Music Royalties: What are Music Royalties and How do They Work? | Music Industry 360 Podcast

Episode 5 October 03, 2017 00:29:44
Music Royalties: What are Music Royalties and How do They Work? | Music Industry 360 Podcast
Music Industry 360
Music Royalties: What are Music Royalties and How do They Work? | Music Industry 360 Podcast

Oct 03 2017 | 00:29:44


Show Notes

We're sharing every detail that you need to know about music royalties from standard payouts for downloads and streams to when service providers pay artists.

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Episode Transcript

[00:00:25] Speaker A: Ray 60 podcast. I'm Vanessa. [00:00:45] Speaker B: I'm Tariqa. [00:00:47] Speaker A: And today we have a very special topic for you guys. It's called let's talk royalties. And we are welcoming back the boss man himself, Jorge Brea, our CEO. [00:00:55] Speaker C: Hello. Hello. Hope to educate you guys as much as possible on royalties, finance, and all sorts of fun stuff that relates to music, but in a more numerical format. [00:01:08] Speaker B: Okay, so the first question we have is what is a royalty? [00:01:12] Speaker C: So a royalty, it's a payment made by one party, the licensee or franchisee to another. So a musician or record label for the use of an asset. So when we distribute your music to Spotify, they pay symphonic a royalty. And based on that agreement that we may have with you, the musician, then we pay you. Royalty payouts are typically agreed upon as a percentage of songs or net revenue derived from the use of an asset or a fixed price per unit sold of an item of such. But there's also other modes and metrics of compensation. But in simple terms, every time that your music is downloaded on itunes, Beatport or streamed on Apple or Spotify, it's earning what is called a royalty. [00:01:53] Speaker A: Are those royalties tracked by your distributor or tracked by the streaming platform? [00:01:59] Speaker C: Good question. So the streaming providers do track it and they provide us reporting from there. Obviously, we get information on how well a song did or in some cases didn't do, and then we pass that information on down to you. So because we have the agreements with like a Spotify or Apple, the royalty information gets passed on to us first, as well as the funds that were made from that streaming or downloading of your song. And once we go ahead and collect our percentage, or if in this case we're bypassing our percentage, then we just pass it on down to you during our regular payment times. [00:02:35] Speaker A: One of our recent podcasts, we talked about publishing administration, and then you mentioned streaming now, so my second question is what types of royalties are there? [00:02:44] Speaker C: There's actually quite a bit of royalties out there, but I want to highlight just some essential ones. The first one is the master generated royalties. This is a recording royalty, and it's the most basic royalty that artists and labels get every time that their master recording is downloaded on itunes, Beatport or streamed on Spotify or Apple. Mechanical royalties are earned per unit when a song is sold on a mechanically reproduced physical medium. So, like vinyl or physical CDs. And nowadays this also does include digital downloads and internet streaming as well. Mechanical can sound a little bit confusing in terms of the digital age, but it's just kind of like a category that was created. The word mechanical in this case stems from the early days of the music industry when compositions were physically or mechanically manufactured and reproduced onto physical products for public consumption. I'm saying a lot, but try to catch on here. There's a few more royalties too, that I think are important to highlight performance royalties. This is when a song is broadcast or performed publicly in some way. That was probably a big topic on the Publishing Administration episode that you guys did. Synchronization fees or sync royalties. They're paid by music users for synchronizing music with their visual images based on the exclusive right to reproduce and distributed copyrighted works and to prepare derivative works of copyrighted material. So anytime that your song is used like an HBO or ABC, that's a sync fee as well as performance royalty as well. The last big one is neighboring rights. So neighboring rights are collected by societies that specialize in that type of royalty. In order to collect those neighboring rights royalties that you're owed, registering your individual master recordings directly with each society in the territories or using Symphonic's Neighboring Rights service can go ahead and ensure that that small percentage of your royalties are paid. So, as you can see, there's quite a lot of different kind of areas and mediums to collect royalties. Fortunately, we have a lot of different services and offerings that try to help you collect all those through the point of a click, I would say. [00:04:54] Speaker A: Yes, that was my follow up question, is that with Symphonic so this isn't the same with all