Music publishing is where all the money is at and the ones who make truckloads of money are the copyright owners.
All it takes to be a music publisher is registering your music publishing company with a company registrar. From there it's all about running a music publishing company efficiently like any other business.
And it's always a good idea to separate music and business to avoid a bitter experience. A musician's love of making new records shouldn't make them neglect the aspect of the music business.
However, there are no restrictions for anyone to be a music publisher. Record producers can even start their own music publishing company. The same is true for songwriters, singers, and rappers in the business of music.
The Songwriting Business:
In the music business, it's a premium for a record label to have musicians who can write their own lyrics. After all songwriters and music producers are the lifeblood of the music business.
On the other side of things, you have musicians who write absolutely nothing and, for this reason, you have many songwriters writing commercial songs for these recordings artists.
But songwriters ain't doing it for free - there ain't no such thing as free verses and hooks. Songwriters negotiate to get paid either a flat fee for writing lyrics or earn publishing royalties.
It's not only R&B and Pop singers who have songwriters making songs for them. In Hip Hop music too, there are some rappers who have ghostwriters working as though they were in a sweatshop.
Ghostwriters in hop hop music routinely deliver bars, hooks, flows, cadences and melodies. But if a rapper is known to have ghostwriters they lose their credibility in the hip hop business.
However, in R&B and Pop music, it's normal for a singer to have dozens of songwriters working on a song. Some songs are literary written by a group of people working as a team.
Music Publishing for Songwriters and Producers:
A music publishing company makes money by licensing songs on behalf of songwriters after a music publishing deal is signed between a songwriter and a music publishing company.
Henceforth a music publishing company will be able to generate money while licensing songs to third parties such as film companies, video games, online streaming services and many more.
N.B In music copyright law a song is made up of two elements which are melody and lyrics. Sometimes a melody may be referred to as a tune in the songwriting business.
So ff a songwriter is capable of writing both the melody (music) and lyrics (words). Then that songwriter owns all the rights to that song. It will be up to them to decide if they what to sell that to a major artist or release it as their own song.
But if one songwriter writes the melody only and, the other songwriter is responsible for the lyrics. Then the rights to that song will usually be split 50/50 between each. This means one songwriter will get 50% of the publishing rights and the same is true for the other songwriter.
A song is always 100% and if songwriters collaborate they should agree who is responsible for what. Otherwise, a songwriter may write a song and not get paid while other collaborators are making money off that song.
Music Publishing Administration:
Music publishing administration consists of a songwriter having to turn over ownership of the song to a music publisher. As a result, the music publishing company will split the earnings 50/50 with the songwriter of the song.
Thereof a music publishing administration issues a license to third parties in what is known as copyright administration. But that's only after signing a publishing deal with a songwriter or music producer.
For instance, a license can be issued for a film, commercial advertising, video games and many more. In return, the music publisher collects money and pays it to the songwriter. So when a film requests to use a particular song that is known as synchronization in the publishing business.
What a music publishing company earns is referred to as the publisher's share which is 50% of the publishing income. A songwriter collects the other 50% which is known as the writer's share.
If a songwriter decides to run a music publishing company then they would get both the publisher's share and the writer's share. Although it might not be the most profitable route to take. Because this requires a songwriter to understand the structure of a publishing company and have the business skills to run it.
Even the top music producers can not handle music publishing administration on their own. Hence they end up assigning their writer's share to a music publisher for composing the music. Remember a music producer is eligible to earn publishing checks for making a beat or composing the instrumental.
In summary, a music publishing company needs to have permission to exploit copyright material. Without access to a song's copyright. A music publishing company cannot earn money from that song.
Mechanical Royalties in Music Publishing:
When a music consumer buys an album whether, via digital download, a music publisher receives mechanical royalty payment. Next, the music publishing company will render some of that money to a songwriter that they have a publishing deal with.
Basically that's how mechanical royalties work in the music business. In addition, a record label must have a license agreement with a rightful copyright owner before exploiting the song via the means of music distribution.
It is against the law for a record label to distribute music without the consent of a music publisher. As a result, a record label will sign a deal with a music publisher and pay the money owed at a statutory royalty rate.
When a record label has a deal with a music publisher then that record label will be free to sign another deal with a music distributor and make money from album sales.
