Say you just wrote a big hit. You're sure it will be the next big thing because it's catchy and different. But how do you make sure that what you've made stays yours? How can you make sure that it doesn't get used without your permission or payment?
The answer is copyrights.
A copyright is the key to getting fair pay, staying true to your art, and figuring out how to work in the music business, which is constantly changing. Let’s learn more about copyrights in music royalties.
What is a Copyright?
Music is protected under copyright law, with music royalties generated as a result of this copyright protection.
“Copyright” is a legal term that describes specific rights held by artists and other
creative types over their original works. Copyrights span various creative works – including music, literature, artwork, sculpture, and film.
A music copyright is created once put in tangible form (e.g. recorded, written in sheet music, etc.) with further protection under the law once the work is registered with the U.S. Copyright Office. A copyright provides its owner(s) exclusive rights for some time. In the US, the term can vary depending on the publication date. However, for copyrights published after 1989, the duration is typically the author's lifetime plus an additional 70 years after the author’s death.
Types of Music Copyrights
Since we’re talking music here, let’s discuss the important distinctions between the two main types of music copyrights: the Musical Composition and the Sound Recording.
Musical Composition Copyright
The musical composition copyright is the bedrock of songwriting, that is there to protect the fundamental elements that make a song unique.
This copyright covers the song as written, and it is held by the songwriter. This is owned by the person who wrote the melody, notes, lyrics, etc.
The songwriter or composer owns this copyright most of the time. Other times, more than one person writes the words to a song, and they all own the copyright to it.
Sometimes, songwriters assign their rights to music publishers. These companies then manage the copyright, promoting the song and collecting royalties on the songwriter's behalf.
Sound Recording Copyright
After the song is recorded, a new copyright called the Sound Recording is made. Copyright for composition protects the song itself, while copyright for sound recording protects a specific recording of that song. It's the actual audio.
This copyright protects the unique performance that was recorded live or in the studio. It includes the singer's voice, the performances of the musicians, and even the production methods used to make the final track.
The sound recording copyright is why you can find multiple versions of the same song. Each new recording generates a new copyright, even if the underlying composition remains the same. This is how cover songs work. The original songwriter retains the composition copyright, while the artist covering the song owns the copyright to their specific recording.
This is owned by the person or band who records the song. The sound recording copyright is owned by an artist, who often assigns the copyright ownership to a record label. In return, the record label provides funding, represents, and promotes the performing artist and his/her copyrights.
How Copyrights Generate Royalties
Now that we understand the two primary music copyrights, let's go into how they actually make money. It's certainly a big part of it.
To give you an idea, the royalties stemming from the Composition copyright are referred to as “Publishing Rights” or “Songwriter Rights”. The royalties generated by the Sound Recording copyright, on the other hand, are called “Recording Rights” or “Master Rights.”
Musical Composition Royalties
1. Performance royalties
Every time a song is played in public, it generates performance royalties. And I mean every time. Radio play, live concerts, background music in stores - they all count. Even when a cover band plays a song at a local bar, the original songwriter earns royalties.
These royalties are typically collected by Performing Rights Organizations (PROs) like ASCAP, BMI, or SESAC. They're like the watchdogs of the music world, making sure songwriters get paid for their work.
2. Mechanical royalties
Now, this is where things get a bit technical. Mechanical royalties are generated when a song is reproduced in any form. That means CDs, vinyl records, digital downloads, and even streaming. Every time someone buys a song on iTunes or streams it on Spotify, the songwriter gets a small cut.
The rates for these royalties are set by law in many countries. In the U.S., for example, it's currently 9.1 cents per song for physical formats and digital downloads. Streaming rates are a bit more complicated, but they're there too.
3. Synchronization royalties
Finally, when a song is used in visual media, the copyright holder gets paid a synchronization fee. That includes songs put in movies or TV shows. This can be a significant source of income, especially for popular songs used in big-budget productions.
These deals are usually negotiated on a case-by-case basis. The fee can vary widely depending on factors like the popularity of the song, how it's used, and the budget of the production.
Sound Recording Royalties
1. Master use fees
When someone wants to use a specific recording of a song (remember, that's different from the composition), they need to pay a master use fee. This could be for use in a film, TV show, or commercial. Unlike sync fees, which go to the songwriter, master use fees go to whoever owns the sound recording copyright - often the record label or the artist themselves.
2. Digital performance royalties
When a sound recording is streamed or played on digital radio (like Pandora or SiriusXM), it generates digital performance royalties. These are separate from the performance royalties that go to songwriters.
In the U.S., these royalties are collected by an organization called SoundExchange. They then distribute the money to artists and record labels. It's a relatively new form of royalty, but it's becoming increasingly important as more people listen to music through streaming services.
Example
Here's a real-world example: Think about the song "Knockin' On Heaven's Door" by Bob Dylan. Dylan wrote the song, so he gets composition royalties when it's played or covered by other artists. But when Eric Clapton recorded his own version, Clapton gets the sound recording royalties for his specific recording, while Dylan still gets the composition royalties.
It's a bit like a pie, with different slices going to different people involved in making and recording the song. The songwriter, the performer, the record label, and sometimes a music publisher all get a piece. This system makes sure everyone involved in creating music can earn money from their work.
Another option in the world of music royalties is the use of online marketplaces. One prominent example is Royalty Exchange, which allows copyright holders to sell portions of their royalty streams to investors. This can provide artists and songwriters with upfront capital in exchange for future royalties.
Royalty Exchange works by creating an auction-style marketplace where investors can bid on royalty rights. This opens up new possibilities for musicians to monetize their work and for investors to access a unique asset class to add to their investment portfolio that generates passive income.
So there you have it. That's how copyrights turn into cold, hard cash. It's a complex system, no doubt about it. But it's designed for everyone to get their fair share. And that, my friends, is what keeps the music industry spinning.
For those who want to get started, platforms like Royalty Exchange provide a marketplace where you can buy and sell royalty assets. This is really a great way to get involved in the music industry and earn a share of the royalties generated by popular songs and albums. Invest in music today and reap the benefits of earning passive income from music rights whose value is independent of macroeconomic markets.
We’ve prepared this guide on Royalty Investing Made Easy to help you get started with investing in music royalty catalogs. This is the best guide for understanding why music royalties are one of the best passive income ideas of 2024 and sign up now to begin your journey into music royalty investing. Discover why so many investors today are using Royalty Exchange to buy royalties to expand and diversify their portfolio. Get your hands on your favorite music catalog today!