distribution companies, but with Symphonic we're kind of like all in one. They can track all their royalties with, just like you said, a click of the button, correct? [00:05:08] Speaker C: Yeah, I mean, we have neighboring Rights Services, publishing Administration services and obviously the traditional master royalty services. So every time that we distribute and your song is getting downloaded or streamed, then it's earning the master royalty as well. So we tried to cover as many different offerings as possible all in one place so that you wouldn't be stuck with having to figure out how to actually go out and get these little royalties that may be out there. [00:05:37] Speaker A: Yeah, that's convenient. [00:05:38] Speaker C: Yes, that's what we try to do here. [00:05:41] Speaker B: What are the standard royalty payments for downloads and streams? [00:05:44] Speaker C: Downloads on itunes can range from fifty cents to ninety cents per song. And that all depends on the deal that you may have with us or with any other distributor. And streaming rates can be 0.6 less and or more because there's a lot of variables that affect that pay rate. So the amount of ads that a particular provider has booked and or the amount of subscriber that that provider has creates a revenue pool. And however many streams that you may have within each provider would determine your actual pay rate. In addition to that, on the streaming side, every territory has a different rate. So in Russia, they may sell subscription for $9 which equates to nine rubles, let's say, over there. And that equals a different subscription rate than it would here in the US. And based on that then your actual streaming rates would be lower. So it's kind of a confusing thing because streaming rates are never going to have one set amount per play. It all varies on time of year, how popular they are in that territory, et cetera. [00:06:47] Speaker B: So if an artist came to you and said, hey, can I make $100 off of this release in a week, what would you say? [00:06:54] Speaker C: I would probably say it's kind of hard to guarantee that to anybody. I think that they can maybe get 100 plays easier than $100, and 100 plays may be about a dollar or less. It depends on the provider, obviously, that we're talking about too. So streaming, it's got a lot of great potential, but a lot of artists and musicians may look down on it because of the lower pay rates. But it's pretty similar to radio in that sense, too, where radio doesn't pay you $0.50 every time that you're getting played, it's a pretty minuscule number. [00:07:31] Speaker A: So that information about like, if somebody asks you, how much does, say, Vivo pay per play, that's confidential. Basically. [00:07:38] Speaker C: We have confidentiality agreements that we can't tell any client what Vivo's percentage is from a particular play and or deal, so to speak. But we're able to obviously say, okay, here's everything post potentially Vivo's payment, some of that information, yeah, it's confidential. And every provider has a different rate. So Vivo is going to be paying differently than YouTube, actually, and even Spotify and so forth. [00:08:08] Speaker A: So to add on to that, then, why are streaming royalties so low compared to downloads? [00:08:13] Speaker C: The reason for that? Well, actually, there's many reasons. First, there's a very big shift happening right now in the music industry from downloads to streaming. Before that, it was physical to download. So we've seen this before where you would make $11 on an album release for a CD release, and then you had to be subjected to only making seventy cents per track, so to speak. Same thing is happening now, but with downloads being phased out by 2020, it's likely that streaming is going to be even double the size that it is now. So that's a very promising thing for the industry. But the reason that they're kind of low is because there's a revenue pool that's associated. So however many ads Spotify potentially has booked onto their freemium platform, and however many subscribers that they have booked determines how much revenue that they're able to allocate towards a song or towards a release. And however popular that artist is, or however many plays will determine their pay rate. So somebody like Luis Fonsi with Despacito is obviously killing it in royalties right now because they have a tremendous amount of plays compared to every other artist on the platform. The royalty rates are low, though, because if you were to pay $0.50 or ninety cents per song, then Spotify would cease to exist, really, because you just can't pay off a fixed rate, so it's kind of hard to explain why they're really low. It's just an algorithm that's been created by every subscription based model or streaming provider to determine what a pay rate is. And it is unfortunately lower than downloads. But over the next few years, when more subscribers get on and more ads are booked than freemium based models, those pay rates should increase. Long answer, I know. [00:10:02] Speaker A: No, that's promising for a lot of