Chapter 17

Ka-Ching: How Your Song Makes Money

In This Chapter

Predicting the future potential of your song

Selecting your PRO

Making money at retail

Getting up to speed, digitally speaking

Using your song to sell a product

Taking your songwriting talents to the movies

If you’ve written a song and either you or someone else wants to record it, you’re now at the point in the songwriting process where you may just get paid for all your hard work and effort. In this chapter, we introduce you to ways of getting paid and some important organizations you need to know about — the ones that handle the royalties. We also discuss how your song can find opportunities in commercials and movies.

Forecasting Financials

Most of us write songs because we love to. Songwriting helps us express our deepest feelings and allows us to share them with the world. It’s nice to know, however, that there can be a pot of gold at the rainbow’s end, that we’re not writing songs only for our mental health — we’re earning a living at it!

Sources of income

The major sources of income for a songwriter are as follows:

Performance royalties: The performing rights organization that the songwriter and publisher are affiliated with, such as American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music, Inc. (BMI), or Society of European Stage Authors & Composers (SESAC), calculates this sum every time his songs are played — whether through radio, television, movie theaters, or anywhere else in public, including digital distribution. (More on performing rights organizations later in this chapter.)

Mechanical royalties: Songwriters and publishers get paid on every CD, cassette, video, DVD, or other product sold that contains their songs.

Commercial use: Songwriters and their representatives negotiate fees to be paid when a company wants to use their song to sell a product.

Motion pictures: Motion picture companies that want to use one of your songs must first work out a deal with you and your publisher.

Splittin’ up the pie

The amount of money you earn in the categories listed in the preceding section depends upon the following variables:

How well you and your business team function as a unit. For example, you’ll have trouble receiving your performance royalties if you or your administrator fails to register your song with one of the performing rights societies. Also, when a film company inquires about the use of one of your songs, an inexperienced publisher, music attorney, or administrator may quote a fee that’s either too low (thus underselling you) or higher than the market will bear (thus blowing the whole deal).

How many people are sharing in the writer’s credit. Obviously, the more wedges cut, the narrower the slices will be — however, if there is nothing paid, 100 percent of nothing is still nothing, so be generous with those who help you succeed in generating revenues.

How your publishing is split. Some songwriters own their own publishing companies, and others have co-publishing deals. Writers who have signed away their publishing rights will make half as much money as those who own their own publishing companies — but once again, a percentage of something is always better than 100 percent of nothing. (See Chapter 12 for more on publishing companies.)

Joining a Performing Rights Organization

After you’ve recorded your music, it’s important to join one of the performing rights organizations (or a PRO as they are often called) so that you can be paid royalties for the public performance of your music — whether that be for radio airplay, TV or movies, concerts, “elevator music,” or even the music played while you are “on hold” waiting to speak to someone on the phone.

Technically you don’t need to join until your songs get played on TV or radio, but a PRO can help your career before then by introducing you to collaborators, publishers, A&R, and other industry people. They also hold showcases from time to time that feature new talent, and they hold workshops and seminars designed to educate and connect their members.

The three major performing rights organizations — ASCAP, BMI, and SESAC — all are recognized by the United States Copyright Act of 1976. Their job is to monitor the music that is played in public and make sure that you get paid all royalties that you’re due. Performing rights organizations collect license fees from the businesses that play music to the public, and then distribute them as royalties to the writers, composers, and publishers they represent.

If you act as your own publisher, the fee for joining a performing rights organization is different for each organization. These agencies bring in most of their money from the small percentage (around 4.5 percent) they take from money collected on your songs. If you are signed to a publishing company already, they’ll usually take care of your performing rights paperwork (just requiring your signature) and pay the initiation fee for you.

There is always a debate among songwriters as to which performing rights group is the best. I once wrote a fair-sized hit with a writer who belonged to BMI. Because I was with ASCAP, we decided it would be interesting to see who made more money on the song per quarter, and determine once and for all which organization did a better job of collecting our royalties. The first quarter I won by a few thousand; the next quarter my co-writer won. By the end of the fourth quarter, the tally was just about equal. Even though the two societies have very different ways of calculating performance royalties, at the end of the day, they seem to do a comparable job.

