Every time someone streams a track, performs a song, or uses a song in a TV show, money starts moving through the music industry—but not in a straight line. Royalties flow through a web of platforms, rights organizations, and contract splits, with plenty of opportunities for confusion (and missed payments) along the way.
At Tone, we believe that rightsholders deserve clarity—not chaos and confusion. So we created this guide to help independent artists, publishers, and labels understand how royalties work, where money flows, and what to watch out for when it comes to getting paid for their music.
The 3 Key Rights That Generate Music Royalties
As a rightsholder, when your song is played—whether it’s on Spotify, FM radio, or in a SoulCycle class, three major rights can be triggered:
Master rights: tied to the sound recording
Mechanical rights: tied to the reproduction of the composition
Performance rights: tied to the public use of the composition
Each of these rights has its own revenue streams, collection societies, and payout rules—and your ability to earn depends on how well you understand the differences.
As Michael Bizenov, President of Sound Royalties, puts it:
“Whether you’re a creative or on the business side, you need to understand your finances, your net income, your expenses, and your net worth. Getting that type of financial literacy is critical.”
Royalty literacy is financial literacy. And in today’s fractured revenue landscape, the creators and rightsholders who understand how money moves are the ones best positioned to sustain their careers and grow their revenue.
Master Royalties: The Money from the Recording
Master royalties are paid to whoever owns the sound recording—usually the label or the artist (if they own their masters). This is what most artists think of first when they imagine making money from music consumption.
How the money flows: Master Royalties
- The rightsholder uploads a track to a distributor (e.g. Stem, DistroKid, CD Baby)
- The distributor delivers the track to digital service providers (DSPs) like Spotify or Apple Music and/or physical distributors like CD Baby or Symphonic
- The track is streamed or downloaded, or CDs, LPs, etc. are purchased
- The DSPs or physical retailers pay sales revenue to distributors
- The distributor takes a fee (often ~10–20%)
- The remaining sales revenue goes to the master rightsholder
- If the master rightsholder is a record label, they would collect this income and account royalties to their artists and producers based on their contract terms.
What matters here: Master Royalties
Ownership matters: The owner of the master collects sales revenue from distributors and pays out portions of the income as royalties based on established contracts with artists and collaborators. Artists who don’t own their masters won’t collect royalties, but their share will be paid out by the owner of the master (for example, their record label).
Data accuracy is everything: Metadata errors can mean revenue goes missing or get delayed.
Each individual sound recording has an ISRC within the metadata, which stands for International Standard Recording Code. It’s a unique identifier assigned to each sound recording (not the composition, but the actual audio file).
Pro tip: Keep your ISRCs (International Standard Recording Code) clean and aligned with the right splits. DSPs can’t pay what they can’t track.
Mechanical Royalties: Getting Paid for the Reproduction of the Composition
Mechanical royalties are paid to the songwriter and publisher when the composition is reproduced—physically (like CDs or vinyl records) or digitally (through downloads or on-demand streaming).
Streaming: The MLC has a blanket mechanical agreement with DSPs to grant them a license for interactive streaming and downloads. DSP will then report usage and pay mechanicals to the MLC.
Downloads and Physical: Labels need to obtain mechanical licenses from either HFA or the publishers directly (if the publisher is not affiliated with HFA). The label will then report usage and pay mechanicals to the HFA or publisher.
Interactive Streaming vs. Non-Interactive Streaming: Why It Matters
The way a listener experiences your music affects how royalties are triggered—and who gets paid.
Interactive streaming is when a listener has control over playback this includes on-demand platforms like Spotify Premium or Apple Music, where listeners can choose specific songs, create playlists, or skip tracks. Even Spotify’s free tier—where users can shuffle or skip within limits—is still considered interactive.
Non-Interactive Streaming is more like traditional radio. The listener can not choose specific tracks or control playback order. Think SirusXM radio or Pandora’s free tier.
How Money Flows: Mechanical Royalties (in the U.S.)
1.) An artist records a track that includes a copyrighted composition
2.) A distributor sends the recording to DSPs
3.) When the track is streamed, downloaded, or manufactured physically, the underlying composition is reproduced in the process and therefore mechanical royalties becomes due. However, the flow of mechanical royalties is different for streams compared to downloads or physical formats.
4.) For streams:
a.) DSPs pay these royalties to the Mechanical Licensing Collective (MLC)
b.) The MLC does not take a fee from composers. DSPs are legally obligated to fund the MLC through their usage (thanks to the Music Modernization Act!)
c.) The MLC does not pay a fixed amount per stream, instead following a formula that calculates a percentage of the total mechanical royalty pool.
d.) The MLC pays out royalties on a monthly basis to publishers, administrators, and self-administered songwriters.
e.) The administrators or publishers would then pay out mechanicals to their songwriters.
