Sharing Backend Royalties (or not!)
Share the spoils, or pay up front?
This article on sharing backend royalties first appeared on SonicScoop.com. I reprint it here and encourage you to check out their super informative site! Also – You could come across affiliate links, and I may get a commission from sales.
Imagine this scene. You’ve laid down an incredible piano part, a great vocal, and a passable drum line. You’re thinking this song would really be better with a real drummer, and you know just the person. You call them up, send them the track and they love it. You know how to integrate their performance, you know how to be flexible and collaborative, and you’re confident the track will soar because of your friend’s influence.
But when you think about paying for that work, things get a little iffy. Maybe your budget is tight and you’d rather not spend anything, but your friend normally costs $200 a session. What can you offer?
If you’re like most of us, what comes to mind is sharing backend royalties. When you make money, your friend makes money. It costs you nothing now and if the song gets big, he makes more in the long run. Great! But wait. Is it wise to share on the backend, or would it be better to simply scrape together some money and hire your friend as a session player?
The answer depends on a lot of things, including what your friend wants, where you both are in your careers, the nature of the work, and your preferences. Regardless of all that, however, there are some things you should bear in mind before jumping headlong into a backend sharing scenario.
To make this decision, you need to think through what it really means to share a percentage and how that will affect you in the long run.
What Does Backend Even Mean?
First, you should probably know what “sharing backend royalties” actually means. At its simplest, this means when you make money with a track, you share that money with your friend. But its important to consider everything that entails, and all the different ways a track can make money.
Rivers Of Revenue
There are many ways a recorded song can potentially make money. You can think of those revenue streams like a river with two major branches:
1. Songwriting – Songwriting revenue goes to the writers of songs. Songs are intellectual property defined traditionally as lyric and melody. They exist separately from any performance of them, and any media those performances may be captured on.
2. Recording – Otherwise known as “master rights”, recording revenue goes to the owners of a recording of a song.
To understand the difference between a song and a recording, think of this scenario:
Harry writes a song called “This Is My Song”. Johnny records “This Is My Song” as an acoustic ballad. Suzy records “This Is My Song” as a heavy metal dirge.
Johnny owns his acoustic recording. Suzy owns her heavy metal dirge recording. Harry owns the song. Harry gets the songwriting revenue on both recordings, but not the recording revenue.
So, before you even begin, you have a decision to make. Assuming your project is a song you wrote, you’ll be the owner of both the songwriting and recording revenue. Are you sharing both sides with your drummer friend? Or, are you only sharing the recording side?
Tributaries Of Tribulation
Next, you need to understand the various ways each major branch can make money. This can get really complicated and an in-depth explanation is beyond our scope here, but you can start with understanding some basics, including where money comes from in each branch.
In the songwriting branch, there are several possible streams, all of which are paid to the owners of songs. In the simplest form, they are:
· Performance Royalties – paid (usually) by Performing Rights Organizations (PROs) like BMI, ASCAP or SESAC
· Mechanical Royalties – paid either by recording owners (labels, traditionally) or digital music services like Spotify.
· Sync licensing – paid directly to song owners by video producers when they want to use a song in a movie, commercial, TV Show or other video production. Note this is a different fee than the fee paid to the owners of recordings.
The thing to understand here is that depending on your activities, you might end up owing your collaborator directly. If you intend to shop your songs to music supervisors and you land a license, you’ll have to track what you’re paid and pay your friend their share.
You and your partner both need to be registered with a PRO to collect performance royalties, and possibly also a publishing admin service for mechanical royalties.
One of the major things to understand about sharing songwriting with say a drummer or a session guitarist is that if you (or someone famous?) produces an entirely different version of the song without that performance, you will still be splitting songwriting revenue with your partner. If you feel generous, or you feel like their contribution deserves to be recognized as part of the songwriting process then by all means share and share alike! Just be aware of this beforehand.
In the recording branch revenue is a bit simpler, but as you might expect, it can get complex the more you dive in. Keeping it simple again, there are only two tributaries in the recording branch:
· Sales – If you sell a CD at a show, that’s a sale. You owe your partner their portion. If your distributor pays you 47 cents for streams and downloads, you owe your partner their portion. If you sell a download directly, you owe your partner their portion.
· Master Use Fees – If you license your track to a video producer, you could be paid a “master use fee”, and you’ll owe your collaborator their portion. As noted above, this is separate from the “sync” fee paid to the song owners. This can be confusing, because often these fees are combined for purposes of simplicity.
What it boils down to on the recording side is that you will have to track your sales and fees. This can get complicated when you consider that a typical quarterly report from your distributor might have thousands of lines of miniscule transactions for all your songs. It’s your responsibility to track that data, determine how much you owe your friend, and pay them. You’ll also need to track direct sales at your shows or from your website.
This can be a daunting task, especially if you have a lot of collaborators, but there are some services and software available. I use DashBook, and there are relatively affordable monthly services by Label Engine and Royalty Worx, as well as a lot of higher priced services aimed at bigger companies.