artists that are just trying to see how much money they can make off their music. [00:10:08] Speaker C: Definitely. I mean, I'm starting to see that there's clients of ours that are doing better on the streaming side than they are on the download side. So the shift is definitely real. It's happening, and it's pretty awesome. [00:10:20] Speaker A: Yeah, I'm seeing it on the video distribution side, too, where there's a lot more plays on Vivo and Tidal versus actually purchasing the video on itunes. [00:10:29] Speaker C: Yeah, I would say so, too. I mean, with the video distribution side and even royalties, I always tell folks that the actual or being on itunes and Amazon, it's a great promotional value to go along with the fact that you're on Vivo and Tidal, which are streaming platforms. [00:10:45] Speaker B: What are some common misconceptions surrounding royalties? [00:10:48] Speaker C: I see a lot of articles online that kind of show what pay rates are or how one provider is paying more than the other. All that stuff is interesting, but it's not entirely accurate because there's a lot of factors that go into play. So those articles are meant to kind of educate you and give you averages of what pay rates are or what potential royalties you can make. But everything really differs based on how well your song's performing, who's distributing it, et cetera. Another big one that I've seen is if you're charting like on a download store, like Beatport and let's say you're on the breaks genre. If you're in the top five or the top ten, you may have a thought. Process that you're making a tremendous amount of royalties and a lot of sales that could be very different by the genre that it is. And even being number one on another provider like Digital Tunes or Track it down, it's going to be a different payout than it would be if you were number one on the itunes Worldwide US chart. So that's a common misconception that people have that if they're charting, they're going to be getting a lot of royalties. It depends on the genre and or the provider. One of the other ones that I see a lot is that one distributor will potentially help you get more royalties than the other. Obviously we see that a lot because we're in the distribution industry, but there is absolutely no effect that a distributor has on your performance and or royalties and or featured opportunities. Every distributor has a different relationship, has a different way of obviously trying to push your products, but no distributor is getting something above the other. And if they were, that would be a lot of potential legal problems for the itunes or the beat ports of the world. [00:12:33] Speaker A: So when do service providers pay royalties? Daily, weekly, or monthly? [00:12:37] Speaker C: So every provider has kind of like a different time period as to when they provide royalties. From a reporting and payment standpoint, we're starting to see that most providers now are going towards a monthly reporting, but it can then take 60 days after the date that they report for them to actually pay. That's one of the reasons that it's a bit of a challenge at times, actually, for us to switch to monthly reporting from our quarterly reporting schedule that we have. But it's something that we're working towards. Potentially doing monthly payments to clients will mean that we'll be advancing quite a bit of royalties. And the reason that we also have quarterlies even as of right now, is because these providers, no matter how big they are, actually make mistakes. I can't name who or particular mistakes that they've made, but it does happen. Obviously at times you won't see daily royalties being paid out, but you may see daily royalties being reported to us, which and then we report to you guys through our system. Now, on a streaming side, we never get any daily revenue reports, we only get daily streaming counts because it's very hard for these providers and of course us to then determine here's how many plays you did on Monday and this is what it equates to in revenue. We won't know until the reports are actually posted what those streaming plays will equate to revenue wise. And essentially most of them do that on a monthly basis. So my long answer is monthly is the go to reporting and sometimes payment. [00:14:08] Speaker A: Periods and that all relies on they have to verify that it's an actual play, right? That it's not a bot that someone has purchased, which you shouldn't do. [00:14:17] Speaker C: Correct, yeah, that's also a good point. Another thing too is that if you were to listen to a song in Spotify and you haven't listened to it for 30 consecutive seconds, then it doesn't count as a royalty. So yeah, click fraud is what that's called when somebody's just effectively pressing play on their material just to get a royalty. That's pretty highly monitored, but we've seen some cases where people have been pretty crafty in it and those plays are usually verified and sometimes they are omitted from the reporting that we get. [00:14:52] Speaker B: Does one service provider pay out more streaming