hits." When a song became popular it spurred the sales of sheet music as people sought to learn to play it.

Technology fundamentally altered this paradigm with the invention of the player piano. For the first time, you didn't have to have musical talent and learning to create music. You merely needed to purchase a player piano and the piano rolls to go with it. Music creators felt that their income was threatened by this evolution and vigorously sought compensation from this new medium. Eventually copyright law was amended so that copyright owners were paid $.02 for every song on every piano roll sold. This was referred to as the Statutory Mechanical Rate.

If this process sounds familiar it could be that you are aware of the recent brouhaha over the illegal downloading of music. Mechanical royalties have taken a serious downturn in the 21 st century partially due to the availability of "free" music available to download. Mechanicals generated by legal digital delivery systems like iTunes have not bridged this gap.

However, we must take heart in the historical evidence that every time technology evolves and produces a new way to experience or consume music there is a shake out period where the users and creators must grapple with the issues of fair and legal compensation for the creators. This scenario is nothing new and has happened with several seminal technological innovations; the phonograph, radio, television, audio tape, digital mediums such as CDs, music on computers and it will happen again in the future with some unknown-at-present invention or permutation.

Over the last hundred years the statutory mechanical rate has crept up to its current rate of $.091 per song/per unit. That means that if you own a song that is on a CD, the law requires that you be paid nine point one cents ($.091) for every CD distributed. If another party is your publisher then the royalty will be sent there and then split with you according to your contract with the publisher. A fifty/fifty split is common. If you co-wrote the song then it is split between you, your co-writer(s) and any publishers involved. If you had two songs the rate would apply to both songs, you are to be paid for every song on every unit. This is the law but it is negotiable if you, the copyright holder are willing.

Reasons for choosing to negotiate a lower rate or totally waive your right for a mechanical royalty include projects being done for charity or by friends. Or you may also encounter situations where the party producing the project may want to negotiate a reduced mechanical rate purely to save them money. The most common request is for 3/4 of the statutory rate; currently that amount would be $.06825 per song /per unit. You do not have to agree to waive or reduce this royalty but may be faced with the choice of agreeing to it if you want your song to be on the project. A person who is pro publisher/songwriter would encourage you to hold the line as firmly as possible.

Keep in mind that the statutory mechanical rate applies to any material audio object that is sold. It doesn't matter if the song is used on a CD or wind-up Jonah doll that sings, "Surfin' Safari". The retail price is not a factor; the rate is a flat rate per unit sold. It is not percentage based.

If your song has never been recorded then no one can use it without your permission. Once the song has been recorded and released to the public with your consent your control over it is loosened. If you were to forbid someone the opportunity to record a song after it has been recorded and released with your prior consent, they could do so anyway by using a Compulsory license.

The Compulsory license allows for the song to be recorded as long as certain strict statutory procedures are followed which are spelled out in Section 115 of the US Copyright Code. There are 3 requirements in the statute; 1.) Written notice containing certain required information must be given of the intent to use a Compulsory license and delivered by Certified US Mail before any copies are distributed. 2.) Royalty accounting must be distributed monthly under this license as opposed to the quarterly basis used under the normal, statutory mechanical license. 3.) Certified annual accounting must be provided.

But to repeat, the Compulsory license cannot be used for the first recording of a song. It is permissible only if the song has already been published, that is recorded and released with the consent of the copyright owner.

Performance Royalties are royalties that result from the performance of music to the public whether it's live or recorded. These performances occur on the radio (satellite and terrestrial), television, Internet, in concert halls, restaurants, coffee shops, clubs, malls, aerobic centers; anywhere that music is used by a commercial enterprise to enhance the income of the business. Publishers and songwriters feel that the songs that you hear when mobile phones ring should generate performance royalties. Others disagree.

Currently, performance income is the largest source of income for publishing companies whose songs receive a lot of airplay on Pop, Rock, Urban or Country radio and television. The fees radio stations pay have been, until very recently, based on a small percentage of the station's advertising revenue. So commercial Christian music stations, that is those who sell commercial time on their stations pay a fee that is in line with every other commercial radio station of similar Arbitron ranking regardless of their musical format. But the royalties earned by the writers and publishers reflect the audience size which has been measured by Arbitron. A large commercial Pop station in a large city will theoretically generate more advertising revenue therefore more performance royalties. Even an excellent Christian commercial station will in most cases have a smaller audience than those playing secular music however.

