Music Royalties 101: How Performance Royalties WorkNov 13, 2021
What is Performance Royalties?
The music industry has undergone a variety of changes due to digital streaming platforms. One of them is that they’ve created a new revenue stream for songwriters in terms of performance royalties. The digitization of streamed content has generated new interest in performance royalties, but it's still only one part of the pie. Performance royalties also come from radio plays, live performances in venues, and appearances on television, in movies, and in advertisements. Note that performance royalties are just one type of music royalty, alongside mechanical royalties.
But what exactly are performance royalties in the first place, and how do they differ from mechanical royalties? Let’s dig in.
Performance Royalties Defined
As compensation for broadcasting or performing a copyrighted musical composition in a public environment, performance royalties are paid to songwriters and their publishers. Radio plays, TV broadcasts, live performances in clubs and bars, and interactive digital streams are included in this.
When are they paid?
Royalties are generated when musical compositions are performed in a live venue, broadcast on radio or TV, or streamed on digital streaming services. And as to how these royalties are collected and distributed? Let’s explore how each type of performance royalty works.
Radio stations generally pay Performance Rights Organizations (PROs) for blanket licenses that have the right to play virtually any piece of music that exists. Plays are then reported via broadcast logs to PROs, which distribute royalties to songwriters and publishers. The exact calculation of how royalties are paid out for particular airplay depends on a plethora of different factors, which deserves a blog post of its own.
Listeners in the streaming model do not own a single song they listen to, so each stream on a DSP counts as a performance of sorts - even if it is broadcast to a consumer's headphones. It's not uncommon for streaming services to have direct relationships with publishers (e.g., Kobalt or Downtown/Songtrust). Streaming services pay performance royalties to PROs, who distribute them to publishers and songwriters.
In the US, the Copyright Royalty Board (CRB) establishes the royalty rates for public performances. Performance royalties are negotiated with PROs and added to Streaming services' All-In Royalty Pools - the total amount they must pay out to songwriters and publishers, including both public performance and mechanical royalties.
A lot of people are surprised to learn that every time they hear a song played publicly, whether in a bar, club, or restaurant, in an elevator, or a subway station, that performance is usually reported to a PRO - and thus generates public performance royalties. These public performance platforms often acquire blanket licenses from PROs - just like radio - and log all the tracks they broadcast to the societies so that they can divide the royalties among the corresponding songwriters.
The owner of the composition copyright is entitled to public performance royalties when the work is used in television programs, movies, or advertisements. Public performance royalties are usually negotiated separately from sync fees, though not in all cases. This is because sync fees are paid when compositions or masters are prominently and deliberately used as integral parts of broadcast content. So if a song is randomly played during a live broadcast, no sync agreement is required, but if a producer inserts the song on purpose, then there is a sync agreement.
Furthermore, public performance royalties are often an important consideration when negotiating sync deals. For example, if the final content will be widely broadcast, like an ad running 20 times per day on national television, the writer can expect some performance royalties to pile on top of the sync fees - and be sure the sync agencies will be aware of this.
Mechanical Royalties vs Performance Royalties
Since these two types of royalties often travel through the same pipe, they are often mixed up - streaming services, for example, treat both types of royalties as part of a single All-In Royalty Pool. However, they are significantly different. While performance royalties cover the public performance of a composition, mechanical royalties cover the recording, manufacture, and distribution of a composition. In other words, a label that wants to produce a CD bearing a composition must pay mechanicals.
In today's streaming-driven music ecosystem, mechanical royalties are largely generated when users select a specific song to listen to. The key difference between these two types of royalties is user choice: if a user chooses a song on an on-demand platform, then both public performance royalties and mechanical royalties are generated. Only performance royalties are paid when a song is played on a non-interactive platform (like Pandora's free radio, for example).
Music publishers typically receive royalties from streaming platforms through PROs, but royalties for on-demand downloads and physical sales are paid to the record label, who then distributes the mechanicals to the right publishers and songwriters.
How are public performance royalties distributed?
Royalties on musical compositions are split into two parts: the songwriters get one part, and the publisher gets the other. Publishers don't always keep the entire publisher's share: instead, songwriters and publishers usually have a contract that gives a portion of the publisher's share to the songwriter. Performance and mechanical royalties are usually split 50/50 between publishers and songwriters in the US; however, in France, songwriters get 66% of the performance royalties, while mechanical royalties are split 50/50 between publishers and songwriters.
You know now why publishing is considered one of the most complex areas of the music industry. Music pros should take away that, yes, streaming platforms have opened up the opportunity to earn new revenue streams, and performance royalties are a valuable source of revenue, but navigating this complex landscape requires a basic understanding of where royalties are coming from and how they're generated. Now that you know everything about performance royalties, check out how mechanical royalties work.
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