Lesson 2: Flow of Revenues in Music Publishing

White Swoosh
Black Swoosh
< Back to Home

In the previous chapter we explored why copyright exists, that we have a copyright in a song and recording, and that copyright holders will be remunerated every time that copyright is exploited. In this chapter we will explore the circumstances in which copyrights are generally exploited, and how this revenue will flow from source to songwriters and performers.

The below flowchart is a bit overwhelming, but don’t panic: we’ll address these different flows of income one at a time. In order to read the flowchart, we’ll start at the Consumer/Advertisers. This is where consumption of music happens and where the chain starts. It flows to different providers of consumption: radio stations, DSPs, physical stores… From there the income flows to the collection societies and (sometimes directly) to the rights holders.

You can see there are two dotted lines in the image as well. The line from DSP to publishers applies to those publishers that have negotiated direct deals with DSPs, bypassing the collection society. Secondly there’s a line from MROs to composers: some, but not all, mechanical right organisations pay composers a writer share of mechanical income.

Key parties in the master rights industry

Though this is an introduction to royalties in the publishing world; imagining the publishing industry without the master industry is like imagining a cat without a tail, it would not always land on its feet. So we are first giving a brief introduction here to the different parties in the master rights industry. The master side of the music industry, looking after the copyrights of the master recordings, has three key parties: the performers, the record labels who represent the performers, and neighbouring rights societies who handle the collection of royalties for public performance of sound recordings.

  • Performers - Whilst the songwriters have written the music, the performers record the music in a sound recording and own the master rights. Performers can enter agreements with record labels, either for a limited timeframe or the full life of copyright, to represent their master rights and collect the royalties derived from exploitation of those rights.

  • Record Labels - Record labels represent the performers. Their main roles include discovering and nurturing new talent, distributing their recordings to digital and physical stores, marketing these recordings, registering the recordings with neighbouring rights societies and reporting these royalties on to their performers. Additionally, whenever a record label presses a physical copy of a song, they need to remunerate the songwriters and pay a fee to a publishing collection society.

  • Neighbouring Rights Societies - While physical and digital stores will have a direct licence in place with the record labels, some types of master copyright usage are better handled by a collection society. Each territory generally has their own society looking after the licensing of the public performance of sound recordings, also commonly referred to as neighbouring rights. These societies are (leaving out some exceptions) legally mandated in each territory to provide a one-stop licence to (music) venues, radio or television stations. These neighbouring rights societies will pass on the royalties partly to the record labels, and partly directly to the performers.

Key parties in the publishing industry

Now, on to our headline event. In the publishing industry, looking after the copyrights of songs, we can again establish three key parties: the songwriters, the publishers who represent the songwriters, and the collection societies who are legally mandated to collect royalties on behalf of the songwriters and publishers.

  • Songwriters - Composers write the lyrics and music and have a publishing right. 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.

  • Publishers - Publishers represent the songwriters. Their main roles include

    Artist & Repertoire - Also commonly referred to as A&R. This entails discovering new talent, guiding this talent and opening them up to opportunities to write with other songwriters.
    - Publishers register the songs with collection societies to ensure a royalty is collected whenever a song is used. 
    - Whenever a royalty is collected for usage of the songs,  publishers need to ensure they pay through the correct royalty amount to the songwriters.
    - Publishers actively pitch songs for usage in film, games, television or adverts. The remuneration for this usage is referred to as a synchronisation fee and can result in significant financial remunerations return.
  • Publishing Collection Societies - Collection societies are established to assist publishers in collecting their royalties. Whereas each music venue or radio station licensing the publishing rights for every song they consume directly with any publishers involved would be an impossible task - collection societies allow these parties to have a blanket licence for the usage of music compositions. Each country will have their own publishing society(ies) who are legally mandated to take on this role within its borders.

    Nearly all writers and publishers are members of a collection society. In the world of copyright, memberships with collection societies are often referred to as ‘society affiliations’. This affiliation authorises collection societies to collect income from streaming platforms, radio and television stations, live performance venues and many other revenue streams for the works of their members. Collection societies are only mandated to collect on behalf of writers & publishers that are affiliated with a society - either their own collection society or a sister society with which they have a reciprocal agreement. A reciprocal agreement means a society can ask another society in a foreign territory to look after their catalogue within that territory, and in turn they will look after the rights of the other society within their own legally mandated territory. The result is a global network of societies representing a global catalogue.

    If a writer doesn’t want to become a member of any collection societies, the society will not collect their royalties. In theory this means they (or their publisher) would be able to exploit and negotiate their own income whenever any revenue source (such as a streaming platform or radio station) uses their work. Practically, however, this is almost impossible to do. It would be very difficult for an individual to track down usage of their song, across so many different platforms and sources, all around the world. In the following examples throughout this course, we will assume that both writer and publisher are members of a collection society.

    There are two types of publishing societies - one looking after performance rights and another looking after mechanical rights.

    The first type, performance collection societies, look solely after the licensing of performance rights. A performance royalty is created whenever a song is … performed. In practice, this means whenever a song is played in a public venue, on the radio or television, or streamed on an online platform. Performance societies will collect these royalties and commonly report these royalties partly to their publisher members and partly directly to their songwriter members. These shares are referred to as the publisher’s share and the writer’s share of performance royalties. The most common rule is that the shares are evenly balanced at 50/50; but with some societies, such as BUMA in the Netherlands, songwriter members collect a writer’s share as high as 66%.

