How Do Artists Make Money Through Digital Distribution?

The first installment in our Backline Support series is focused on artists’ rights. In particular, we’re focusing on organizations that ensure payments to artists. The four types of companies outlined in this post are:

  • Performance Rights Organizations (PROs)

  • Content ID

  • Digital Distributors

  • Publishers

Performance Rights Organizations (PROs)

In the United States there are six PROs.

  • ASCAP

  • BMI

  • SESAC

  • Global Music Rights

  • Pro Music Rights

  • SoundExchange

The main three are ASCAP, BMI and SESAC, which all serve similar functions.

What does a Performance Rights Organization do?

PROs license, collect and distribute public performance royalties for songwriters and publishers. This includes when music is:

    • Broadcast on the radio (terrestrial or satellite)

    • Used on TV or movies (including commercials)

    • Performed or streamed live (bars, restaurants, performance venues)

    • Streamed over digital services (Spotify or Pandora)

To do this, the PRO will:

    • Ensure all venues have a license to play music

    • Collect public performance royalties from all

    • Track who hasn’t paid up, then determine the composer, publisher and songwriter to pay for each instance

    • Compile a list of what music was played where and include this information with every payment to each artist it represents[1]

The following table shows some of the differences between ASCAP, BMI and SESAC.

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Content ID

Content ID is a digital fingerprinting system which is used to easily identify and manage copyrighted content on YouTube. Videos uploaded to YouTube are compared against audio and video files registered with Content ID by content owners, looking for any matches.

One company that provides content ID for musicians is Vydia Distribution. Vydia is a universal solution empowering content creators to do more through a robust suite of services. Through Vydia, artists can publish to the world’s leading video and audio destinations, protect their digital rights, access enhanced analytics and manage their content from one central platform.[2]

With these tools, artists can:

  • Efficiently control their content on every platform

  • Maximize earnings

  • Protect against video piracy

  • Monetize or Block unwanted use of your content across the web

  • Automatically backup and manage your videos in one safe location using media folders

  • Gain insights and track revenue with direct access to analytics and monetized earnings

An estimated 47% of of on demand music streaming happens through YouTube.[3] So despite YouTube having a lower payout per play than traditional streaming services, it can be a huge source of revenue for an artist and shouldn’t be ignored.

Digital Distributor

Digital distributors offer musicians and other rights-holders the opportunity to distribute and sell or stream their music through online retailers such as iTunes, Deezer, Spotify, Amazon Music, Google Play, Tidal and others.

One example of an innovative digital distributor is STEM. STEM tracks and organizes revenue streams for artists and their teams, ensuring everyone involved has access to precise, actionable data and monthly payments.[4]

It’s nearly impossible to get music on to streaming services without enlisting a digital distributor. In addition to STEM, a few other distributors include: CD Baby, DISTROKID, AWAL and TuneCore.

Publishing

In the music industry, a music publisher is responsible for ensuring the songwriters and composers receive payment when their compositions are used commercially. Through an agreement called a publishing contract, a songwriter or composer "assigns" the copyright of their composition to a publishing company. In return, the company licenses compositions, helps monitor where compositions are used, collects royalties and distributes them to the composers. They also secure commissions for music and promote existing compositions to recording artists, film and television.

The copyrights owned and administered by publishing companies are one of the most important forms of intellectual property in the music industry. (The other is the copyright on a master recording which is typically owned by a record company.) Publishing companies play a central role in managing this vital asset.

Successful songwriters and composers have a relationship with a publishing company, defined by a publishing contract. Publishers also sometimes provide substantial advances against future income. In return, the publishing company receives a percentage, which can be as high as 50% and varies for different kinds of royalty.

There are three types of royalty:

Mechanical royalties derive from the sale of recorded music, such as CDs, digital downloads and streams. These royalties are paid to publishers by record companies/Distribution Companies.

Performance royalties are collected by performance rights organizations such as SESAC, BMI, ASCAP or PRS. Radio stations or others who broadcast recorded music, venues and event organizers for live performances of the compositions all pay performance royalties.

Synchronization royalties are required when a composition is used in a film, television soundtrack or commercial. These royalties typically pass through the hands of a music publisher before they reach the composer.

Publishers also work to connect new songs by songwriters with suitable recording artists to record them. These are called placements. Placements can go on to be the recording artists’ song or be placed in other media such as movie soundtracks and commercials. They will typically also handle copyright registration and "ownership" matters for the composer.[5]

Resources

We encourage everyone to use this information as a jumping off point to continue to do their own research. For example, most digital distributors will offer slightly different services and one may align with an artist’s goals more than the other.

Some additional resources that we recommend to the Backline Community are:
Decoding Content ID: How Artists Make Money on YouTube

Guide: Spotify For Artists

Music Publishing 101

SongTrust

ReverbNation Blog

 

 

 

Information for this edition of Backline Support was pulled from these sources:

[1] https://www.royaltyexchange.com/blog/ascap-vs-bmi-vs-sesac#sthash.27x5eogj.dpbs

[2] https://vydia.com/

[3] https://mashable.com/article/youtube-47-percent-of-on-demand-music-streaming/

[4] https://stem.is/about/

[5] https://mpaonline.org.uk/faqs/