5 Steps Explaining How Artists Get Paid in the Modern Music Business
As much as recording artists love making much. No matter how much his or her pursuit of music may be coming from the heart. The reality is, one of the most asked questions by many are, “how do I make money in the music business?” Another reality is that this is a very legitimate question. Even if you are pursuing a career in music due to your passion. You should still want to know how you get paid. Especially in today’s music business. With the new social media and internet era, understanding how the music industry works can be very difficult. This is why as an mainstream and independent artist you should know how you get paid. You should understand the process. You should also understand various terms and concepts. This is why this post is dedicated to explaining how to make money in today’s music business.
1) Music royalties
Before you can understand how to make money in the modern day music business, you must first understand music royalties. I’m sure as an aspiring music artist you’ve heard of the term before. However, do you really know how they work? Music royalties are payments made by one party based on an agreement between that party and the creator who owns the creation or asset. Basically, music royalties are paid by an entity. That entity could be a record label or distribution company. These entities pay the royalties to the rightful owners of a creation. In the music business, that creation would be a song or record. Sounds simple doesn’t it? However, the difficult part comes in finding out how the music royalties are distributed and who gets what amount.
In order to find out who gets what from royalties in the music business. You must first know what music copyrights are and how they work. A music copyright is an original composition and/or sound recording that grants the author exclusive rights to the use of that work and protects the work for the author. In other words a music copyright is proof that your composition and sound recording is your original work and protects the work for you. It also gives you exclusive rights to do as you please with the work. Another thing music copyrights do is allow you to get paid off your original work. This is because the copyright proves the work is yours and that you deserve to get paid from it.
2 Different types of copyrights
When understanding copyrights in the music business it’s imperative to know about the two different ones involved. Traditionally with how the music industry works, there are two types of copyrights involved with every piece of work created.
- Song aka “The Composition” = lyrics and music (melody)
- Sound recording aka “The Master” = vocals/voice recording
This means every time a song is created there are automatically two copyrights by default. Now who has the rights to which entity of the song is where the music royalties distribution comes in.
- Song/ Composition = belongs to the songwriter and music publisher
- Sound recording/ Master = belongs to the recording artist and record label
This means the songwriter and music publisher split the copyright for the song, which covers the lyrics and music. This means the recording artist and record label split the copyright for the sound recording, which covers the official vocal recording of the song. Another thing to remember in regards to who has rights to the song. A songwriter refers to any party that played a part in creating the song. This means the lyricists, the producers, composers, etc. This means the more people that were apart of the songwriting process. The more the copyright has to be split amongst several parties.
3) Performing rights organizations
Now that you know how music copyrights work and who’s entitled to them. It’s time to understand how they’re distributed and paid out. This is where performing rights organizations come in, better known as PRO’s. Performing rights organizations are agencies that represent songwriters, composers and music publishers. These agencies make sure the songwriters and publishers are rightfully paid royalties for the use of their music. This means PRO’s tracks when and where your music is paid, collect the royalties and them distribute them to you. The two most popular PRO agencies are ASCAP and BMI. However, when signing up for either one of these agencies it’s important to know they don’t track all your royalties down. In the music business there are many different types of royalties. Being registered with a PRO you only get certain music royalties paid out to you. The other ones you have to collection from a distribution company (which I will explain later on). Below are list of the most popular type of music royalties you receive from performing rights organizations.
- Performance royalties – song is broadcast or performed publicly
- Youtube royalties – when your song is played on Youtube (but have to have an ad attached to it).