    The second type, mechanical collection societies, look solely after the licensing of reproduction rights. Essentially, this means they collect a mechanical royalty whenever a song is pressed on a physical format such as vinyl or CD, whenever a song is copied and downloaded in a digital format such as mp3, or whenever a song is streamed and a temporary copy is stored in cache. In mainland European territories, there is a writer’s and publisher’s share, just as there is with performance income. In Anglo-American territories however, the rule is that the publisher fully controls the mechanical rights, there is thus no writer’s share.

    Each country has their own legally mandated societies looking after each respective right within its territory. Within each territory, these can be two separate organisations, such as PRS (performance) and MCPS (mechanical) in the United Kingdom. Or it can be one society looking after both rights, such as JASRAC in Japan. Or there may be multiple societies within the same territory that compete with each other for control over the same type of right; such as BMI, ASCAP, SESAC and GMR looking after performance rights in the United States.

Sources of revenue in the publishing industry

In the music publishing industry, we can establish eight main sources of revenue. Each of these sources can be categorised as either a reproduction, performance or adaptation usage.

Usages controlled by the performance collection societies -

  • Radio & Television play - Television and radio stations are licenced by their local performance collection societies for the right to play music.
  • Live & Background - Whoever plays music in a public venue; be it a music venue, festival, pub, even your hairdressers turning on the radio or a busker playing publicly on the streets; will need a performance licence with the local performance collection society.

Usages controlled by the mechanical collection societies -

  • Physical copies - Once the dominant recording format in the music industry, nowadays physical sales would be just a footnote if it wasn’t for the impressive revival of vinyl as a collectors item. For each physical copy manufactured or sold, the record label will pay a mechanical royalty to the mechanical collection society.
  • Private Copying - In some territories, a tax is imposed by the music industry on manufacturers of blank audio carriers such as CDs, Cassettes, USB Sticks and even smartphones. The idea behind this being that consumers will use these products to privately copy and burn music on these audio carriers. Manufacturers of these blank audio carriers pay mechanical fees to the mechanical collection societies.

Usages controlled by both performance and mechanical collection societies -

  • Digital streaming & downloads - The leading format in today’s music landscape. This encompasses streaming revenue, and to lesser extent download revenue. Think platforms such as Spotify, YouTube, Apple Music or iTunes. These platforms are commonly referred to as Digital Service Providers or, in short, DSPs. On a streaming platform; a performance royalty is triggered because the song is performed, and a mechanical royalty is triggered because a copy of the song is cached to the device in order for it to be played. On download platforms; a mechanical royalty is triggered because a digital copy is made available to the consumer, and most commonly also a performance royalty is triggered as part of this to compensate for the listener's ability to preview songs before they buy a digital download (one major exception is the United States, where a download does not trigger a performance royalty and only triggers a mechanical royalty). DSPs will thus have both performance and mechanical licences in place with the collection societies, or in some cases directly with the publishers. More on that later.

Usages controlled independently by the publishers -

  • Synchronisation - Synchronisation refers to the usage of music in association with a (moving) picture, such as film, TV shows, games or adverts. For this adaptation, the music needs to be licensed with both the master and publishing copyright holders.
  • Grand Rights - Grand Rights are where a song is used in generating a new performance piece from the song, such as a dance performance or opera. See it as a real-life synchronisation.
  • Sheets & Lyrics - Before the existence of recorded music, for a long time, printed music was the only source of revenue for songwriters. Songwriters and publishers can sell their music in a printed format, but also less obvious examples exist such as a clothing brand printing lyrics on their merchandise, or streaming platforms displaying time-synced lyrics.

In the next few chapters, we are going to dig deeper into each of these rights types and analyse how a royalty makes it from a consumer’s wallet into a songwriter’s pocket, from play to pay. But before we do so, let’s first provide some context by discussing the importance of each of these sources to publishers and songwriters in today’s music landscape.

The Music Landscape Today

We now know the main sources of revenue in the publishing industry, but which type of revenue can you expect to pay the bills? The answer can be very different for many publishers as they look to differentiate themselves in the catalogue they represent and the revenue sources they chase, but the detail provided in Warner’s and Universal’s 2021 financial reports allowed us to calculate a helpful benchmark.

The leading source of revenue for our two publishers was digital revenue, and we can make a confident assumption that the lion’s share of this revenue will have come from streaming. Just over half the revenue of our publishers is attributable to digital usage and looking at the trends in recent years, this share is growing fast.

In second place are the performance sources (excluding online). This includes Television, Radio and Live royalties. It is important to note that collections in the year 2021 will have been impacted by the COVID-19 pandemic and its lockdown measures forcing public venues to close, resulting in Live performance royalties taking a hit.

The third most important source of revenue for our publishers were Synchronisation licences. Followed by the mechanical sources (excluding online) which refers to any physical and private copying royalties. Finally, a small share of revenue comes from other sources such as Sheet, Lyrics and Grand Rights.

So we've learned about the different sources of revenue in the publishing industry. Are you ready to put your knowledge to the test? You can take our quiz below before you progress to the next chapter.

< Back to Royalties 101 Home