This article is part three of a five-part series about how different stakeholders in the music industry make money. As the title suggests, we are talking about how music publishers make money.
Music publishing companies play important roles in the music industry. Some of the most well-known music publishers include Sony/ATV Music Publishing, Universal Music Publishing Group, Kobalt Music, Imagem Music, etc. These and others help music creators gain exposure for their creations via a variety of different avenues, from publishing on streaming platforms and recorded media to placements in TV shows, movies, ads, and even games. At the same time, they see to the collection of all possible royalties generated by a piece of music, taking a portion of earnings in the process. But how exactly do music publishers take their cut and from what?
It's important to go back to the basics in order to start getting a full view of how they make money. Generally speaking, every song has two parts that can be monetized.
1. The Composition
2. The Master Recording
Music publishers usually make money with the song composition in the form of royalties and sync license fees.
Every time a song is publicly performed, the publisher of the song receives performance royalties. These royalties are collected by the performing rights organizations (ASCAP, BMI, SOCAN, etc.) and paid directly to the publisher.
What is considered a “performance”?
There are many examples of what would be considered a performance eligible for royalties. Each of them pays out a different rate. Here are some of the most common examples:
Performance royalties come in two parts - the songwriter's share and the publisher's share. The publisher, under normal circumstances, would be eligible to collect 50% of the publisher share of the royalties. The songwriter would collect 100% of the songwriter share of the royalties.
Another income stream for publishers is mechanical royalties. This was a lot more relevant when CDs and downloads were the main medium for music distribution. When a song is reproduced, mechanical royalties are payable to the songwriter. These mechanical royalties are normally collected by the music publisher, who would retain a portion of the money and forward the rest to the songwriter under contract.
What does it mean to “reproduce” a song? Here is an example: A song you wrote makes it on the next album of Bruno Mars. His label prints 100,000 copies of his album on a Compact Disc (CD). Every copy is a new “reproduction” of the song and would earn mechanical royalties. Another example is when a song gets downloaded on iTunes or Amazon. Every download is a “reproduction” of the song and earns mechanical royalties. Labels are responsible for reporting these reproductions of units and pay mechanical royalties accordingly to the publisher representing the songwriters.
With the emergence of streaming, mechanical royalties based on copies sold (digital or physical) becomes increasingly rare. However, streams also generate mechanical royalties, albeit at a much lower rate. The key difference is, labels are not responsible for reporting and paying for mechanical royalties on streaming platforms. Instead, it is the responsibility of the streaming platforms. They report the numbers and pay the mechanical royalties to a Mechanical Rights Organization such as the Harry Fox Agency in the U.S. The Mechanical Rights Organization is then required to pass through the monies to the respective publishers.
The final income stream (and oftentimes the most lucrative) for publishers are synchronization (sync) license fees. Sync license fees are usually one-off payments, paid by licensees of the song. For example, Coca Cola is producing a new TV ad which requires music. The music publisher sees the brief for the TV ad and pitches one of the songs in their catalog. Let’s assume Coca Cola loves the song and wants to use it for the TV ad. In that case, the publisher will negotiate a sync license fee with Coca Cola, which the company has to pay in order to obtain legal authorization to use the song in the ad.
Other examples of music licensees include film producers, TV show producers, game developers or anyone who is creating commercial media and requires music. The amount of the sync license fee depends heavily on the scope of the project, total possible reach, the medium used and the budget of the licensee. The sync license fee is usually paid directly to the music publisher and the publisher retains part of the fee before forwarding the rest to the songwriter.
To summarize, music publishers have three major income streams.
As you can see, music publishers' earnings are closely tied to how songwriters make money. One important thing to remember if you are offered a publishing deal is to have it looked over by a lawyer who has experience in that area. Such documents can be quite complicated and signing the wrong deal can mean the difference between substantial earnings for your work and leaving money on the table.