Digital Performance Royalties: How They’re Distributed and Who Earns Them

In the US, recording artists are at something of a disadvantage compared to their peers around the world. Since the US does not recognize neighboring rights, recording artists (aka master owners) are not paid royalties when their songs are played on the radio. But, there’s an exception to this rule when it comes to non-interactive digital streaming services (where the user does not choose the specific song). 

The reason why these digital services pay royalties to recording artists while radio stations don’t is somewhat arbitrary (we touch on the history briefly in this article), but the bottom line is: for certain types of public performances, recording artists do receive royalties -- as long as they’re registered with the right collection agency.

In this article we describe which types of streams generate digital performance royalties, touch on how they’re collected and distributed, and tell you what steps you need to take to get the royalties you’re owed. 

What are digital performance royalties? 

Digital performance royalties are royalties that non-interactive digital streaming services (such as Pandora and Sirius XM, or countless webcasts found around the web) must pay to performing artists each time a sound recording is streamed on their services. In the US, digital performance royalties are collected by SoundExchange.

Who has to pay digital performance royalties?

The term digital performance royalties might suggest that all streaming services have to pay these royalties, but, in fact, interactive streaming services do NOT pay performance royalties to recording artists, just songwriters (or composition owners). Don’t get me wrong, interactive streaming services do pay the recording artists on the platforms — in fact, we’ve dedicated an entire blog post to the topic, breaking down exactly how streaming payouts work — but not in form of performance royalties/neighbouring rights. So, when it comes to digital performance royalties, only non-interactive streaming services and satellite/cable radio stations pay up. 

Non-interactive digital internet radio

What exactly does “non-interactive” mean? The term refers to any digital streaming service in which the user does not choose individual songs, but instead the music they hear is chosen algorithmically (in contrast to, for example, Spotify, Apple Music or Amazon Music where the user is technically free to play whatever music they want). This category includes popular services like Pandora, iHeartRadio, along with any webcasts of terrestrial radio or standalone internet radio stations. 

Satellite radio

Satellite radio stations, such as Sirius XM, are also considered digital platforms since they broadcast music “by means of a digital audio transmission”. So, satellite radio stations are also required to play digital performance royalties.

Who earns digital performance royalties? 

Digital performance royalties as a specific category of royalties only exist in the US. In the rest of the world, digital performance royalties are just a part of a larger landscape of neighbouring rights, which are royalties paid to performing artists to compensate for the public performance of their music.

 In most other countries, recording artists get royalties when their music is played on the radio — it doesn't matter if it’s digital or terrestrial. In the US (and few other countries) that’s not the case: since the US still hasn’t signed the Rome Convention of 1961 which instituted neighbouring rights to master owners, only songwriters and publishers are paid royalties when their compositions are featured on the air. Terrestrial radio provides recording artists with promotion and exposure, and so — the reasoning goes — no further compensation is required. 

Then, the digital era came about, and the US government introduced DPRA (Digital Performance Right in Sound Recordings Act of 1995), that granted owners of a master copyright an exclusive right “to perform the copyrighted work publicly by means of a digital audio transmission”. DPRA was supposed to protect the revenues of the recording artists as physical sales started to go down — which, as we all know, didn’t really work out that well. However, it did create a new right for the owners of master copyright — the right to ”perform the copyrighted work publicly by means of a digital audio transmission” — thus creating a new royalty in the music industry: digital performance royalties. 

Recording artists

Typically, featured and non-featured artists collectively receive 50% of the royalties each time a song they performed on is streamed on a non-interactive digital streaming service. However, depending on how ownership of the master copyright is split, featured artists may earn more than this amount (more on that below).

Record labels 

The other 50% of the digital performance royalties for a sound recording are allocated to the owner of the master copyright. Typically, this is the record label who backed and funded the recording, but record labels and featured artists often agree to split ownership of the master copyright of a sound recording. So, the featured artist may receive a share of this 50% as well. 

This split scheme is mirroring the concept of the writer’s and publisher’s share on the publishing side: the artist holds a 50% of the copyright “no-matter-what”, while the other 50% is split between the artist and their representatives based on the deal in place. 

How are digital performance royalties collected? 

The US government has designated one collection agency for digital performance royalties: SoundExchange — the big three performance rights organizations, BMI, ASCAP, and SESAC only collect performance royalties for songwriters. Digital radio platforms and non-interactive digital streaming services must purchase a statutory license from SoundExchange to use licensed music and then report the songs that they play. On the artist side, recording artists, session musicians, and record labels must register with SoundExchange and then receive a certain amount of royalties based on the number of times their music was played. 

How are digital performance royalties divided? 

For each stream of a song, the royalties for that stream are divided as follows:

• 45% to featured artists
• 5% to non-featured artists
• 50% to the rights owner of the master recording

Keep in mind that ownership of the master copyright is often split between the recording artist and the record label according to predetermined terms, so a certain percentage of that 50% of the royalties will likely end up in the pockets of the featured artist(s) as well. 

How to collect digital performance royalties: join SoundExchange! 

One advantage of earning digital performance royalties is that the process is a little more straightforward than the performance royalties earned by songwriters, where there are multiple collection agencies to consider. To earn digital performance royalties when your music is played on digital streaming services, all you have to do is register with SoundExchange. 

Signing up with SoundExchange is free, and there are no recurring fees. You can register online at SoundExchange’s website.

Conclusion

If you’re a music professional outside the US who doesn’t deal with the US market, then you don’t need to think much about digital performance royalties. But if your music (or the music of someone you represent) is getting streams on non-interactive digital platforms, then you need to make sure you are a member of SoundExchange. The popularity of digital streaming services continues to grow, so this niche royalty is set to become a more important source of revenue than ever for recording artists.