Additionally, since many Christian radio stations qualify on paper as Non-commercial stations their license fees are minimal and don't help Christian publishers and writers much. So, for a number one song in a format full of non-commercial stations, Christian publishers' and writers' performance royalty income is approximately five percent of the comparative amount generated by secular airplay.

These royalties are collected by performance rights organizations (PROs). They collect the royalties and then distribute them to the writers and publishers whose songs have been performed. The PROs also serve the music user, like the broadcaster. Copyright law requires that a broadcaster acquire the permission of every copyright owner of every song they play. For a radio station that is music-intensive, contacting every publisher of every song played every hour of every day would be an impossible task! So the PROs, through their licensing agreements with publishers and writers, issue blanket licenses to the broadcasters saving them from that task.

The "Blanket License" concept means that when a music user buys a Blanket License they have purchased the right to use all of the music represented by the licensor. So when a radio station buys a Blanket License from ASCAP they can broadcast any music from the ASCAP repertoire. If the radio station is a "Talk" station that doesn't use much music, they can buy a Per-Program license that allows the use of the specific songs that they agree upon.

Performance royalties are distributed four times a year that is, quarterly. The PROs use varying methods to determine which songs have been played every quarter and then distribute royalties to the writers and publishers of those works. Some great songs never stop being played, digitally streamed and performed live. They continue to earn Performance income long after they are no longer on industry magazine charts.

Synchronization Royalties commonly called "sync fees" are generated when music is used in a visual medium like the movies, DVDs and television (both shows and commercials). There is no fixed or statutory rate. The fee(s) and subsequent license are negotiated between the copyright owner and the production company of the film, the show or the commercial.

Many factors play into this negotiation. The copyright holder (as a reminder this could be a publisher or a songwriter who is also their own publisher) should ask many questions to determine first if they will agree to the usage and secondly the economic value of the usage. There is no compulsory license so your song cannot be used in this medium without your permission.

The first thing you would want to determine is the overall scope of the audiovisual presentation. Is it a DVD that will be used by a Christian outreach or missions program, a souvenir DVD from a camp, a full length feature film headed for the silver screen, a small budget independent film? The purpose of the project will influence the total budget and consequently, the budget for the music in the project.

As with mechanical royalties, a Christian writer or publisher may feel pressured to waive any fees when the user has charitable or other non-profit goals for the project. You are not obligated to do that by any laws or church canon. The decision is a matter of conscience between you and God. You may feel that it's fair that you should be compensated for your work in the same manner as the preacher or music minister. Legally you have the right to request sync fees or waive them, whichever seems appropriate to you.

Usage factors to consider are the type of use and the length or portion of the song being used. Is the song also the title of the project or the source of its storyline? If the song is to be performed onscreen that is considered a feature performance. These factors make the song very economically valuable.

If the song is being used in the background then any fee you would charge would logically not be as large as for a title or feature performance. Background uses vary in type and length. If the characters in the scene are riding down the road punching the buttons on the radio and we hear a few seconds of several songs, permission and compensation are still required. But the revenue will be much less than a Feature performance or Background use of significant length. If a couple is dancing to a band and speaking dialogue over the music that is considered a background usage but it still has plenty of value. If the couple is silent we hear the music more prominently but our visual focus is on the couple so it is still considered a Background use.

If a church camp uses music in the background of a souvenir DVD the synch fee could be based on how much of the song was used and whether or not it was the more recognizable chorus of the song. If a purchase price is being charged to the consumer, then it is certainly reasonable that the music creator receive a fee.

Sometimes audio-visual products have accompanying CDs, like the soundtrack of a movie. In this instance you may feel that you can reduce the sync fee and gamble that you will make up the difference (and more) with mechanical royalties from CD sales. Soundtracks also provide the opportunity for the inclusion of other songs and can be a great way to expose a new artist. Quite often there will be songs on the soundtrack that don't appear prominently or even at all in the film.

