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How Your Music Earns You Money

Alternative Revenue Streams
Published December 2007

With album sales in free-fall, alternative revenue streams are becoming ever-more important. We explain where today’s songwriters can look to earn money from their music.

You’ve got the mix. The label loves it and you think you’re about to get rich. Or you’ve spent countless hours at the studio and lost numerous strands of hair agonising over which snare to use — and you don’t think you’ll ever make a dime on your music. It’s almost impossible to know who will actually make money in today’s music business, but one thing you should certainly know is how much money your music could make you, and where that money comes from.

Show Me The Money

Rock songs are frequently written by a single songwriter, while hip-hop and R&B tracks typically involve more collaboration.Rock songs are frequently written by a single songwriter, while hip-hop and R&B tracks typically involve more collaboration.Let’s assume that your goal was to get a song on an album by another artist and it’s now going to be commercially released. A few years ago your income would have been limited mostly to album sales and, if you were very lucky, some royalties from radio play. Much has changed in the last few years, as some income streams have slowed considerably (album sales) and some have skyrocketed (ringtones and radio play). One thing I can assure you is that it’s very rare to get mega-rich from one hit song. However, whether it’s pennies or pounds coming in, they still add up.

For the purpose of this article, let’s take the stance that you do not own the master recording. That lovely asset is most commonly owned by the record label. So the income generated on the master side will be ignored and we will assume that the label gets that money. As the songwriter, we’ll imagine that you control the entire copyright, meaning that you are the sole writer of the song and have penned both the music and the lyrics. That’s quite rare in pop, R&B and hip-hop today, but more common in rock music. The reasons for that are rooted in how each genre of music is commonly recorded. Since most hip-hop songs are based on music developed by a producer and lyrics by a rapper, you commonly have two or more writers on hip-hop songs. Conversely, in rock music, it’s more usual for a singer-songwriter with a guitar or piano to put together the entire song himself or herself. Of course, some bands split the songwriting equally, but it’s more common to see a single songwriter in rock than it is in hip-hop, R&B or pop.

For now, we’ll assume that you are the songwriter (whether or not you have other co-writers can affect the share of income proportionally, of course) and that you have a publisher who can collect your various forms of income. What are those income streams? How does the money differ from country to country? Let’s take a look.Master recordings are usually the property of the record company.Master recordings are usually the property of the record company.

Mechanical Royalties

The term ‘mechanical royalties’ applies to any income generated by a sale, typically of an album. As we mentioned before, album sales have historically been where a songwriter made most of his or her money. With the introduction of the compact disc, music catalogues that were already purchased years ago on vinyl or cassette tape were reintroduced into the marketplace. With that, there was a tremendous rise in sales of CDs from the mid-’80s to a few years ago, when the digital download and Internet music age began.

  • Album sales

Although you can certainly make a bundle of cash on a big-selling album, you are also ‘capped’ in the United States as to the maximum money you can receive per album sold. US copyright law allows labels to specify a pretty paltry maximum amount of $0.091 per song. That means that for every album featuring your song that is sold, you will be paid a little over nine cents. (Of course, if you have more than one song included on an album, you’ll be able to multiply your income by the number of songs you have.) However, this calculation assumes that you are not bound by what is called the ‘controlled composition’ clause in the artist’s record deal. This is a common contractual clause that further minimises the amount of royalties that have to be paid out by the record label, and it applies to some of the songwriters involved in the creation of the record; usually, the record’s producers are also subject to the controlled composition clause, unless they are of a certain in–demand status, like Timbaland or Dr. Dre, for example.

If you are ‘controlled’ by the artist’s agreement, you stand to make substantially less money from the same number of album sales than a non-controlled writer would. For example, a songwriter brought in to help write a chorus or lyrics can commonly make the ‘full rate’ of $0.091, whereas the producer who is contractually bound to deliver the song commonly makes less from any contribution they made to writing it (although producers will usually have an additional royalty for their production work, which most songwriters do not).Album sales on CD used to account for almost all of the songwriter’s income, but other sources of revenue are becoming increasingly important. Album sales on CD used to account for almost all of the songwriter’s income, but other sources of revenue are becoming increasingly important.

