How Royalties Flow
Music is Played – A stream, radio play, or sync use triggers royalty payments.
Money is Collected – Services collect revenue and allocate it for royalties.
Organizations Match and Process – Data is used to match songs to owners.
Royalties Are Distributed – Rights holders get paid, often months later.
Artists Receive Statements – From various platforms, agencies, and teams.
Royalties generated by your music are split into two categories: the Composition and the Recording.
The Composition is the underlying body of work; the melody, the chord changes, the lyrics, etc.
The Recording is the capturing of those lyrics, chord changes, and that melody.
“Yesterday” by Paul McCartney is the composition — the melody, lyrics, and chords. The Beatles’ 1965 studio version is one recording of it, while a live performance or a cover by another artist would be a different recording, but still based on the same composition.
Those two categories are paid out in two ways: Publishing Royalties (for the Composition) and Recording Royalties (for, well, the recording). Let’s look at both in a little more detail. For reference, here’s a graphic that will help visualize some of the differences we’re discussing
Publishing Royalties
We now divide these into two more categories and breakdown each one: Performance Rights Royalties and Mechanical Royalties.
Performance Rights Royalties (which go into more detail here) are generated when a song is played publicly. For example, on the radio, at a bar or restaurant, in a store, etc. Those royalties are collected by Performance Rights Organizations (PROs) and then paid out to the songwriters of the composition and the publishers.
Mechanical Royalties (which go into more detail here) are generated when a song is reproduced. Back in the day this meant when the CD or Vinyl was reproduced, but in today’s terms it’s when the song is streamed (or a digital copy is sold). For each stream, there is a rate collected.
Recording Royalties
Like with Publishing Royalties, Recording Royalties are divided into two parts.
Digital Performance Royalties (which go into more detail here) are generated when a song plays on non-interactive digital radio. Non-interactive cause you can’t chose what is played next, and digital radio meaning services like Pandora or SiriusXM.
Recording Revenues (aka, Recording Mechanicals) Similar to Mechanical Royalties for publishing, each time the recording is reproduced (sold or streamed) it generates a royalty. These royalties are collected from the streaming platform (Spotify, Apple, Amazon) by a distributor (Tunecore, Distrokid, SoundOn, or a recording label), and then paid to the artist.