Music publishing agreements series; (part 17) When will I receive my royalies?

Publishing advances are recoupable against royalties. Therefore, a composer will not receive any royalties until such time as the aggregate value of the royalties he has earned exceeds the advance he has been paid.

There are other monies that the publishers may pay on a recoupable basis, in order to generate royalties. For example:

1. Recording and “demo” costs;

2. Equipment costs;

3. Tour support;

4. Independent promotion or “strike force” costs.

The above are all usually recoupable. Let us take an example of a British publisher spending the following money on a particular composer (and this is a very typical scenario): -

Assuming a composer writes 100% of an album and applying the simple rule of thumb of the composer’s share of mechanical royalties being worth 50p per album (being a slight over-estimate in the composer’s favour) this means that the composer’s record company has to sell over 220 000 albums for the composer to recoup this £110 000 and for royalties to come “on stream.” Even in the UK, this is no easy task.

Only a handful of new artists each year would attain such success with their first album. Of course, additional royalties will accrue to the composer from synchronisations, sheet music and public performance. As a rule of thumb, UK publishers generally assume that in the short term the public performance income attributable to a song will equate to around 15% to 20% of the mechanical income arising in the first two years of a song’s existence.

In South Africa, the numbers would look more like this (and Tour Support, although included is not commonplace):

For the South African composer to recover these costs on behalf of his publisher at around R10 per album (6.76% of even a very high PPD like R150), he would have to sell 27 000 albums. For this reason, most SA publishers limit their expenditure to around R60 000 to achieve a break-even of 5 – 6000 albums, an acceptable level in South Africa’s smaller market. So South African advances to composers are more likely to be around the R40 000 mark (calculated as 6000 x R6.76, and presuming a PPD of R100).

In the UK, royalty accountings are usually delivered on 31st March (for earnings in the six month period ending 31st December) and 30th September (for earnings in the six month period ending 30th June). In South Africa, a quarterly system is sometimes used, so that local composer /copyright owners receive royalties within 60 days of the quarter ending March 31, June 30, September 30 and December 31.

However, bear in mind that the publisher (in the UK or South Africa) will only be able to account for earnings arising outside the UK or South Africa when those royalties have been received by it in the UK or South Africa from its overseas sub-publishers. There may be several links in the “chain”, including overseas sub- publishers and collecting societies, each of whom will receive monies, hold on to them for a period and then pay them onto the next person in the chain each after deducting their cut. By way of example, for an album sold in the USA in May 2013, the South African composer’s royalty account would not actually be credited until (typically) September 2014 (a delay of sixteen months);

As stated previously, where the agreement is album-based, royalties in respect of one album may be recouped not just against advances paid for that album but against advances for all the albums that are the subject of the publishing agreement. Thus, that old bug-bear, cross collateralisation, exists in publishing as well. Watch out for it. Take the following example; if:

1. The royalties due from the exploitation of the songs on the first album between 1st July 2013 and 31st December 2014 total, say, R300 000;

2. But the previous (i.e. 1st July 2013) un-recouped balance was, say, R200 000;

3. And on, say, 1st February 2014 the publisher exercised its option for a second album and paid a further advance of R50 000;

4. Then the composer would, on 31st March 2015 receive not R100 000 royalties, but only R50 000 royalties.

Because of the combined effect of cross-collateralisation and ever-increasing recoupable costs, it is an unfortunate fact of life that fewer and fewer composers recoup on their first few royalty accounts: only those that enjoy substantial, international success early on can look forward to receiving early regular royalty cheques from publishers.

Of course, as explained previously the “composer’s share” of SAMRO royalties is not subject to any recoupment. This is another reason why direct membership with these societies is so important. (This society currently does not pay advances because of the National Credit Act and, because the royalties are paid direct to the composer, they are not available to the publisher for recoupment purposes).