Transparency in music royalties ensures artists and rights holders receive accurate payments for their work. Currently, outdated systems and missing data lead to billions in unclaimed royalties, delayed payments, and financial losses for creators. Here's why it matters and how technology can help:
- Key Issues: Missing metadata, lack of real-time tracking, and "black box" royalties ($2.5 billion unclaimed globally).
- Impact: Artists face delayed payments (up to 9 months), and 20%-50% of royalties are misallocated.
- Solutions: Blockchain, data analytics, and platforms like Royalty Exchange improve accuracy and speed up payments.
- Benefits: Real-time data, automated validation, and transparent reporting build trust, prevent disputes, and empower creators.
Transparency is critical for fair compensation and a stronger music industry. Keep reading to learn about tools and strategies reshaping royalty management.
Music Royalty System Overview
A clear and efficient music royalty system ensures rights, payments, and participants are well-coordinated, helping to provide fair compensation within the music industry.
Royalty Categories
Music royalties are divided into two main types: master rights (for recordings) and composition rights (for songwriting).
Here’s a breakdown of royalty types:
In the U.S., mechanical royalties are set at $0.12 per song for compositions under 5 minutes (as of May 2022). However, unlike many other countries, U.S. terrestrial radio stations are not required to pay neighboring rights royalties to recording artists
Industry Participants
The royalty system relies on key players to ensure payments are distributed correctly.
Performing Rights Organizations (PROs) like ASCAP manage performance royalties. According to ASCAP:
Digital Service Providers (DSPs), such as Spotify and Apple Music, oversee streaming royalties. In the U.S., SoundExchange handles digital performance royalties, while The Harry Fox Agency (HFA) manages mechanical royalties.
Payment Process
ASCAP distributes royalties 12 times a year, following a "follow the dollar" approach. This ensures revenue from specific sources is directed to the rights holders whose music was played in those mediums.
To streamline royalty collection, rights holders should:
- Register their works with the appropriate PROs.
- Keep ownership documentation accurate and up to date.
- Update payment details regularly.
- Monitor royalty statements for discrepancies.
- Submit performance data as needed.
Accurate and timely reporting is essential for tracking and verifying earnings, ensuring transparency throughout the royalty distribution process.
Common Transparency Issues
Data and Reporting Gaps
The music industry continues to face challenges with data consistency and accurate reporting. Issues like missing or incorrect metadata during uploads often result in royalties being misattributed. This problem is further complicated by the sheer volume of streaming data.
Digital platforms have added another layer of complexity. Many artists lack visibility into how their revenue shares are calculated, making it hard to confirm whether payments are accurate Miket Kanakia, Director of Novex Communications, puts it plainly:
To tackle these challenges, rights holders must address specific areas:
These gaps not only disrupt payments but also lead to broader problems, such as unclaimed royalties.
Unclaimed Royalties
Unclaimed royalties, often referred to as "black box" money, have grown into a massive issue. Currently, the Mechanical Licensing Collective (MLC) is holding $424 million in unmatched royalties, while the industry as a whole has an estimated $2.5 billion in unclaimed funds.
Platforms like Royalty Exchange help creators eliminate the uncertainty of missing or misallocated royalties by providing a transparent marketplace where artists can list their catalogs with full historical financial data and verified income reports. This gives buyers and investors confidence in their purchases while ensuring sellers get maximum value based on real earnings rather than speculation.
Several factors contribute to this problem:
- Incomplete Song Registration: Missing details prevent proper allocation.
- Global Complexity: Different royalty types across international markets create confusion.
- Time Limits: Royalties that go unclaimed for 2-3 years often expire.
- Split Disputes: Conflicting claims block payments.
Shockingly, about 20% of streamed works lack identified songwriters or publishers, leaving rightful earnings unpaid. Henry Schoonmaker from Music Publishing Resource explains:
Financial Impact
Artists often face long waits - up to nine months - to receive royalty payments. These delays erode trust among creators and investors alike, underscoring the urgent need for a more transparent royalty system.
Access to clear financial reporting can make a big difference. When artists and rights holders have accurate data, they can:
- Track play counts across platforms.
- Analyze revenue streams more effectively.
- Understand audience demographics.
- Make better business decisions.
Real-time data and transparent systems are key to addressing these issues.
Transparency Advantages
Payment Accuracy
Transparent royalty systems improve how quickly and accurately payments are made. Modern digital tools track streaming numbers, radio plays, and other revenue sources in real time, ensuring creators get paid without delays.
