How Do Songwriters collect their money from commercially released Music? (Part II)Dec 19, 2020
If you don't have a Publishing collection strategy you are leaving money on the table
If your music is being sold, streamed or performed globally, distribution alone doesn’t get you all the money your music is earning. To get all your money means registering your works globally with performing and mechanical rights societies. You have to register your songs and affiliate yourself with these societies so your music can be tracked and earn royalties. Without this step, you can forget about earning all the income that is rightfully yours. A Publishing Administrator can play the role of a kind of “distributor” to the global performing rights and mechanical societies to make sure your compositions are properly registered and collecting royalties wherever they are being performed or sold.
Performance Royalties in the United States are collected by the Performing Rights Organizations (PRO’s) which are ASCAP, BMI, SESAC, and GMR. Anyone can join ASCAP or BMI but SESAC and GMR are by invite only. When you affiliate yourself as a songwriter with a PRO, you’ll receive an Interested Parties Information (IPI) number. The IPI number identifies you as a songwriter and connects you with your songs to ensure that you receive all royalties owed you. Do your homework about the PRO’s as they all have different rules, registration terms and fees and vary in how they pay out their royalties. The PRO’s always pay out the writer’s share of royalties directly to the songwriter, but they differ on how they pay out the publisher’s share. You may have to affiliate yourself as a publisher or with a publisher in order to be paid!
Collective Management Organizations (CMOs) are collection societies that operate outside of the United States. They also register, track, and collect royalties earned, and pay them out to the respective songwriters. Each territory has its own terms and restrictions. It’s important to understand the subtle differences between collection societies and to be aware of which societies are available to you in your specific territory.
Rights Management Agencies collects another stream of income which is your mechanical royalties. These agencies collect and distribute mechanical royalties and are responsible for the tracking and collection when your song is reproduced.
What are mechanical royalties?
Mechanical royalties come from the composition copyright. The song is your intellectual property and the law requires payment for the use of that property. Whenever an artist/record company releases the musical composition through their unique performance and sound recording (making it available to the public for profit), mechanical license is compulsory and requires payment of a mechanical royalty to the music publisher and songwriter for the reproduction and distribution of their songs.
The simple answer is that the copyright act established “mechanical royalties” are to be paid to the writers of a song whenever that song is reproduced and distributed in some form. This mechanical royalty applied to physical formats like vinyl, tapes, CD’s DVD’s and permanent downloads such as MP3 and MP4’s. Traditionally, the artist/record company records a songwriter/music publisher’s song, and makes it available for sale as a download or part of a physical album. The statute required them to pay a mechanical royalty of 9.1 cents for songs under 5 minutes and then an additional 1.75 cents per minute of “song” to the holder of the PA copyright.
“Mechanical Royalties” are also paid when recording artists want to record cover version of songs. If the song is commercially released you can put out a cover without the copyright holders permission by using obtaining a mechanical license. However, you cannot use any part of the original sound recording and you cannot make fundamental changes to the lyrics or melody.
These fees are paid to agencies like the Harry Fox Agency or Music Reports who represent the lion’s share of the U.S. mechanical royalty market, on both buyer and seller sides. This is because HFA represents the mechanical royalty for all the major music publishers: Sony/ATV, Universal and Warner/Chappell (who represent about 70% of the composition copyright holders), while Music Reports handles statutory licensing notices for buyers such as Apple, Pandora, Amazon, SiriusXM, Microsoft, etc.
The birth of streaming changed music to a model where people are no longer buying and downloading music to an access model of streaming. Today’s music is consumed thru on-demand (or interactive) streaming. The music lives on someone’s remote server and anyone can listen to it when desired. Mechanical licenses for streaming are paid by streaming services. These services pay fractions of a penny for use of the composition which is then split between Sound recording and Composition (SR and PA copyright). It is further split under the PA copyright between the public performance and mechanical royalties For example the average per-stream royalty for both the master sound recording and composition on Spotify is around half a penny. The sound recording average is about $0.0038 per stream. That leaves $0.0012 to the composition, which is then split 50/50 between performance and mechanical royalties.