—Jim Peterik, performer, songwriter, and multi-instrumentalist for the bands Ides of March and Survivor, plus writer of hits for .38 Special, Sammy Hagar, and others

Choosing a performing rights organization is an important decision, so be sure to find out as much as you can about these agencies and their collection methods before you make your final decision. But keep in mind that if the organization you join isn’t working out for whatever reason, you can always change — you are not bound to them for life.

ASCAP

ASCAP, a nonprofit performing rights organization founded by a group of prominent, visionary music creators in 1914, has offices in New York, Atlanta, Los Angeles, Nashville, Miami, London, and Puerto Rico.

ASCAP states that its “primary purpose is to assure that music creators are fairly compensated for the public performance of their works, and that their rights are properly protected.”

In 2008, ASCAP distributed a record-breaking $818.9 million in royalties to 370,000 composers, lyricists, and music publishers in all genres of music. There are no annual dues — only a one-time, nominal processing fee of $35 to apply.

Performance money is primarily collected through a blanket license. After operating expenses are deducted, ASCAP sends the balance to its member writers and publishers and to affiliated international societies.

A blanket license is the annual fee paid by music users (radio, restaurants, television, and so on — see the long list later in this chapter). The music user pays each of the performing rights organizations this modest fee for the legal right to play all copyrighted music as much as they want. In other words, one fee gets unlimited use for any music. The performing rights organizations require a quarterly report detailing what songs (and how often) the music user is playing to determine the fee that is charged.

Members who have belonged to ASCAP include classic songwriters from Duke Ellington to Dave Matthews, from George Gershwin to Stevie Wonder, from Leonard Bernstein to Beyoncé, from Marc Anthony to Alan Jackson, from Henry Mancini to Howard Shore — as well as many thousands of writers in the earlier stages of their careers.

BMI

BMI, a nonprofit performing rights organization founded in 1939, has offices in Nashville, New York, Los Angeles, and London. BMI distributed more than $940 million in royalties (less general and administrative expenses) to approximately 400,000 songwriters, composers, and music publishers in all genres of music. There is no registration fee for songwriters — just remember that you’ll be signing a two-year contract and can only sign with one PRO at a time.

As with ASCAP, BMI uses a blanket license to collect license fees. It then distributes the monies received to its writing and publishing members. Showcases, workshops, and podcasts that help members develop their skills and gain industry exposure are also offered, as well as health and life insurance programs, discounts on professional tools, subscriptions, and computer hardware and software.

Members who have belonged to BMI include classic artists such as John Lennon, Chuck Berry, Dave Brubeck, Willie Nelson, Carlos Santana, Elton John, The Beach Boys, Aretha Franklin, The Who, and Eric Clapton, as well as Janet Jackson, Faith Hill, Sting, Jennifer Lopez, Sheryl Crow, Jay-Z, ’N Sync, Britney Spears, Eminem, Mariah Carey, Kid Rock, Sarah McLachlan, Sting, Shakira, and Maroon 5.

SESAC

SESAC is a for-profit performing rights organization, with headquarters in Nashville and offices in New York, Los Angeles, Atlanta, Miami, and London.

SESAC was founded in 1930 as The Society of European Stage Authors and Composers. Since that time SESAC has significantly expanded the number of songwriters and publishers represented, and its repertory now includes all music genres.

SESAC’s repertory, once limited to European and gospel music, has diversified to include today’s most popular music. Members who belong to SESAC or have performed SESAC-affiliated songs include artists such as Bob Dylan, Neil Diamond, Rush, Garth Brooks, Jim Brickman, U2, Luciano Pavarotti, LeAnn Rimes, Mariah Carey, Alan Jackson, Cassandra Wilson, Jagged Edge, Gary Burr, Jimi Hendrix, Ricky Martin, Christina Aguilera, and UB40.

SESAC is the smallest of the three U.S. performing rights organizations; however, they believe that their size is the largest advantage because they’re able to develop individual relationships with both songwriters and publishers.

SESAC has a selective policy of affiliation — they audition songwriters and publishers before they become a member, and when accepted, there is no fee to join.

Knowing What Happens When Your Songs Hit the Streets

As a songwriter, not only do you make money every time your song is played on the radio, television, or in a variety of public places, you also get paid on the sales of every CD, cassette, video, or other product that contains one of your songs. The money from this source is called mechanical royalties.

