Music Business

What The Hell Are Master Rights?

Master rights – What the hell are they? Several times I’ve seen some form of this question come up on Facebook, and the replies people get are usually hazy, conflated or inaccurate. So here I’m going to attempt to explain this as simply and completely as I can, and at the end, I’ll link you to some other very good explanations and resources. Be warned, even this is super simplified, but I hope it helps.

One way this gets asked a lot is something like “If my friend has master rights on my song how does he/she make backend income from it if it is played publicly or released and sold on iTunes, Spotify, etc.”

(Shortcut answer: YOU pay them…read on for why…)

Most of the time, when people talk about this, they conflate or confuse terms like “backend” and “royalty”, and what things like “master rights holder” or “song” actually mean. So in order to really understand who owes who what, we need to go through a few steps to clear things up.

STEP 1 – Clear up the revenue streams

First let’s make it clear what revenue streams there are in music.

Think of this like a tree with two huge branches:

• Branch 1: WRITER income. This could also be called PUBLISHING or SONGWRITING. This is paid to the OWNERS OF INTELLECTUAL PROPERTY (songs), aka writers and/or their representatives (aka publishers).
• Branch 2: MASTER income. Aka RECORDING, or ARTIST/PERFORMER income. This is paid to the OWNERS OF A RECORDING.

It is vitally important to understand the distinction between those two streams of income. At no point and in no way do these two streams of income cross. If you are both a performer and a writer, you need to separate these identities in your head, because they are not the same. The easiest way to keep this straight is to tell yourself (from a business point of view) that WRITERS DO NOT PERFORM, AND PERFORMERS DO NOT WRITE. Keep those two entities separate in your head forevermore (even though obviously a person might do both, and most of us do).

STEP 2 – Fully define the branches

Let’s go a little deeper into each branch.

Branch 1 – Writing/publishing.

Writing. This branch is for the owners of intellectual property. Songs. A song is defined as lyrics and melody (or just melody), and it exists as a conceptual thing. We can make something physical that represents a song, like a piece of sheet music, or a lead sheet, or a tab sheet with lyrics, or a recording. None of those media of communicating the song are the song. The song is the melody and lyric. Drums are not the song. A bass line is not the song. A recording is not the song.

When you register your song with your Performing Rights Organization (or PRO), (BMI, ASCAP, SESAC, SOCAN, etc), you are registering this intellectual property, NOT THE RECORDING.

When we discuss this branch, we need to understand it as one branch. PUBLISHING simply means that a songwriter has chosen to transfer a piece of that branch (usually half) to another entity in exchange for the service of exposure and representation, and sometimes administration. A publisher may or may not own the copyright to a song, but they are given control, and they become a SECOND entity inserted in this branch. From here on out we will refer to the COMBINATION of songwriter/publisher as “song owners”, because this isn’t really an article about the relationship between songwriters and publishers.

There are several ways song owners can make money, and these are all governed by the copyright law. They can be broken up into two basic categories: Fees paid directly to the song owner by another entity, and fees paid by entities to performing rights organizations, which are then distributed to song owners.

FEES PAID DIRECTLY TO SONG OWNERS:

1. 1. Sync licensing. If a visual content producer uses a song in a video production, they are required to negotiate that use with the owners of that copyright (regardless of who recorded the version of the song they use). This is paid BY THE CONTENT PRODUCER TO THE SONG OWNER, BEFORE THE PRODUCTION AIRS. This is an UP FRONT fee, and ownership of the song in question stays with the song owner.

CONFUSION WARNING:This is NOT THE SAME FEE as is paid to the owners of the recording. Even if you are the owner of the recording and the song, and you license a track, and you get paid a single fee, you NEED TO REMEMBER THAT THAT IS ACTUALLY TWO FEES. If there’s nothing in the license paperwork that defines the two fees, consider them equal. So if you get $1000, $500 of that is master usage, and $500 is for the song. This may affect who YOU owe and how much (more on that below).

1. 1. Work-for-hire composition. An entity (such as a film production or even just a regular person) can hire a songwriter to write a song specifically for them, and pay a (hopefully higher) fee to now own that composition or use it exclusively (or not!). This is paid BY THE CONTENT PRODUCER OR OTHER ENTITY TO THE COMPOSER. This is an UP FRONT fee, and ownership of the song MAY go to the content producer/person/client.
   2. Mechanical royalties. This is one that gets people pretty confused, but if you remember that from a business perspective the writer of a song is NOT THE SAME ENTITY as a performer, then it gets much easier. Mechanical rights simply means this: If a business or person wants to RECORD and sell a SONG on some recorded media, they must pay the songwriter a fee, PER UNIT CREATED (NOT per unit sold), and that fee is defined by law. That fee structure varies based on media, but it’s about 9.1 cents per copy in most cases. Go HERE for more detail on those fees.This means that if a performer records a cover song, they owe the song owner mechanicals. This also means that if an performer signs to a label and records a song, the label owes the song owner mechanicals. This ALSO means that if YOU record your FRIEND’S song, YOU OWE YOUR FRIEND MECHANICALS, unless your friend specifically WAVES that right for you, in writing. I suppose this also means that if YOU write a song and record it, you owe yourself mechanicals!