royalties than another? [00:14:56] Speaker C: I would say that rather than saying that one's paying out more than the other, I will say that they do have different pay rates because obviously they have different amounts of subscribers that are using their platform. This goes back to an earlier point where I mentioned that there's a lot of articles out there that are trying to compare a lot of these providers. Some of it is accurate, but some of it can be misleading and is not going to be a specific case that you can use for your music because in Russia you're going to get a certain amount of royalties, whereas in Brazil you're going to get another. And then here in the US. Obviously, it's going to be a different pay rate. So I would say that we're definitely seeing some growth from a streaming royalty standpoint in terms of all providers starting to pay out more, but they're all just going to be different pay rates, unfortunately. [00:15:46] Speaker A: So you really can't say if is pays more than or yeah, I mean. [00:15:53] Speaker C: Unfortunately, I don't want to offend Bport or Spotify or anybody else, so I can't really say which one pays out more. But from what I'm seeing, streaming is definitely growing and I think it's a pretty bright future for sure. That's my political answer. [00:16:10] Speaker A: Right, so speaking of political answers, so how much does Symphonic make royalty wise? [00:16:16] Speaker C: So I won't again be able to say like a specific monetary amount, but we usually make anywhere from 30% down to 10% down to just 0% because we get paid on fees to distribute music. So it really depends on the deal that you have with us that will determine how much revenue we will earn. But to give you kind of a hypothetical, if you're getting $50 on Spotify for your song and you're on our option three record label plan, we're going to take 10% of that $50 and just pass the rest on down to you. So we always want to make things to where the musician or the record label is getting the biggest bang for the buck. And of course we still have to keep the lights on, which is why we have different percentage based plans and fee based plans. [00:17:05] Speaker A: So in that example, Spotify also takes out a certain portion as well, right? [00:17:09] Speaker C: Correct. Yeah. So whenever we receive the reports, it's everything after like Spotify's percentage or any other provider that gives us reports. So we're able to say, all right, this is what has been paid out, that we can then split with whoever provided us the music, that being the musician or record label. [00:17:28] Speaker A: So that's also something we don't know is how much the streaming platform takes out, right? [00:17:33] Speaker C: Yeah, we have the agreements which kind of give us a percentage, but not every report that we receive will show us what the gross amount is before the payout that we provide to the musician. Some do, but because of confidentiality, we obviously keep that pretty tight. [00:17:49] Speaker A: Sure. [00:17:50] Speaker B: So are royalties taxed differently in the US. From the rest of the world? [00:17:54] Speaker C: I actually kind of enjoy that question because I spent a lot of time kind of just trying to create a tax resource in our help desk and so forth. There are some differences. So let's say if you're in Milwaukee, you're going to get a 1099 from us at the end of the year. If you've made $600 and up, what your responsibility is, obviously, is to report that income to the IRS and based on however many losses and so forth, you'll either get a refund and or you'll owe taxes on that. At the same time that we send you a 1099, we send information to the IRS that we have paid those royalties out. So anytime you get a one and 1099 from anybody, just know that your information is with the IRS and if you don't report it, that's going to be subject to investigation at some point by the IRS. [00:18:45] Speaker A: They will find you. [00:18:46] Speaker C: They will find you for sure. Now, from an international perspective, it's a little bit different and a little bit trickier. So the United States has tax treaties with several countries all over the world, and that tax treaty aims to lower any potential taxation that may happen between you based in a particular country and the US. So US and Moldova, for example, have a tax treaty, which means that any US sourced income is not taxed at all. So 0% taxation. But if you live in Brazil, there's actually 30% taxation because the US. And Brazil do not have a tax treaty with each other. So what all that means is if you're a musician and you've gotten $300 of downloads and or streaming royalties from the US territory, only, that territory is going to be taxed at 30% before you receive your payout. Now that's what's called withheld income. At the end of a year, we'll send you what's the equivalent of a 1099, but it's called a. When you get this 1042s, it's going to show you all the income that we've withheld and paid to our local IRS for you to report to either get tax credits and or a refund within your country. So