Mechanical royalties

The word mechanical appeared in the 1909 Copyright Law referring to payments for devices “serving to mechanically reproduce sound.” It’s been a very long time since those original mechanical devices were used to reproduce sound, but the name lives on, and all the money paid to copyright owners for the manufacturing and distribution of records is still today called mechanical royalties — the rights to reproduce songs in recordings are called mechanical rights.

Through the end of 2012, the standard mechanical (also known as statutory) payment that the songwriter and publisher split is 9.1 cents per song. (That rate is reassessed every two years.) Doing the math, if you are the sole writer of a particular song, you will earn $91,000 on a million-unit seller. Often a record company will ask a writer for a reduced rate, such as 75 or 87.5 percent of statutory rate. Your willingness to accept a reduced rate will depend on just how badly you want a particular artist to record your song.

If you are a songwriter who handles her own publishing, you can obtain samples of mechanical licenses from your music attorney, administrator, or organizations such as the Songwriter’s Guild of America. Or contact the largest of all mechanical royalty collection and licensing companies, the Harry Fox Agency, for information as to how to employ their services.

If an artist and his or her record company want to record and release one of your songs, or if a company of any kind (such as a cell phone company that licenses hit songs for users as ring-tone downloads) would like to use your song for a variety of other purposes, they must first obtain a mechanical license from you or your publisher. When a song is used on a CD, if it’s the first time that song is being used, the artist or label must get the writer’s written permission first.

The compulsory license

If a song has already been recorded and released for commercial sale, according to copyright law, anyone is free to record that song as long as the songwriter and publisher are paid and accounted to in accordance with what’s known as a compulsory license. (The artist or label will usually attempt to obtain a traditional song license from you initially. If you, as the songwriter, fail to cooperate, they will just issue you a compulsory one.)

Synchronization royalties

Another potentially lucrative area of revenues for the songwriter is in sync fees (also known as synchronization royalties). This area of income for writers and publishers as well as independent artists and bands is derived from the licensing of songs for audio-visual uses, such as film and television (including commercials), video games, DVDs, karaoke, and video jukeboxes — basically anything that needs the music to be sync’d with a visual.

Because there is no statutory rate for these derivative works, they need to be negotiated in advance by a set up-front fee, back-end royalties, or a combination of both in order to be granted a clearance, or the right to use your music in this fashion. See more about putting your songs into film later in this chapter as well as in Chapter 14.

Songwriters receive royalties from the first record sold and from the first time it’s played on the radio or in public. On the other hand, artist’s royalties are only paid out after the amount of money the record company has spent on production and promotion of the album has been recouped — and they’re out of the red and into the black.

Using Digital Distribution to Your Advantage

There’s good news in the music world, a debatable subject if you were one of the pioneers of the recording industry. A positive change we’ve seen since the digital age arrived is that there’s more money for recording artists and labels (indie or otherwise) due to new copyright legislation. In the “old days” only songwriters and publishers got paid a performance royalty for any airplay collected by PROs, but artists, singers, and musicians were left out of the loop — until several digital legislative enactments in the ’90s changed things up.

In addition to the income generated from traditional sources — think record sales, music used in films and TV, and music publishing — you’ll most certainly agree that there is a constant stream of new and not so new income models becoming available to the songwriter. Having said that, much of what is cutting edge and new today will be obsolete in relatively short order, so keep an open mind as to the possibilities your future holds when it comes to making money with music.

SoundExchange is the nonprofit performance rights organization that collects statutory performance royalties, such as sound recording copyright royalties from satellite radio, Internet radio, cable TV music channels, non-interactive webcasts, and other digital services that stream sound recordings. Although ASCAP, BMI, and SESAC collect and pay royalties to the songwriters and publishers of songs, when the songs are recorded, it accrues an additional copyright for which that track’s recording artists and copyright owner (like a record label) are paid statutory performance royalties by SoundExchange. The Copyright Royalty Board, created by Congress, has designated SoundExchange as the only entity in the United States to collect and distribute these digital performance royalties for featured recording artists and master rights owners. As to each performed recording, 50 percent of the royalties collected by SoundExchange are paid directly to the labels or copyright owners of the masters, 45 percent of the royalties are paid directly to the featured artists, and 5 percent is paid to the AFM and AFTRA on behalf of the background musicians and singers. SoundExchange represents over 50,000 members, has processed over 170 billion spins, and paid out more than $360 million in royalties as of the end of 2009. Artists and copyright holders can register for free to be paid by SoundExchange for the performance of their recordings.