CONFUSION WARNING: Mechanicals are NOT paid to owners of recordings, and they are NOT paid by distributors, radio stations, Spotify, iTunes etc. Mechanical royalties are ONE SPECIFIC thing and nothing else. They’re a fee owed to SONG OWNERS by RECORDING OWNERS, and they’re paid by the owners of recordings to the owners of songs, or their representatives.

FEES PAID TO PROs AND THEN DISTRIBUTED TO SONGWRITERS:

1. 1. Radio, television or venue performance. If a business, such as a radio station, online radio station, television show or other entity (like an ice rink or a bar) uses a song by playing it on a show, broadcasting it in their store, using it on their boombox while they massage people, etc, they owe the songwriter PERFORMANCE ROYALTIES. The rates are dictated by law, and these royalties are paid BY THE BUSINESS TO PERFORMING RIGHTS ORGANIZATIONS. Performing rights organizations (PROs) police the usage of SONGS (NOT RECORDINGS), collect money, and pay money to songwriters.

CONFUSION WARNING: This is another a place where many people conflate or confuse things. Notice above that there is a crossover. If a video content producer (for example a television show) wants to use a song, they must FIRST NEGOTIATE PERMISSION AND FEE FROM THE SONGWRITER. That is income stream 1 above. Then, AFTER BROADCAST, THEY MUST TRACK USAGE, REPORT TO AND PAY THE PERFORMING RIGHTS ORGANIZATION. THESE ARE NOT THE SAME REVENUE STREAMS. In other words, visual content producers pay twice.

CONFUSION WARNING: “Backend”. The PRO revenue mentioned before is often referred to as “backend royalties”. This is accurate, but it shouldn’t be confused with another POTENTIAL revenue stream and that is “backend” profit sharing that COULD happen if you struck a deal with a content producer that says “you must also pay a portion of your revenue from the production”. This kind of deal is rare in TV, rare in big movies, but it’s something you might see, say on a smaller movie production that doesn’t have a big up front budget. Neither of these should be confused with “backend” money you might pay to a fellow master rights holder or a fellow songwriter, after you’re paid for something. The only thing “backend” actually means is that there’s something owed AFTER money is made by a thing. If you were to make me a burger that I intend to resell, and I don’t pay you for it, but instead share the money I make by reselling it, you’d be making your money on the “backend”.

1. Live performance. If a band, performing artist, symphony or other performing entity performs a song in a live setting, they owe the songwriter a fee that’s defined by law. This fee is paid BY THE PERFORMING ENTITY (BAND) TO A PERFORMING RIGHTS ORGANIZATION.

NOTE: This is a simplified list, and the basic structure that I use to understand how to do business. It is by no means complete and thorough. The actual royalty structure PROs use is incredibly complex, for one, and there are other possible streams like sheet music publication, etc.

Branch 2 – Recording/master rights

This is the branch for owners of recordings. If you are an independent musician making recordings in your house or a studio, you own those recordings. If you’re an artist on a label, your label owns the recordings. The rights given to the owners of recordings (“master rights”) and the ways they can get paid are vastly different than for the owners of songs.

CONFUSION WARNING: “Master rights holders” are not the owners of songs. They are the owners of RECORDINGS. RECORDINGS ARE NOT SONGS. Similarly, the MEDIA used to STORE a recording is not a recording.

