Does Spotify Pay Mechanical Royalties?
Royalties are the black box of earning income as a musician - so I've been on a quest in recent weeks to understand them better, and I discovered just how important it was for myself and most musicians to understand mechanical royalties better.
Spotify pays two types of royalties: mechanical and performance. But the royalties paid are different across each - and typically the artist will see a small portion of the proceeds after distribution.
That's right, there are two types of royalties distributed whenever your song is streamed on Spotify. Performance and mechanical royalties are just two of the four types of royalties - but you should know all four if you are creating music.
What Are Mechanical Royalties?
Mechanical royalties are payments made to songwriters and their publishers for the privilege of reproducing their work on a physical format, such as CDs or vinyl records, or as a digital product like a stream.
Since mechanical royalties are critical to streaming revenue, this caught my attention. As an artist making a go of YouTube Music, Spotify, and others, my next stop was to figure out what this meant for me.
Like I said though, artists won't get the full payout on royalties, mechanical or otherwise. Especially on a platform like Spotify, which has one of the lowest payouts per stream within the music streaming ecosystem.
How Much Does Spotify Pay Per Stream?
Spotify pays artists an average of $0.0033 per stream. Comparatively, platforms like Apple Music and Tidal pay on average $.01 per stream and $.011 per stream.
Of the big four music streaming platforms (Apple Music, YouTube Music, Amazon Music, and Spotify), Spotify is by far the lowest revenue generator for artists. That said, it does have an incredibly loyal audience that streams a ridiculously high volume.
If you are trying to figure out which music streaming platform to use, so you can maximize revenue per stream, I highly recommend you check out some of the pros and cons to consider before making a decision.
Ok, Spotify is not a great earner, but all the streaming services have to abide by the mechanical royalties. So it's important to know how it all connects.
How do Mechanical Royalties Work in Streaming?
Spotify, YouTube Music, Amazon Music, etc, hold the lion's share of mechanical royalties that get paid in today's music world. And while what gets paid out for streaming can vary quite a bit, the volume of streams can offset the low revenue per stream.
I'm going to focus on the US for the following info, but each region will have a separate approach for this.
Who Pays Mechanical Royalties?
Traditionally, The entity that "presses, manufactures, or duplicates" the physical copies of a work is who pays the mechanical royalties in the US.
For example, if you bought a CD from an artist, the record label that pressed and sold that CD is who would owe the mechanical royalties to the songwriter - not the artist. The same goes for vinyl records.
Who Pays Mechanical Royalties for Streaming Music?
In the digital world, it's a little different. The platform that makes the copy of the work available to the listener is who pays the mechanical royalties in the US.
For example, if you stream a song on Spotify, Spotify is who would owe the mechanical royalties to the songwriter - not the artist or record label.
This is an important distinction to make because it's often assumed that the artist is who would get paid the mechanical royalties for streaming. But that's not necessarily the case.
Most artists see very little - if any - of their streaming mechanical royalties. The majority of those royalties go to the songwriter and/or publisher.
The reason for this is that the artist typically signs over their mechanical royalties to the record label in exchange for an advance and/or other considerations.
This is known as a "controlled composition clause" and it's pretty standard in most record deals nowadays.
It's also important to point out that the US isn't the only country where this happens. In many other countries, the artist also signs over their streaming mechanical royalties to the record label.
So, while the artist may not see any of their streaming mechanical royalties, they are still owed those royalties by the platform. The royalties just get paid to the record label instead.
The good news is that the US Copyright Office had a new rule that went into effect on January 1, 2021 that allows artists to terminate their record deals after 35 years. This allows them to collect their mechanical royalties on their music from 1986 onward.
Who Collects Mechanical Royalties for Streaming?
In the US, The Harry Fox Agency, Music Reports Inc (MRI), and Mechanical Licensing Collective (MLC) cover the collection of mechanical royalties - all of which are classified as MROs. It's a misconception that BMI or other PROs will collect mechanical royalties - they stick to performance royalties.
Harry Fox is the largest of the three and they've been around the longest. They currently represent over 48,000 music publishers and handle over 50% of all digital mechanical licenses in the US.
Music Reports Inc is a direct competitor to Harry Fox and they represent around 20,000 music publishers. MRI also has a direct licensing program that allows them to license directly with digital service providers (DSPs) like Spotify, Amazon, Apple, etc.
The Mechanical Licensing Collective is the newest of the three and they were created by the Music Modernization Act (MMA) in 2018. The MLC is a non-profit organization that covers mechanical licensing and royalty collection for streaming services.
Royalties for Self-Releasing Artists
An artist who releases their own music can still collect mechanicals and performance royalties. While this would earn the most profit per royalty, it comes at the expense of not having a label promote your name, so you could miss out on higher volume as a result.
There are three parts to collecting for your music.
Distribution: You would set up an arrangement with a distributor like AWAL, CD Baby, or Tunecore. They are some of the most popular self-release services that will help with this. You could either pay a flat fee for their work or offer a cut for the distribution of your work.
Mechanicals: You can collect through a separate entity or do it all yourself. Collecting yourself brings in more profit, but requires more work on your end.
Performance: This is typically handled by a PRO, and the songwriter would be owed the writing and publishing proceeds collected.
In short, if you're a self-releasing artist, you can still collect mechanical royalties. You'll just need to set up an arrangement with a distributor and handle the collection yourself or through a separate entity.
This process can be daunting, but it's important to remember that you're owed these royalties for your music. The good news is that there are services available to help make this easier - all you need to do is some research and find the best option for you.
Other Royalties You Should Know
Mechanical royalties are just one type of royalty that artists should be aware of. Other royalties can be collected for different uses of your music as well. I've just barely touched on performance royalties, but there are also sync and print royalties.
Performance royalties are earned whenever your music is played on the radio, TV, or any live performance venues. These royalties are collected by aPRO (like BMI or ASCAP) and they are then split between the songwriter and the publisher.
Sync royalties are earned whenever your music is used in a commercial, TV show, movie, or video game. These are usually handled by a music supervisor or composer but can be collected by the artist as well.
Print royalties are earned whenever your music is printed in sheet form. This includes anything from method books to guitar tablature. These royalties are typically collected by the publisher but can be collected by the songwriter as well.
While there are many different types of royalties, mechanical royalties are some of the most important for artists to understand. They can be a significant source of income, especially for digital streaming services.
But because streaming services also pay out performance royalties, you should know how those work. And certainly don't overlook sync royalties - there is a component within that called micro-sync royalties that applies to your music on short-form video formats like Tik Tok.
So What Does All of This Mean for Musicians?
Simply put, it means that streaming services like Spotify pay mechanical royalties (and performance,) but artists see very little of those payments. Organizations like Harry Fox Agency, MRI, and the MLC come in to help collect and distribute mechanical royalties.
If you're self-releasing your music, you can handle mechanical royalties on your own, but don't forget about performance royalties and distribution. And there are two other types of royalties that you should know just as well as mechanical and performance royalties.
To learn more about all four types of music royalties and how they can affect your career as a musician, check out our other article called "What are the Different Types of Royalties in Music?"
