Royalties

The Origin of Royalty Contracts in the Music Business

In the infant period of the music industry, it was usual to pay interpreters a recording fee for their services. Successful interpreters, however, realized that they would be better off if they were paid a percentage of revenues from record sales, instead of a lump-sum payment. The first-known royalty contract in the music business was signed by the London music hall star Maurice Chevalier [Page 973]in 1898. The Gramophone Company guaranteed the singer a payment of one shilling per 12 records sold.

Because the record companies wanted to prevent their stars from recording for competitors, the exclusive record contract was introduced. The Italian opera star Enrico Caruso was the first artist in the music business to sign such a contract with the U.S. Victor Talking Machine in 1904.

The exclusive royalty contract became the blueprint for agreements between artists and record companies and music publishers. In the royalty contract system, the authors hand over their intellectual property to intermediaries to exert monopolistic power on the works. This monopoly expropriates the authors from their rights, and they are not free anymore to decide on the artistic and economic exploitation of their works.

Four types of royalty contracts can be identified: royalties for music prints, record sales, performances, and the synchronization of music with film and other audiovisual productions.

In a songwriter's royalty contract, the artist transfers the copyright of a song to a publisher in exchange for a percentage of future revenue from the song. Although there is no standard contract, the publisher usually agrees to pay 50 percent of a song's income from mechanical reproduction, which mainly includes records, digital sales, and film, video, and advertisement synchronization.

In addition, the songwriter also receives a proportion from the sales of music prints, such as sheet music, folios, and song books. The usual royalty rate paid to songwriters is 8 to 12 percent for printed music.

For any income from foreign sources, songwriters are usually paid a royalty of 50 percent. This includes licensed recordings, performance licenses, and printed music.

Initially, mechanical royalties had to be paid by operators of player pianos to copyright holders for each piano roll played in public. Today, royalties denote a percentage of sales for any copyrighted audio work that is mechanically rendered.

In a record deal, the interpreter receives a certain proportion on future digital and physical sales of a recorded music piece. The royalties are usually calculated as a percentage of the suggested retail list price (in the United States) and the lower published price to the dealer (in Europe). The royalty rates paid to newcomer artists are usually lower (10–15 percent) than for established artists (15–17 percent) and superstars (18–20 percent).

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