If you are starting in the music industry as an artist and you are looking to make money, you surely have heard about royalties, but what are royalties exactly? Royalties are payments made to the creators, performers, and other rights holders of music whenever their work is used or exploited in various ways. Think every time your song is streamed, purchased, or played in a club, store, restaurant, cafe or simply the radio. These payments are made in exchange for the use of intellectual property, such as songs, recordings, compositions, or other forms of creative work. In the music industry, royalties are a primary source of income for songwriters, composers, musicians, and other rights holders.
How Royalties Work:
Let’s stick to music royalties. Royalties work in 4 simple steps.
- First, music creation. A song is created by a songwriter who through the act of creation automatically holds the rights to the music, barring any other type of agreement.
- Second, music consumption: the music is used, think about it being played on the radio, being streamed online, sold in retail stores, or used in films, commercials or commercial settings, such as a club, cafe, store or restaurant.
- Third, the royalty payment: whenever the music is consumed, royalties are generated and are collected by organizations or companies that specialize in managing rights and payments.
- Fourth and finally, royalty distribution: the royalties are not kept by the collection organizations, but paid out to the rightful owners (songwriters, performers, producers, etc.), typically after deductions for administration fees. The collection organizations do not pay the individual royalty holders directly, but use music distributors for the administrative task.
So, royalties are an essential part of how music creators and other rights holders are compensated for their work instead of salary. They are a way for artists, songwriters, composers, and other music professionals to earn money from their intellectual property whenever it is used, reproduced, or performed, so whenever it brings joy to people. Read more about what different types of music royalties there are.