Also, digital has the ability to handle not only audio but audio-visual such as YouTube.
Under the U.S. Copyright Act the Copyright Royalty Board (CRB), which is three judges, sets the set royalty rates owed to songwriters and music publishers for reproduction and distribution of their songs every five years. The good news is The Music Modernization Act (MMA) of 2018 helped update various aspects of the music publishing sector, especially the mechanical streaming royalty rate. Title I of the Music Modernization Act (MMA), Subsection (b)(1) maintains the ability to obtain a compulsory license to reproduce and distribute phonorecords other than digital phonorecord deliveries (DPDs) on a work-by-work basis. This is the historical method by which record labels have obtained compulsory licenses. A new subsection (b)(2) provides the blanket mechanical license for digital music providers to make and distribute digital phonorecord deliveries (e.g., permanent downloads, limited downloads, or interactive streams). and also created the Music Licensing Collective (MLC) to administer streaming mechanical royalties.
Section (b)(2) applies to DSP’s and allows for a blanket license which is designed to make it easier for streaming services to license songs without fear of copyright infringement for not correctly matching payments. They pay the MLC for use of the music and the MLC figures out who to pay from there. This removal of legal liability was a big reason the major streaming services supported the MMA.
The CRB left untouched the mechanical royalty rate of 9.1 cents for physical and downloads in the most recent proceeding. They also changed the mechanical royalty rates for on-demand streaming to 11.2% of streaming revenue in 2018, and to 15.1% of streaming revenue by 2022. This is a 44% increase over five years.
Finally, the MMA has changed the rate setting proceedings for how the CRB can consider future mechanical royalty rates. Under the new MMA law, judges will be able to consider rates under a fair-market value which should cause mechanical royalty rates to rise over time.
Mechanical Licensing Collectives
Under the new law, the Mechanical Licensing Collectives (MLC) was created to pay out the mechanicals from digital audio services to songwriters. Virtually all U.S. mechanical streaming income will flow through the MLC. Digital audio services must now secure a blanket license to play all songs on that service and pay this mechanical license fee to the MLC, which will operate as the middle man. The MLC in turn, will pay the either the music publisher, the admin publisher, or the songwriter directly.
The running of the MLC is funded by the Digital Service Providers (DSP’s) therefore the MLC does not take a percentage of songwriters’ royalties to administer the rights. The MLC is run by a board that includes Big Publishers, small publishers and songwriters. The rate paid by the DSP’s is fixed by law. However, when you review the number of streams vs. payment keep in mind that not every play is monetized or monetized at the same rate. (Ex. You tube ads or tiered services on streaming platforms). The MLC does however retain the right to audit DSP’s if they believe there is a pattern of non-reporting on streams. The MLC also does not collect royalties for music that is streamed outside the U.S.
The MLC will house a centralized public copyright database. This should make it easier to track down rights owners, as well as for interested parties to claim their “black box” royalties. The MLC has incorporated the data base from Harry Fox who has collected songwriting information for decades. As of January 2021 the MLC is the only agency that can collect the money from DSP.
Note: The MLC issues blanket license only for songs played in the U.S., however the royalties can be distributed to Songwriters no matter where they live
The public database will be launched in January 2021. Information held in the database is Name or a.k.a, title of song, ISWC, other songwriters on project, publisher or publishing administrator, other sound recordings. Independent songwriters who are not represented need to register their songs with the MLC.
As this is a public database songwriters should routinely check their own data. Similar to the PRO’s where you can look at a song or artist repertoire. The database can be viewed from a phone, tablet or laptop. It was designed to be user friendly and you can edit or submit new registrations, check royalty statements and payments easily. However, it is important to note you need to know the share of the song you wrote. Remember: splitsheets memoralize an agreement between the composers of a song to determine the songwriting percentages. If you and fellow songwriters have a dispute over the percentage of the song you own, the MLC will not pay out revenue until the songwriters themselves work it out.
