Chapter 3 – How Are Royalties Collected?
In this chapter, we want to understand how owners of intellectual property collect various types of royalty payments for use of these assets.
Owners of publishing and songwriter performance rights typically rely on the efforts of Performance Rights Organizations (PROs).
These organizations are responsible for collecting Performance royalties on the behalf of artists and musicians. This is important because the PROs are not in charge of collecting mechanical royalties, synchronization royalties., or (usually) digital performance royalties tied to master recordings. We will cover that in a moment.
Remember, public performance royalties are paid whenever a song is played
in public. This includes the playing of a song on radio (AM/FM, streaming, or satellite), in a concert hall or in a restaurant, and on television shows and commercials.
After the PRO collects royalties, they distribute them to the rights holders. Songwriters and publishers are encouraged to join a PRO and register songs and their locations to ensure prompt payment of their royalties.
There are four PROs in the United States:
ASCAP (American Society of Composers, Authors, and Publishers)
BMI (Broadcast Music, Inc.)
SESAC (Society of European Stage Authors and Composers)
A Key Distinction
Under the rules of the Department of Justice, BMI and ASCAP operate under legal frameworks known as “consent decrees.” These decrees are designed to promote competition between these organizations to attract new licensees and recruit news songwriters and publishers to their ranks.
In exchange for the right to collect on behalf of songwriters across America, the PROs are limited in their ability to negotiate by “rate courts,” which set royalty rates per radio play, stream, or download.
Rate courts set specific rates for royalties paid by radio stations, concert halls, bars, nightclubs, sports stadiums, colleges and universities, malls and shopping centers, and amusement parks.
ASCAP (The American Society of Composers, Authors, and Publishers)
This PRO has more than 500,000 members, including composers, songwriters, lyricists, and music publishers. The PRO prides itself on being controlled by its own members, as the 500,000 participants directly elect its Board of Directors.
Notable artists in ASCAP include Beyoncé, Justin Timberlake, Vampire Weekend, Duke Ellington, Dave Matthews, George Gershwin, Stevie Wonder, and Marc Anthony.
To join, members pay a one-time fee of $50.
Founded in 1914, ASCAP has offices in New York, London, Miami, Puerto Rico, Los Angeles,
Official website: ASCAP.com
ASCAP pays owed royalties on a quarterly basis.
BMI (Broadcast Music, Inc.)
BMI has more than 650,000 members and bills itself as a “bridge” between songwriters and businesses that play music in public. The group represents at least 8.5 million member-owned works.
Notable members include Mariah Carey, Lady Gaga, Taylor Swift, Eminem, Rihanna, Maroon 5, Sam Cooke, Willie Nelson, and Dolly Parton.
Songwriters can join BMI for free. Publishers pay a one-time fee of $150.
Founded in 1939, BMI has locations in Nashville, New York, Los Angeles, London, Atlanta, Miami, Puerto Rico.
Official website: BMI.com
BMI Live distributions are paid on a quarterly basis.
SESAC is is the only PRO that is invitation-only.
This PRO represents about 30,000 songwriters and has 400,000 songs under its watch. They bill themselves as “the fastest growing and most technologically adept of the nation’s performing rights companies.”
Notable members include Bob Dylan, Neil Diamond, Rush, MGMT, and Mumford and Sons.
Founded in 1930, SESAC has offices in New York, Los Angeles, Atlanta, Miami, London, Nashville.
Official website: SESAC.com
SESAC pays its royalty streams on a quarterly basis.
SoundExchange is a PRO that exclusively collects digital public performances royalties.
They collect royalties under standards set by two different sets of regulation. First is the Digital Performance Right in Sound Recording Act of 1995, and second is the Digital Millennium Copyright Act of 1998.
SoundExchange collects royalties from music service providers for the right to play a song on a digital platform for non-interactive streaming use. Non-interactive refers to music streamed based on programming or algorithms outside of the listener’s control, as opposed to on-demand streaming where the listener select the specific song to play. This includes music you hear on SiriusXM, streaming services like Pandora, Spotify, iTunes Radio, and Rhapsody), and online sites like YouTube and Daily Motion.
Royalties are paid out as follows. 50% goes to the record label. 45% goes to the featured artist. And 5% goes to non-featured artists like background vocalists, session musicians, and others who took part in the recording.
Mechanical royalties are paid to songwriters whenever a song they’ve written is reproduced on vinyl, tape, CD, MP3, etc.
These licenses can be obtained through the Harry Fox Agency (HFA).
Founded in 1927, HFA manages, collects, and distributes mechanical licenses on behalf of more than 48,000 music publishing clients. The agency collects mechanical royalties and pursues claims involving piracy of a client’s intellectual property.
Mechanical royalties are set by Federal statute.
Currently, the mechanical royalty rate for physical recordings and permanent digital downloads is 9.1 cents for songs of five minutes or less in length. Licensees pay 1.75 cents per minute (or fraction of this amount) for songs exceeding five minutes.
Songwriters and publishers are responsible for the collection of synchronization licenses and royalties if they are the ones who provided permission for someone else to use their music in film, television programs, commercials, or other audiovisual work.
Print Music Royalties
This final category of royalties are collected by songwriters and/or music publishers. The individuals that granted print music licenses should collect them from companies engaged in the printing and dissemination of sheet music, lyrics, or other similar assets.
Outside of the U.S., foreign musicians collect royalties from domestic societies representing musicians in their home nation. Foreign, government-owned PROs are in charge of collecting performance royalties in these domiciles. To ensure that owners receive their payments, these PROs encourage songwriters and publishers to enter into a “sub-publishing” agreement.
Under these agreements, the IP owners can register their music and current locations. They also will designate an agent to contact individuals and businesses that use this intellectual property and issue performance licenses.
A few notable examples of foreign PROS include:
Canada: SOCAN, CMRRA
United Kingdom: PRS for Music, and MCPS