There’s also the option of using a distributor that will split up payments and send directly to your partner(s) and many people are moving to that solution. As of this writing there are five such distributors: DistroKid, Soundrop, RouteNote, OneRPM and Songtradr. The only drawback there is you can’t deduct expenses before paying out – the payments are made and it’s up to you to manage how much you’ve spent. If you’re the only one who will spend money promoting your work, you might consider a little higher percentage for yourself. Or with DistroKid at least, you can set a recoupment amount per track.
Will I See You Again?
Once you’ve considered how you’ll handle money, you should consider the relationship. When you enter into an agreement to share the revenue from a production, you’re bound together forever, or at least until you discontinue the release.
You need to know that you’ll be able to contact your partner, and that they will let you know if their contact info changes. You need to have reliable payment information, and you need their PRO information so you can register songs properly (if you’re sharing songwriting). Even if you’re just paying by PayPal, you’d be smart to have a physical address on file, and you’ll need to remember to send them a 1099 if you pay them more than $600 in a year.
Even if you’ve decided to use a distributor that will split monies for you, you’ll still need to contact them if you get paid a sync or master fee or make money in other ways. Another thing to consider is that some distributors require your collaborators to sign up or ALL the revenue is frozen (your part too!). Finally, some distributors have an annual fee for membership, so it might not seem worth it to your friend to join up if they think their royalties won’t cover the expense (a valid concern).
Just as in a marriage, you’ll have to consider the possibility of a falling out down the road, and know that you’ll still have to maintain contact sometimes. That can take maturity that some musicians lack. If your friend is likely to disappear or cause a lot of trouble, you may consider paying them up front instead.
Communication (In Writing) Is Key
If you’ve considered all the ramifications of “getting into bed” with a collaborator and you still think sharing backend royalties is the way to go, then you’ll want to communicate very clearly about everything. You should discuss business up front and if possible you should sign paperwork ahead of time.
Speaking of which, all your agreements should be in writing, and you should consult a lawyer to give you boilerplate templates to use for your productions. A proper contract will not only mitigate possible conflict, it’ll also make it a lot more clear how to go about things.
You’ll need to be clear about what the percentage splits are, who has control, who can pitch the song to opportunities, who can distribute or sell it, what the title is, what the act is, and what promotional activity is allowed or expected. The more you can talk about, agree to and sign off on ahead of time the better.
A contract is also a good place to gather all the necessary information like real name, email, physical address, phone number, PRO ID number, and any payment information.
It may seem a little overwhelming at first but in reality, clear communication and complete paperwork aren’t hard and they save a lot of time and effort down the road. In addition, you will not be able to enter into a licensing agreement without signed paperwork documenting all contributors.
The Other Side
There’s another side to this coin. What if you’re the partner? How do you decide whether to allow someone to pay you on the backend or ask for a fee up front?
Well, you should consider all of the above, but ask yourself whether your potential partner is equipped to handle all that. Also ask yourself whether the royalties on the backend will be equal to or more than your potential session fee. If the answer is an absolute no, then you obviously won’t say yes, unless you just happen to love the project or the person and don’t care.
If you really think that a production will make a lot of money, then 10% of master rights for life may be a whole lot better than a $200 session fee. You’ll have to balance your need for money now with the possibility of more later.
Of course, from your point of view, the best case is to get your fee and some backend points. If you can secure that deal, more power to you!
When You Should Just Pay
Even once you’ve educated yourself, set up your systems and put yourself in a position to properly share the backend on a production, you don’t necessarily want to do that in every case. In fact, your life will be easier if you can do it as little as possible.
Some reasons you might choose to come up with a session fee include:
· The player won’t do a backend deal
· It’s unlikely you’ll maintain contact
· You want to minimize the amount of admin you have to do
· You think you will make the session fee back and then some and want to maximize profit
· The player is flakey or might block release by not filling out paperwork, returning calls, etc.
· You want to just use the track and not worry about credit and who did what
· You’re using a service like SoundBetter to hire a freelancer.
Even when you do choose this easier path, have your session player sign a waiver that releases you from any further obligation once the fee is paid.
It Can Be Great
After reading this, you may feel like sharing backend royalties is just too much hassle. Admittedly, that’s partly the idea here; to show that “sharing” is a little more involved than a lot of people think, and sharing responsibly is necessary if you want to stay out of trouble.
That said, once you get organized, sharing properly is perfectly doable, and the benefits are undeniable. Sharing can make productions possible even when you have zero budget; it can allow you to work with people you couldn’t afford (if they’re willing); and in general collaboration is one the most fulfilling aspects of making music. Not to mention that when a partner has ownership of a project, there’s a completely different sense of pride and care. It’s often the only way to get someone’s level best. Of course, you need to be generous and you need to show that you’ll live up to your end, but if you do, the results can be magnificent.
If you want to go deep into this stuff and really super duper understand, try out these books:
All You Need to Know About the Music Business: Ninth Edition
This Business of Music, 10th Edition (This Business of Music: Definitive Guide to the Music Industry)
Confessions of a Record Producer: How to Survive the Scams and Shams of the Music Business
Music Money and Success, 7th Edition
The Plain and Simple Guide to Music Publishing: What You Need to Know About Protecting and Profiting from Music Copyrights, 3rd Edition