How Royalties Work
The complete breakdown of how money flows from a listener's ears to your bank account.
The Two Copyrights
Every recorded song generates TWO separate copyrights, and each one earns different royalties:
- The composition (the song itself): The melody, lyrics, and arrangement. Owned by songwriters and publishers.
- The master recording (the specific recording): The actual audio file. Owned by the artist or label.
Types of Royalties
Performance Royalties
Earned when your song is played publicly — radio, TV, restaurants, concerts, streaming. Collected by PROs (ASCAP, BMI, SESAC). Both the songwriter AND the publisher get paid.
Mechanical Royalties
Earned when your composition is reproduced — physical copies, downloads, and interactive streaming. In the US, the rate is set by law (currently 12.4 cents per song for physical/downloads).
Streaming Royalties
Streaming generates BOTH performance and mechanical royalties. Spotify, Apple Music, etc. pay the master owner (label or artist) directly, and pay composition royalties through the PROs and mechanical licensing organizations.
Sync Licensing Fees
Earned when your music is used in TV, film, ads, or video games. These are negotiated one-off fees, not ongoing royalties. Both the master owner AND the publisher must agree.
How the Money Flows
- Listener streams your song on Spotify
- Spotify pays the master owner (your distributor/label) about $0.003-0.005 per stream
- Spotify also pays performance royalties to your PRO
- Spotify pays mechanical royalties to the MLC (Mechanical Licensing Collective)
- Your PRO pays you (the songwriter) your share
- The MLC pays your publisher (or you directly if self-published)
Common Mistakes
- Not registering with a PRO (you're leaving money on the table)
- Not registering songs with the MLC
- Confusing master royalties with publishing royalties
- Not having split sheets before releasing collaborative work
Key Takeaways
- A recording and the underlying composition are separate copyrights with separate royalty streams.
- Interactive streaming can generate master royalties, performance royalties, and mechanical royalties.
- Registration with the right organizations matters because no single company collects every royalty type.
Action Checklist
- Confirm who owns the master recording and who owns the composition.
- Register songs with a PRO and the MLC if you control publishing or administer your own songs.
- Register eligible sound recordings with SoundExchange for non-interactive digital performance royalties.
- Keep ISRC, songwriter split, publisher, and distributor payout records in one place.
Common Pitfalls
- Assuming a distributor collects publishing royalties automatically.
- Confusing master streaming payouts with songwriter/publisher royalties.
- Registering with a PRO but forgetting the MLC or SoundExchange where applicable.
Sources
References checked for the current version of this guide.