The below graphic estimates how much money Recording Artists, Songwriters, Mechanical and Performing Rights Organizations, Publishers, Managers, Producers, Record Companies and other parties collect from subscriptions to on-demand streaming services. Please note that this graphic reflects one set of potential agreements and royalty flows. The graphic does not account for the recoupment of advances, and since individual contracts and fees vary greatly, and statutory rates change over time, we used illustrative examples based on industry data or educated estimates to develop this infographic.
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(a) The graphic begins with the Digital Music Service receiving $100 in revenue. A portion is then paid to song rightsholders and recording rightsholders, and the Digital Music Service keeps the remaining portion. The way the amount due to song rightsholders is calculated, using the 2023 mechanical royalty rate agreed upon by streaming services and publishers, and filed as a settlement with Copyright Royalty Board (CRB), is 15.1% of revenue OR (the lesser of 26.2% of Total Content Cost (which is the amount of revenue paid to recording rightsholders) or $1.10 per subscriber per month)) less public performance costs, subject to a $0.60 per subscriber per month mechanical royalty floor. Based on data reported to the Mechanical Licensing Collective (The MLC) in 2021, the Digital Music Services paid 58.6% of their revenue to recording rightsholders in 2021. For purposes of this illustration, we start with $100 of revenue received by the service, apply a sound recording royalty rate of 58.60% of revenue, and assume that the 15.1% of revenue headline rate is the operative factor for calculating the royalties due to song rightsholders. This results in $58.60 for recording rightsholders, $15.10 for song rightsholders, and $26.30 for the digital music service.
(b) Performing Rights Organizations (PROs) keep an administrative fee, deducted from the performance royalties that they collect. The graphic evenly divides the total amount of royalties due to song rightsholders between performance royalties and mechanical royalties, therefore the value is $7.55 ($15.10/2). The administrative fee taken by the two largest PROs, ASCAP and BMI, according to their annual reports is slightly more than 6%. The value on this graphic is calculated as 6% of the total performance royalties. If there are issues matching the data received from PRO licensees with data received from Music Publishers, royalties generated by use of a particular song may not make their way to the specific rightsholders of the song.
(c) The Mechanical Licensing Collective (The MLC) is not permitted to keep an administrative fee from the mechanical royalties it collects, per US Copyright Law. Its operating costs are paid for by the Digital Music Services separately from the mechanical royalties that The MLC collects. The graphic evenly divides the total amount of royalties due to song rightsholders between performance royalties and mechanical royalties, therefore the value is $7.55 ($15.10/2). If there are issues matching the data received from Digital Music Services with data received from Music Publishers, royalties generated by streams of a particular song may not make their way to the specific rightsholders of the song.
(d) Most Songwriters who are also Artists, or are already well established, usually enter into Co-Publishing agreements with Music Publishers. Those agreements govern how performance and mechanical royalties are split between songwriters and publishers, but those royalties are typically paid out as follows: 50% of the revenue is considered the Music Publisher Share, and 50% of the revenue is considered the Songwriter Share. In a Co-Publishing scenario, the Music Publisher share is split equally between the Music Publisher and the Songwriter’s own music publishing entity, with each keeping 50%. The end result is that the Music Publisher gets 25%, the Songwriter’s own music publishing entity gets 25%, and the Songwriter gets 50%. The Songwriter is effectively getting 25% + 50% = 75%. The value on this graphic used to calculate the amount of performance and mechanical royalties kept by the Music Publisher is 25% after accounting for the PROs administrative fees, resulting in $1.77 for performance royalties and $1.89 for mechanical royalties. The other key difference between the payment of performance and mechanical royalties is that performance royalties are paid directly to Songwriters and Publishers while mechanical royalties are fully paid by the MLC to Publishers and then the Songwriter Share is paid by the publisher to the Songwriter. The timing of the latter payment to the Songwriter will be impacted by whether or not they received an advance payment from the Music Publisher, and when the advance is fully recouped against royalties due.
(e) Artist streaming royalty rates in a typical recording agreement can vary widely. Newly signed artists can be as low as 15-20%, leaving the Record Company with 80-85% of revenue. Superstar Artists with leverage may receive a much greater percentage of the amount paid to the record label, such as 50% of the net profits; in addition, Artists whose recording agreements pre-date the era of digital streaming may be entitled to a greater or lesser percentage of royalties depending upon the language in their agreements. Royalties due to other Production Collaborators are usually deducted from the Artist’s royalties, such as Producers, Mixers, Guest Artists, and Sample owners. In cases where the Artist has entered into a profit-sharing deal or joint-venture arrangement with the Record Company or has chosen to distribute their music via a digital aggregator, the Artist receives a higher percentage of revenue. The value on this graphic is calculated using 75% of the revenue due to recording rightsholders less the cost of union royalties, a royalty rate that is generally consistent with the average royalty rate paid by major record labels to artists for streaming in the United Kingdom.
(f) AFM and SAG-AFTRA are each paid .55% of what the Record Company receives in streaming revenue in the US, according to the AFM/Recording Industry Term Sheet dated April 18, 2017, and the 2018-2020 SAG-AFTRA National Code of Fair Practice for Sound Recordings dated October 18, 2018. SAG-AFTRA also receives an additional payment of 13% of 50% of .55%. The value on this graphic is calculated as .55% + .55% + .0003575% of the amount the Record Company receives. This value is not deducted from the Artist’s royalties.
(g) Production Collaborators includes Producers and Mixers, and may include Guest Artists, and Sample owners. Producer royalty rates are typically in the range of 3-4%. Mixer royalties are typically 1%. The value used on this graphic is 3% for the Producer + 1% for the Mixer = 4% of the amount the Record Company receives. The royalty rates paid to Guest Artist and the owners of recording samples vary and can significantly increase the cost of this category of royalties. These royalties are typically deducted from the Artist’s royalties. If a Production Collaborator is paid a flat fee instead of a royalty, the flat fee is deductible from the Artist’s royalties.
(h) Management teams include Managers, Business Managers, and Attorneys. Managers typically earn a commission between 15-20% of the Artist’s earnings from all entertainment-related activities, including record royalties and song royalties. Business Managers and Attorneys are typically paid a commission of 5% each, if they are paid on a commission basis. Sometimes they are paid on a flat fee basis instead. The value on this graphic is calculated as 25% (15%+5%+5%) of the recording royalties due to the Artist after Production Collaborators have been deducted, plus 25% of the song royalties due to the Songwriter. The graphic assumes the Artist and Songwriter are the same person.
(i) The share of royalties for Songwriters and Artists shown in this graphic represent the total royalties earned by all songwriters and all artists out of the $100 of revenue collected from consumers. On any given song or recording, there could be (and very often are) multiple writers and artists who have decided among themselves how to further split the total Songwriter or Artist share.