Recently, I wrote about how artists receive very little income from streaming. A couple of million streams on YouTube will make you enough to buy a couple of cups of coffee. This led several people to ask how music royalties work.
Multiplatinum artists like TLC and Toni Braxton have been forced to declare bankruptcy because their recording contracts didn’t pay them enough to survive. Florence Ballard from The Supremes was on welfare when she died, despite the Supremes selling 32 million albums. Country music legend Merle Haggard, with 37 top-10 country singles (including 23 #1 hits), never received a record royalty check for any of them.
Record companies and recording artists, as well as the writers and publishers, all make money based on the sale of recordings of their songs. How those royalties are calculated, however, is about as intricate and controversial as everything else in the music industry.
Writer/publisher mechanical royaltiesThese royalties are paid by the record company to the publisher. The publisher then pays the writer a share of the royalty (typically split 50/50). Currently, the statutory rate is $.08 for songs five minutes or less in length or $.0155 per minute for songs that are over five minutes long. So, for example, a song that is eight minutes long would earn $.124 for each recording sold. Usually record companies pay only 75% of the statutory rate, particularly when the writer is also the recording artist.
Recording-artist mechanical royaltiesRecording-artist royalties are extremely complex. Artists are paid royalties usually somewhere between 8% and 25% of the suggested retail price of the recording. This depends on the clout of the artist, a new artist might receive less than a known artist. From this percentage, a 25% deduction for packaging is taken out irrespective of the real packaging cost.
Artists don’t earn royalties on recordings given away free as promotions. (about 5% to 10% depending on the artist). There is also a reduction in royalties made for copies of the recording sold through record clubs. CDs or cassettes have a 100% return privilege from stores. The recording company holds back about 35% to account for returns. Some recording companies only pay on 90% of the shipment, assuming 10% would be broken. Today, vinyl has been phased out but there are still a few holdouts.
So, an artist sells 1 million copies at $15, that’s $15 million. here is how it looks so far. Based on the above figures, the artists royalty is $1,012,500. But wait there is more.
Advances and recoupmentTypically, when recording artists sign a recording contract or record a song (or album), the record company pays them an advance. In addition to paying back their advance, they also pay for recording costs, promotional and marketing costs, tour costs and music video production costs, as well as other expenses. This comes out of their royalties.
Suppose the recording costs were $300,000 (100% recoupable), promotion costs were $200,000 (100% recoupable), tour costs were $200,000 (50% recoupable), and a music video cost $400,000 (50% recoupable). That comes to an $800,000 deduction from the artists royalties.
Suddenly the million plus is just $212,500 less 20% for a manager, the producer and band members/ musicians…so $162,000 to the artist.
So the money isn’t in making the music, So, it’s in the writing…correct? While this is true, controlled-composition clauses make it less fair to those who are both the songwriter and recording artist. A controlled composition is a song that has been written and/or is owned by the recording artist. Because mechanical royalties paid to songwriters and publishers are not recoupable by the record company, meaning the record company can’t deduct any expenses from them, record companies usually negotiate into the singer/songwriter’s contract that the mechanical royalty rate they will receive as the songwriter/publisher will be 75% of the usual amount. In other words, as the writer of a song you record yourself, you get 25% less royalty money than you would get for writing a song that someone else records. But you’ll get performance royalties when the song is played on the radio, TV, etc.
With the explosion of the Internet and the ease of downloading music onto your computer, a whole new royalty arena has opened up in recent years. Record companies usually treat downloads as “new media/technology,” which means they can reduce the royalty by 20% to 50%. This means that rather than paying artists a 10% royalty on recording sales, they can pay them a 5% to 8% rate when their song is downloaded from the Internet. In the case of downloaded music, although there is no packaging expense, many record company contracts still state that the 25% packaging fee will be deducted.
An alternative to this royalty payment method creates an equal split of the net dollars made on music downloads between the record label and the artist. This net figure is arrived at after the costs have been deducted, including costs of the sale, digital rights management costs, bandwidth fees, transaction fees, mechanical royalties to songwriters/publishers, marketing costs, etc.
Hard to make a million dollars…
My dad always told me I should sing tenor. Ten or twelve miles away