Income Stream Basics for Musical Creators

An article written by Eldar Manor and published on the IndiEarth Blog:

When a song is performed, recorded and finally distributed, various income streams ensue. What are these income streams, what are their sources, who is entitled to them and how do we ensure that at least a better part of them comes our way? These are some questions any aspiring musician should be asking themselves when setting out on a career in the music business.

Income from Copyrights

In this context, income streams are those sources of income that are generated by usage of creative properties. Creative properties are made up of various elements such as the song, the performance and the recording in the case of a musical track or the visual recording, the artwork and other creative elements in the case of a video clip. Given that there are property rights in each of these elements, when a musical track or a video clip is broadcast on TV, played on radio, streamed or downloaded online, synchronized as part of an ad or a film, included in an album in various formats etc., money is usually generated. These property rights are: a copyright in the song, a copyright in the sound, visual recording & artwork and a performance right in the performance.

Permission & Collecting Societies

Owning a copyright means that use of it requires permission from the rights holder. And granting permission to use a copyright work may mean that income may follow. In the case of use of a musical track, permission is usually required from the copyright owner of the song and the copyright owner of the recording (and in some cases also from the owner of the performance right in the performance).

In some cases, such as when use of a song or a recording is required for use in advertising, direct permission from the copyright owners may be required in each and every case. But obtaining direct permission from each and every rights owner may not be feasible in all use requirement situations. Thus if a radio station, whether terrestrial or online, would have to clear rights directly with the rights holders of all creative elements in all the tracks that that radio station planned to play, then it may just as well close down its operations given the disproportionate resources that it would have to invest in clearing rights. In order to facilitate the licensing process, some copyrights are administered by collecting societies.

Collecting societies are bodies that represent a large number of rights holders of a certain copyright. Different collecting societies have different roles but in general, their main function is to license, police and administer the copyrights of the members they represent. Some such collecting societies are those representing performance rights holders in songs (such as PRS in the UK, AKUM in Israel, IPRS in India, ASCAP and BMI in the US), those representing mechanical rights holders in songs (such as MCPS in the UK, AKUM in Israel, Harry Fox in the US), those representing rights of performers (such as Eshkolot in Israel and PPL in the UK), and those representing recording rights holders in recordings (such as PPL in the UK, IFPI & PIL in Israel, PPL in India, Sound Exchange in the US).

One of the greatest advantages of collecting societies for those entities making widespread use of creative properties (such as radio and TV stations) are blanket licensing schemes. These allow access to collecting society repertoire with “relative” ease in return for pre-agreed remuneration terms for the particular collecting society.

Access to Revenue Streams Is Changing

A creator’s access to and size of share of revenue streams may depend on what rights he has in the particular creative property. Thus, owning the copyright in a recording may mean a larger share of the income from the recording.

In the past, the roles of parties involved in the creative and business aspects of the music industry were clearly defined, whereas today roles have become blurred. With fast paced technological developments, lesser label investment and greater access to fans and potential markets, creators are taking on both creative and label responsibilities.

Today, many independent artists own the copyright in their recordings and are more often than not also the publishers of their own songs. This is of great advantage to creators given that this state of affairs allows them to divide the rights pie into parts that suit their needs. It also allows them to ensure that they not only keep a larger share of the ensuing revenue streams but that their relationships with distributors and publishers may be limited in time and in scope.

Change is also occurring even in areas where traditional models still apply. Recently, well-known rapper Eminem, won a court case in which it was found that music downloads from iTunes are licenses and not sales. The distinction is important for those creators who do not own the copyright in the sound recordings they perform in. This is because in most “older” recording agreements labels pay royalties from sales and royalties from licenses. Royalties from sales are traditionally lower than those from Licenses. The distinction may mean earnings worth many more millions of dollars for larger selling artists. You can read an article about this here.

This distinction though may be a short lived victory given the downhill path that download revenues are taking as a result of the meteoric rise of subscription and streaming services, which essentially means lower royalties for creators (streaming a track cost less than downloading it).

Distribution & Publishing

Notwithstanding their greater independence today, creators do still require the expertise of others. Nominating the right distributor and publisher may be key to gaining effective access to markets and ensuing revenue streams. Reaching the most popular online retail stores does usually require a digital distributor, and ensuring proper management of uses and revenue from collecting societies does require an experienced music publisher.

When a creator nominates a distributor or a publisher he is in fact giving a share of his earnings to an entity that should have the required experience, legal acumen and organizational skills to ensure a proper dealing with his creative properties. Sadly, this is not always the case. It is thus always recommended, when granting distribution and publishing rights, to do so for a limited period of time. This will ensure that in the long run, if one is unhappy with a distributor or a publisher, one can always move elsewhere.

Pushing Borders

The “long tail”, a term well known to independent musicians in connection with revenues emanating in the digital distribution arena, is also relevant today to other revenue streams such as collecting society income and income from sync licenses. For this reason, creators are for forced to constantly diversify their “work portfolio” to sometimes unchartered waters. Pushing borders means exciting times for the independent creators. After all, isn’t that what art is all about?

Reality though means not only a shifting in the structure of a creator’s activities but also in the ensuing revenue streams. Greater freedom, coupled with technological advances and a more accessible and communicative world means greater collaboration, exploration and potential exposure for creators in places and cultures which were impossible to reach in the past. In terms of revenue streams this diversity also means a greater need for effective management of creative properties, a skill which creators do not always have or do not want to have. But this though, we shall have to leave for another post…