So if you are an uncontrolled songwriter and you are granted 50 percent of the copyright on one song, on an album that sells one million copies (which is not as common these days, since album sales have sharply declined over the last few years) you would make roughly $45,000, while the producer who is bound to the controlled rate can make less than three-quarters as much on the same song and the same number of album sales. To do the maths, a non-bound, ‘uncontrolled’ songwriter will earn $0.091 (the statutory rate) x 0.5 (50 percent of the copyright) x 1,000,000 (album sales), which equals $45,500. A songwriter who also produced his or her song, and is thus contractually bound to the ‘controlled composition’ clause, by contrast, might receive $0.091 (the statutory rate) x 0.75 (the commonly referred-to ‘three–quarter rate’) x 0.5 (50 percent of the copyright) X 1,000,000 (album sales), which equals $34,125. So the same copyright can earn one songwriter about 25 percent more than the other songwriter, based on their controlled status.

The sale of albums in the UK isn’t much different to album sales in the United States, except for the fact that the Mechanical Copyright Protection Society (MCPS, the mechanical society for the UK) does not enforce a controlled composition clause. The royalty from album sales in the UK is based on a portion of the dealer price, usually referred to as PPD rate. Currently, in an agreement established by the Copyright Tribunal, the mechanical royalty rate is 8.5 percent of dealer price. Mechanical royalties from digital downloads Ev

eryone and their mother has an iTunes account, it seems. But what does that mean to a songwriter? Remember what mechanical royalties are all about: the sale of an album or, more commonly, a song. Royalties for digital downloads are actually much more straightforward than for traditional bricks-and-mortar retail sales. For digital downloads, there is not a reduction in royalties for controlled songwriters — so no ‘controlled composition’ clause when it comes to single song or album downloads. The record company has to pay the minimum statutory rate for each sale. Again, that number is $0.091 per song. Assuming a song sold half a million copies at iTunes and you own the entire copyright, you’ll again be looking at about $45,000: $0.091 x 100 percent of the copyright x 500,000 units downloaded or sold digitally equals $45,500.

That’s one reason why successful artists who write their own songs make a bundle of money. Once again, there’s not a great deal of difference in the UK, except for the fact that the record label doesn’t pay the songwriter, as they do in the States. The MCPS gathers all the digital sale information, collects that money from the UK record label and then pays its members and publishers.

New listening habits mean that new methods of distribution, including ringtones, are making a big impact.New listening habits mean that new methods of distribution, including ringtones, are making a big impact.

  • Mechanical royalties from ringtones and ringbacks

The great thing about mechanical royalties in the United Kingdom, as you can see from the previous examples, is that the MCPS does all the work for you. In the States, the publishers have to license everything with the label and wait to collect their money from the US label, which often requires a great deal of patience. Since Europe and Asia are far ahead with digital delivery and technology, it makes perfect sense that those regions see much more income from ringtones and ringbacks than the US — a recent report from the MCPS-PRS alliance stated that they paid out over £620,000 in a single distribution month for ringtone income. That said, though, the US market is steadily rising in terms of digital use and cellphone activity. Just as with digital downloads, there is no deduction for a controlled songwriter: the record label must pay each use the statutory minimum of $0.091. So selling a million ringtones (1,000,000 units x $0.091) would net you about $90,000.

Performance Royalties

Radio play seems to be a growing income stream, as single songs become more popular than the album/CD platform. All three of the performance rights societies in the US — ASCAP, BMI and SESAC — report having collected record income over the course of the past few years from radio stations and broadcasters, and the numbers continue to rise. Radio in general is not as big in the UK as it is in the States, mostly due to the immense size of the US. In the UK, the PRS (Performing Right Society) side of the MCPS-PRS alliance is the body responsible for collecting income from radio plays, and also from live performances of your song, though this amount is unlikely to be large.

