The Four Royalty Types Every Label Must Understand
Royalties in the music industry are not a single payment — they're a collection of separate rights, each requiring different registration, different collection, and different reporting.
1. Master Recording Royalties (Neighbouring Rights)
Master recording royalties are paid to the owner of the sound recording. For most independent labels, this is you. These flow from DSP streaming revenue and are typically processed through distribution.
Where they're collected: Via your distributor (ToneGrid) from each DSP.
Key requirement: ISRC registration for the recording and correct label credit in delivery metadata.
2. Mechanical Royalties
Mechanical royalties are paid to the songwriter(s) and publisher(s) for the reproduction of their composition. In streaming, each play triggers a mechanical royalty payment.
Where they're collected: In the US, via the Mechanical Licensing Collective (MLC). In the UK and Europe, via your PRO (PRS, SACEM, GEMA, etc.).
Key requirement: Composition must be registered with the relevant PRO with accurate writer and publisher splits.
3. Performance Royalties
Performance royalties are triggered by the public performance of a composition — including streaming, radio broadcast, and live performance.
Where they're collected: Via your performing rights organisation (ASCAP, BMI, PRS, APRA, etc.).
Key requirement: Each work must be registered with your PRO before it's performed or streamed.
4. Synchronisation Fees
Sync fees are negotiated one-time payments for the use of music in visual media — film, TV, ads, games, podcasts. These are not collected automatically; they require active licensing.
Where they flow: Direct from licensee to rights owner (or via a sync licensing agency).
The Gap Most Labels Miss: Neighbouring Rights for Performers
Beyond the label's master recording rights, performing artists (vocalists, session musicians) are entitled to their own neighbouring rights royalties from public performance and broadcast. These are separate from the label's rights and require performers to register individually with neighbouring rights societies (SoundExchange in the US, PPL in the UK, etc.).
Many independent labels never inform their artists of this, leaving performers' neighbouring rights uncollected for years.