TAXI FAQs: Making Money: Learning Where The Money Comes From

This Article Originally Published February 2002

by Jason Blume

part one | part two

Many developing songwriters resent having to be a businessperson. I've heard them lament, "I've written the songs—now let somebody else take care of the business." But the reality is that this is the music business. The greatest song in the world will not become a hit if it's neither demoed or brought to the attention of music business professionals.

Although it's perfectly acceptable to write solely for your own pleasure, if your goal is to be successful in the music business, you have to pay as much attention to the business as you do to the music.

For starters, it would be helpful to understand the difference between a music publishing company and a record label. A publishing company's primary function is to generate income from songwriters' songs. This income typically results from getting these songs recorded by recording artists, or included in television shows or films. The term "publisher" is often used interchangably to refer to an individual who's employed by a publishing company to pitch songs, and to the company itself.

A record label is a company that's in the business of producing, distributing and seling albums. A rercord label signs recording artists. If these artists do not write their own songs, members of the label's A&R department will meet with publishers in the hopes of finding hit songs for their artists.

Songwriters' incomes come from a variety of sources. Songwriters earn money primarily from mechanical royalties, performance royalties, print royalties, synchronization licenses and publisher advances. If a songwriter is also a recording artist and/or producer, he will earn additional royalties, but those royalties are totally separate from monies generated by the songs themselves.

Mechanical Royalties

Mechanical Royalties is the name given to revenues paid for the "mechanical reproduction" of musical compositions on sound recordings. It refers to the royalties paid for the sale of a physical, tangible product containing music—audio cassettes, CDs, record albums, and videocassettes all generate mechanical royalties. In plain english, mechanical royalties are the monies you are paid for the copies of your songs that are sold.

In the United States, the mechanical royalty rate is established by Congress and is called the "Statutory Rate." With one exception (the 3/4 rate which we'll discuss another time), the Statutory Rate is not negotiable and applies equally to all songwriters. Therefore, Michael Jackson, Diane Warren, Garth Brooks and you, all receive the same mechanical royalty for each album or single sold.

Payment is made per unit. A "unit" refers to one recording of a song on an audiocassette, CD, or record, whether it's an album or a single. Each song included on an album is considered one unit. If you are lucky enough to have written 10 songs on an album, you will be paid for 10 units for each album sold.

Occasionally, more than one version of a song may be included on an album or single—the radio mix, the dance mix, the urban mix, etc. In these instances, the writer is paid for each version of the song, just as if it were a separate song.

For single releases, mechanical royalties are paid equally for the "A" Side (the song that is sent to radio stations and marked as the probable hit) and the "B" Side (a song that the buyer is probably not familiar with). Therefore, the writer of the hit song and the writer of the unknown song receive the same amount of money for the sale of each single. Although this may not seem fair, you should know that the writer of the hit will earn the bulk of his income from performance royalties.

Next, we will take a look at exactly how much mechanical royalties actually pay, based on the Congressional chart which was negotiated through the year 2006.