Sometimes a record label will try to cut mechanical royalty payments owed to a publisher. This can be done by calculating money owed based on the albums sold. Rather than on the albums shipped which is costly if some records are not sold.
Music Publishing Synchronization License:
Music publishers issue sync licenses to a movie production company when music is to be used in a particular film. Sync licenses are also issued by music publishers to any entity which needs music to accompany a visual presentation.
If a company needs music for a radio commercial then a music publisher will provide a transcription license. A sync license will not be made available for a radio commercial because it doesn't contain any motion picture.
The rule of thumb is that sync licenses are only for visual images. While transcription licenses are readily made available to advertising agents using the radio as a medium of marketing.
Sync fees vary depending on a song in question. If an advertiser wants to use a popular song then they will have to pay more. The same applies to film production because hit songs will result in high sync fees paid to a music publisher.
Examples of music publishing company names are :
Universal Music Group Publishing
Songwriting Advice and Music Publishing Information:
If a song is written by more than one songwriter then those songwriters will have to split that money. This is done via an agreement called the music publishing split sheet. By the way, it's one of the most important songwriting advice in the songwriting business.
A songwriter who has no idea about music publishing is more likely not to get a songwriting credit. Therefore songwriters and artists need to agree about music publishing splits prior to releasing the song.
If a split sheet agreement is shady this will result in a dispute. Of which music publishing companies could care less about. Because a music publisher will pay songwriters as stated on a publishing split sheet.
Any further issues surrounding publishing disputes will have to be resolved in court. And that's costly for many songwriters to hire entertainment lawyers. However, if they win money will start pouring in.
Many songwriters writers are constantly working and writing all the time. It's probably a good idea to do so because a songwriter will have enough material for a music publisher. Which provides an opportunity to strike gold with a hit song.
Chart-topping singles are a dream come true for any songwriter because they generate the most money. Music fans rarely listen to the entire album anyway so that's just self-explanatory.
In other words, it's the hits that count in the songwriting business. Anything else generates pennies while bills need to be paid on time. Unless a songwriter is already wealthy and just doing it for fun.
Music publishing is without a doubt the most important aspect of the business of music in South Africa just like it is in other different parts of the world.
Now briefly speaking the main sources of income covered by music publishing rights consists of mechanical royalties, performance royalties and finally synchronization licenses.
In South Africa artists also have the choice to either administer their music publishing copyrights independently by themselves or engage music publishing companies or agencies for co-publishing agreements.
Who Collects Music Publishing Royalties in South Africa?
Before we dive into the subject of music publishing collection in South Africa we first have to address the perspective from which we are looking at this.
Some South African artists have deals with prominent music publishing companies such as Universal Music Group, Sony Music, while some South African artists are totally independent without major record label affiliations. So you see the issue we have at hand don't you?
If an artist has a music publishing deal with either Universal Music Publishing South Africa or Sony Music Publishing South Africa chances are all the music publishing administration is handled on the artist's behalf.
However, if an artist is independent and they release music they have to decide whether they are going to set up their own music publishing company in South Africa or to enter in an agreement with local music publishing companies or agencies for publishing administration.
1) Sync Licences & Performance Royalty Collection in South Africa:
For instance, in the United States, you have got ASCAP and BMI which are basically Performance Rights Organisations (PROs) that are responsible for collecting public performance royalties from sources such as:
Commercial Radio Stations
Clubs, Pubs & Concerts
Streaming Services (e.g YouTube, Spotify, Apple Music, Amazon Music e.t.c)
Likewise, in South Africa, you have got the SA Music Rights Organisation (SAMRO) and SA Music Performance Rights Association (SAMPRA) which are essentially Performance Rights Organisations with similarity to ASCAP or BMI.
So just like an American artist would register with ASCAP as a member. The same is true for a South African artist except in this case they will be registering with either SAMRO or SAMPRA.
2) Mechanical Royalty Collection in South Africa:
Please note, mechanical royalties are derived from the manufacture and the sale of physical CDs or digital downloads e.t.c
Now if an artist is signed to a major record label there is a general convention that the record label is supposed to pay the artist all the due mechanical royalties to the music publishing company the artist has an agreement with.
But since record companies such as Universal Music Group and Sony Music operate on both sides of the business there is a possibility that the artist will also be affiliated with the music publishing division of these major record labels.
This means the artist doesn't necessarily need to set up their own music publishing company to be paid mechanical royalties depending on the record contract signed.
