How are music royalties given?

How are music royalties given?
There are three important things to understand when discussing the workings of music royalties:
(1) While music royalties are based on and influenced by copyright law, they are controlled by the individual contracts each artist has with his or her label or distributor. There are few situations where the Copyright Act itself describes how royalties should be given or who they should be given to. Instead, the amounts of royalties and the nature of those royalties are based on the standard practices of the music industry and an individual musician’s ability to negotiate with music distribution companies.
(2) When royalties are given, copyright law dictates that everyone involved in the creation of the song needs to be paid in some way. Unless there are agreements to the contrary, or unless one person does everything by him or herself, songs are joint works. The reason why some people involved in the recording process—like sound engineers or session musicians—often don’t get royalties is because it’s industry practice for them to assign (i.e., relinquish) to their employers (record labels, production companies or individual recording artists) their rights to the sound recordings they helped create.
(3) Finally, for a completed song that you might hear on the radio, copyright law gives two completely independent protections to that song: recording artist royalties and songwriter/publisher royalties. This is because copyright law gives protection for musical works—which can be simply defined as the written lyrics and the written notation—and sound recordings—which can be defined as everything that a musician and producer do to turn those written lyrics and sheet music into a recorded song.
Record labels often have to pay royalties to songwriters/publishers. But because of the nature of major record label contracts, these royalties often don’t go to the recording artists, except for with the most popular songs. The general rule is that over the length of a musician’s career, it’s very lucrative to be a songwriter, as in writing the lyrics and/or music to your compositions. In contrast, it is much less lucrative over the long run to only be a performer entitled to sound recording royalties.
Singer-songwriter Janis Ian agrees with this in her article, “The Internet Debacle: An Alternate View”: “If we're not songwriters, and not hugely successful commercially (as in platinum-plus), we [recording artists] don't make a dime off our recordings.”

Recording artists earn royalties from the direct sale of their recordings on CDs and other media. They do not earn royalties when their songs are publicly performed like when their songs are played on the radio and TV, or in bars and restaurants. Songwriters and publishers, on the other hand, do earn royalties when CDs are sold and when songs are performed in these other channels.
The way royalties are distributed isn’t common sense, either. Because of the split between songwriter royalties and recording royalties—as well as the complexity of the contractual agreements in the music industry—money isn’t always distributed in a common sense manner. The famous story about the royalties to the Star Trek theme (“Theme from Star Trek”) illustrates just how strange music royalties really are.
Gene Roddenberry, the creator of the Star Trek television show, essentially stole 50% of the “Theme from Star Trek” composer’s Alexander Courage's royalties through a handshake agreement.
Composers for film and television earn money when their compositions are performed. Thus, Courage was entitled to royalties every time a Star Trek episode would air, including reruns, and even more if the show went into syndication.
Years beforehand, however, Roddenberry had pressured Courage into a handshake agreement where Roddenberry had the option to write lyrics to the music Courage composed. So, after a year of royalties, Roddenberry wrote (incredibly questionable) lyrics to “Theme from Star Trek” and thus was entitled to half of the royalties as a co-composer of the song, even though the lyrics were never actually recorded or released. 
Even though the lyrics were simply a means for Roddenberry to take Courage’s royalties by writing lyrics that would never be recorded or used, what Roddenberry did was entirely legal. This is just one of many examples where understanding copyright law is important to understand the business transactions involved in the music industry.
As discussed above, the amount and nature of royalties is left of to a musician’s specific contract, and, as with any contract, the agreement can give or take almost anything from an artist.
Pro-artist contract conditions can include allowing the artist to retain the rights to the musical work and sound recording. This way an artist can write different versions of his own song—like Elton John’s two versions of “Candle in the Wind,” for example). More importantly, it gives artists the right to license it to musicians to record the song and potentially make money off of licensing those rights. 

The actual Copyright Act doesn’t lay out how much of any right to a song should be worth. In other words, it doesn’t give any guidance as to what a fair price or a minimum price should be for either licensing a song (giving up partial rights to that song) or assigning a song (giving up all rights in a song).
The Copyright Act also doesn’t even give a suggestion on how much co-writers (who are often considered joint authors) should be paid. All that it says is that joint authors are required to account for all of the profits made from a work and share those profits.
In fact, except for “Mechanical Royalties” and the complicated payment structure for online streaming music providers, the Copyright Act barely talks about how an artist should be compensated for his or her work at all.
The big problem with discussing the pros and cons of any style of agreement without knowing the specific facts of a situation is that sometimes musicians might be required to accept conditions that aren’t optimal to achieve some sort of other goal, like getting a foot in the door, paying bills, getting promotional benefits, etc. The reasons why someone would accept a “good” or “bad” deal are as varied as the types of deals that exist for musicians.  
Therefore, the amount of royalties that a record label or any other company gives you for the use of your song is strictly based on industry standards and your ability to negotiate a good deal. 
Generally, as the popularity and influence of a musician rises, there will be a rise in the potential that that person will receive a higher royalty rate.
If you have any questions about music royalties or copyright law as it relates to recording contracts and royalties, feel free to contact New Media Rights via our contact form to find out whether you qualify for free or reduced fee legal services. We also offer competitive full fee legal services on a selective basis. For more information on the services we provide click here.
Recording artists who aren’t songwriters do earn royalties in one instance
The Internet has changed many things about the way the music industry and musicians make money. It has also changed copyright law.
The Digital Performance Rights in Sound Recordings Act of 1995 gave the owners of the copyright in the sound recording (often the performers of the song) the right under the law to receive royalties when their music is streamed by a non-interactive service when the listener is a “subscriber” of the service. When a song is streamed on satellite radio or a on-demand music service like Pandora or Grooveshark, it is considered a public performance that needs to be compensated by the service playing the music.
If you are a musician with questions about how to set up receiving royalties with BMI or ASCAP or what to expect to receive for royalties based on your percentage ownership of a work, feel free to contact New Media Rights via our contact form to find out whether you qualify for free or reduced fee legal services. We also offer competitive full fee legal services on a selective basis. For more information on the services we provide click here.
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