How To Understand Royalties Cash Flow

How To Understand Royalties Cash Flow
Copyright is the Ganges, the holy river from which all royalty streams flow. To carry on the riparian metaphor, some of them are wee rivulets, some brooks, and some raging rivers of fast-flowing cash. Navigating the language of royalties can be tricky: although they all flow from copyright law, the circumstances under which you may be able to collect a royalty will differ according to your vigilance as a rights holder, the venue where your music gets played, and the commercial deals you make for the public exploitation of your art.

Generally, a royalty is a payment to the author or owner of a work subsequent to an agreement granting another party a license to exploit some or all of the rights flowing from the original copyright. A royalty is always proportional to the use made by the grantee — in other words, it's a fixed percentage of revenues the other party pulls in. Royalties are the standard commercial unit of moneymaking in the music business (not to be confused with "points," which are a percentage of sales and don't necessarily have anything to do with copyright).

The Canadian Copyright Act sets out the underlying rights that together form what we call copyright, as well as related creators' rights. These rights have economic value, returning in the form of a royalty, and it's up to you as a creator (and original copyright holder) to keep track of how they move around — at least until you sell, assign, or transfer your rights to a label, publisher, or other agency. Happily, several public organisations exist to help you track your rights as a creator.

Reproduction rights are one of three main areas of exploitable rights, and are comprised of "mechanical rights," which are the right to mechanically re-produce the recorded song in any one of a zillion formats; and "synchronisation rights," which are the right to re-produce the song on a TV, video or film soundtrack. Mechanical royalties arise literally from the mechanical reproduction of your music — that is, the physical copies of the songs that are produced and sent out into the marketplace. The term dates back to the days when piano rolls were the MP3s of the business: the publisher of a song would issue a "mechanical license" and collect a royalty from the sale of each roll from the piano roll manufacturer. In Canada, mechanical and synchronisation royalties are tracked and tallied by the non-profit Canadian Musical Reproduction Rights Agency (www.cmrra.ca). Members of CMRRA include publishing companies and self-published songwriters. CMRRA works by granting mechanical and synchronisation licenses to reproduce music for public sale or broadcast in exchange for the payment of license fees, which it then distributes as royalties to its clients. CMRRA also collects tariffs for broadcast mechanical rights, as well as private copying levies (collected from sales of blank CDs and cassettes), and mechanicals for ringtones and online distribution. (More on publishing, mechs and synchs in next month's Music School: "How to Understand Publishing.")

Somewhat more accessible to songwriters are performance royalties. Performance rights are the right to perform in public a copyright-protected work, and the right to authorise others to do the same. The Society of Composers, Authors and Music Publishers of Canada (SOCAN; www.socan.ca) is the performing rights organization (PRO) that exists to license the public performance of copyrighted works in Canada, and to distribute among its membership the royalties those performances generate. SOCAN monitors most places where music is publicly played: radio play lists and TV cue sheets, bars and restaurants, skating rinks, telephone "holds," parade floats, etc. If your stuff has been played or broadcast in a venue that SOCAN monitors, you will receive a royalty. The quantum of royalty per play depends on the nature of the venue in accordance with tariffs set by SOCAN. SOCAN has reciprocal agreements with PROs in other countries, so that if you're getting radio play in Finland, SOCAN will monitor, collect, and distribute those royalties as well.

Becoming a member of SOCAN is very easy and costs nothing. Once you've joined, you must register each new work on a form that identifies the song's composer(s), arranger(s) and publisher(s), and what percentage of the song's royalties each person will share. If you are in a band that co-write or co-arrange songs, how you choose to register and share the royalties is a matter of agreement between you and your band-mates. Lennon and McCartney went 50/50; many bands find it fairest or easiest to share the royalties equally — even with the drummer!

SOCAN also provides forms for registration of live performances: these, too, technically earn you a royalty. (Having said that, although all live music venues are legally required to pay SOCAN license fees, many of them slip under the radar. Whether you potentially "squeal" on a venue by sending your set lists to SOCAN is another matter.)

The last main area of royalties are derived from "neighbouring rights," so-called because they are a "neighbour" of copyright. Neighbouring rights are the right to play or perform a sound recording (of yours or someone else's performance) and to authorise others to do the same. This is a relatively new area of rights and royalties, flowing from an amendment to the Canadian Copyright Act in 1997 after much heroic lobbying by Canadian musicians and producers. It works like this: every recording of a song has a copyright. And every performance that went into that recording has a sort of quasi-copyright in the sense that Canadian law (as well as musicians and the industry in general) now recognises that the makers of a recording (including musicians and producers) have an interest, both creative and economic, in the piece. If you are the tambourine player on track four, don't expect a windfall. But if you're the modern-day equivalent of "Funky Drummer" Clyde Stubblefield, your ship could well come in. Neighbouring rights royalties are administered in Canada by the non-profit Neighbouring Rights Collective of Canada (www.nrdv.ca). It's set up a little differently than SOCAN or the CMRRA in that to collect payments for neighbouring rights you must register with one of NRCC's five member agencies (including the actors' union ACTRA and the musician's union AFM, but you don't have to be a member of those unions to register).



Frequently Asked Questions

Do I have to register the copyright in my songs to get performance or mechanical royalties?
No. In Canada, as a matter of law, the first tangible expression of an idea is de facto copyrighted, but if you ever get into a legal argument about your copyright ownership, how do you prove it? You can register it with the Copyright Office: this gives you a legally stamped and sealed date. You can send the written song to yourself by registered mail — that will also give you a dated record. But either way, don't freak out about it; it's rare that Canadian musicians get into lawsuits about copyright, and the matter is usually not between two strangers, but more likely former collaborators disagreeing over whose hook became the hit. If there's debate over who owns what, square it away before you register with SOCAN or CMRRA.

We're negotiating with an indie label for the release and distribution of our CD. We paid for and own the masters. The label wants to take a cut of "mechanicals." Should we agree?
For the right to re-produce the master recordings that you own, the record label pays a mechanical license fee to the CMRRA, which then distributes royalties back to you (if you're a member). It looks like the label is trying to claw back its license fee payments out of your pocket. It's never a good idea to give away what comes to you as a right. But whether you agree to it depends on how good the deal is otherwise and on what your lawyer says.

I was the sole songwriter in my former band, but I agreed to register our songs with SOCAN giving each band member an equal share of the performance royalties. I have a new band now, and we want to record a couple of the songs registered with my old band. Is that a problem?
If it's on SOCAN's record that your former band members are equally entitled to all of the performance royalties, then if you perform or record the songs with a new band and that recording gets airplay, your old band-mates will get their share of composer royalties. But since the new recording is a whole new arrangement, you can register the new arrangement with SOCAN giving your new band-mates an arranger's share, but not a composer's share.