Mailbag: Royalties vs. Publishing

From the mailbag, Mark wants to know about different kinds of royalties:

hey whats the diffrence between royalties and publishing revenue..

please help……….love your site also

We’re actually talking about a few different kinds of ways that labels and artists make money, and Cash Money Records is a pretty interesting case study of how a company can grow from the ground up into a vertically integrated entertainment conglomerate.

First, let’s talk about royalties. Depending on your role in the recording, you could dip your hand in the cookie jar a few times:

• Mechanical royalties for writers and publishers (often called “The Publishing.”) Record labels have to pay a fixed fee every time a song gets pressed onto a CD or downloaded to a music player. That fee gets split between the writer and the publisher, usually 50/50. This fee gets paid out regardless of whether or not a project has turned a profit.
• Mechanical royalties for artists (which is what we often mean by “royalties.”) There’s no statutory fee paid for performers in the United States, though some musicians are fighting pretty hard to get this enacted here. A typical record deal will set a mechanical royalty per “unit,” and crafty negotiators will lobby for terms that base the amount on units “pressed” instead of units “delivered.” (With digital downloading so prevalent, though, it seems like this distinction is disappearing.) Most record deals withhold this amount to the artist until all expenses are cleared, which usually means never.
• Sync licensing. If your song lands in a commercial, film, or television show, everybody gets some cash. Land on something that gets replayed in reruns or sold on DVDs, and everybody can make a LOT of cash.
• Performing rights royalties for writers. As your song gets played on the radio, in clubs, or on streaming music services, you’ll enjoy a cut of a “royalty pool” administered by ASCAP, BMI, or SESAC. There’s no truly effective way to measure exactly what gets played where, so agencies sample radio stations, club playlists, and concert setlists to determine what seems “about right” from quarter to quarter. If you’re riding a Top 40 wave, expect a big check. And if you’re not maintstream, but you’re lucky enough to have a song on the radio during a sampling session, you’ll get a nice, little check.

Let’s say you’re a singer/songwriter, and you’ve got an album of ten original songs. The accounting’s pretty easy. Sell a million records, and you’ll bring in your half of the “publishing.” You may also have been clever enough to set yourself up as the “publisher” to collect the other half. So that’s about $100k right there. Your record company will probably find some way to tell you that you’re still “upside down” on the expenses of selling a million albums. That means they won’t pay you any additional royalties, but you’ll console yourself with a solid check once you’ve got a song on Grey’s Anatomy.

If you’re a high profile artist (or producer), you can even demand an advance against your future royalties. Let’s say I own a label and I want you on my roster so badly, I’m willing to give you your first $30 million up front. For instance, when R.E.M. signed their second deal with Warner Brothers, they got an $80 million advance. (It’s arguable that Warner Brothers lost that bet, with slumping record sales keeping the band from ever hitting that level on the second deal.)

Now, let’s look at Cash Money Records. They signed a deal with Universal Records that brought a whole lot of talent to that major label under an integrated production company. Instead of a single singer/songwriter, there’s a stable of artists, producers, and writers, essentially working on staff. By most accounts, the Williams Brothers that started the label used the Universal deal to cash out, leaving a business template in place that some folks like to compare to Motown Records. A factory-style setup, with a collective of artists signed to deals that give them exposure while depositing most of their signed-away royalties into the label’s accounts.

Even though publishing royalties are statutory, there’s nothing saying that you can’t sell or trade those payments away in exchange for a lump sum. A label can also act as a publisher, pulling that “publisher’s share” off the top. Although I don’t know the specifics of Cash Money’s deal with Universal, many imprint deals involve the larger label funneling mechanical royalties to the smaller label. The small label becomes a middleman, funneling royalties down from the major to artists and producers. A deal like this means Cash Money acts as if it were artist, publisher, and producer, collecting royalties and redistributing them to its talent based on their individual development deals.

In the 1990s, we often looked at deals like these as easy ways for labels to screw over artists. In the 2010s, we’re seeing artists run their own labels this way, actually maximizing their profits.

It’s a good time to run your own publishing company AND your own record label.