Do you know all the possible revenue streams a record label and publisher can exploit?
To understand revenue streams of a record label or publisher, it helps to understand copyright. The copyright of a piece of music can be broken down in two aspects: the composition and the sound recording.
When Leonard Cohen wrote the melody and lyrics of his hit single Hallelujah in 1984, he automatically owned the copyrights of this composition, generally referred to as the publishing rights. The duration of this copyright varies per territory, but as per US and EU copyright law, these publishing rights will remain for 70 years after the author’s death (or, who knows, longer, considering Mickey Mouse’s copyright is due to expire in 2024). When Leonard Cohen then recorded this song as part of a sound recording, he automatically owned the copyrights of this sound recording, generally referred to as the master rights. Also, as per US and EU copyright law, these rights remain for 70 years after the author’s death.
One decade on, Jeff Buckley recorded his brilliant cover in 1994, and would have gained the master rights of his own sound recording. Though he is still singing Leonard Cohen’s lyrics and melody. Any royalties derived from the sound recording would therefore be due to Jeff Buckley, yet any publishing royalties from this cover would have remained with Leonard Cohen.
Songwriters can enter agreements with publishers, either for a limited timeframe or the full life of copyright, to represent their publishing rights and collect the royalties derived from exploitation of those rights. Similarly, performers can enter agreements with record labels to look after the master rights and collect the master royalties. A royalty would be due every time their copyright is reproduced, publicly performed, or synced. So, if you are a streaming platform looking to provide a piece of music on your platform, a film producer looking to use a piece of music in your latest blockbuster, or a radio station looking to play the latest hits in the ether; you need to make sure to clear both the publishing and master copyrights to use this piece of music and compensate both the publisher and record label accordingly.
How publishers collect the publishing royalties
A primary source of publishing royalties comes from the compositions being reproduced. These royalties deriving from reproductions are generally referred to as mechanical royalties. Whenever a record label presses your composition on a vinyl record, a digital download store delivers a copy of your composition in an MP3 format, or a streaming platform creates a copy of your composition as a cache on the streamer’s computer; a mechanical royalty is due. The royalty amount is generally agreed as a percentage of the income, or as a fixed unit rate per copy, depending on the reproduction type and in which territory the reproduction occurred. These mechanical royalties are generally collected by a national mechanical collection society. In the UK, this organisation is the MCPS, but every country has their own equivalent mechanical rights society. The mechanical society pays the full share of the mechanical royalty to the publishers, who in turn pay an agreed percentage of this amount to their songwriters.
A second significant source of publishing royalties comes from these compositions being performed. These are generally referred to as performance royalties. Streaming platforms, as well as paying a mechanical royalty per stream, also must pay a performance royalty when someone listens to a song on their platform. Whenever a radio or television station plays your composition, your local pub plays music at the bar, or a performer covers your song at a festival, a performance royalty is due to the national performance society. Based on playlists provided by the stations and festivals, or playlists provided by music recognition technology platforms (who scan stations and festival performances in a way not too different to how Shazam works), these performance societies will pass on the royalties to the publishers and songwriters. In the UK, this performance organisation is the PRS, but every country will also have their own equivalent performance rights society. Though it may vary per territory, performance societies generally pay 50% of the performance royalties directly to the songwriters, and the remaining 50% of the performance royalties to the publishers, who in turn may have agreed to pass on an additional share of that to their songwriters.
A final main source of revenue for publishers is to license their repertoire for synchronisation. Synchronisation refers to licensing agreements for music to be used with moving image; such as movies, adverts or YouTube videos. The agreement is negotiated between the publisher and the licensee directly.
How record labels collect the master royalties
Record labels’ primary sources of revenue can be broken down in a similar way. The main source of revenue, and also the most well-known example, is when their sound recordings are reproduced or distributed. The prime examples being when a sound recording is distributed physically (in formats such as LP or CD) or digitally (in the form of a stream or download). Large record labels will generally have a direct relationship with the physical retailers and digital music platforms. Alternatively, they use a distributor to supply their catalogue to digital or physical stores on their behalf, who in turn ask for a commission for their distribution efforts.
Also when a sound recording is publicly performed, the record labels and performers are due a royalty. These rights are commonly referred to as neighbouring rights and are generally collected via a national collection society. So again, think about radio and television stations playing music on their programmes, or your local pub playing music at the bar; these stations or establishments will need to pay a license fee to the national neighbouring rights collection society (PPL in the UK), who in turn distribute these royalties to the record labels and performers. It's therefore important for record labels and performers to become a member of their local neighbouring rights society and register their catalogue.
A final significant source of revenue for labels is to license their catalogue to other organisations. Synchronisation is an example of this. But also licensing out catalogue to be used on compilations, or to be sampled in another sound recording, are also common practice.
How do labels and publishers process these royalties?
With the digitization of the music industry, the volume of data that comes with processing these royalties has skyrocketed. Whilst selling a million LP copies would have been considered an exceptional success just two decades ago, labels and publishers now increasingly find themselves having to process royalty data in the shape of billions of online streams. Record labels, publishers & distributors need modern royalty accounting platforms, such as Curve, to process this huge amount of data as efficiently as possible. Not only does Curve process this data and calculate the royalty amounts due to our clients’ performers and songwriters, we also make this data available in a clear and easy-to-understand format for both our clients and their payees. Furthermore, our CWR tool enables publishers to register their repertoire directly with collection societies worldwide. Drop us a line or have a browse on our website to find out more about how we provide a modern solution to our clients.