The down side of this is that income from performance royalties is very low if you do not have a song that is played on the radio. Even if you have a song that is included in a large-selling album, if it’s not a single or played on broadcast radio, your performance income will be next to nothing. There will be some ancillary income from cable or perhaps college radio, but in order to see significant income, your song will have to be played on the radio thousands of times. There is not a universally accepted format for calculating performance income, so check with your society for their explanation. However, it’s not uncommon for a song that had perhaps 100,000 spins on radio in the US to bring in over six figures.

Sync Income

If your song is used in film, TV, video games or advertising, you can earn a lot of money, but in the USA such ‘sync’ monies are usually paid in the form of a flat, negotiated fee rather than a royalty. Let’s say your song is going to be used on a network television show or in a film. Your publisher will be contacted by the TV studio or film company and asked for a licence to include your song in their product. The word ‘sync’ is derived from the synchronisation of the music to the film or TV show.

The licence that the publisher grants usually defines the rights of the film or TV company. For example, it will state how long they can use the music for, what they will pay for the broadcast, and so on. If your publisher limits the use to broadcast only, then when the film or TV show goes to the DVD format for further distribution, the film or TV company will have to come to your publisher again to purchase another licence to include the song on DVD, which will mean more money. This may be a flat fee, but it may be royalty-based. In the US, royalty fees for songs that are included on a DVD for sale are usually negotiated anywhere from the $0.091 minimum to upwards of $0.14.

Interestingly enough, the UK has a more favourable setup as regards film and box office than the States. In the US, whether a movie is a hit at the box office or not, the fee for using a song is the same. That’s not the case in the UK. Though a fee will be arranged, it is also common to earn royalties depending on the success of the film at the box office.

Video-game manufacturers in general are no longer paying royalties for including a song on a video game, although there can be the odd exception here or there based on a big-name artist or personality lending his or her name or likeness to the game as a kind of product endorsement. Most commonly, though, songs included on video games gather a small fee, usually negotiated by the publisher and the video game manufacturer, which can be anywhere from $500 to occasionally tens of thousands of dollars. The sync licences given to publishers from video game companies are usually based on worldwide terms, so there really isn’t a difference in how the game is sold throughout the rest of the world.

In advertising, it is becoming more and more common to see popular songs being linked to products, hopefully achieving a ‘branding’ effect. Historically, successful artists and songwriters never granted rights for their songs to be played during advertisements. However, this situation has changed over the years and you’ll even hear Beatles songs attached to products, something that a decade ago would have been frowned upon by most songwriters and artists. Song fees are often negotiated on a country–specific basis for use in advertising, due to language barriers and sales of products regionally. For example, a car manufacturer might use a song in France but wouldn’t want to license that song on a worldwide basis. As such, sync licences in advertising fluctuate a lot in terms of income generated, depending on use and territory.

Adding It Up

To conclude, let’s indulge in a moment of fantasy and suppose that your song not only becomes a hit single and million-selling album track, but also attracts high-profile sync use. How much could you make if the stars were really aligned in your favour? Let’s add everything up:

Album sales: one million sales of one song, uncontrolled $91,000 Digital downloads: one million downloads, uncontrolled $91,000 Performance income: 100,000 radio plays in US $100,000 Sync fee: use in summer blockbuster film $50,000 Advertising: use in major product campaign $100,000 Ringtones: 500,000 unit sales $45,500

That’s almost half a million dollars — from the US alone. One mega-hit song might not make you enough to retire forever, but it would certainly make a difference to your lifestyle!

What Next?

In this article we’ve covered new methods of music distribution, such as ringtones and digital downloads, but since we live in the middle of the digital age there are still some things to be worked out in terms of income and royalties. In the future, other sources of money, such as Internet radio, webcasts, podcasts and streaming music, are likely to become important generators of income too, and it’s not yet clear in every case how that will make its way back to songwriters. Suffice it to say that publishers are making sure all the cash possible is collected — that’s their job.

Published December 2007