Streams of Revenue: How Songwriters Make Money.
Music is everywhere. You turn on your tv, see a youtube video or turn on the radio and hear a famous artist performing a song. But who makes money when the public hears or sees a performance?
It is a common misperception to think that the artist you see or hear is making all of the money from that song. In the pop world, especially, this is not true. Don’t get me wrong, the famous artist probably has more money than you or I could ever dream of. However, the main revenue streams come from songwriting. Oftentimes, pop stars do not write their own songs. Songwriting for bands or artists can bring in huge amounts of money. The main areas of revenue from songwriting come from mechanical royalties, performance royalties and synchronization licenses.
Suppose you write a song and a major artist (for this post let’s use Justin Timberlake) decides he wants to record your song and put in on his next album. If your song has never been released to the public his label will have to pay you a First Use Mechanical License. This gives Mr. Timberlake the right to be the first person to reproduce and distribute your song. The rate for a First Use is negotiable and varies widely. You have to weigh the exposure of being on Justin Timberlake’s next album vs. your leverage in getting paid. But, keep in mind; this will not be your only source of revenue. Let’s say you and Timberlake’s label settle on $15,000 for the First Use right (this could be and probably is higher or lower).
So, you now have $15,000 in your pocket but cannot be the first one to record and release your own song. That tradeoff is up to you. Let’s assume you think it is worth it. What other sources of revenue streams can you now expect from this song?
First off, for every copy of the song reproduced you should receive 9.1 cents. Usually, this is only paid on each copy sold (digital or physical). So, for every album sold you should received 9.1 cents. If your song happens to be the single or a hit, chances are your song will sell digitally as a single more than the entire album. So, for every 99 cent download you should receive 9.1 cents. If the single or single and album combined sell 1,000,000 you should receive $91,000. Not bad. Not bad at all. Keep in mind that label contracts and tricky accounting can lower these numbers. However, the 9.1 cent rate is set by the government.
Another lucrative source of revenue is from synchronization licenses. Every time a song is placed with a visual (think on a tv show, in a video game or in a movie) the writer and publisher must grant a synchronization license. This is a negotiated rate. A hit movie can pay in the hundreds of thousands of dollars for a theme song or a song that plays in the climax of a movie. A television show will pay less but this difference can be made up in performance royalties.
Did someone say performance royalties? Yes. In addition to getting paid to have your song in a movie or television show you will also receive money each time the tv show airs, the movie is shown outside the U.S. or shown on tv. Lastly, if your song is a single and receives radio airplay or is played on the internet you will receive performance royalties. All of these performance royalties are collected and distributed by performance rights organizations. In the U.S. we have three; ASCAP, BMI and SESAC.
As you can see being a songwriter can be a very lucrative business. You will have access to multiple revenue streams. Think of the writers of the song “Toxic” by Britney Spears. She did not write that song. However, every time it aired on MTV or radio the writers received performance royalties; every time her album sold or someone bought “Toxic” the writers received a mechanical royalty. If anyone wanted to use the song in a video game, movie or tv show , the writers would get paid multiple times. Also, if any cover versions are done the writers would receive mechanical royalties. I really wish I wrote that song.
Protecting yourself as a songwriter is not an easy proposition. Seek counsel if anyone wants to buy your song or if you are going start publishing your own material.
SHAMELESS SELF PROMOTION OF THE WEEK:
Come check out L4M and a ton of other experts on music and advertising at the Billboard Music and Advertising Fall seminar on September 15-16, 2010 at the Westin on Michigan Avenue right here in Chicago. We are on a panel and will be floating around all weekend. Follow up the seminar on the 16th with a L4M sponsored show at Bottom Lounge featuring Blah Blah Blah. More info coming soon.