For a songwriter who wishes to make a career of this craft, synchronization license requests provide the opportunity to build relationships that may last a long time and pay off well financially in the future. The independent filmmaker or college student creating a film project now may become a commercially successful filmmaker someday. The gratis license or low fee you grant now may endear you to the filmmaker and present much more lucrative rewards down the road. Be creative in your thinking. If they don't have much money for the song, is there a scene in the film where you could play your music on camera? Do they need a band for a party scene? Think of it as swapping favors.

You can choose to look at this opportunity as a "marketing" vehicle for you and your songs that will pay off later as opposed to just a one-time money-making scenario.

Print Royalties are generated by the sale (including downloads) of hymnals, anthems, songbooks and other printed materials containing music and/or lyrics (including novels and some magazines). Song lyrics projected on a computer screen in front of a church congregation also contribute to this royalty stream. Print income is very important to Christian publishers and songwriters. Popular music trends come and go but the "church" shows up every Sunday! The demand for music in our churches is continuous and serving that need is very fulfilling to many Christian songwriters and publishers. Writing music for your own church can be very spiritually fulfilling and we want to encourage you to be open to God using you in this way.

Until recently print usage centered on hymnals, church orchestras and anthems, often called "octavos". Choral projects, songbooks and musicals also were in heavy use. Over the last twenty years we have seen a dramatic shift in this paradigm as musical worship has been facilitated by lyrics projected on a screen in front of the congregation.

When the lyrics from a song are projected onto a screen the same copyright laws apply as if we were using sheet music or the hymnals that were purchased. A lyric reprint license is required by Federal copyright law to compensate the songwriter(s) and publisher(s) for using their product.

Let us make sure the point is clear; when we sing songs in a worship service there is no "fee" or "charge" to perform works of a religious nature. But when we retype the lyric, whether it's for an overhead projection, power point computer projection or photocopied lyrics in the bulletin, it is expected that we will compensate the owners of the lyrics for that usage. The licenses required and the royalties they produce involve Christian Copyright Licensing Incorporated (CCLI) www.ccli.com.

CCLI income is very sizeable for major Christian Music publishing companies, oftentimes larger than their Performance income. There are many songwriters unknown to the general public or Christian consumers at large who are among the most well-paid composers in the Christian music genre based on their CCLI income.

CCLI royalties are distributed based on reports sent in by churches indicating which songs' lyrics were projected before the congregation. The income flows to the publisher who is responsible for calculating the writer's share and distributing it to the writer(s).

The royalties that a publisher receives from hymnals, octavos, folios, songbooks and church musicals are usually based on a percentage of the retail price. That percentage varies from 10% - 20%. The most common rate seems to be 12.5%. If your song is one of several in the print project, the percentage will be divided by the number of royalty bearing songs in the project. This will produce what is termed as your "pro-rata" share. That share will typically be split between the writer and the publisher.

For example, let's say that your song is one of twenty in a songbook. The retail price of the songbook is $12.95 and your deal calls for you to receive a 12.5% pro-rata share. The calculation goes like this; $12.95 X .125 (12.5%) = $.16 or 16 cents. Those 16 cents are then divided by the number of songs which, in this case is twenty. So, we arrive at the figure of $0.008.That is what your song earns for every copy of the songbook sold.

If the songbook sells 10,000 copies then that number would be multiplied by that figure, yielding, $80. If you and your publisher have a traditional 50/50 deal then that total is split evenly between the two of you.

Many print products contain songs that are in the Public Domain (P.D.). PD songs are those that are old enough that their term of copyright compensation and protection has expired. No royalties need be calculated or remitted on PD songs. When you are negotiating the inclusion of your copyrighted song in a print project, make sure to propose that your pro-rata share be calculated using the number of royalty bearing songs only.

If you write music that is used in church be sure to register your works with CCLI . It is not reasonable to expect them to come find you! If you or your publisher registers your music with CCLI (much in the same way as you should register your works with ASCAP), you will receive royalties when your songs are picked up in the CCLI survey.

Grand Rights are those rights concerning the music used in a live theatrical production. The most common example of Grand Rights usage is a Broadway musical. They are separate from the rights involved in the recording of a soundtrack or cast album/CD of a musical, print rights from sheet music or songbooks sold, performance rights concerning the broadcast of the show or the music in a concert or the synchronization rights involved in the creation of a movie or television production of the work. Grand rights are about the live dramatic presentation.

