Lesson 2: Flow of Revenues in Recorded Music

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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. But in which circumstances are the copyrights of sound recordings exploited and how does this revenue flow from source to artist? We’re about to find out. We will also cover the publishing industry, looking after the songs, to give you a complete understanding of the income streams.

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, … Revenue then flows to the different copyright holders (the labels & publishers) and its writers or performers, either directly or indirectly via a collection society (the PROs, MROs and NROs).

You can see there are two dotted lines in the image as well, on the publishing side. 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 recorded music industry

The recorded music side of the music industry, looking after the copyrights of the master recordings, has four key parties: the performers, the record labels who represent the performers, the distributors who help labels to make their music available for consumption, and neighbouring rights societies who handle the collection of royalties for public performance of sound recordings.

  • Performers - Whilst the writers 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 are a performer’s primary partner in creating and releasing their recordings. Labels provide the following services to their artists.

    Financial services - The label provides the artist with an advance, allowing artists to be financially independent and focus on their music full time. Additionally, a label will also cover any upfront recording and marketing costs. And the label will report on the royalties derived from the artist’s recordings.
    A&R - An abbreviation for Artist & Repertoire, it refers to the label’s aim to discover and nurture new talent.
    Manufacturing - The label will manufacture physical products and licence the physical reproductions of the songs with the publishing societies or publishers.
    Distribution - The label will make the recordings available in digital and physical formats, either directly or through the means of a distributor, more on that later.
    Marketing & PR - The label will organise marketing campaigns with the intention to build the artist’s brand and drive sales. This can include press, advertisement, social media, events, playlist pitching, radio pitching and/or publicity stunts.
    Sync - The label will pitch their recordings with music supervisors to be used in TV productions, films, adverts or games; which can be an important driver of revenue.

  • Distributors - Distributors act as the middleman between record labels and retail stores (both digital and physical) and help labels to, you guessed it, distribute their music. Physical distributors ensure the vinyl, CD or other physical products are shipped to brick & mortar or online physical retailers. Digital distributors ensure that the sound recordings and its metadata are delivered to streaming services and digital download stores. Sometimes they are also referred to as ‘aggregators’. They consolidate all the sales revenue and flow it through to the records labels for a negotiated fee. This fee can range anywhere from 5% - 25% depending on the format of the release (physical distributors will typically charge a higher fee than digital distributors), which services the distributor provides in return (some may offer additional marketing opportunities) or even the calibre of the label or artist (sometimes a distributor will offer a “preferred rate” if you are releasing music by a very well established artist). It is worth mentioning that the major labels and large independent labels will take the distribution in-house.

  • 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

Although this course is about the recorded music side of the industry, we want to mention the key parties in the publishing industry as well. They are, after all, two sides of the same coin. Though their role in the industry is different, publishers and recording rights owners work together and their paths cross on multiple levels, including when it comes to royalties. 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 copyright related tasks such as registering the works in their catalogue with collection societies around the world to ensure a royalty is collected when a song is used, pay through these royalties to their writers in an accurate way, discovering new talent and guiding them through their career (A&R or Artist & Repertoire), and pitching songs for synch opportunities in films, games, tv shows or ads.

  • 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.

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. 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.

Sources of revenue in the recording industry

In the recording industry, we can identify five main sources of revenue. The revenue from these different sources flows to the rights holders in different ways. We will take a look at all of them individually so we can get a better understanding of the differences in revenue streams.

Streaming and Downloads

Digital Service Providers (DSPs) are online platforms that allow the user to stream and/or download music. Some well-known DSPs are Spotify, Apple Music and Deezer but there are many smaller, local platforms as well. 

DSPs pay many different rights holders: because streams are seen as both mechanical and performance income, the income is split across these two different income types. Royalties are due to both the master owners and performers (for the recording of the song) and the publishers and writers (for the use of the composition). Many an article has been written to break down who gets what - which percentage of a stream goes to the label vs the publisher? How much do labels pay on to their artists, and publishers to their writers? Streaming is often seen as the industry’s saviour in troubling times (when everyone was downloading their music illegally), but it’s also responsible for a big headache around royalty distribution. A very public example of this love/hate relationship with streaming is Taylor Swift, who has removed (and re-added) her catalogue from Spotify and Apple multiple times in the last decade or so. 

Who gets what?

DSPs pay labels, publishers, songwriters and artists. They are obligated to pay recording royalties for the use of the recordings that are streamed, which are paid by the DSPs to labels or distributors. The labels pay this through to their artists. 

DSPs also pay out publishing royalties for the use of the compositions. They pay this income to publishers and collection societies (PROs, MROs or CMOs) based on the collection rules in that territory and for that usage. The publisher pays the composers.

So who gets what? Let’s start by clarifying that DSPs take a share of the revenue: in Spotify’s case, more or less 25%. What is left after that are the royalties that need to be paid out. Streaming royalties are divided approximately 80/20 between the recording side and the publishing side, in favour of the recording side. This means that labels get a much bigger share of the streaming income than publishers do. The label’s royalty rate is not determined by rules or law but is freely negotiated. There are three major labels that control most of the market in the music industry (Sony, Universal and Warner) and therefore have a much stronger negotiating power than other parties do. However, these companies also have a publishing arm. DSPs like Spotify argue that a bigger share for publishers should be achieved by lowering the label’s share, instead of Spotify lowering their own share.

Payment models: user-centric vs pro rata model

Let’s take a look at the ways the DSPs are splitting up the money they receive from subscriptions and ads. There are two main models they can use to decide who gets what share of the income: a user-centric model and a pro-rated royalty pool model.

