Have you ever wondered how royalties are paid out when music is played on Internet radio like Pandora? Thanks to digital performance laws, you may have some money waiting for you.

First, let’s tackle the basics. There are actually many types of royalties:

1. Royalties from print rights, if your composition is published and sold as sheet music.

2. Mechanical royalties when music that you’ve written is performed by others on CD’s, downloads and online on-demand service. For artists signed to record labels, the Harry Fox Agency is the entity that usually collects and pays you these royalties.

3. Songwriting performance royalties when music that you’ve written is performed by others on stage, live on TV or when it’s heard on the radio. ASCAP, BMI and SESAC are the performing rights organizations that collect and pay these royalties.

4. Synch royalties if your music is used in movies, TV, jingles, etc.

5. Digital performance royalties from internet radio, simulcasting, Webcasting and streaming.

This last item – digital royalties – represents a new revenue stream for artists. It’s something that many of our members may not know about, and it’s worth exploring.

Royalties are complicated because often they can be reassigned or shared with record labels, publishers or others. Royalty payments also depend on whether or not you are the songwriter or composer and whether you or your record label owns the master recordings of your composition.

But let’s take the case of the studio musician, which defines the majority of Local 802 members who work in the recording field.

Studio musicians or session musicians (also called “non-featured artists” in the lingo) have traditionally been paid on the front end, not the back end, for nonunion work. That is, they’ve been paid for a recording session – and that’s it: no more money. If the recording was union, there are added revenue streams such as re-use, new use, and special payments. But even studio musicians who recorded under a union contract haven’t been entitled to a cut of CD sales.

(Of course, if you’re the songwriter, composer or the “featured artist,” then more royalty opportunities open up to you. But let’s stick with the case of the typical studio musician.)

Thanks to the digital performance laws passed in the late 1990’s, studio musicians finally earned the right to royalties. These new royalties aren’t tied to record sales or radio play. They are earned from digital transmissions like internet radio. So it’s possible that as a studio musician, you’re due some actual royalties for the first time.

HOW IT WORKS

Let’s take Pandora.com, a popular Webcaster known to many Local 802 members.

Digital music services like Pandora are required to submit regular “census reports,” or playlists of all of the tracks they have transmitted, and the number of times they’ve transmitted it, to an entity called SoundExchange. So if Pandora streamed the Joni Mitchell track “The Circle Game” to 1,000 users in November, that information gets routed over to SoundExchange.

Along with this report, Webcasters are also required to pay SoundExchange a fee based on the number of tracks that were broadcast. In 2012, that fee for commercial Webcasters (one of many categories of digital services) is $0.0019 per impression. (Yes, that’s 19 hundredths of a penny each time someone heard a track.) This fee is set by the Copyright Royalty Board, a division of the Library of Congress.

What does SoundExchange do with the money?

Most of it – 95 percent – goes to “featured artists” (i.e. not the studio musicians) and master copyright holders of the music. However, independent artists – like many Local 802 members – may still profit from this arrangement. If you create a piece of music and somehow it’s picked up digitally and reported to SoundExchange, you’re entitled to digital royalties, even if you’ve never signed a deal with any record label. (For more information, see www.SoundExchange.com.)

For a vast majority of the cases, SoundExchange takes note of every single digital transmission that is reported to them. That is, there is no “sampling,” such as practiced by ASCAP, BMI or SESAC. That itself is amazing.

SoundExchange pays out 95 percent of this pool of money to the featured performers (who get 45 percent) and the copyright holders (who get 50 percent). What happens to the other 5 percent of the money? It gets routed to a different entity called the AFM & SAG-AFTRA Intellectual Property Rights Distribution Fund, which has three divisions: sound recording, audiovisual and symphonic.

This is where things get interesting for studio musicians. This fund is in charge of taking money from SoundExchange and distributing it to studio musicians and backup singers. How does it do that? The formula is dizzying – and you can see it for yourself at www.RAroyalties.org/digital/guidelines.html. But in a nutshell, of the 5 percent that the fund receives from SoundExchange, 2.5 percent goes to a pool of session musicians and 2.5 percent goes to a pool of background vocalists.

The average check to studio musicians is currently just under $200 per musician, although some get as little as $10 and others get several thousand. It all depends how much money is coming into the fund from the digital distributors and how many musicians are dividing up the pot on a given recording in any given period.

Musicians and vocalists receive checks from the fund at least once a year.

Keep in mind that this royalty system applies both to union and nonunion recordings, and only for recordings that are transmitted digitally. If a digital track is sold on iTunes or Amazon, that doesn’t count. It must be streamed in a “non-interactive” format, like Internet radio, satellite radio, cable TV music channels, or the background music in retail spaces and restaurants.

Finally, what about digital music services like Spotify and Rhapsody? These services are unique in that you don’t buy, own and download music – instead, you stream it. But it’s a different kind of streaming than Pandora. With Pandora, you create a radio station but you are unable to tell it that you want to listen to a specific tune at any given time. With Spotify and Rhapsody, you get the right to stream a tune of your own choice. Technically speaking, you are paying for a license to listen to music, but you are not buying it. Because of this distinction, Spotify and Rhapsody don’t have to pay royalties as Webcasters. However, through various agreements, studio musicians still get a small cut of money when music is digitally licensed like this. The AFM & SAG-AFTRA Intellectual Property Rights Distribution Fund handles these payments as well.

SHOW ME THE MONEY

After all this, you might be wondering, “Great – how do I get paid?” Quick answer: go to www.RAroyalties.org and look at the bottom of the page for the button “Search for Unclaimed Royalties.”

You can also search the site in general to see the complete list of all recordings that are covered by the fund under its payout formula. If you played on a track and weren’t paid a digital royalty for it, use the online form. We’ve created a shortcut for you at www.TinyURL.com/InquiryFormShortcut

Allegro would like to hear from you if you’ve had any experience collecting digital royalties as described in this article. E-mail Allegro@local802afm.org. You are also encouraged to contact Jo-Anne McGettrick (fund manager) or Dennis Dreith (fund administrator) directly through the AFM & SAG-AFTRA Fund Web site at www.RAroyalties.org.

Finally, we would be remiss if we didn’t mention traditional AM/FM radio. Studio musicians have long been left out of radio royalties. When Elton John is heard for the millionth time on the radio, he gets money from ASCAP or BMI as a songwriter, but not as a performer. Neither do his studio musicians. Hopefully, that will change with the eventual passage of a performance rights act, which both the AFM and Local 802 have been pushing for.

Thanks to Dennis Dreith and Jo-Anne McGettrick for reviewing this article prior to publication.