How Music Royalties Work

Types of Rights and Royalties

Licenses and their corresponding royalties fall into four general categories:

Mechanical licenses and royalties - A mechanical license refers to permissions granted to mechanically reproduce music onto some type of media (e.g., cassette tape, CD, etc.) for public distribution. The music publisher grants permission for the musical composition to be reproduced. The mechanical royalty is paid to the recording artist, songwriter, and publisher based on the number of recordings sold.
Performance rights and royalties - A performance-rights license allows music to be performed live or broadcast. These licenses typically come in the form of a "blanket license," which gives the licensee the right to play a particular PRO's entire collection in exchange for a set fee. Licenses for use of individual recordings are also available. All-talk radio stations, for example, wouldn't have the need for a blanket license to play the PRO's entire collection. The performance royalty is paid to the songwriter and publisher when a song is performed live or on the radio.
Synchronization rights and royalties - A synchronization license is needed for a song to be reproduced onto a television program, film, video, commercial, radio, or even an 800 number phone message. It is called this because you are "synchronizing" the composition, as it is performed on the audio recording, to a film, TV commercial, or spoken voice-over. If a specific recorded version of a composition is used, you must also get permission from the record company in the form of a "master use" license. The synchronization royalty is paid to songwriters and publishers for use of a song used as background music for a movie, TV show, or commercial.
Print rights and royalties - This is a royalty paid to songwriters and publishers based on sales of printed sheet music.

In addition to these royalties, the Audio Home Recording Act of 1992 brought about yet another royalty payment for songwriters and performers. This act requires that the manufacturers of digital audio recording devices and the manufacturers of blank recording media (blank cassette tapes, blank CDs, blank DVDs, etc.) pay a percentage of their sales price to the Register of Copyrights to make up for loss of sales due to the possible unauthorized copying of music. There are two funds set up where this money is funneled. One is the Sound Recording Fund, which receives two-thirds of the money. This money goes to the recording artist and record company. The other fund is the Musical Works Fund, which receives the remaining one-third of the money to split 50/50 between the publisher and the songwriter.

Foreign Royalties

The licenses we mentioned above (mechanical, performance, synchronization, and print) are also issued for the use of U.S. copyrighted material in foreign countries. The foreign agents, or sub-publishers, are responsible for managing the licenses in their countries and paying royalties to the songwriter and U.S. publisher.