How Do Songs Make Money?

Most of us begin writing songs simply because we can't help ourselves. We simply fall in love with the creative process and we are "hooked" forever

It isn't long, however, before we begin to realize that in addition to the creative payback we receive each time we write a song, there just might also be an opportunity for financial payback. We begin hearing stories about hit songwriters whose income for just one Top Ten Hit actually financed a complete lifestyle change….bought them a house….a Rolls….and many other "perks" that add to the attraction of the entire Songwriting Process. But on the "flip side" of those success stories lurks the darker possibility of gifted but penniless songwriters who become the victims of the industry and nearly starve to death despite their many Hit Songs. Knowing exactly how songs make money is the first step in insuring that we become part of the first group of writers and avoid becoming part of the last group.

First, let's get familiar with some business terms. The first term is intellectual property. This simply means any created product generated by human intellect that is unique, novel, unobvious and has some value in the marketplace. It can be an idea, an invention, a business method or a computer program process - but for most of us songwriters, our intellectual property will be our songs.

Now well I understand that most of us think of our songs more as our children than as intellectual property. We are very emotionally attached to these musical creations of ours and that attachment will never change (just let anybody try to tell us that our baby is ugly)! But while we continue to love our songs as expressions of our hearts, we must also learn to look at them a little more objectively as revenue generating sources.

The next term we need to understand is the word royalty. A royalty is an agreed portion of the income from a work paid to its author or composer. There are two basic kinds of royalties for songs: Mechanical Royalties and Performance Royalties. Mechanical Royalties are payments by a record company or artist to the songwriter or to the songwriter's publisher based on units of manufactured product - usually CD's or cassettes. The statutory rate for Mechanical Royalties fluctuates but is set by a five-person panel appointed by the President of the United States and confirmed by the Senate. This panel -- called the Copyright Royalty Tribunal (CRT) - determines the current statutory rate for Mechanical Licenses based on changes in the Consumer Price Index.

The current statutory rate for Mechanical Licenses is $.08 per song….per manufactured unit. In other words, if one of your songs is recorded by an artist who manufactures 1000 CD's, the Mechanical Royalties for that one song would be $80.00 - payable to the songwriter's publisher (if he/she has one) or to the songwriter himself if he has no publisher. If a publisher is involved, the songwriter and the publisher usually split this amount according to the songwriting agreement between them.

The other major category of song royalties is Performance Royalties. These royalties are not based on the number of units of music product, but rather on the performances of the song through radio, television, in concerts, in Muzak systems and other media. Performance Royalties are paid to the songwriter through one of the three Performing Rights Organizations (P.R.O.'s) - ASCAP, BMI, or SESAC. These organizations monitor performances and pay accordingly. Every songwriter whose songs are receiving airplay or are being performed in ticketed events should belong to one of the three P.R.O's. As a writer you can only belong to one of the three organizations. Each has different strengths and unique features, so it is up to the songwriter to research each organization and choose the one best suited for him/her. A good place to start is to visit each P.R.O. website and then give each of them a call and ask to speak to a Member Services Representative who can answer any specific questions and facilitate your registration process.

In many of the questions I receive through the mail and by email, aspiring songwriters will use the phrase "sell a song." This usually indicates that the writer is unfamiliar with the revenue generating process in the Music Industry. Most songs are never "sold" outright; they may be "signed to a publisher" who will then own the copyright for the song, but the income generated from the song will always be divided between the publisher and the writer - usually on a 50/50% basis. In such an arrangement, you always will be credited as the songwriter and will continue to receive the songwriter's portion of the income from the song.

There is a possibility that a company or an individual may commission a songwriter to create a song for a particular use - usually an event or a specific situation - and offer to buy the composition outright. This is known as a Work for Hire. In such an arrangement, the writer is paid a one-time fee for the composition, but he/she then sacrifices all ownership of the song. Myopic, starving songwriters have occasionally agreed to such arrangements without realizing or thinking about the ramifications. I am not suggesting that you do not participate in a Work for Hire Agreement. Occasionally, the payment is large enough and the future of the song is limited enough to warrant a one-time payment. But I certainly urge every songwriter to fully understand what they are agreeing to before they sign such a document. Under the Work for Hire, you have sold your intellectual property for cash - just as if you had sold a house (or your child) for cash - and you will have no further claim to it in the future.

This answer is, of course, extremely basic and by no means a complete analysis of how songs make money. There are almost as many different kinds of royalties as there are ideas for how the song can be used. There are Print Royalties for the use of the song in sheet music, in folios or collections. There are Synchronization Royalties for the use of a song which is "synchronized" to accompany a movie or video. There are royalties for songs used as parodies…in advertising campaigns and in a host of other ways. But for now, just try to think of royalties as falling into one of the two main categories - either royalties based on units of tangible product sold or royalties based on performances of the song.

I highly recommend that every songwriter invest the time to digest a good book on these matters. My favorite is Music Publishing: A Songwriter's Guide by Randy Poe (Writers Digest). It is an extremely user-friendly volume that you will actually enjoy reading, and it will definitely equip you with a working knowledge of this very important subject. Check out our Products page to get a copy of this helpful guide.

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