The days of widespread music piracy on the internet are largely gone. That shameful period of lawless behavior stripped income from songwriters and performance artists. The early use of digital audio sharing services such as Napster seldom honored copyrights and some consumers gorged on downloaded music for free.

In contrast, today’s popular and law-abiding music sources are the plentiful streaming plays supported either by adverts or by fair subscription prices. For those who prefer to own a copy of a music performance, it is available as a download, on a CD or as a single track.

In 2014, 164 billion on-demand tracks were streamed across audio and video platforms. In 2014, streaming royalties were but $1.9 billion out of the $7 billion in total US recorded music industry revenue. Consumer demand for music flourishes, but there are some chronic problems in royalty payment flows within the music industry.

Songwriters and recording artists typically assign their rights to a third-party instead of tracking each song’s use and seeking payment independently. Song copyrights are usually assigned to a music publisher, and master recording copyrights are usually assigned to a record label. The bookkeeping that affiliates the songwriter with each song and the performing artist with each performance is sometimes posted incorrectly, and there are multiple databases containing parts of this information. This copyright misinformation has been a problem for decades.

“Mechanical” royalties for songwriting are collected by BMI, ASCAP and SESAC – so called performance rights organizations (PROs). Royalties due to publishers are paid through a third-party, (usually the Harry Fox Agency). Mechanical royalties are split, typically 50/50 between the publisher and songwriter. The statutory rate averages about $0.091 per “song” sold on a CD.

Unfortunately, the financial plumbing for the music industry is complex, contains many leaks, is too often hidden behind non-disclosure agreements, and it contains “black box” holding tanks of money resulting from difficulty identifying songwriters and performance artists. This unfair, inefficient state of affairs is not the way that industry cheerleaders portray it, but it is the hit and miss paycheck system that too many creative people face.

The usual royalty rate for online streaming royalties is about 70% of the streaming service’s revenue. That results in a per stream payment of between $0.001 (on YouTube) and $0.015 (on Tidal). Those royalties are supposed to be paid by the streaming service to the publisher (for songwriting copyright royalty) and to the record label (for the performance copyright royalty), but in practice there are many flaws:

  • If the performance artist is also the songwriter (i.e. a controlled composition), the total royalty is 75% of what it would be if the two were separate artists.
  • Sometimes an internet streaming service gives the publisher an ownership stake in lieu of paying the full royalty for access to the publisher’s catalog. Their fair share of these equity stakes is rarely paid out to the songwriter or performing artist.
  • Record labels keep 73% of the royalties paid by streaming services, leaving little for the songwriter or performing artist.
  • Non-interactive streaming (i.e. services where listeners do not control the selection of song being played) remit royalties to SoundExchange, which allocates 50 percent of royalties to the record labels, and 45 percent goes directly to performers—not to the labels. Some streaming services supported by advertising pay no royalties.
  • Law requires AM/FM radio to pay royalties to songwriters but not to performance artists.
  • Record companies usually regard downloads as “new media/technology,” and reduce royalties by 20% to 50%, and many of the record companies deduct 25% for “packaging expense,” a preposterous claim for a digital delivery. The net effect is artists receive a 5% to 8% royalty instead of 10%.

The Music Modernization Act (MMA) seeks to address some of the main flaws. Going forward, mechanical royalties will be based on what a willing buyer and a willing seller would negotiate in a free market, instead of a specific rate applying to all. The MMA empowers a new entity to find the copyright owners of music that the music companies use, grant blanket licenses to digital music companies, collect royalties from them, and pay the royalties to copyright owners without deducting a commission.

When implemented, these MMA measures will enable streaming companies to license songs easily and will give songwriters increased digital royalties. The MMA is a welcomed injection of fair treatment for the creative community.