- Composition performance royalties – when your song is played on the radio, digit radio, in stores, live shows
4) Mechanical royalties
Mechanical royalties, are so important they deserve a paragraph all to themselves. These are arguably the most important royalties of all. Mechanical royalties are monies earned when a song is sold on a mechanically reproduced physical medium. This refers to the purchase of a tape, cd, digital download or internet stream. The good thing about these type of royalties are everyone involved gets a share. The songwriter, music publisher, recording artist and record label (if one exists). In order to receive your mechanical royalties you have to go through a mechanical royalty distribution company. For the U.S., that would be Harry Fox Agency (HFA). Harry Fox Agency tracks your mechanical royalties then distributes them. However, to get your royalties from HFA you have to be a record label or a music publisher affiliated with them. If you’re an indie artist with no label you have to sign up with a 3rd party company. The 3rd party company is called an admin publishing company. They collect your royalties from HFA and then distribute them to you. If you’re a music publisher but not approved by HFA you’d have to do the same process as well. This also applies for songwriters who aren’t signed to a music publisher. Some admin publishing companies you can sign up with to collection your mechanical royalties are: CD Baby, TuneCore, SongTrust and many more. Below is an example of how collecting these royalties would work.
- For recording artist (if you’re signed to a label) > HFA collects the royalties > distributes them to your record label > your record label distribute them to you based on your royalty rate and record sells.
- For recording artist (if you’re an indie artist) > HFA collects the royalties > you sign up with an admin publishing company who then collects your share from HFA > the admin publishing company distributes your royalties to you. However, they take a certain percentage from your royalty total as a fee for their service. Please make sure you know all the details before signing up with any of them.
- For songwriter (if you’re signed to a music publisher THAT’S a HFA affiliate) > HFA collects the royalties >distributes them to your publisher > your music publisher pays you 50% (standard percentage) or whatever the amount is based on the terms of your agreement.
- For songwriter (if you’re signed to a music publisher THAT’S NOT a HFA affiliate) > HFA collects the royalties > your music publisher signs up with an admin publishing company > the admin publishing company distribute the royalties to your music publisher, but takes their percentage/service fee > music publisher pays you 50% (standard percentage) or whatever the amount is based on the terms of your agreement.
- For songwriter (that’s independent and not signed to a publisher) > HFA collects the royalties > you sign up with an admin publishing company > the admin publishing company collects your royalties and distributes them to you after collecting their share/fee
5) Estimated Amounts
You now know how music royalties work. You also know what sources you have to go through to get them. But now the most important part is the actual amount. Knowing how artists get paid in the music business also means knowing the amount. When it comes to music royalties that are paid to you by your PRO it truly varies. It depends on the type of licensing deal negotiated with the different companies that publicly pay your music. What I can say is the more success you are as an artist, the higher you can negotiate your pay. However, estimating the most important royalties, which are mechanical royalties are a bit more specific. The current royalty rate for mechanical royalties are 9.1 cents. This means each time a unit of your music is sold you receive 9 cents and 1 tenth of a penny. However, this only applies to physical unit sells. That means actual albums. In this new day and age of digital music most people access music through streams, downloads and Youtube plays. This means you have to know how much your royalty rate is per stream. Below is an estimate of how much your income would be from royalties using mechanicals and streams as examples.
- Mechanical royalties (cd, tape, paid downloads) > 9.1 cents per unit sold x 1 million units sold = $109,890.10. But remember this isn’t the amount you would take home. Please keep in mind if you’re a songwriter and have a music publisher he or she will get 25%-50% of this amount depending on your agreement. If you’re an artist and signed to a record label please keep in mind all the deductions that come into play before you take anything home.
- Streaming royalties (Spotify, Tidal, Apple, etc) >$0.00676 x 1 million streams = $7,000 (this is only an estimated amount due to many streaming services royalty rate varying)
So as an artist whether the singer, rapper, songwriter or music publisher to gross at least $7,000 from music stream, you need 1 million streams. To gross over $100,000 you need at least 1 million physical cd’s or downloads purchased. You then have to consider who and how much you’re splitting your royalties with. This is why controlling as much of your career as possible as the artist is so important. To answer many question of “how do artist get paid in today’s music business?” or “do artists get paid at all in the music business?” Well the answer is yes. The reality is they don’t get paid as much as they use to. This is because of the harsh reality that music isn’t selling the way it once did. However, as a music artist indie or mainstream you can get paid. You just have to work really hard. You have to know how the business side of the music industry work. You also have to know how many parties you’ll end up splitting your royalties with.