5.0 Royalties

5.1 Rates of Royalty

Traditionally, publishers accounted to their writers for 50% of their income. A 50/50 split is still common in the case of television and film companies when commissioning writers to compose music for a specific use. However, generally a songwriter now expects something far better (usually falling within the range of 60% to 80%). A singer songwriter (whose own efforts will generate most of the publishing income) would expect to receive royalties at the top end of the scale usually say 75% or 80%. Royalties of 85% or 90% are sometimes payable. However, there is an obvious correlation between the royalty rate and the amount of any advance payable so that for example a publisher prepared to pay a writer an advance of £100,000 against a royalty of 75% of the publisher’s receipts might be prepared to increase the 75% to say 85% or even 90% but only on the basis that perhaps no advance is payable. An 85% or 90% royalty will more often be seen in the context of administration arrangements (see Part IV below).

Under a typical publishing contract a new writer would often expect to achieve a 75/25 royalty split. The writer may be persuaded to accept a royalty of, say, 70/30 in relation to the songs delivered during the initial contract period but if the publisher exercises the first of its options then there may then be a 75/25 split. The 75/25 split might therefore apply for the second and third contract periods. If the publisher has an option for a fourth contract period then perhaps this will only be granted on the basis that at that stage the split increases to 80/20.

If the royalty rate is 75% then in the case of performance income the writer will receive 50% (or what the PRS prefers to refer to as six twelfths) direct from the PRS. The remaining six twelfths will be paid to the publisher but the writer will require 50% of this (so that overall he receives 75% of the gross performance income). However, his 50% share of the publisher’s six twelfths will be available to the publisher to apply towards recoupment of any advance. So far as mechanical and synchronisation income is concerned the writer will receive 75% of what the publisher receives (although see paragraph 5.3 below for what is meant by “receipts” for this purpose). In the case of sheet music sales the publisher will generally licence sheet music rights to a third party and will simply pay the writer 75% (in this example) of its receipts pursuant to any such licence. If the publisher itself publishes the music in sheet form then the contract will usually provide that the publisher will pay the writer between 10% and 15% of the retail selling price.

5.2 Reduced Royalties for Covers

Publishers will often seek a reduction in the rate of royalty in relation to income derived from cover recordings. If we again assume that the basic split is 75/25 the publisher may insist that a split of say 60/40 applies in the case of income from covers. This is a dubious practice but it is quite common. By a cover recording is meant a recording by an artist of somebody else’s song so that in our example the writer would receive 75% of the income generated by his own recordings of his songs but perhaps only 60% of the income generated from other recordings of those songs. The task of collecting the income from a cover is no different from the task of collecting the income from the writer’s own recordings so that this in itself does not justify the income being treated in a different manner. The publisher will argue that a reduction in royalty is justified because of the input of its professional manager or managers in securing the cover in question. The vast majority of covers happen because the recording artist concerned makes a unilateral decision to record a new version and the first the publisher will know about this is when the artist’s record company applies for a mechanical licence. Most publishers will therefore accept that the reduced rate should only apply for covers which have been obtained as a result of the direct efforts of the publisher. Even in these cases, however, the practice of paying a reduced royalty is a questionable one. All publishing contracts will contain an express provision to the effect that the publisher must use all reasonable endeavours to exploit the songs in question. It is therefore difficult for the publisher to argue that if it achieves some success in doing what it is obliged to do then it should be more handsomely rewarded. The only logical argument in favour of the publisher (using the same example) is that the basic rate should be 60/40 but if the writer secures any exploitation himself (in particular by means of his own recordings) then in relation to those recordings the split should increase to 75/25. Obviously, this amounts to the same thing but it might be more palatable for the writer if the contract were presented in this way. What is clear is that a pure songwriter (who does not have a recording career) should not be fooled into thinking that he or she has a 75/25 deal if this provides for a 60/40 split in relation to covers. Clearly, it is a 60/40 deal.

5.3 Method of Calculation

Royalties are either calculated on what is known as a “receipts” basis or upon what is known as an “at source” basis. This has particular relevance in relation to overseas income. An overseas subpublisher (whether affiliated to the UK publisher or not) will naturally be entitled to retain part of the income arising in its territory before remitting the balance to the UK publisher. Usually, the sub-publisher will be entitled to deduct 10% or 15%. However, in some cases (particularly with the smaller independent publishers) the UK publisher may have negotiated a substantial advance from the overseas subpublisher (in which the writer will not share) in return for which the overseas subpublisher is entitled to as much as say 25%. If we look again at our example of a publishing agreement providing for a 75/25 split then if we assume that the publisher’s overseas subpublishers are each entitled to retain 20% then it follows that the UK publisher will receive 80% of any foreign income. If the writer’s publishing agreement is a receipts deal then he or she will receive 75% of 80% of foreign income i.e. 60% of the gross. If the deal is “at source” then he or she will receive 75% of the gross i.e. for every £100 arising in the territory concerned the subpublisher will retain £20 remitting £80 back to the UK publisher who will then account to the writer for £75 retaining a margin of only £5. Most publishing contracts (certainly those with the major publishers) are now “at source” deals. Some publishers try to draw a distinction between major territories and minor territories and calculate royalties “at source” in the major territories (which might be defined as those territories where the publisher concerned has its own affiliated subpublishers) but account for royalties only on a receipts basis in relation to the minor territories.

If the writer has to accept a “receipts” deal then a “cap” of some kind should be imposed so that, perhaps, a maximum subpublisher deduction of, say, 15% might be imposed. In the event of a 15% “cap”, if, for example, the publisher actually suffers a 25% deduction then for every £100 which arises in the territory concerned £75 will be remitted to the UK publisher but out of this the publisher will have to pay the writer 75% of £85 i.e. £63.75.

The writer should also ensure that there is no double deduction in relation to locally originated covers. What happens, for example, if the sub-publisher in France procures a local cover recording? Again, let us assume that the writer’s deal is 75/25 but reducing to 60/40 in the case of income from cover recordings. If the writer’s royalties are to be calculated “at source” then his or her entitlement will be clear i.e. 60% of the income arising “at source”. If, however, the writer’s royalties are calculated on a receipts basis then problems will arise if the foreign subpublisher is entitled to deduct say 20% in ordinary circumstances but say 40% in the case of a locally originated cover (which is not uncommon). If there is no cap on the subpublisher deductions then the writer would be entitled to 60% of 60% i.e. 36% of the income arising “at source”. This is unfair and the writer should instead require his or her full 75% of the UK publisher’s 60% share (i.e. 45% of the income arising at source) or the cover rate i.e. 60% but calculated upon deemed receipts of 80% (which would give the writer 48% of the income arising “at source”).