What royalties do music platforms collect?

We explore the different kinds of royalties artists can collect across music platforms and services.

The internet has opened up a world of potential for musicians of all shapes and sizes. Music platforms allow artists an easy way to get heard in every corner of the world and at RouteNote we’ve been working with artists since 2007 to put their music on all of the world’s favourite music streaming services and stores.

Many artists might not realise that music revenues aren’t as straightforward as a pay for every play. There are many different ways artists and songwriters can and should be getting paid when their music is online. In this article we’ll explore how music services collect and pay out their royalties to artists and the different earnings entitled to them.

The royalties music streaming services pay out

As mentioned above, music streaming doesn’t work as simply as every play being worth a single pay-out that goes directly to the artist or label. There are in fact a number of different royalties due to artists, contributors, and rightsholders and many don’t realise this.

One of the reasons they might not realise there are other payments they’re entitled to is because digital services haven’t been set up to collect and release these in a straightforward way. That’s something we’re hoping to slowly change to ensure all artists who come through RouteNote receive all the royalties they’re entitled to for streams of their music. Let’s walk through the types of royalties here.

Sound Recording Royalties

These are the most common royalty paid out on streaming services. These apply to the recording of the track and therefore to the artist(s) who has performed on the track. These are paid out with every stream of a song on music streaming services.

As mentioned above, this only applies to the recording and therefore these royalties are not paid out to songwriters – for example if the song in question was a cover song then the Sound Recording Royalty would go to the artist who had recorded the cover rather than the original songwriter.

Composition Royalties

This is where the songwriter’s earnings come from, whether they also recorded the song that is being played or whether their music has been re-created and earning them royalties. Composition Royalties are generated from… you guessed it: the composition. Whoever originally wrote the music – or whoever holds the rights to the composition – is entitled to the Composition Royalties from streams and purchases of songs.

Mechanical Royalties

These royalties are generated from the reproduction of music. Typically this referred to physical music releases, a mechanical royalty being earned every time a vinyl, CD, tape etc., was pressed.

Nowadays these apply with digital music. When a track is purchased and downloaded that counts as a mechanical royalty generated. Mechanical Royalties are also generated on music streams, counting as a reproduction when the song is played uniquely to each listener.

Mechanical Royalties are owed to to owner of the Composition Copyright. This may be the original songwriter or the label/publisher if they’ve purchased the copyright or are contractually entitled to them. These royalties will then be collected by Mechanical Rights Organisations and distributed to their members.

This does mean that many artists may miss out on these royalties as they have to go through a third party between the digital service and the intended recipient who may not be a member of the relevant organisation. This can also become difficult depending on the territory the listener is based, the service is available, and the artist originates from.

Performance Royalties

Whilst these can still be generated from plays from a streaming service it won’t be earned directly between the user and the service. Performance Royalties apply when music is played in public: on the radio, in shops, performed on stage, etc.

Collection agencies like PPL and PRS for Music in the UK and ASCAP, BMI, and SESAC in the US will make deals with local businesses, venues, and radio stations to arrange a direct payment for the public playing of music. Those collection agencies then work with their members to distribute royalties.

Sync & Micro-Sync Royalties

Sync Royalties are generated when music is put to moving image; traditionally film and TV. These are generally arranged directly between the production company and the music rightsholders and in advance of the distribution of the show or film.

With the world of digital media we’ve developed a new strand of these royalties referred to as Micro-Sync royalties. These come from video sites like YouTube and are generated from music used in videos on their platforms. They work differently to Sync Royalties as they are generated with each view on the video.

At RouteNote we’re beginning to help artists receive Micro-Sync Royalties for any use of their composition on YouTube as well as Sound Recording Royalties using their Content ID system. If you are the Composition Copyright owner then you can apply to earn Micro-Sync Royalties on YouTube here: https://forms.gle/GzqpP4hnAH8728b18

How do music services collect royalties?

Music streaming services traditionally use two models to earn money from listeners which they collect to pay out for the plays of music on their services.

The most straightforward and common is a paid subscription that the listener pays for themselves. This provides a direct cashflow between the user and the service, normally at a set monthly charge.

Then there’s the freemium model which platforms like Spotify and YouTube have built huge recognition for. This is when the service is available to users for free with advertising interspersed between their content. The brands pay the service for the advertising reach and the user gets to experience the platform at no cost.

How do music streaming services pay out royalties?

It depends on how an artist or label has released their music. At RouteNote we offer direct distribution to artist and labels of all sizes. With distribution through RouteNote, artists and labels earn their revenues monthly as they’re sent to us from every streaming service and music store. Payments will be collected in each users’ RouteNote account and once they reach a minimum of $50 they will receive their earnings to their linked payment profile on the month that they surpass the minimum threshold.

Writing about music, listening to music, and occasionally playing music.

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