Royalty Exchange provides sellers with direct access to a vast network of investors who trust its verified royalty reports, ensuring transactions are based on actual earnings rather than projections. This eliminates the guesswork in catalog valuation and speeds up the sale process, allowing creators to convert future earnings into immediate capital while buyers make data-driven investment decisions.
Digital platforms with clear reporting offer several benefits:
Sony Music's Artist Portal is a great example of this. It provides artists with immediate updates on global royalty earnings as soon as financial reports come in from digital services. This level of precision not only speeds up payments but also builds stronger connections across the industry.
Industry Relationships
When reporting is transparent, it builds trust among everyone involved in the music industry. Giving artists and rights holders access to detailed earnings data fosters a more cooperative environment.
Royalty Exchange offers full disclosure on royalty trends, allowing artists to see exactly how their music generates income over time. For investors, this transparency ensures they are purchasing catalogs with proven revenue streams and predictable returns, making music rights a more reliable asset class.
Dispute Prevention
Transparency also helps avoid disputes over royalty payments. When all parties can access the same verified data, disagreements about payment amounts or timing are less likely. This is especially important in a complex industry with multiple revenue streams.
Some key ways transparency prevents disputes include:
- Automated Verification: Blockchain technology secures unchangeable transaction records.
- Defined Payment Structures: Detailed revenue breakdowns eliminate confusion.
- Real-Time Monitoring: Instant access to earnings data helps resolve issues quickly.
AI and big data analytics add another layer of protection by spotting patterns in streaming, radio airplay, and live performances. This ensures fair compensation while minimizing conflicts.
In short, transparency isn't just a bonus - it's a critical part of creating a royalty system that works well for everyone involved.
Technology Solutions
Technology plays a crucial role in tackling transparency issues in music royalties. To address previous gaps in data and reporting, three main approaches have gained traction:
Blockchain Applications
Blockchain technology provides a way to create permanent, tamper-proof records of music usage and payments. For instance, in 2021, Kings of Leon made over $2 million through NFT album sales, setting aside $500,000 to support live music crews. Independent artist Iman Europe saw her monthly streaming income jump from $300 to $60,000 thanks to five music NFTs, while Mig Mora earned $192,000 in just 60 seconds through NFT sales.
In addition to blockchain's reliable record-keeping, tools like data analytics make tracking royalties even more efficient.
Data Analysis Tools
Data analytics platforms are now addressing the lack of transparency in music royalties. With streaming contributing 84% of U.S. music revenue in 2022 and musicians receiving only 12% of the $50 billion global music revenue in 2020, precise tracking has become indispensable. Platforms such as Royalti.io automate tasks like earnings reporting and data collection, making the process smoother.
Digital Marketplaces
Combining blockchain and data analytics, digital marketplaces are transforming how royalty assets are valued and traded. Royalty Exchange has facilitated over 2,300 transactions, helping rights holders secure more than $190 million in funding while giving investors access to catalogs with clear financial histories.
With over 30,000 registered investors and an average yield exceeding 13%, Royalty Exchange allows artists to effortlessly connect with buyers who are actively looking for income-generating assets. By leveraging its transparent valuation process and historical income verification, the platform ensures creators get fair market value while investors gain confidence in the assets they acquire.
Looking Ahead
Industry Programs
The music industry is taking steps to improve how royalties are tracked and reported. Kobalt has introduced its next-generation Client Portal, which provides real-time royalty payments and detailed song performance insights. A standout feature, "Collection Gap", lets creators track delays between when their songs are used and when royalties are paid, along with daily payment breakdowns.
Legal Updates
In the UK, the Code of Good Practice on Transparency in Music Streaming will come into effect on July 31, 2024. The Intellectual Property Office (IPO) will oversee its rollout, holding bi-annual meetings and planning a formal review in 2026.
Tom Gray, Chair of The Ivors Academy, explained why this code matters:
Conclusion
Platforms like Royalty Exchange are leading the shift toward a more transparent and efficient royalty system by eliminating industry guesswork, providing real-time income tracking, and ensuring fair market pricing for both sellers and buyers.
Whether you're an artist looking to cash out future royalties without giving up ownership rights or an investor seeking a proven, high-yield asset class, Royalty Exchange offers a streamlined, data-driven marketplace designed to maximize opportunities for both sides.
Ready to explore the value of your catalog or invest in music royalties? Sign up today and take advantage of Royalty Exchange’s industry-leading transparency and financial insights.
