Welcome back to our guide on the economics of the music industry! In the first part, we learned about "Copyrights": what it means, the difference between a Song and a Recording as well as how both entities own a share of the same copyright... The second part explored the different types of revenues associated with copyrights and how royalties are structured. Now it’s time for the third and last part of our guide: music publishers & collection societies. Let’s discuss the process and journey that your royalties take before landing in your bank account!
Important note: since recording royalties have a pretty straightforward process (it’s the record labels which pay them out directly to their artists), this article is focused on analyzing the process for song royalties.
We briefly talked about collection societies in our first article, but have not yet stressed enough their importance in the music ecosystem. These companies play a vital role in the tracking and identification of your songs as well as in making sure that you get paid what you deserve. In Canada and the US, these societies are usually referred to as Performance Rights Organizations(PROs) since they’re collecting the royalties connected to the public performance of the song. In the rest of the world, collection societies are referred to as Collective Management Organizations (CMOs); they’re almost identical to PROs, the only difference is that each territory uses their own set of rules and restrictions. A CMO in Denmark operates differently from its British or French counterpart. Another important distinction to make is that usually CMOs are entitled to collect Mechanical Royalties as well, while in North America these types of royalties are collected by Rights Management Agencies.
So what’s the process like? What does one have to do to actually get paid one’s royalties? First, you need to join one of these societies as an affiliate to register your songs there. You have to provide them with relevant information: a list of your songs, all the songwriters’ information and their respective ownership shares of each song. Once you’ve submitted all the paperwork, the collection society will issue an International Standard Work Code (ISWC). This code is the ID of your song and allows you to monitor it across the world to correctly associate its royalties.
Note: the recording of your song owns a different type of code called International Standard Recording Code (ISRC), usually issued by your music distributor. And how do music distributors participate in the royalty collection process? These agents get your recording from the record label and are the ones which distribute it to DSPs and physical stores across the world. Their role helps you increase chances to get royalties for your recording in the long run. Companies like The Orchard and FUGA, for instance, are music distributors.
Everything seems pretty straightforward, doesn’t it? However, one of the aspects that make the royalty collection process very complex is the large number of collection societies scattered around the world. There are more than 150 of them, and, in order to properly collect all the royalties that are owed to you, you would need to register to multiple collection societies in order to cover all territories. While it’s not an impossible task, it sure is a long and tedious process. That’s why music publishers are tremendously helpful.
Music Publishers are key elements in the music industry. They represent the middle point between collection societies, songs, and songwriters. Contrary to what the name may suggest, music publishing isn’t connected to the distribution or the “publishing” of a specific song or recording: its primary goal is to represent songwriters, collect the royalties generated by the usage of songs, and to redistribute the revenue to its members. Another strong featuring of music publishers is that they usually have direct deals with collection societies across the globe. In other words, they can cover multiple territories and efficiently collect your royalties internationally.
It’s important to note that, when signing an agreement with a music publisher, you grant them rights relative to your song. If you are the author of the song, you own the writer’s share of the song, while the publisher is entitled to the publisher’s share. Generally, the split is 50/50, which means that half of the royalties generated by the song goes directly to the songwriter via a collection society. The other half is collected by the music publisher, which later sends a share from it to the songwriter after taking a cut.
Since music publishers work based on a percentage, they are committed to making sure that the song performs well. In that sense, they actively pitch songs and compositions to be featured in movies or commercials (via an industry player called music supervisors) and even to record labels and other artists. In addition to this, music publishers also take care of the “boring” administrative aspects of songwriting, such as registering the repertoire with the various DSPs and issuing licenses.
As you can see, it’s not impossible for you to take care of your royalty collection of your songs yourself. However, the process is no easy task. Even a small mistake along the ladder can cause significant issues that can seriously jeopardize your income.
The process of collecting and redistributing royalties takes a considerable amount of time due to the many variables and actors who take part in the process.. Registering your songs in a collection society is fundamental to start earning your royalties. If your song is not registered, there is no way for you to track it and find out when your song is being played on the radio or streamed on any DSP platform. This means for you that your royalty payout is officially interrupted, and your money stays frozen in an account of the collection society, waiting to be collected.
But this is not the only reason why this process can be interrupted. Other factors can also influence this event. From simple mistakes such as incorrect or incomplete metadata, to the fact that you’re not associated with a music publisher. As mentioned above, these industry players have a very important role. The fact that they can help you deal with collection societies around the world is key - their experience in this subject covers much more than one would even think of.
Taking care of your assets is critical to ensure that you have a safe and healthy royalties flow. While it’s true that your song collects royalties even if you’re not aware of it, that money wouldn’t be saved into an account forever even when registered correctly. You have a period of three years maximum to claim these retroactive royalties. If not collected, all the unmatched/unclaimed royalties go into the black box. This is a sort of bank account that holds all the royalties that don’t officially belong to anyone. Once royalties enter this black box, it’s almost impossible to retrieve them. Then again, the importance of having a deal with a music publisher shows up. If everything is set up with your publisher, you’re sure that all the registrations are correct and that you’re getting all the royalties that are due to you.
But what happens to all the money that’s inside the black box? Well, they certainly are not going to wait forever in there. After a certain period of time, the royalties are redistributed to the collection societies’ members, usually allocated based on their market share. That means that your unallocated or mismatched royalties will probably go into the accounts of already established and wealthy songwriters.
No one knows precisely how much money is stored inside the black box, but it’s likely to be several hundred million dollars! That’s an impressive amount of unallocated royalties, so these are the right steps that you should take to make sure that your royalties don’t end up in this massive pile.
After going through many different concepts and agents (Copyrights, Royalties, and Publishers & Collection Societies) of the music business, let’s take a look at a simple scenario based on how you would get royalties from a Radio airplay.
How did you find this last part of our series? Tons of information, surely complex to dive into, but definitely useful to get started or catch up and properly plan ahead.. The whole process for collecting your royalties can be tedious, involving lots of different entities, parties and sets of rights, but in the end is just a matter of organizing and following up. Make sure you go through these articles as many times as needed in order to find the right approach for you so you don’t miss the royalties you deserve. Democratizing the music industry is what drives our daily work at WARM, and offering you this guide is one of the many tactics we are tackling to get closer to doing it!