How do Royalty Splits Work?

1. Discuss and Settle on Terms

When it comes to handling royalty splits it’s crucial to have an honest conversation about the terms either before or at the start of making music.

This discussion lays the foundation, for everyone involved,  the songwriter, the composer, the beatmaker, the producer, the mixing engineer, the music publisher, just to name a few, to have a clear understanding.

It’s important that this talk addresses aspects to establish a fair and transparent agreement.

To prevent misunderstandings and disputes, it’s crucial to document the agreed terms in writing.

This written agreement should take the form of a formal contract and include the following points;

– Roles and Contributions:

Let’s say for instance, songwriters contribute to the composition and lyrics, while beatmakers and producers handle the arrangement, recording, and mixing.

This distinction helps in determining how royalties should be split based on the value of each contribution.

– Royalty Percentages:

Negotiate and agree upon the percentage of royalties each party will receive.

This involves discussing how royalties will be divided for both the composition (publishing royalties) and the sound recording (performance royalties).

For example, it is common to see splits where the songwriter receives a significant share of the publishing royalties, while the producer might receive a share of the performance royalties.

– Additional Contributions:

Consider whether other contributors, such as session musicians, co-producers, beatmakers and producers with loops or remixers, should receive a share of the royalties.

If so, determine how their shares will be assigned. This step ensures that everyone who contributes to the final product is fairly compensated.

– Payment Distribution:

Outline how and when royalties will be distributed.

This includes specifying the frequency of payments (e.g., monthly, quarterly) and the method of payment.

– Extra Provisions:

Remember to include any terms regarding adjustments in how the music is used or the participation of more contributors.

This will help set expectations and establish a structured approach, for dealing with unexpected situations.

Making sure there is a written agreement in place ensures that everyone involved knows exactly what they are entitled to financially and gives a framework, for addressing any disagreements that may arise in the future.

Let’s go to the next step and sign an agreement..

2. Create a Contract

Once the terms are agreed upon, the next critical step is to formalize the arrangement through a legally binding contract. A well-drafted contract serves as the foundation for fair and enforceable royalty splits.

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A comprehensive contract should include the following elements, this should be the same points mentioned in part 1;

– Royalty Percentages:

Clearly detail the percentage of royalties each party will receive.

For non-exclusive leases, this is typically a 50/50 split between the artist and the producer.

For exclusive rights, the royalty split may be adjusted based on negotiations, such as 60% for the artist and 40% for the producer.

This can be different, depending on the producer or songwriters preference.

– Roles and Contributions:

Clearly define the roles and contributions of each party.

For instance, songwriters contribute to the composition and lyrics, while beatmakers and producers handle the arrangement, recording, and mixing.

This distinction helps in determining how royalties should be split based on the value of each contribution.

– Rights and Responsibilities:

Clearly define the entitlements and duties of all involved parties. This includes what each party can expect to receive.

Their obligations regarding their involvement in the music.

– Payment Conditions;

Clearly outline the payment process, including specifics on when and how payments will be processed.

This involves outlining the payment timeline (monthly or quarterly) and the payment methods accepted, such, as direct bank transfers or check payments.

– Contractual Clauses:

Include provisions that cover situations like modifications in the song, extra contributions or disagreements.

These terms assist in setting expectations and establishing a structure, for handling potential problems.

– Legal Considerations:

It’s an idea to seek advice, from a lawyer who specializes in entertainment law when you’re creating a contract.

A skilled attorney can make sure the contract is legally sound meets industry norms and safeguards the interests of all parties.

They can also help with negotiating terms and dealing with any issues that might come up.

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When the contract is signed, let’s go to the next step..

3. Register with Performance Rights Organizations (PROs)

After finalizing the contract, the next step is to register the music with Performance Rights Organizations (PROs).

PROs play a critical role in collecting and distributing royalties for publicly performed music.

– Different PRO Organization(s)

• ASCAP
• BMI
• SESAC
• SOCAN

PROs such as ASCAP, BMI, SESAC, and others are responsible for;

– Collectin Royalties: 

They receive royalties from channels, such as live shows, radio broadcasts and streaming platforms.

This method guarantees that all relevant sources where the music is utilized or showcased contribute, to the royalty collection.