The MLC does not replace Soundexchange. Soundexchange collects a statutory rate from DSP’s that allows them to play music on internet stations and on-demand services (such as Spotify) and distributes royalities to Sound Recording owners and performers only. The MLC does not replace the PRO’s (ASCAP, BMI, SESAC, GMR), which pay performance royalties to composers. The MLC is an additional source of revenue for songwriters.
The MLC should begin making payments in the Spring of 2021. They will provide a monthly accounting and pay electronically. The minimum threshold for payment is $5.00. If the royalties remain unclaimed for a few years for songs they will go into the “blackbox” and be distributed amongst all songwriters.
Remember no song can be properly licensed or fully registered until everyone agrees on what percentage of the songs they own!! Split sheets are VERY IMPORTANT.
A publisher is the owner of a composition copyright. If there is no deal in place with an outside publisher, then the songwriter(s) is the publisher. So that means you need to create your own publishing company in order to collect these monies or enter into a publishing deal to have them collected for you.
When a songwriter assigns a song to a music publisher, the publisher can help in a number of ways. One of the primary roles of the publisher is to secure commercially released recordings, of the songs it controls. Great publishing means effective song promotion. The staff of the publishing company should know what artists are recording and the type of material they need. They also have a good working relationship with the A&R execs at record companies, producers, recording artists, and managers. Publishers look for opportunities for composers to include the composition on future albums or as singles.
Another necessary and important service provided by the publisher is that of proper administration of musical compositions: registering copyrights, filing necessary information to mechanical and performing rights organizations, auditing record companies and other licensees, bookkeeping, negotiating licenses, and collecting monies due. An important responsibility of the publisher is protecting its copyrights and enforcing the exclusive rights that it has been granted by the songwriter and the copyright laws. Considering all the places that music is heard the publisher is responsible to ensure songs are not used without permission and compensation.
Another important area of concentration is Sync licensing which allows songs to be used for television, movies, digital services such as Netflix and Amazon, commercials and movies. The song can be used as a theme which is often seen in commercials, background music, or actually sung or performed on camera. This can allow writer's and publisher's to earn substantial money.
Types of Publishing Deals:
Exclusive publishing deal is when a songwriter signs with a music publisher, the music publisher is assigned 100% copyright and 100% royalty collection rights (excluding the writer share of public performance income) for either a song or songs or a period of time. The publisher collects the royalties and generally splits the money 50/50 with the songwriter.
If the publisher paid the songwriter an advance of royalties, the writer’s 50% collected will be put toward the advance recoupment. Until that balances out, the writer will only receive royalty statements with recoupment status updates. The songwriter will not see any mechanical royalty payments until their advance is recouped, and each statement will give the current balance.
Co-Publishing agreements are exceptions to the 50/50 split. Under this scenario, the songwriter owns half the song copyright and the publisher the other half. This means the writer receives 75% of income rather than the usual 50%.
Why? Because the songwriter receives the usual writer share (50%) as outlined above, AND half of the publisher share (25%),
Or another option is a publishing administrator who manages the rights of a songwriter in the marketplace by registering and licensing songs with the proper entities - such as Performing Rights Organizations (PROs) and Collective Management Organizations (CMOs) - to make sure any royalties your songs generate are collected. A publishing administrator does NOT own a part of the composition, but does this work in exchange for a small commission on the revenue collected.
Companies such as Songtrust and Tunecore can administer publishing rights for songwriters. Many Distributors are offering to collect and administer your catalogue. They will collect the mechanicals from MLC. Yes they take a percentage but they also collect from Foreign countries and register songs with the Performing rights organizations. This is a personal decision you make in conjunction with how you value your time and is a matter of how you structure your business.
Please feel free to contact me with any questions at [email protected]. And, for those trying to navigate the tough Indie music business, please check out my book, For the Record book and course to get a deeper understanding of the music biz in order to SAVE TIME and MAKE MONEY. Thanks, Debbie