Royalties

By Troy Vernon Sutton

“Royalties” are money paid to a musician or songwriter based on a percentage of the money received by a record company from each recording sold. However, your contract will not simply tell you how much money you will receive. The formulas used to calculate royalties are complex. Royalties are based on profits and record companies are notorious for creative accounting practices that significantly reduce profits.

Recording budgets and payments to the artist are structured as an  "advance" which is similar to a loan, except it is paid back through sales of the recording.

When a record company gives you a $100,000 advance to make the album, and your Contract has a royalty rate of $1 per album sold, you will have to sell at least 100,000 albums before you will start to receive royalty payments. Your $1 royalty on the first 100,000 sales will pay back the record company for the $100,000 advance they paid you so you could make the album.

Royalties are paid to an artist ONLY after the record company has sold enough recordings to pay for all the costs of making and selling the recording. This includes:

• recording studio costs
• producer fees
• artist advances
• mastering
• packaging
• distribution
• marketing

Royalty calculations are also complex because the record company pays different royalty rates depending on the sales price of the recording. A full price retail sale will have a different royalty rate than a foreign sale, or a discount price sale, or an online sale.

Although most of the major record labels are still alive and well, many musicians are recording in a home studio and uploading their music directly to a service like iTunes. They are essentially bypassing the traditional royalty payment schemes by acting as their own record company and contracting directly with the online distributor. However, like with traditional royalty payment schemes, contracts with online services provide for different payment rates depending on whether a song is sold as a single or as part of an album download.

Publishing Royalties

Publishing royalties or "mechanicals" are paid to the songwriter for each record sold.

A song is considered a "controlled composition" when the musician who records the song is also the songwriter.  Record companies will often request that an Artist accept a lower royalty rate for controlled compositions.  Songwriters also receive publishing royalties each time a song is performed publicly.  Yes, Leonard Cohen gets a royalty check every time Hallelujah is sung on the X-Factor, American Idol, The Voice, or any other tv or radio show.

If you have additional questions about royalties, music contracts, the music business, or any other general legal questions, please contact the Law Offices of Troy Sutton.