The royalties from this usage on Broadway are typically based on a percentage of the box office receipts. They are divided between the creators of the work such as a composer, lyricist and the writer of the script or "book" if there is a script involved. That person is referred to as the Librettist. It is possible that one person perform all of those creative tasks. It is also possible that there could be a composer and lyricist but no librettist as in the case of grand opera, light operettas or Broadway musicals without script.

For creators of Christian music there are opportunities for this type of royalty when your music is used in a Passion play where tickets are sold, a show written for a theme park, a traveling musical when tickets are sold or other such use. A church musical would not qualify for this type of negotiation unless the church used the occasion to sell tickets for commercial profit.

If there is a commercial enterprise involved, chances are that it will be undertaken by a production company. They would be responsible for negotiating the use of the songs. More often that not, the work will be commissioned in it's entirety and the compensation to the creators will take the form of a creative fee up front and then a percentage of the box office receipts that commence.

There is no statutory rate for Grand Rights, it is all negotiable. If someone wants to use your song(s) you can frame the negotiation and subsequent royalties in whatever way seems fair to all parties. As with the other exclusive rights of a copyright owner, you have the option of waiving any income from this usage if you deem it appropriate. But your works cannot be used without your permission. If you think royalty income is appropriate then so be it!

Foreign Royalties commence when any of the aforementioned royalty uses occur outside the territories of the United States. For example, if your song is on a CD that is sold in Australia it would generate foreign mechanical royalties. If the song was used in an Italian movie it would generate foreign synch fees. If the movie was then shown on British television foreign performance royalties could ensue. An anthem translated into Spanish and sold as sheet music in Latin America could generate print income.

The key factor you must be aware of is that the process occurs according to the laws, customs and infrastructure of each territory; American laws do not apply. Certainly there is much commonality between our copyright laws and those in Europe and other western cultures. After all, our own copyright law is based on the British Statute of Anne. But there are nuances and outright differences in the ways that each nation conducts the business of music. The royalty rate and processing of that income is germane to the particular country where the use occurred, not the country of origin of the work.

National treatment also comes into play. The WIPO Treaties which pertain to international copyright matters require each country signed onto the Treaty to reciprocate. It's a less forgiving version of the ol' Golden Rule. Treat each other as you are being treated.

If your song were to resonate and be used commercially in many foreign countries it would be wise to consider engaging in a publishing relationship with a company that has extensive experience in foreign royalties. The complexity and time involved in doing this yourself might be a bit, um…daunting. Most major American publishers have extensive networks in foreign territories. In fact, most of the publishing companies that we might think of as American are in fact American branches of foreign companies.

There are three issues that we would like to address specifically however. They are translations, "black box money" and "at source".

TRANSLATIONS: There was a time when a popular American song could be translated into a foreign language for a flat fee, say one hundred dollars. If you have ever read a literal translation from one language into another you can surmise why that practice didn't last. For the translation of lyrics involves much more than the literal, pedestrian, dictionary-based conversion of words into their foreign language counterparts. There are rhyme schemes, nuances of meaning, words that don't sing well; poetic skill and inspiration involved. We are hoping for alchemy.

So the process of lyric translation has evolved into a scenario where the foreign translator is now treated like a co-writer and shares in the ongoing income from that version of the song. Be careful not to create or sign a contract that allows the translator to participate in ALL the income from your song, just the specific version they translated. Furthermore, it is wise that you register any and every foreign language version of your song(s) separately with the U.S. Library of Congress.

BLACK BOX MONEY: "Black box money" is money left over after all claims for mechanical royalties have been satisfied. Let us explain: In America there is a certain burden upon the record company or person who records and distributes a song to find the copyright holder and remit royalties. That is not the case in other countries. In many foreign territories, when a CD is released the publishers who have songs on the CD are required to file claims for their portion of the ensuing mechanicals. When you register your claim, usually with a "society" or "agency" responsible for the collection and disbursement of mechanical royalties, you will receive your pro-rata share of the royalties created from the sales of the CD. Any unclaimed royalties are held in a theoretical "black box" (think of it as being in escrow) awaiting any further claims. Unclaimed monies are eventually distributed to the members of the foreign society or agency. So! If you are aware that your song has been released on a CD in a country outside the U.S. make sure that you or your publisher registers a claim for your share of the mechanical royalties otherwise your unclaimed share will go to someone else.

