Why you should think twice before you sign with a label or publisher

Royalties are one of the most discussed subjects in the music industry, yet no one really understands what they are and how they work. Especially for young, starting artists and producers, this is a real swamp that seems almost impossible to navigate and get through.

With the coming of the digital age, many new opportunities for music distribution and publishing have appeared, making it easier and safer for young artists to make a living from their art. Whether you’re signed at a label and/or publisher or if you’re an independent artist, the trickiest business of the music industry arguably is concerned with royalties. Before we get into that however, we’d like to start with some basics about the ownership of music and how all of that works.

Copyright of music

There are two sides to the copyright of a piece of music. One is the Composition Rights and the other is the Master Rights.

The Composition Rights includes the notes, melodies, chords, rhythm, lyrics of a song and belong to the owner of the actual composition, which is usually 50% songwriter and 50% publisher. As an independent artist, you could be both songwriter and publisher.

Then there’s the Master Rights, which is the official recording of a song used for reproduction and distribution. These belong to either the artist(s) or their record label. Again, as an independent artist, you could be both.

Licensing of music

There’s a difference between selling licenses and collecting royalties. You, or your publisher, can sell a license to any customer, like radio + tv stations, filmmakers and YouTubers, which states that they can use your music in their own projects. Once these projects, including your music, go public however, you’ll receive public performance royalties for every time your song is played.

In order to receive royalties however, you must be registered to an organization or society that collects royalties and pays those who are due. So here we are, we’ve arrived at the tricky part: the royalties.

The five types of royalties in the music industry

Mechanical Royalties are the income generated from the physical and digital reproduction and distribution of your copyrighted music. It applies to music reproduced on CD, vinyl and cassette, and music made available for digital download and streaming services.

This only applies to interactive streaming services. An interactive-streaming service is a streaming service where the consumer chooses which song is played, forcing a digital reproduction of the song. Examples of interactive streaming services are Spotify, Tidal, Deezer, Apple Music, etc.
Interactive streaming services generate both mechanical and public performance royalties.

A non-interactive streaming service is a streaming service that does not let the consumer decide which song is streamed. Examples of this are Pandora Radio, webcast services and really any other digital streaming service that does not allow its users to skip or rewind songs, skip forward or see what songs are ahead in the playlist.

The royalties generated from these non-interactive streams are public performance royalties (second in the list) and go to the copyright holders of the sound recording, which is either the artist or their label, and to the copyright owners of the composition, which are the publishers and the songwriters.

In order to receive these royalties, you must be the copyright owner of the intellectual property. If you’re signed to a label, there’s a fairly big chance you’re no longer the full copyright owner of your music, which means that a percentage of the royalties earned from your music go to your label. This all depends on the agreements you made with your label.

Secondly, we’ve got the Public Performance Royalties. Remember that there were two sides to a copyright, the composition rights and the master rights. For the owner of the composition right, this is the payment you receive when your music is performed, recorded, played or streamed in public.

These royalties are collected by Performance Rights Organizations (PROs). When you register with a PRO, they’ll sell licenses for your music to be played in public and then monitor whenever it gets played in public, so they know how many royalties you are due.

Now, every time your music is played on TV, radio, in clubs, bars, concerts, on streaming services or anywhere else in public, your PRO will collect the royalties and distribute them to the composition right holders of your song.

Beware, PROs make a clear distinction between songwriters and publishers and they split the royalties 50/50. So, if you’ve made a song entirely by yourself (you hold the composition copyright and the master copyright) and you haven’t signed a publishing deal, make sure you register to your PRO as BOTH the songwriter and the publisher to receive the full 100% of royalties on the Composition side you are owed.

Next, we have the Neighbouring Royalties. These are basically the same as the Public Performance Royalties, except these royalties go to the copyright holder of the sound recording, the master right, instead of the copyright holder of the composition. These royalties are collected and paid by the same PRO that collects and pays your public performance royalties.

So, the only real difference between public performance royalties and neighboring royalties is the person who’s getting paid. Public performance royalties are for the composition right holders, whereas neighboring royalties go to the master right holders.

Fourth is the Synchronization Royalties. Every time your copyrighted music is ‘synchronized’ or paired with visual media, e.g. when someone uses your music for their YouTube video, the synchronization royalties generate income for the right holders. To be allowed to use someone’s copyrighted music for audiovisual media, you’ll need to purchase a synchronization license and a master use license. The sync license allows you to use the composition of a song for an audiovisual project. A master use license allows you to use the master recording of a song for an audiovisual project.

To obtain a master license, you’ll need the permission of the master recording owner, which is either the artist that made the music or the label that signed the artist.
For a sync license, you’ll need to contact the composition right holder of the song, which is either the songwriter(s) or the company that published the song.
However, nowadays there are Sync Libraries where artists can submit their music to be licensed to an end user, and end users can easily purchase all the licenses needed to use music in their projects.

Last, but not least, there’s the Print Music Royalties. These are the least common nowadays but can definitely make for a decent revenue stream. Print Music Royalties generate income when copyrighted music gets printed to sheet music and distributed. Note: these royalties only go to the composition right holders of the song, which are the songwriters and the publishers.

Many artists and producers believe that they need to sign with a label or publisher, regardless of the quality of those companies, but as you can see from the way this industry works, it doesn’t always pay off (that much) to sign with a publisher and/or label.

Now, labels and publishers can definitely help you grow as an artist, but if you dive a bit deeper into how the music industry works, you’ll see that signing to a label and/or publisher might not necessarily always be the best move for you to make in your career right now.

So what do you do, once you decide not to sign a contract with a label or publisher?

That’s the big question, right? How can you, an (aspiring) independent artist collect royalties over your music?

The first thing that needs to be absolutely clear is: Who holds the rights to your music? Have you signed a deal with a publisher and/or label? Then it’s very likely that you own even less than 50% of your music, meaning you don’t get all the royalties your music generates. If you do, however, own the full copyright to your music, congrats! You’re on the winning side of this game.

Now of course, your music needs to be heard and for that, it needs to be sent to music stores and streaming services, which you don’t need to do yourself. Here’s a list of distributors that can get your music in stores and to streaming services. Make sure you pick one that’s best suited for you and don’t forget to check how these distributors handle copyrights. Some of these may not let you keep 100% of your rights, which would be a complete rip-off if they didn’t compensate you fairly.

Be aware that most streaming services only pay royalties for the sound recording (side B), which means that the royalties you are due for the composition (side A) will be lost if you don’t register your music with a performance rights organization and a collection society that focusses on mechanical royalties!

In the Netherlands there’s an organization that houses two collection societies under one name: Buma/Stemra. Buma collects and pays public performances royalties for songwriters and publishers (side A) and Stemra collects mechanical and synchronization royalties for songwriters and publishers (also side A).

So if you’re a Dutchy like us, we advise you to register to Buma/Stemra as BOTH the songwriter and the publisher, to ensure you receive the full 100% of side A, and then find a suitable distributor to distribute your music and collect your mechanical and public performance royalties of side B.

There’s also sena.nl, a royalty collection society focused on neighboring rights (side B), but this might not be necessary if your distributor already pays these royalties.

Finally, we have www.stichtingnorma.nl, they focus on what’s on TV. If your music has ever been or will ever be played in a live television show, Norma is the one you need to contact.