Here are the ways recording owners get paid:

1. 1. Sales. A customer can buy a copy of the recording. Money is paid directly to the recording owner or their representative (like a retail store or a distributor). Included in this are CD sales, vinyl record sales (or any other physical medium), or download sales. If a customer buys a downloadable mp3 from your website, this is a record sale. If a customer buys a download from iTunes, this is a record sale. Something important to note here is that whoever makes a sale now owes every other “master rights holder” a piece of that money. So by way of example:If Mike and I decide to make a recording of a song, and sign a piece of paper that says Mike has 50% of the master rights and I have 50% of the master rights, and I sell a CD for $10 to Brenda, Brenda pays me $10. Then I owe Mike $5. Brenda does NOT have to find Mike and pay him $5.Similarly, if I send the song to a digital distributor such as CD Baby, and they deliver the song to Spotify, iTunes, etc., I will receive payments from CD Baby for streams and downloads, which they have collected from the digital retailers.*I* owe Mike 50% of that money. It’s up to ME to pay Mike, not CD Baby, and NOT SPOTIFY, ITUNES, ETC. *ME*. If I have more than just that song out there, I will receive relatively complex statements detailing which songs made money and how much. IT’S MY RESPONSIBILITY TO TRACK THAT AND PAY MIKE.And remember, we owe the song owners their mechanical royalties if we plan to sell CDs or downloads, unless they’ve waived that right.

CONFUSION WARNING: Streaming is not the same thing as downloading. This is still a confusing and contested area for everyone, because streaming didn’t exist when the laws that govern music were written. However, streaming is sometimes considered “performance”, which means that song owners may be paid money for, say, Spotify streams, by PROs. This has NOTHING TO DO WITH MASTER RIGHTS. Now that we’re in branch 2, we really don’t care about this. If you’re paid something by your distributor, you owe your fellow MASTER RIGHTS HOLDERS their share, and if you look at your statement, you’ll see that this will include streams as well as downloads.

1. Master Use Fees. This is the counterpart to sync licensing, and is sometimes referred to with that same term. This is separate and distinct from sync fees owed to song owners for licensing. When a content producer wishes to use a recording, they must negotiate and pay a fee to BOTH the song owner AND the owner of the recording. As I mentioned above, if you are both, be SURE to think of this as TWO SEPARATE FEES. Similar to record sales, if you have partners who own a percentage of your master rights, YOU owe THEM when you’re paid a license fee. Here’s another example:If I meet with Warner Brothers and they want to use Mike’s and my song for a big movie, and they pay me $1000 dollars for the MASTER USE FEE, I now owe Mike $500. They may insist on having Mike in the room, in which case maybe they’ll pay him directly. But if only I collect, I owe him. Remember that if Mike and I ALSO wrote and own the SONG, that there is another fee for that to be negotiated. So if Warner Brothers says “$1000 is all you get, both for the song and the recording”, that’s actually TWO FEES. Now I actually got paid $500 for the song and $500 for the recording. Now I owe Mike $250 for the song license, and $250 for the recording.Why does this matter? Because Mike might not have written the song. *I* might not have written the song. The song sync fee may not be the same as the master use fee. On and on. It could look more like this:George, Linda and I write a song. We decide to split that 3 ways. Mike and I record the song. We split the master 2 ways. Warner Brothers decides the song itself is worth $1500 and the master is worth $500. They pay me for everything. I receive $2000. Now I owe George and Linda each $500 ($1500 split three ways), I owe Mike $250 ($500 split two ways), and I keep $750 ($500 for writing and $250 for master use). If I were to (wrongly) divide the whole pot in 4, I would pay Mike too much, and myself too little! How generous! But in another scenario I might end up paying someone too LITTLE. Then there’s trouble.

Notice that the list here is short. There are basically two ways to make money from a recording: master use fees and sales. Until very recently, there was no mechanism for the owners of recordings to collect money based on things like radio or online performance. Now one organization, SoundExchange, tracks and collects on behalf of the owners of recordings (EDIT: and now, some full service companies like CD Baby will interface with SoundExchange on your behalf).

Branch — 3??

Well, there really is no branch three. But there are of course many new ways to make money with music, both directly and indirectly. Merch sales are not new, but Patreon is, as are other subscription services where fans pay for special access, YouTube revenue, video downloads, etc. These are all streams which really aren’t part of song OR recording revenue, but they’re related to your career, and you’d be wise make it clear in writing who gets what from THESE potential sources as well.

Resources

Books – I recommend all  of these highly, and I wish you would read them cover to cover

How To Make It In The New Music Business, by Ari Herstand

The Musician’s Guide To Licensing Music, by Darren Wilsey and Daylle Deanna Schwartz

Confessions Of A Record Producer, by Moses Avalon

Web Links – for another take or deeper information

Ari’s Take – Ari is very thorough – Click here for his “what is Sound Exchange…” article. It’s similar in topic to this one, and really good.

Here is another pretty good post about this topic from Digital Music News.

The Harry Fox Agency, if you’d like to dig a little bit deeper on mechanicals.

An article by Ari Herstand on legally releasing cover tunes.

BMI’s royalty explanation. Read this thoroughly to really dig down into how BMI pays. The other PROs have similar documents and play by similar rules.