Royalties are the payment between a licensor and a licensee of an ongoing use of a work, or intellectual property. Performance royalties are the payment for a work when it is performed. This encompasses performances of a composition whether it is live, a broadcast of a recording (such as radio play), or broadcasted as part of a larger production (such as music in a television program). These royalties are not paid out for sales of recorded music. Recorded copies such as albums are collected for rights owners in the form of mechanical royalties.
Performance royalties are handled by performance rights organizations such as ASCAP, BMI, and SESAC. The song must first be registered with one of these organizations. It then becomes a part of the the organization’s catalogue and can then be “performed” by all of their licensees. Licensees are include television and radio stations, concert venues, restaurants, clubs, websites, and other organizations that perform or host performances of music in the manner stated above. Typically licensees purchase a “blanket license” in which they pay for access to all of the music in the PRO’s catalogue. There is also a “per program” option for licensees that utilize less music allowing them to pay per song, and recent policy changes have allowed for rights holders that are members of PRO’s negotiate performance royalties on their own behalf. PRO’s essentially cover anyone to plays music in a public place. It is through these organizations that performance royalties are collected and distributed to the songwriters, composers, and music publishers. The amount of royalties an individual receives varies greatly depending on many factors. This would include length of the song or portion of the song, if it is placed prominently in a production, size of the performances audience, “weight” based on popularity, type of broadcast where applicable, and much more.
Examples of situations where a song is subject to collection of performance royalties include:
Song that is played or performed and broadcasted as part of a non musical production such as a music cue on a television show.
Songs used for network promos
A live performance of a song at a concert
Songs played on a streaming service
Songs played in a restaurant or other venue
It is important to mention that these royalties that are collected and distributed are for writers and composers only. Performance royalties are not paid to the artists performing the works, or the sound recording copyright holder. Payments to artists, for the most part, are collected in the form of record royalties on sales, royalties on master synch licenses and of course, ticket sales. However, it is also important to note that terrestrial broadcasts of music (radio, TV) are currently exempt from paying backend royalties to performers whereas streaming services (Spotify, Pandora), negotiate royalty rates to determine an amount to be paid to labels and artists. Organizations such as SoundExchange are launching that collect not only performance royalties from digital entities but royalties to be paid to the artists performing the works.
Directly Negotiated Performance Royalties
ASCAP, BMI, and more recently SESAC, no longer have exclusivity in the collection of performance royalties which has allowed rights holders and licensees to negotiate performance royalties in advance, bypassing PRO’s. This has helped in lowering the cost of license fees payed by licensees while raising the fees collected by rights holders. This is possible because it removes the “weight” variable that is calculated by PRO’s when receiving income from performances and distributing the collections to it’s top earners. For example: When $x is collected for the performance of a piece of music by “Composer A” that is not as popular as “Composer B,” “y%” of “x” is taken from “Composer A’s” earnings and given to “Composer B.” This is determined by the “weight” variable. By negotiating performance royalties in advance, directly with rights holders, an amount that is less than what is paid to PRO’s, but more than what the right holder would receice from PRO’s.