Introduction
Consumption of music is experiencing rapid expansion. Digital streaming has driven this growth in global recorded music revenues after 15 years of declines due to piracy and declining physical album sales. As well as streaming growth, new additive services that license music (e.g., Tik Tok, Instagram, Facebook) are entering the marketplace.
With increasing transparency in the global digital royalty collection infrastructure there is now greater confidence in owning music intellectual property (IP) assets and the royalty income derived therefrom.
What is Music Copyright IP
When a song is written an intellectual property right known as a copyright is created reflecting the unique work product. The protections provided to the owner(s) of the copyright in the musical composition provide the exclusive right to monetize the composition by licensing others to:
SELL/DISTRIBUTE
Sell or distribute copies (e.g., CDs, vinyl albums)
PERFORM/DISPLAY
Perform or display the work publicly (e.g., live concerts, broadcast, streaming)
SYNCHRONIZE AUDIO
Synchronize audio with moving images (e.g., movies, television, advertisements)
The IP is attached to the owner for a period of time
(as long as 70 years after the death of the author, or last author in a co-writing situation) and the exact copyright terms are set by regulatory bodies in individual countries.
Copyright ownership is transferable and can be purchased at any point in its lifecycle, allowing investors to buy the copyright ownership and benefit from the cash flows generated for the period of time negotiated between the transferor and the transferee.
WHAT ARE MUSIC ROYALTIES?
Revenue generated by music publishing and recorded music can largely be classified into the five following categories:
Performance Royalties
Copyright owners may receive royalties upon the public broadcast of a sound recording by television, radio and digital services which includes satellite radio, non-interactive digital radio services, interactive streaming services and on-demand live streaming.
In some countries, compositions used in a live performance setting is required to pay a performance royalty.
Mechanical Royalties
Royalties paid on the reproduction of a composition in digital downloads, streaming, physical sales, and all other forms of reproduction such as lyric display through a digital service provider or elsewhere on the internet. Reproduction rights societies around the globe distribute mechanical royalties from sound recording owners, broadcast services and steaming services to the copyright owner and publishers of the composition.
Synchronization License
Third parties who wish to use a composition (sound recording) in an audio-visual setting such as a film or television show, must pay a fee (negotiated by the third-party and copyright owner/publisher) to the copyright owner/publisher.
This fee is generally paid in equal parts to the copyright owner and publisher. In addition to an initial upfront fee, Performance Royalties would also be payable for any subsequent use of the composition (sound recording) in broadcast, streaming and movie theaters.
Master Royalties
Sound recordings have their own unique copyright (“Master Rights”). This copyright entitles the owner(s) (i.e., record label, recording artist, producer) to receive royalties from the commercial use of recordings.
Any revenue generated from streaming, satellite radio broadcast, internet, radio, placements in film, advertisements, television, physical sale (i.e., CDs, vinyl records) typically flow to the record label and are subsequently paid to the holders of the Music Rights pursuant to the terms of the agreement between the holders of Music Rights and the record label (each, a “Master Agreement”).
Sound Exchange
Organization designated by the U.S. Congress to collect and distribute digital performance royalties for sound recordings. The organization pays artists and the holders of Master Rights for all non-interactive use of sound recordings (these rights are transferrable).
Publishing companies register the catalogs in all countries with performing rights organizations and licensing organizations, process synchronization license requests and perform accounting for mechanical royalties through physical and digital sales channels. Sound recording distributors (i.e., record labels) distribute and market sound recordings.
Aggregators charge a fee for the services that they provide. In many cases Aggregators advance money to music creators for various rights regarding the music/sound recordings. Once all Advances have been repaid to the Aggregators, any revenues generated in connection with the Music Rights are distributed based on the percentages set forth in the agreement between the music creator (or owner of the copyright) and the Aggregator(s).
Historically, new opportunities to generate royalties on Music Rights have arisen alongside technology advances (e.g., applications such as Tik Tok, Instagram, Snapchat, gaming, and YouTube).
What is the Predicted Industry Growth
Over the course of the last eight years recorded music revenues have grown in every major world market across all formats.
The International Federation of Phonographic Industry’s (IFPI) Global Music Report for 2023 provided that:
Up 9%
at approximately
$26.2 billion
[2021 – 2022]
Streaming services subscription
Up 10.3%
at approximately
$12.7 billion
[2021 – 2022]
Total streaming revenues
Up 11.5%
at approximately
$17.5 billion
[2021 – 2022]
Physical music sales
Up 4%
at approximately
$4.6 billion
[2021 – 2022]
Performance rights revenues
Up 8.6%
at approximately
$2.5 billion
[2021 – 2022]
Approximately
589 million
paid music subscribers
[2022]
Streaming share of global
music sales approximately
67%
[2022]