it's a bit complicated, I know you think, but from an international perspective, like I said, it's tricky. And for the most part, if you're in a pretty large country such as the United Kingdom, Germany, any major kind of Euro area, you're not taxed at all. Or it's like a 5% tax withholding that occurs. [00:20:23] Speaker B: And if someone wanted to read more about this, they can check out the. [00:20:27] Speaker C: Yeah, so we've got a pretty extensive tax resource on our help desk. We have one for the US and for International as well. It's got like about 50 articles in each, a lot of that stuff that we spent a lot of time and actual money researching so that way we could figure these things out for musicians. And while it seems a little bit frustrating, I will have to say that every distributor, no matter where they're at, has a situation like this. So any US based distributor that is not doing this, it's because they're not being compliant with the IRS. But any distributor, let's say, that's based in the UK. The UK will have different tax treaties with whatever country in the world as well. So they do have, I believe it's like a 5% tax treaty with Spain, for example. Also, so it's not just the United States problem. Distributors all over the world have to report their taxes and or withhold particular income. [00:21:22] Speaker A: Okay, I want to add too, I do believe we have a simple tips called Updating Your Tax Details that was hosted by Miss Tariqa here. [00:21:31] Speaker C: That's right. That's actually super duper important to also do because if you do not keep your tax details updated, then we can't send you your tax forms and obviously then that could land you in some issues. So every musician I think needs to treat royalties and their accounting as serious as possible. If you're making anything above like 20, 30,000, you certainly need to be keeping it seriously. But if you're even at $1,000, while the tax it might not be severe, it's just better to be compliant than not. [00:22:04] Speaker A: So you mentioned the help center. If someone wanted to get more information on royalties, where could they go? [00:22:10] Speaker C: So definitely the Help Center is what I consider to be the go to on the blog. Though we have some interesting resources. You could just search royalties and you'll get a bunch of different articles that are there. So and symphonic help, I think, are the two best resources. Aside of that though, if you have a lot of questions or anything that's just not answered or you need clarification, do feel free to create a ticket. We try to help people out as much as possible. We're not tax professionals but we certainly have them as partners, so we can gladly ask them a question if we're unable to answer. [00:22:45] Speaker A: I know that there are two articles that I usually will send clients that ask how do I get paid and when do I get paid? And that's actually what those articles are titled and they give you a step by step process of how to select to get paid in the Symponic Ms. And then the other one is it gives us the quarterly report dates. [00:23:04] Speaker C: Definitely, yeah, we even have one that kind of explains each and every column of your quarterly report export. So you can have kind of a definition of what each column means because there's a few words and terminologies that are not kind of easily known. So we've tried to create a pretty extensive resource to help anybody out at whatever time that they have, but we still understand if there might be any questions associated. And lastly, we got some interesting things that are going to be coming up in the next few months that we think are going to help clients from a royalty perspective, from an analytics, and even from an accounting tax perspective as well. So stay tuned for some system updates there as well. [00:23:44] Speaker B: So are advances the same as royalties. [00:23:47] Speaker C: So that's a good question. Advances are kind of the same, but kind of not. So let's say, hypothetically, that I wanted to sign you, Tariqa, to a record label. Who knew, right, you were like a rapper or something. I can offer you what is called a recoupable advance. I can give you $5,000, and in order for you to then start earning royalties, you have had to make me the $5,000 back before you get any payment from that. There's also non recoupable advances, so if I really want you on my record label, I can pay you 5000 in addition to any royalties that you're earning. But that's basically the difference. An advance is literally an advance payment that you make to get a song licensed and or released, whereas royalties are royalties that you'll make from the success of your download or stream. We've recently struck a pretty cool partnership also with sound royalties that can help offer advances if you qualify. So check that out as well. It's get an advance. [00:24:52] Speaker B: Sweet. [00:24:52] Speaker C: I can't wait for your album, Tariq. It's going to be awesome. [00:24:55] Speaker B: Me either. I didn't know I was making one. [00:24:57] Speaker C: Yeah, exactly. [00:24:59] Speaker A: Is there any other information you wanted to give our listeners? [00:25:02] Speaker C: I think we covered a pretty good amount, but I will say that there's a lot of different aspects and a lot of different details that relate to definitely there's a lot of great things on Google and other websites that you can research, but some of it may be confusing. And as I said, there might be some unintentional misleading things online that can confuse people. So I would say to not hesitate to reach out if you have any questions, just create a ticket through our help desk and we'll definitely do our best to help out. [00:25:34] Speaker A: All right, well, that'll wrap up our interview portion. So we have some upcoming events. Jorge, I don't know if you wanted to talk about this upcoming event in October since you'll be going. [00:25:44] Speaker C: So, yes, we're going to be heading out to the Amsterdam dance event, or as I like to say, ade. That's what everybody pretty much calls it. This is going to be our fifth straight year heading out there, so we'll be available for meetings and obviously to catch clients of ours at shows and things like that. It's a really good event, in my opinion. It's like the flagship dance music event aside of IMS and Ibiza. So if you haven't checked it out, go to Amsterdamdancevent NL. I believe that that's their website and you can get some information on that event. It's pretty cool. [00:26:16] Speaker B: So in case you guys haven't seen it already, our Vibes of the Bay Recap video is out. Head over to our Facebook or our blog to check it out. We had a great time. A bunch of sweet performers were there. [00:26:28] Speaker C: I got to say, too, that recap video is kind of like a tear jerker. Guys, if you're having a bad day, you're going to get a little emotional but probably in a feel good sort of way. So I got to give props to the video team there because they struck a good chord. Good job, guys. [00:26:44] Speaker A: Yeah, well, the song that we used is by WD. [00:26:48] Speaker B: Hahn. [00:26:49] Speaker C: Correct. Who also performed there. Really great band located in St. Pete. Good friends of ours, so we're happy to feature them as well. [00:26:57] Speaker A: Well, speaking of WD Hahn, that's our next section is what we're listening to. And actually because of that vibes of the Bay Recap video, I've been checking out their stuff on Spotify and really cool band. That's what I've been listening to. [00:27:09] Speaker C: I've been listening to a lot of crazy stuff. Straight up, I've created my playlist for Symphonic because we do like employee playlists, but I haven't been asked yet. However, when it's time, I have like 150 songs and when you guys listen to it, you're going to think like, something is wrong with this guy. It's got soundtrack scores, it's got like rock, it's got some hip hop, some POCA, no POCA that I couldn't put in there. I have a separate POCA playlist, but yeah, so I don't have a particular artist that I'm listening to. I just kind of jamming out to everything right now. [00:27:46] Speaker B: Well, now I know who to ask for October. [00:27:48] Speaker C: There you go. I'm ready. All you need is a playlist image and I'm good to go. [00:27:52] Speaker B: Sweet. [00:27:53] Speaker A: Tric, are you listening to anything? [00:27:55] Speaker B: I've actually been listening to Halloween music. [00:27:58] Speaker C: Oh, nice. Yeah, she's a big Halloween fan. [00:28:02] Speaker B: I am. [00:28:03] Speaker C: You got like the monster mash and all that stuff on there. [00:28:05] Speaker A: Thriller. [00:28:06] Speaker C: Thriller. [00:28:07] Speaker B: Thrillers on repeat. The song that's in Beetlejuice while they're at dinner. [00:28:12] Speaker C: The banana thing. [00:28:13] Speaker B: Yeah. [00:28:13] Speaker C: That's a good jam. [00:28:14] Speaker A: Was that the dayo song? [00:28:16] Speaker C: Good stuff. Oh, and we got to announce that this is our last podcast in our current office because we're moving soon. I don't know what I didn't want to say date because I'm not sure the exact published date of this, but we're pretty excited to be on top of a very historic theater here in Tampa, which is also haunted. [00:28:37] Speaker A: Speaking of Halloween. [00:28:38] Speaker C: Right. So that'll be fun. [00:28:41] Speaker A: Yeah. We've been teasing that move about upcoming events for a long know, just certain things have delayed it. So we're finally doing it, guys. [00:28:48] Speaker C: It took a long time for sure. Like almost a year. Ridiculous. But it's all good. It's going to be a good office. We're going to be a lot less cramped and yeah, should be fun. [00:29:00] Speaker B: Worth the wait. [00:29:01] Speaker C: Yeah. [00:29:02] Speaker B: So that wraps it up for the Music Industry 360 podcast, episode five. I'm Tariqa. [00:29:07] Speaker A: I'm Vanessa. [00:29:08] Speaker C: And I'm Jorge. [00:29:09] Speaker B: We'll see you guys next time. [00:29:11] Speaker A: Bye. [00:29:12] Speaker B: Or you'll hear us next time.

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