How Do Music Royalties Work? Explained Simply

Kristian Gorenc Z

Dec 11, 2025

Understanding how musicians and rights holders get paid can seem confusing at first, but the system follows clear steps. Music royalties exist to ensure that everyone who contributes to a song — from the songwriter to the performer — is compensated when the track is used. This payment system relies on copyright law, licensing, and specialized collection organizations. Once you understand the moving parts, the process becomes more straightforward.

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Creation and Rights Ownership

The first step in understanding royalties is knowing that every song carries two distinct copyrights. One covers the composition, which includes the lyrics and melody. This copyright belongs to the songwriter and, often, their publisher. The other covers the sound recording, sometimes called the master. This is owned by the performer and the record label. Recognizing this separation is key because different royalties flow to different rights holders depending on how the music is used. For example, a songwriter may earn royalties even if they are not the performer, while a performer may receive royalties for recordings of songs they did not write.

Licensing Music

Once music is created, anyone who wants to use it needs permission. Streaming platforms, radio stations, venues, and broadcasters cannot simply play or sell a song without securing the proper licenses. These licenses act as legal agreements that allow music to be streamed, sold, or performed publicly. Without licensing, usage would infringe on the copyrights, leading to legal issues. This licensing system forms the backbone of the royalty structure, ensuring that creators and owners are compensated whenever their work generates value.

Collection Societies and Agencies

Tracking music usage across millions of streams, broadcasts, and performances would be impossible for individual creators to handle. This is where collection societies and agencies come in. They monitor, log, and distribute royalties to the rightful owners. Performance Rights Organizations (PROs), such as ASCAP, BMI, SESAC, PRS, and GEMA, handle performance royalties. These arise when music is played on radio, TV, or in public spaces. Mechanical rights agencies, such as the Harry Fox Agency or the Mechanical Licensing Collective (MLC) in the United States, process royalties generated by reproductions, such as downloads and streams. Neighboring rights societies collect royalties for performers and record labels when recordings are played on radio or television. Each type of agency specializes in one area, reducing complexity for artists and ensuring fair distribution.

Royalty Types in Practice

Royalties are categorized depending on how the music is used. Mechanical royalties are triggered whenever a song is reproduced. This includes streams on platforms like Spotify or when a listener purchases a digital download. In this case, the payment goes to the songwriter and the publisher. 

Performance royalties arise whenever a song is played publicly, such as during a radio broadcast or in a restaurant. These royalties also flow to the songwriter and publisher. Sync royalties work differently. If a film studio or advertiser wants to use a song in a movie, TV show, or commercial, they must pay a synchronization fee. This fee is usually negotiated upfront and goes directly to the publisher or songwriter. Lastly, neighboring rights royalties benefit performers and record labels. When their recordings are broadcast on television or radio, these royalties ensure the performer and label receive compensation, even if they did not write the song.

Distribution

Once royalties are collected, the challenge is to get the right payments to the right people. Societies and agencies rely on detailed usage logs, digital fingerprinting, and reporting from broadcasters and platforms. They aggregate all this data, calculate payments, and distribute funds to rights holders. Distribution often happens quarterly or biannually, depending on the organization. While there may be delays between a performance and the royalty payout, the system ensures that income eventually reaches those who earned it.

The essential point to keep in mind is that royalties follow the path of ownership. Songwriters earn from composition royalties, and performers and labels earn from recording royalties. These streams run in parallel, so whenever a piece of music generates revenue, everyone involved in creating or performing it receives their share. This balance is what allows the music industry to function and ensures that creative work continues to be sustainable.

Source of music data: Viberate.com