AT SOURCE: "At source" is a term that refers to the calculation of royalties. It requires that the royalties be calculated where they were earned. This may seem obvious but consider this scenario; you have a song that is being used all over Europe. You make a deal with a foreign sub-publisher that dictates that they remit to you eighty-five percent of every amount they collect (referred to as an 85/15 deal). So far, so good, but there's room for plenty of mischief. Your sub-publisher may have separate offices in every country in Europe. Let's say your song earned 100 francs in France. Your sub-publisher could collect that amount and deduct 15% before sending it to their German office. There the German branch deducts its 15% collection fee before remitting it to the Ukrainian office. There another 15% is raked off the top. This goes on and on as the royalty makes its merry way through the various "collection" points until by the time it reaches you, the 85% that you thought was so obvious has been skimmed down to a pittance of its original value. This can be prohibited with an "at source" clause in your sub-publishing contract. All royalties are to be calculated where they are earned!

If your song is achieving airplay on foreign radio and/or television you will be pleased to know that the American performing rights societies have reciprocal agreements with almost all foreign performing rights societies. That means that the foreign society will collect for the Americans and send the royalties over to ASCAP in the same manner as we collect for foreign writers and publishers and send the money to the appropriate societies in their territories.

As you may surmise Christian music's impact outside the United States is limited either by governmental forces or cultural indifference. There are also many large Christian populations who live in countries with weak or no copyright laws and poor economic infrastructure. However, it can be very rewarding to discover that your evangelical offerings are being used to spread the gospel even when the royalties are less than what you receive for your American usage.

Digital Royalties are created by means of the digital transmission of music. The distribution of these royalties occurs within existing royalty structures of the industry. These new technologic opportunities provide many exciting and challenging possibilities for songwriters and publishers. Some examples of this occur via iPods, satellite radio, digital cable television, website streaming and downloading, podcasts, digital mobile phones and PDAs. Currently these uses fall under the purveyance of existing structures; satellite radio and digital cable television music are licensed by the PROs, legal downloading sites like iTunes are licensed by record labels and PROs and ringtones and ringtunes are also part of the licensing process.

The licensing issues are unique and complex. While it's easy to determine that the sale of a CD in an American retail store is under the jurisdiction of American laws, what laws apply to a sale over a computer? Should the royalty rate be that of the laws that govern the owner of the computer terminal who purchased and downloaded the music or the person who uploaded it onto a computer in their country or the laws that govern the physical locale of the server? How do you license a satellite that resides in outer space?

The distinction between downloading and streaming is significant also. If a commercial website or webcast streams music there is obviously a Performance license to be acquired. What if you can also download a song(s) from the same source? Then a digital distribution occurs and Mechanical Royalty issues arise.

What if the song(s) are downloaded but the user does not hear them as they are being downloaded such as in a Podcast? The listener receives the music on their computer but might not hear it until later when they listen to a copy they have made for their portable music listening device like an iPod.

Attorney David S. Crow from the firm of Milam, Joyce, Horsnell and Crow illuminates the issue very clearly. Crow writes that there are potentially three licenses to consider. First is the license from the publisher granting the right to use the song, then there is the record company negotiation that allows you to use the artist's version of the song. Next is the issue of public performance. The Podcaster must arrange for performance licenses from the PROs.[1] These issues are germane whether or not the Podcast is free or for sale.

One of the most potentially significant economic changes has occurred with the establishment in the digital realm of a performance royalty for artists and record companies. Whereas traditional (called "terrestrial") radio airplay royalties have been heretofore paid only to publishers and songwriters, digital airplay results in performance royalties for those two parties AND artists and record companies. The entity established to collect and distribute these royalties is called Sound Exchange and is a subsidiary of the RIAA. So if you are streaming a song from a website be prepared to remit royalties to Sound Exchange for the artist/record company and to the PRO for the writers and publishers.

Copyright 2007 Dan Keen. All Rights Reserved