– Distributing Royalties;

The royalties collected are divided among songwriters, composers and music publishers according to their registered shares.

This process guarantees that each party gets their rightful portion of the earnings.

Registration Process

When you sign up with a PRO, it’s crucial to offer in depth details about the music and the agreed upon royalty splits. This involves;

– Song Details:

Remember to provide all the necessary music details, like the song title, performers, and any other relevant information.

This helps PROs monitor music usage and ensure that royalties are collected accurately.

– Contributor Information:

Make sure to include information about the producer, songwriter and other individuals involved, along with their agreed upon royalty shares.

This helps ensure that the royalties are divided as per the terms of the contract.

– Contractual Details:

Ensure the PRO has a record of the contractual agreement so that they can accurately distribute royalties based on the agreed-upon terms.

Benefits of PRO Registration

Registering with a PRO is crucial for;

– Monitoring Royalties:

Performance Rights Organizations (PROs) play a crucial role in monitoring music usage and ensuring that royalties are gathered from different performance venues.

This monitoring process is vital for the fair distribution of royalties.

– Ensuring Fair Distribution;

Professionals (PROs) guarantee that each party obtains their part of royalties according to their input and contractual terms.

This promotes equity and openness in the distribution of royalties.

4. Update Music Streaming Platforms

In today’s digital landscape, releasing music on streaming platforms like Spotify, Apple Music, and others is a significant part of music distribution.

Properly updating and crediting contributions on these platforms is crucial for accurate royalty split distribution.

Proper Credit

When releasing music on streaming platforms:

– Meta Data:

Remember to give credit to the producer in the track’s metadata by including a line that acknowledges their contribution.

For example, adding “prod. By M Sounds” will ensure that the producer is properly credited for their work and helps in accurately recognizing their contribution.

– Royalty Split Options:

Some streaming services offer options to specify royalty splits directly on their platforms.

Utilizing these options can help ensure that royalties are distributed according to the agreed terms. This feature simplifies the process of managing and assigning royalties from digital streams.

When done correctly, let’s go to the last step..

5. Keep Track of Royalties

Keeping an eye on and managing royalty payments is a continuous task.

It’s important for both the composer and the songwriter to stay actively involved in overseeing and reviewing these payments to guarantee they are correct and fair.

A systematic approach to tracking royalties involves:

– Keeping Track of Finances:

It’s important to maintain thorough records of your income and expenses.

This involves keeping tabs on the money you receive, where royalties come from and noting any discrepancies.

Detailed financial records are essential for managing your money effectively and addressing any potential problems that might come up.

– Regular Reviews:

Regularly review royalty reports from PROs and streaming platforms to verify that payments are being distributed according to the contract.

This helps ensure that the agreed-upon splits are being implemented correctly.

– Payment Comparison:

Review the payments made to verify their accuracy with the expected amounts outlined in the contract.

This analysis is crucial for spotting any discrepancies or mistakes that may have occurred during the payment procedure.

Professional Advice

Consulting with accounting professionals or individuals with expertise in music royalties can offer valuable insights.

These specialists have the knowledge and experience to provide:

– Guidance on Best Practices:

They are able to offer suggestions on effective ways to monitor and oversee royalties, guaranteeing that all financial matters are managed with efficiency.

– Following Rules and Checking Finances

Their role involves guaranteeing adherence to contract terms and overseeing the financial aspects linked to royalty disbursements.

This encompasses verifying the precision and timeliness of all payments.

– Resolving Disagreements:

Their expertise can aid in settling any differences or problems that come up regarding royalty payments.

Seek professional advice to tackle and resolve any financial disagreements or worries.

Conclusion

Ensuring fair and transparent royalty splits is crucial in the music industry.

By negotiating terms, establishing a detailed contract, registering with performance rights organizations, updating music streaming services and monitoring royalty payments, artists and producers can guarantee that all contributors are compensated fairly.

These measures protects the interests of all involved and foster a collaborative and trustworthy atmosphere, crucial for succes  and in the long term of any music project.

I hope now, you will have a clear understanding of how royalty splits work.

If you stick to these 5 steps, everything should be handled correctly.

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