—Jay L. Cooper, Esq., entertainment attorney, vice-chair of Greenberg Traurig’s Global Entertainment and Media Practice, and a SoundExchange board member

Music sharing sites and services

Music seems to be available just about any place you look nowadays. There are digital download services, streaming interactive subscription services, as well as non-interactive subscription services; video games, not to mention all the music you can access on your cell phone. Additionally, there a multitude of Internet destination sites that are music driven and visited by gazillions of people every day, such as MySpace. Here are a few examples of each:

Digital downloads

The biggie here is iTunes, but others include eMusic and Napster. Granted we are only talking pennies here for the artist (a net between $0.08 and $0.10 cents per $0.99 download), but those pennies do add up — especially when you’re talking about billions of downloads sold just by iTunes alone.

Interactive subscription services

Service providers such as Rhapsody, Napster, and MusicNet allow you to create personalized radio stations and play lists. In addition to the same payments for digital downloads, these subscriptions also pay $0.01 to the record labels each time their recordings are streamed.

CD Baby not only provides songwriters and artists with a well-equipped platform to sell their songs and create their own personal websites, but it is also a very informative resource in the areas of interactive digital subscription services and royalty rates pertaining to the digital distribution of music.

Internet radio stations and non-interactive subscription services

Otherwise known as “terrestrial radio,” satellite music subscription services such as MusicChoice, Sirius, and XM Satellite are still regular radio stations and as such there are no performance royalties paid outside of those paid to the songwriters and music publishers by way of ASCAP, BMI, and SESAC. Even so, things change at a rapid pace, so it might be a good idea to do an up-to-date search online to see what the latest and greatest is in this regards.

Video gaming

With wildly popular games such as Grand Theft Auto and Madden Football hitting the marketplace year after year, this is an area of great potential for not only massive exposure, but also significant revenues. See more on video games later in this chapter.

MobileTones and ringtones

A relatively new source of income for songwriters, publishers, PROs, and now record companies and their artists is the MobileTone (formerly known simply as ringtones). Cell phone carriers such as Verizon and AT&T provide their customers with access to music on their mobile devices for a fee, and in turn pay music publishers and/or songwriters approximately $0.10 or 10 percent of retail on that revenue stream (along with other performance royalties to ASCAP, BMI, or SESAC, and revenue splits to the record companies).

May we mention once again that many of these revenue-sharing figures will most likely change rapidly as this market expands and redefines itself, so it’s always best to grab your up-to-date numbers from a current online search.

Using Your Songs to Sell Products

One of the single most lucrative situations for you as a songwriter is when a product manufacturer decides that your song is to become the imagemaker for his company. It used to be that practically all songs used in commercials were created specifically for a product by ad agencies and jingle houses (companies that specialize in writing jingles for commercials).

But today, it seems that more and more major corporations are going with hit songs from the past and present, and they’re creating their campaigns around these songs. “Revolution,” performed by The Beatles (written by John Lennon and Paul McCartney), is now synonymous with the Nike brand. “Like a Rock,” the platinum hit for Detroit’s Bob Seger, will forevermore conjure up images of Chevy trucks climbing impossibly rugged terrain. The Ides Of March smash “Vehicle” (written by Jim Peterik) has become a rally cry for the entire GM line. Foreigner’s smash “Double Vision” (written by Mick Jones and Lou Gramm) was certainly never originally intended to be the music behind Burger King’s Double Whopper, but who would have guessed? As a songwriter, you’ll never be able to plan these magical pairings. However, when you’re writing a new song, it is fun to fantasize! (Refer to Chapter 14 for more about jingles.)

At the time “Eye of the Tiger” was released, I never dreamed I’d see Joe Izusu working out to that tune as part of a nationwide Izusu ad campaign. All a songwriter can do is to try to write a great song with staying power, and someday the right product might just find you!