The most common model at the moment is the pro-rata model: all income is pooled together, and this money is then pro-rated amongst all recordings. The more streams, the bigger your share of the total pool of money. So for example, if Spotify has generated $1,000,000 in revenue across 100,000,000 streams, each stream is going to be assigned $0.01. If your songs were streamed a total of 50,000 times, you will receive 50,000 x 0.01 = $500. The total sum of money is split evenly across the total number of streams. The streaming platform uses different pools for different territories and different subscription plans. A premium stream in the United Kingdom may thus give the label a higher royalty than an ad-supported stream in Vietnam.

A user-centric model takes a different approach, focusing more on specific usage of the platform by its individual users. This model wants to take the fee a user pays to use the platform, for example $12.99/month for SoundCloud Pro, and divide this amongst the recordings that specific user has listened to. As you can imagine, some users only listen to a limited group of artists. This usage model would make sure the right holders for those works get the money the user paid to use the platform. At first glance this seems more fair: a user pays for the platform and listens to those songs specifically, therefore their money should go to those right holders. The user-centric model would ensure the money paid by a user only goes to the songs they like, not to the popular songs across the platform that have generated a bigger share of the total streams and get a big split of the royalties in the royalty pool approach. For some artists this might mean a bigger pay-out, for others it will lower their royalties. It will also have a genre wide impact: a study published in 2021 estimates that classical music would benefit from a user-centric model, whilst R&B and hip hop might be negatively impacted.

Physical products

Once the driving force behind the music industry, the sale of physical products such as CDs and vinyl is now often a lower priority than streaming. The sale of physical products is in many ways more complicated than streaming: you need to produce the product, package it, send it to stores and get it on the (digital) shelves. There are a lot of steps that need to be taken along the way and the distribution process is a lengthier one than for online sales. Whilst CDs are no longer the big revenue driver they used to be, vinyl is becoming more popular by the year. So much so that vinyl pressing factories have been struggling to keep up with the demand! Vinyl sales have been growing for 15 consecutive years and revenues grew 61% to $1.0 billion in 2021. Fun fact: the last time vinyl record sales exceeded $1 billion before 2021 was in 1986! 


Synchronisation, commonly referred to as sync, refers to the usage of music in association with a (moving) picture, such as film, TV shows, games or adverts. These film, TV, game or advert producers will have their own in-house music supervisors or work with music supervision agencies who source the perfect piece of music for their project. As a publisher or record label, it is very valuable to have good relationships with these music supervisors to increase their chances of landing a treasured sync deal.

The fees are negotiated directly with the rights holders. When music is used in a sync project, a deal will need to be struck with both the master and publishing rights holders. Most often, both parties will have a Most-Favoured-Nation clause, meaning they will automatically get the same deal in case the other rights holder negotiates a better fee. In practice, that means the sync fee is generally split 50/50 between the master and publishing rights holders. The value of a sync deal will depend on the negotiation position of the copyright holder, how in-demand the song is and the type of project. So whilst a society’s blanket licence means that Spotify pays the same rate for a stream of Adele’s latest single compared to a stream of our CTO’s christmas song, when Amazon comes knocking on the door looking for a song to place on their latest Christmas advert, the former can negotiate a million pound fee whilst the latter may negotiate a free Amazon Prime account.

Additionally, a sync placement can result in a surge in performance royalties for publishers and writers when the advert or film is performed on television stations or in cinemas. Not to mention the exposure and additional sales a good sync placement can create. Just ask Kate Bush, who recently earned her first ever top 10 single in the United States with a 37 (!) year old song, after it was placed in an episode of Netflix’s hit-series Stranger Things.


The public performance of sound recordings is licensed by Neighbouring Right Organisations, also referred to as NROs. The NRO will license this usage in their local territory, and they have reciprocal agreements in place with sister organisations in other countries. This ensures that public performance of a sound recording (such as on the TV, radio or in public venues) anywhere in the world will be licensed and paid to the rights holders. Labels and artists need to be members of their local NRO to be paid by them.

Who do labels report to?

We now know what kind of income labels receive, but the flowchart at the top also shows they have to pay income to other parties. This is where the two parts of the industry collide and where publishing becomes relevant.

Reporting to artists

We know labels work with artists - they sign artists and release their music, amongst many other things. Labels also pay artists a share of the royalties they receive through the above mentioned revenue streams and parties. There are different types of contracts between artists and labels, with different terms and clauses resulting in different royalty calculations. We will explain the details about these payments and how they are structured in more detail in the chapter “What a Record Label Deal Looks Like”. For now, it’s important to know that record labels receive income directly from DSPs, distributors, physical retailers and for synch income. They then need to pay on a share of this income, depending on the contractual set-up, to their artists.

Reporting to publishers/songwriters

This is where things become a bit confusing: labels operate on one side of the industry, publishers on the other. Labels work with sound recordings and artists, publishers with compositions and songwriters. So why does one pay the other? This is where mechanical royalties come in.

The songwriters and publishers are due a mechanical royalty when a copy of a song is produced. In the case of a stream on a service like Spotify, the streaming platform pays the local mechanical rights organisation and they pay the rights holders. However, when we’re talking about physical copies or digital downloads within certain territories, it is usually the record label’s responsibility to report the mechanical royalties to the publishing societies or publishers. They are then obligated to pay the rights holders for the publishing side of the copyright. Our flowchart shows a simplified version of this income flow - we have a dedicated chapter on Mechanicals further in the course.

The Recording Industry In Numbers

In 2022, the recorded music industry generated $26.6 billion in revenue. The IFPI has reported the breakdown of this income, with streaming being the biggest source of revenue that year. In fact, paid streaming grew 10.3% compared to the previous year and has been steadily growing for years.

Here is a breakdown of the 2022 revenue streams:

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