5.) For downloads and physical formats:
a.) Mechanical royalties are generated on a per-unit basis, known as the statutory rate, or stat rate. As of January 1, 2025, the current stat rate for digital downloads and album sales is 12.7 cents per track or 2.4 cents per minute of playing time – whichever is greater. The stat rate for ringtone downloads is 24 cents.
b.) The statutory rate is then split 50/50 between the publishers and composers. For example, let’s say a track with 2 composers and 2 publishers is downloaded. At the current stat rate of 12.7 cents, 6.35 cents goes to the publisher share and 6.35 cents to the composer share – that 6.35 cents will then be split between the 2 publishers/composers.
c.) Sales revenue is typically paid to the label, who then pay the mechanical royalties to either a mechanical rights organization (MRO) like the Harry Fox Agency (HFA) or the publisher directly, depending on who their mechanical licensor is.
d.) If applicable, HFA takes an 11.5% fee before paying the publisher
e.) Publishers are then responsible for paying out the songwriter share to their writers
In the U.S., The MLC was created in 2021 under the Music Modernization Act to streamline this process. Before that, a lot of money was left on the table—millions in unmatched royalties. Today, the MLC holds over $400M in previously unmatched royalties, which songwriters can still claim by registering properly.
What Matters Here: Mechanical Royalties
You must be registered with the MLC to receive your mechanicals from U.S. streams. If your compositions are not registered, any mechanical royalties generated from U.S. streaming platforms will go unclaimed. The MLC will hold these unmatched royalties for at least three years, giving you time to register and claim them. After this period, the MLC is authorized to distribute unclaimed royalties to registered copyright owners, based on relative market share as reflected in reports of usage provided by DSPs for a given period.
Pro tip: You don’t have to have a publishing deal to collect mechanical royalties—you just have to be properly registered. You can create your own publishing entity via the MLC or a performing rights organization (PRO).
Performance Royalties: When Music Is Played in Public
Performance royalties are earned when your music is performed publicly—on radio, TV, in stores, at live events, or on streaming services. But not all performance royalties go to the same people—or through the same systems.
Songwriters, composers, and publishers are paid through PROs like ASCAP, BMI, and SESAC.
Recording artists and master rights holders (e.g., labels) are paid for non-interactive digital performances of the sound recording through SoundExchange.
How money flows: Performance Royalties (PROs)
- A license is obtained from PROs to grant public performances of their members’ repertoire in a commercial setting (e.g. radio, DSP, venue, retail store etc)
- When the composition is played live, streamed, or broadcast, this is considered a ‘public performance
- Usage data is collected by the PRO or reported by the licensee depending on the licensing agreement and source type
- Revenue is collected by PRO, either in advance or in arrears, in line with licensing agreement and usage reporting
- PRO collects international income from affiliate societies, via reciprocal agreements, for their members’ usages outside the US
- The PRO deducts an admin fee depending on source and license type (usually 10–15%
- The PRO distributes royalties separately via a songwriter and publisher share
How money flows: Performance Royalties (SoundExchange)
- A non-interactive digital service (e.g., Pandora’s free tier, SiriusXM, internet radio) plays a sound recording
- The service pays a statutory license fee to SoundExchange
- SoundExchange collects usage data and deducts a small admin fee (typically 4–6%)
- Royalties are distributed to recording artist and master rights holders
What matters here:
- Recording artists do not receive performance royalties from PROs unless they are also credited as a songwriter—but they do receive digital performance royalties through SoundExchange.
- Performance royalties for international usage flow through reciprocal agreements between affiliate PROs.
- Venues often underreport setlists—make sure yours are submitted, whether you are touring or not.
- Compositions in the public domain are do not need to be licensed
Pro tip: Register with a PRO and submit your live performance setlists. This can be an overlooked income stream for working artists.
How These Rights Work Together
In reality, every on-demand stream activates all three rights. That means your revenue is divided between different entities, and errors anywhere in the chain—metadata, contract terms, incomplete registrations—can break the flow.
And with increasingly complex deal structures (think: featured artists, producers, sample clearances, multiple publishers, etc.), one misconfigured contract can have ripple effects across every right.
That’s why understanding not just what royalties are owed—but how they flow—is so important for today’s independent rightsholders.
A Smart Music Royalties Strategy Starts with Clarity
Most successful indie artists and labels have on thing in common: they treat their music like a business. That means:
- Knowing what rights you control
- Understanding how those rights generate income
- Tracking where that money is going
- Identifying gaps before they become lost revenue
At Tone, we’re building tools to help artists, labels, and publishers take control of their royalty pipelines to create streamlined strategies to scale their business and get paid.
Our platform helps you:
- Connect contracts across collaborators (artists, producers, publishers)
- Simulate different deal structures before signing
- Track and account for royalty income across master, mechanical, and performance rights
- Catch missing metadata, broken splits, and bad assumptions—before they cost you
Our latest feature, the Contract Simulator, lets you preview what royalties will look like across linked deals (producer points, escalations, recoupments) before you distribute. It’s built to prevent headaches and preserve trust for you and your team.
In today’s music economy, creative control is only half the battle—financial control is just as essential. Whether you’re a self-managed artist, a boutique label, or a new publisher, the more you understand how money flows, the more empowered you are to build something sustainable.
At Tone, we’re here to help you turn knowledge into strategy—and complexity into clarity.
Want to start seeing your royalties more clearly? Book a demo or explore the platform to get started.