—Jim Peterik, writer of 18 Billboard Top 10 hits including the perennial favorite “Eye of the Tiger” featured in Rocky III

The money you can earn for the use of your song in a commercial can vary from one extreme to another and depends mainly on:

The size of the product’s advertising budget

The popularity of the song

How much of the song is actually used in the commercial

The length of time that the song is contracted for

The area of the country (or world) that the ad covers

How good you or your publisher is at the art of negotiating

How desperate the advertisers are to get the song

Whether the song will be used for radio, television, Internet, or all three

A big hit song performed by a major artist for a major product can command upwards of $1 million for a year’s usage. A more typical deal might bring $25,000 to $75,000 for an average-sized hit that’s used in an ad campaign for a medium-sized company for a one-year period of time.

Even as an unproven songwriter, there may be opportunities for you to pitch your songs for commercial use. Contacting advertising agencies and jingle producers isn’t as hard as you think. Use the same care with submitting material to them as you would with a record company or producer. And don’t forget about local manufacturers, restaurants, dealers, and services that you could approach directly with your ideas for how your songs could be used to stimulate their business (and yours!). Check out Chapter 15 for more information on getting your songs into the right hands.

Making Money in the Movies

How many times have you walked away from the multiplex humming the title song of the movie you just saw? That’s the power and synergy of combining the right song with the right scene. Motion pictures can be a great inspiration to a songwriter, as well as a tremendous source of income. Songs can be submitted to film companies, producers, and directors through your music attorney or your publisher — or you can do it yourself using the proper etiquette described in Chapter 15.

Due to my involvement in soundtracks in the ’80s, I’ve had a fair amount of opportunities to try and repeat those successes. I had a good experience writing, such as “Beyond Our Wildest Dreams” for Delirious, starring John Candy (co-written with Cliff Eidelman), but I’ve had some disappointing experiences as well. In 1990, I was commissioned to write the end title for the Robert DeNiro movie Backdraft. The movie supervisor sent me the script and a rough cut of the movie. I was blown away by the visual power of the film and the turbulent, yet loving, relationship between the two brothers in the film. I was also totally jazzed that the movie took place in my hometown of Chicago, and that my song would be playing underneath a majestic, smoke-tinged view of Chicago’s skyline at dawn. I turned in what I thought was one of my best songs ever, entitled “Long Road Home.” The music supervisor loved it, the stars loved it, but the director wasn’t quite sure. The day before the film’s deadline, he decided the lyric contained the word “fire” and was too literal to the story. He went with another song written and sung by Bruce Hornsby. I spent the next three days in my bathrobe! (By the way, that director was Ron Howard, and I haven’t watched an episode of Happy Days since.)

—Jim Peterik, writer of 18 Billboard Top 10 hits

Getting your song into a film, or writing one specifically for a movie, is definitely something to shoot for. It would not be unusual for a song that was used in the beginning or end-title slot of a major motion picture to command anywhere from $25,000 to $100,000. Songs that are used in lesser scenes might bring in anywhere from $10,000 to $20,000. A complete score by a well-known composer could bring in $100,000 or more.

Of course, if your song is included in a hit soundtrack album, and your performance and mechanical royalties start kicking in, then order that Ferrari you’ve been drooling over — compliments of those royalties!

Every time a movie is shown on television, the songwriter gets money from the performance society he belongs to in accordance with established rates. Unfortunately, the songwriter gets no royalties when the movie plays in a theatre, so try to negotiate a decent flat fee upfront to compensate for this.

Having Video Games Pay to Play

It sure looks like the video game industry tore a page out of the “How Your Songs Make Moola in the Film Industry” manual. The game companies pretty much use the same model when it comes to licensing music for video games, mainly by offering a buy-out as opposed to paying a royalty per each game sold — as is the custom with CDs. These buy-outs are somewhere between $5,000 to $10,000 per master recording, and $5,000 to $10,000 for the musical composition embodied on the master recording for a short-term time period of about five to ten years of online use as well as any other new media format that may be developed in the future.

There are many ways to turn your passion of songwriting into cash, but try to make sure money is not the main motivator. Let the cash be the fortunate result of your creative talent, hard work, and fair negotiations.