Writer/publisher mechanical royalties
First, there is the calculation of mechanical royalties for writers and publishers. These royalties are paid by the record company to the publisher. The publisher then pays the writer a share of the royalty (typically split 50/50).

In the United States, the royalties are based on a “statutory rate” set by the U.S. Congress. This rate is increased to follow changes in the economy, usually based on the Consumer Price Index. Currently, the statutory rate is $.08 for songs five minutes or less in length or $.0155 per minute for songs that are over five minutes long. So, for example, a song that is eight minutes long would earn $.124 for each recording sold.

As in most areas in the business world, however, there is room for negotiation. It is not uncommon — in fact, it is more the norm — for record companies to negotiate a deal to pay only 75% of the statutory rate, particularly when the writer is also the recording artist. (See the “Controlled Composition Clause” below.) Although there is a statutory rate, there is no law against negotiating a deal for a lower one. Sometimes it is in the best interest of all parties to agree to a lower rate.

How are musicians and songwriters compensated when their music is played on the radio, sold on digital platforms, webcast or streamed on interactive services?

Recording-artist mechanical royalties
Recording-artist royalties (and contracts) are extremely complex and a hotbed of debate in the music world. From the outside, the calculation appears fairly simple. Artists are paid royalties usually somewhere between 8% and 25% of the suggested retail price of the recording. Exactly where it falls depends on the clout of the artist (a brand new artist might receive less than a well-known artist). From this percentage, a 25% deduction for packaging is taken out (even though packaging rarely costs 25% of the total price of the CD or cassette).

That sounds simple enough, but there are many more issues that affect what a recording artist actually makes in royalties.

•Free goods – Recording artists only earn royalties on the actual number of recordings sold — not those that are given away free as promotions. Rather than discounting the price to distributors, many record companies give a certain number away for free (about 5% to 10% depending on the artist). Recording companies also give away many copies to radio stations as “promo” copies. There is also a reduction in royalties made for copies of the recording sold through record clubs.

•Return privilege – Recordings in the form of CDs or cassettes have a 100% return privilege. This means that record stores don’t have to worry about being stuck with records they can’t sell. Most other businesses don’t work this way, but the music industry has to be more flexible and timed to demand. What’s hot today may be forgotten tomorrow… This leads us to reserves. The recording company may hold back a portion of the artist’s royalties for reserves that are returned from record stores. (Usually about 35% is held back.)

•90% – Back in the days of vinyl records, there was a lot of breakage when record albums were shipped out for distribution. Because of this, recording companies only paid artists based on 90% of the shipment, assuming that 10% would be broken. Even as vinyl was phased out, this practice continued. Today it is gone for the most part, but there are still a few holdouts.
So, here is how it looks so far. Let’s say a CD sells for $15. Right away we deduct 25% from that for packaging, which makes the royalty base $11.25. Now let’s say our artist has a 10% royalty rate and that his CD sells one million copies. That sounds great! The artist would earn $1,125,000! Except 10% of those were actually freebies, so we really have to calculate that royalty based on 900,000, which makes the royalty $1,012,500, and of course, there are few costs we haven’t talked about yet.

Advances & Recoupment:
Typically, when recording artists sign a recording contract or record a song (or album), the record company pays them an advance that must be paid back out of their royalties. This is called recoupment. In addition to paying back their advance, however, recording artists are usually required under their contract to pay for many other expenses. These recoupable expenses usually include recording costs, promotional and marketing costs, tour costs and music video production costs, as well as other expenses. The record company is making the upfront investment and taking the risk, but the artist eventually ends up paying for most of the costs. While all of this can be negotiated up front, it tends to be the norm that the artists pay for the bulk of expenses out of their royalties.
Let’s see what these recoupable expenses do to our artist’s $1,012,500 royalty we calculated earlier. Suppose the recording costs were $300,000 (100% recoupable), promotion costs were $200,000 (100% recoupable), tour costs were $200,000 (50% recoupable), and a music video cost $400,000 (50% recoupable). That comes out to:

$300,000 + $200,000 + $100,000 + $200,000 = $800,000
Suddenly our artist isn’t making a million plus, he’s making $212,500. But don’t forget there is also a manager to be paid (usually 20%), as well as a producer and possibly several band members. The artist won’t see any royalty money until all of these expenses are paid.

WHAT HAPPENS TO UNCLAIMED ROYALTIES @ASCAP?

UNCLAIMED ROYALTIES.   Except in those instances which in the solediscretion of ASCAP Board of Directors warrant additional time, royalties which havebeen apportioned and which have not been claimed by the owners shall remain in theGeneral Fund of the Society for a period of three years.  Three months prior to theexpiration of said three years, notices shall be given to the parties lawfully entitledthereto, by registered mail, requiring them to receive said royalties within threemonths, and after the expiration of said three months, such royalties, if not claimed,shall become the absolute property of the Society.  Notwithstanding the foregoing,however, should any unclaimed property law of a state or territory of the UnitedStates so require, royalties which have been distributed and which have not beenclaimed by the payee shall be kept segregated from the General Fund of the Societyfor such period of time as required by the applicable law and thereafter be further disbursed pursuant to, and upon such notice as required by, the applicable law.  The manner and method of giving notice provided for in the applicable law shall control,notwithstanding any contrary provisions regarding giving notices as may generallyapply under Article XIX in ASCAP Articles Of Association

DIGITAL ROYALTIES: If you are a featured recording artist or a sound recording copyright owner (SRCO), producer or creative contributor, you may have earned digital performance royalties for the use of sound recordings you own or on which you performed. Artists and SRCOs should register with SoundExchange.com as soon as possible, even if you’re a member of another performance rights organization, as only SoundExchange can provide digital royalties. Registration is fast and always free. Copyright holders and featured artists (generally, the most visible person, in print or image, on the physical package of a recording) are paid through SoundExchange. Session players and back-up musicians are paid from a separate royalty fund. No matter what part you played, CLEVERSOUL PUBLISHING can help you find out how to get paid.

SoundExchange is an independent, nonprofit performance rights organization that collects statutory royalties from satellite radio (such as SIRIUS XM), internet radio, cable TV music channels and similar platforms for streaming sound recordings.  The Copyright Royalty Board, which is appointed by The U.S. Library of Congress, has entrusted SoundExchange as the sole entity in the United States to collect and distribute these digital performance royalties on behalf of featured recording artists, master rights owners (like record labels), and independent artists who record and own their masters.