One of the main pillars of industries based in intellectual property are royalties. In this definition, royalties is the amount of revenue shared and received by an owner of an intellectual property or work, from usage of said work by other parties; it often refers to musical works and compositions. The royalties paid can be 0% to 100%, depending on the agreement between the work owner and the party who wants to exploit it. Bottom line, every work that is used, whether it is duplicated, broadcast or used in sync with other products (in what is called synchronisation rights, usually for ads, movie soundtracks, and so on), the work owner will receive a portion of income as agreed.

The keyword: agreement. There are many agreements in place between companies that represent composers/songwriters and the recording companies about the use of songs for recording, and the process of royalty payments from the recording companies to those representatives (known as music publishers, which act as a sort of business agent for composers/songwriters) is a daily routine, with rates that are often decided on an industry level between the association of publishers and association of recording copanies, for certain periods. These industry-level agreements attempt to avoid repeated negotiations every time an album comes out, and applies to all members of the association.

Mechanical Royalty
Mechanical royalty rights are essentially the right to receive royalties on every [mechanical] duplication of a song. So composers/songwriters which are listed in a publisher, which is part of the association of publishers and whose song is used by a member of the recording companies association, will receive a royalty every time an album/digital product using the song is sold. Because the publisher acts as the agent, the actual amount of money that the composer/songwriter will receive will depend on the deal with the publisher, which will depend on negotiation (and is not regulated by an industry-level agreement).

Public Performance Royalty
Public performance rights are when the composer/songwriter receives royalty payments from work used in broadcast or public performance, in an “immeasurable” form, like TV or radio broadcast, karaoke or music entertainment at a restaurant or cafe. It is calculated in another way, for instance, based the total floor area of the cafe. Usually, public performance rights are collected by societies or other organisations which are either appointed by the government or work based on agreement from the industry, like WAMI in Indonesia.

Synchronization
Synchronization rights come into effect when a musical work is used ‘in sync’ with another product, like a TV advertisement, movie, radio spot, or soundtrack; even those gossip shows that often use popular pop songs as background music should pay sync rights. The amount of royalty paid is based on agreement between the parties.

Music Royalties In The Digital Age
In the digital world, which practically can duplicate any file ad infinitum, limited only by the network and storage capacity, the context where mechanical royalties depend on the amount of duplication (and thus the amount of copies available) does not make sense. There is no control mechanism, even after several years of trying to implement control schemes like Digital Rights Management. “Piracy”, which in this context is unauthorised duplication, happens every day because it is easy to do so. So, the industry is slowly moving towards services that are not dependent on the controlling duplication, but to controlling access such as what Spotify and Deezer are doing. In the meantime, industry-level deals for royalty rates from music streaming and online radio services remains in flux.

Even though there is a growing number of ways to make money from music, many of them depend on market factors and the music itself, and a lot of them are still in their infancy. There is still a need of various systems and platforms that cater to a large base of users, that can provide musicians from all over an equal chance to offer their music. Now with the digital music industry growing at such speed, when will regulations regarding music royalties follow to provide a balance between providing a source of income for composers/songwriters, and giving a chance for digital music services to grow and mature without excess pressure from royalty payments?

Ario is a co-founder of Ohd.io, an Indonesian music streaming service. He worked in the digital music industry in Indonesia from 2003 to 2010, and recently worked in the movie and TV industry in Vietnam. Keep up with him on Twitter at @barijoe or his blog at http://barijoe.wordpress.com.