Understanding how the music industry works for a financially stable career

Back in the day, all you needed was your local radio DJ to get your music out there and start making money. Today, that’s not going to cut it. As an artist, you have to pursue multiple ways to increase your income. Don’t depend upon only one outlet for your music. Below are nine ways to expand your income streams from your music.

Before you distribute your music — join a performance rights organization (PRO). The United States copyright law protects original works of authorship including literary, dramatic, musical, artistic, and other intellectual works.

The first music copyright protects the sound recording, the recorded performance (the Master), and the second protects the underlying musical composition (actual work being performed).

The third protection the US law gives to copyright holders covers their public performances. When someone plays your music publicly, they must license the use of that music or they would be committing copyright infringement. Licensees include radio and television stations, nightclubs, concert halls, sports venues, and restaurants.

As a musician, you want to make sure you are getting your Royalties and Revenues:

1. Mechanical royalties

Every time one of your physical products sell, like CDs, albums, etc. you earn a Mechanical Royalty, generated from the reproduction of your song.

If the reproduction is in the US, the royalty rate is $0.091 per reproduction for songs under five minutes. A formula rate kicks in set by the US Government for songs over five minutes. Outside of the US, the royalty rate is typically 8–10% of the listed price.

2. Analog public performance royalties

Another type of situation where you collect a Royalty is from a “Public Performance” of your composition such as when you play a set at the local club. It also covers your track if it’s background music in restaurants, hair salons, bars, restaurants, airplanes, offices, movie theaters, etc.

Worldwide, the royalty rate is determined by a one-to-one negotiation between the PRO and the entity where the performance occurred.

3. Synchronization license royalties

Another important way to generate income is through the Synchronization License Rights (Sync), which is different from the distribution copyright. For example, if a film, TV studio, or production company want to use your composition in a TV show, movie or commercial they would need to pay for the Sync Rights.

The license fee worldwide is a one-to-one negotiation based on several factors like the length of the use, how it’s being used (background or up front), the format and the popularity of the production. With so many different items factoring in, the fee can run from a few hundred dollars to hundreds of thousands of dollars.

4. Mechanical synchronization royalties

There is also a Mechanical Royalty generated along with the Reproduction copyright. This means from a publishing standpoint, there’s a per-unit royalty payment owed to the songwriter based on the number of units manufactured that include the song (like ringtone, greeting card, toy, video game, etc.).

Entities like Hallmark, toy companies, or video game companies generate and pay this royalty, and the value worldwide is usually based on initial manufactured units.

5. Digital download mechanical royalties

One of the popular ways to make money is through online distribution, like iTunes, Spotify, Deezer, etc. You are owed a royalty for every unit of your music that’s downloaded.

This royalty comes from the “Reproduction” and “Distribution” copyrights and the royalty payment mirrors physical reproductions: $0.091 per reproduction in the U.S., and generally 8% — 10% of the list price outside the U.S. This can vary on other online platforms.

6. Streaming mechanical royalties

Streaming is common through digital stores, like Spotify or Deezer. The term “interactive” means that the user can choose songs, pause, rewind tracks, create playlists, etc.

As is the case with digital downloads, a songwriter is owed a royalty (from the “Reproduction” copyright) for every stream of his or her song on an interactive streaming service. In the US there’s a government-mandated rate of around $0.005 per stream, and outside of the US, the royalty is 8–10% of the listed price.

7. Digital non-interactive streaming public performance royalties

A non-interactive streaming service is one where you can’t pick songs, create playlists, or otherwise “interact” with the music, kind of like AM/FM radio. A non-interactive stream is a “Public Performance” and generates a songwriter royalty, paid by the streaming service, like Pandora, Slacker, iHeartRadio, Sirius XM Satellite Radio, cable companies, and many others.

Worldwide, the royalty rate is determined by a one-to-one negotiation between the PRO and the other entity (generally based on a percentage of the entity’s Gross Revenue).

8. Interactive streaming public performance royalties

When someone streams your song on an interactive streaming service, like YouTube, Spotify or Deezer, it also counts as a “Public Performance,” which means you’re owed, additional songwriter royalties.

There’s no set government rate in or outside the US — it’s determined by the PRO’s formulas and the other entity. It’s usually based on a percentage of the entity’s gross revenue. A few formulas and calculations from the PRO later, and you’ve got a royalty!

9. Digital synchronization license

Sync also applies to the digital world. Often people create YouTube or Vimeo videos that use someone else’s music in the background. In slightly more technical terms, what’s happening here is that the song is being synchronized with a moving image, and when this happens, a per use license payment is required.

As far as the royalty rate goes, there is no government rate, just a one-to-one negotiation that sets the per use royalty rate. It’s typically a percentage of Net Revenue, as generated by advertising dollars.

Final thoughts

With so many options, besides getting registered in a PRO, you would benefit from a publishing administrator to help collect your worldwide music royalties. Then you will have time for other money making activities such as touring and selling merchandise.