Music publishing agreements series; (part 12) How are publishing royalties calculated and paid?

The mechanics of the publishing industry are a lot simpler than those of the recording industry. Typically, a publishing house will have the following departments: an administrator to register copyrights, issue licenses, collect money and pay composers and co- publishers; a marketer who ‘plugs’ songs and gets them recorded or exploited in any of the ways contemplated in previous series articles; and a creative person who finds composers and works with them. The income made by publishers is mostly mechanical royalties and public performance royalties, but also includes print (mostly sheet music), synchronisation to video and film (more and more these days), ‘transcription’ (commercial radio licenses) and foreign sub-publishing.

For sales of sheet music, the composer is usually paid a royalty of around 12.5% of the retail selling price. The term “sheet music” includes lyric books now commonly on sale in the record shops and book shops (e.g. “Led Zeppelin Guitar Tabs”) and lyrics and music available on the internet. Sheet music sales were at one time a large source of revenue for composers and publishers.

While it is true that electronic and digital means of performance have largely displaced sheet music, making these sales very small these days; music scores and lyric sales are making a bit of a comeback with internet delivery of these becoming more commonplace. The problem is to make sheet music and lyric download profitable again (like the big war with MP3 downloads) and this war is still to be fought. It has begun, though, with some providers getting revenue from advertising placed on songbook and lyric download sites.

To a large extent, though, the royalties on the sale of recordings have replaced those from the sale of sheet music. As a result of these developments, the composer’s principal sources of livelihood today are the performing right royalty, a fee payable by anyone who performs his music in public, the mechanical royalty (the fee payable by anyone wishing to copy his music), and the synchronisation royalty (a fee payable by anyone wishing to add his music to a film, video or game soundtrack).

For the various categories of income, namely mechanical royalties, synchronisation / transcription fees and public performance income, the composer is paid a percentage of the publisher’s earnings, such percentage being anything from as little as 40% to as much as 85% (very occasionally more in exceptional cases). For new composers, the normal range is 50% to 60%. With performance royalties, however, the composer is usually paid his share directly by the PRO, as is the publisher.

For the purposes of the examples in this series, we will assume that the publisher has agreed to pay the composer a 75% royalty.

“Receipts” and “At Source”

But 75% of what? There are two different methods of calculation:

• On a “receipts basis”; and • On an “at source basis.”

It is absolutely vital that composers comprehend the difference between these two methods of calculation. The “at source” basis basically ‘ignores the middleman’, while the “receipts” basis takes him into account, and costs the composer for his services. To illustrate this, let us take the example of a British composer who has a song placed in a television programme being shown on American television like “The Simpsons.” Assume the composer’s publisher is, for example, MCA Music in the UK (“MCA UK”). MCA UK’s sub-publisher in the USA is MCA Music inc. (“MCA USA”), who charge MCA UK a sub-publishing fee of 15%. The producers of The Simpsons have agreed to pay MCA USA a synchronisation fee of £20 000 so that MCA USA pays 85% of the £20 000 back to MCA UK (i.e. £17 000).

In this example, the composer will be entitled to:

• Either 75% of £20 000 if his royalties are paid on ‘at source’ basis – i.e. £15 000 • Or 75% of £17 000 if his royalties are paid on a “receipts basis” – i.e. £12 750

The difference is £2 250

In the same way, let’s say that a South African composer’s music is used on a British soundtrack. Geoff Paynter Publishing South Africa (GPP) markets the song to Universal Publishing in England, for use on the British film. If the composer’s agreement with GPP is “at source”, then his royalty will be calculated on the amount paid by the film company to Universal; If it is “on receipts”, then it will simply be based on the amount that is received by GPP after Universal (and probably MCPS and SAMRO/CAPASSO) have taken their various percentages – this will amount to much less.

Clearly, therefore, the “at source” basis of calculation is designed to protect the composer from his royalties being diluted by the effect of the publisher’s sub-publishing arrangements. It is therefore obviously better for a composer to be paid on an “at source” basis. If the publisher will not agree to do this, then the composer’s professional advisers must limit the extent to which the publisher can dilute the composer’s royalties by paying sub-publishing fees and fees to foreign collection societies. Typically, a publisher should agree that sub-publishing fees will not exceed 15% or 20%, and you should push for this.