The Music Industry – A Tale of Two Sides

By: Thomas Zeichman January 19, 2023 1:04 pm

 today’s modern music industry, it is more important than ever that creators understand the two different sides of the business – the composition, and the recording. Any song that plays on the radio or streams online deals with both sides, so being aware of the differences is essential to protecting ownership rights and maximizing royalties.

The Composition Side

The composition side, also known as music publishing, deals with the underlying elements of a song – the melodies, arrangements, and lyrics. Think of this as sheet music written down on a piece of paper, although it could also be a simple audio recording humming a melody or signing lyrics. Essentially, the composition is the blueprint for a song which can then be performed and recorded.

Ownership

Generally, compositions are created by songwriters, composers, and/or lyricists (known as the “writers”). In the absence of other parties being involved, these writers would be the authors and owners of the copyright to the composition, meaning they have the rights to control how the composition is used and to collect all royalties.

However, oftentimes these writers are signed to a publishing company, in which case the publishing company will typically own the copyright to the composition and have the right to exploit and earn royalties off of it (known as the “publisher’s share”), while the writers will typically earn a share of such royalties (known as the “writer’s share”).

Royalties

The exploitation of a composition typically generates two types of royalties, performance and mechanical.

Performance royalties are generated whenever the composition is performed publicly, such as during live shows, via radio broadcast, at public places such as restaurants and gyms, and via online streams. In order to collect these royalties, the publisher and writer(s) need to be registered with a Performing Rights Organization (PRO) or Collective Management Organization (CMO). In the U.S., the most popular PROs are ASCAP, BMI, SESAC, and GMR, while CMOs are mostly international and vary from PROs in that they collect mechanical royalties in addition to performance royalties. PROs in the US typically pay out the writer’s share and publisher’s share of performance royalties in equal 50/50 splits, but this can vary by contract and by territory.

Mechanical royalties, on the other hand, are generated anytime a composition is reproduced, such as through the sale of a physical CD or vinyl record, or a download or stream of a digital file. These royalties are paid at rates determined by statute (in the U.S., currently greater of 9.1¢ per track or 1.75¢ per minute of play-time) or by negotiations. In order to collect these royalties, the publisher (and in some cases writers) must be registered with a mechanical rights organization, such as the Mechanical Licensing Collective (MLC) or Harry Fox Agency (HFA) in the U.S., or a CMO for international collections.

The Recording Side

The other side of the music industry, the recording side, deals with taking the composition of a song and turning it into a fixed sound recording for release. Think of this as the actual recorded song that can be heard on the radio or streamed online. While for any given song there can only be one composition, there can be multiple recordings (i.e., covers, remixes, remasters, etc.).

Ownership

Generally, recordings are created by artists and/or music producers. As with writers, if there are no other third parties involved, the artists and/or producers will be the owners of the copyright to the recording and entitled to collect all royalties.

That said, oftentimes the artist or music producer will be signed to a record label, in which case the record label will typically own the copyright to the recording and have the right to exploit and earn money off of it. In such cases, the artist and/or music producer may negotiate a right to a certain percentage of these earnings, known as “points”.

Royalties

The exploitation of a recording generates sound recording royalties. These royalties are generated from physical sales, downloads, and streams, and are paid directly by the distributor of the recording. For instance, if an artist self-releases a recording on platforms like Apple Music and Spotify through a distributor such as CD Baby or DistroKid, then the distributor will collect the royalties directly from the platform, and pay them to the artist/producers account. On the other hand, if a record label releases the recording, then the record label will collect all royalties and pay the points to the artist and/or producer if they are entitled to points.

Summary

Understanding the business of the music industry is a full-time job in itself. This leaves creators, who already have full-time jobs as writers, artists, producers, etc., in a precarious position – they must either take the time to learn the intricacies of the business themselves, or engage the services of a trusted and knowledgeable advisor to guide them through their careers. In either case, creators are well served to at least try and understand the basic distinction between the composition and recording sides of the industry so that they are empowered with knowledge and less likely to be taken advantage of by unscrupulous industry players. Even then, there are many further considerations, complexities, and nuances to consider regarding the legalities and business principals of the music industry.

If you are interested in discussing a music-related matter, please contact us today for an initial consultation!

Michael Seiger (Intellectual Property)

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