On the other hand, if the artist is signed to an independent record label that doesn't have a music publishing division then that artist has to set up their own music publishing company.
That's because when the independent record label sells music whether CDs or Digital Downloads. The artist will be entitled to a statutory mechanical royalty for every single or album sold in South Africa.
Nonetheless, just like in America you have the Harry Fox Agency, but in South Africa, there are mechanical royalty collection agencies such as CAPASSOwhich act on behalf of composers and music publishing companies to handle all matters relating to mechanical royalty licensing.
Mechanical royalties refer to the money that is collected by either a music publishing company or a royalty collection agency on behalf of its clients e.g recording artists, music producers, and songwriters.
This mechanical royalty income is derived from the distribution of music in the form of, but is not contractually limited to:
Music Streaming Service (e.g Spotify, Apple Music, Tidal, Amazon Music e.t.c)
Mechanical Royalties Collection
The manufacturing and distribution of either physical CDs and Vinyl records mean a music publishing company will be owed mechanical royalties for each and every single sale that takes place.
Eventually, this money will be paid to the publishing copyright holders and that's usually the recording artist, songwriter or music producer.
NOTE: So whether if it's an entire album or just a Single sold; the fact of the matter remains and that is: mechanical royalties will be due to the rightful music publishing company.
Record Labels and Mechanical Royalty Payments
The general convention is that a record label is supposed to pay mechanical royalty payments to the artist's music publishing company. But ONLY IF an artist didn't make the ignorant mistake of signing away their music publishing copyrights.
For example, when a record label sells music whether it's via physical CDs, Vinyl or DVDs the aftermath is that a record label will have to settle the obligation to make mechanical royalty payments based on each and every unit sold.
Mechanical Royalty Calculations
The government in every country is responsible for setting what is a called the "statutory royalty rate" and this statutory royalty rate changes all the time based on new legislation so it's always advised to keep yourself updated.
For example, if the statutory royalty rate is set by the government to be 9 cents for every song with a duration of fewer than 5 mins, this, of course, means when a record label sells 100 000 units they have to pay mechanical royalties amounting to $9 000.
In life, there are two things which are certain and that's death and taxes.
So one way or the other when you set up your record label in South Africa you better not procrastinate to hire an accountant unless you are the accountant yourself!
The South African Revenue Service (SARS) is responsible for tax collection in South Africa and you are pretty much encouraged to get familiar with them when the money starts rolling in from your record label activities.
Hence the purpose of regularly recording all financial transactions carried out by your record label makes your life easier in the event that the South African Revenue Service demands to audit your books.
Sometimes artists on your record label can also demand to audit their royalty statements. Now the best way to prepare for such scenarios is to make sure you keep separate accounts for each and every artist on your record label.
Either way, you are better off hiring an accountant because there is no way you can operate a record company was you are trying to be the executive, the accountant and worse still trying to be all up in your artist's videos.
In a nutshell, hiring a certified accountant will get you sorted both ways from managerial accounting and financial accounting.
But just remember SARS will mostly be interested in your record company's financial statements and that's done through financial accounting NOT managerial accounting.
In order to run a successful record label in South Africa having a clear business plan and a set of business objectives will help you to navigate your way towards achieving your goals and dreams.
A business plan is also a necessity in the event that you may want to approach local individual investors (e.g. your friends, family, potential investors, etc) or financial institutions (e.g. banks) for business loans or seed funding to get the record company up and running.
The last thing you want is looking clueless when asked by a loan officer or an angel investor to produce a business plan in your request to get the funding that you need.
The Importance of an Executive Summary
An executive summary is supposed to tell you or any reader what your record company is about especially why you think your record label will be successful.
You must state clearly your main selling points including what makes it unique to anything that's within the South African music industry.
An executive summary also acts as the first impression of any investor or financial institution. So it's recommended to make sure your first impression is well presented.
Because an executive summary might just be the only thing an investor will ever read about your record company's business plan so why not make it count?
Things You Should Include in Your Executive Summary 1) You first need to address your main selling point and grab the attention of potential investors for your record company.
For example, a good selling point could be that you have just discovered or signed a talented singer, rapper or music producer to your record label.
Therefore, this will reflect back to potential investors as a great business opportunity to fund or loan money to your record label.
2) The second thing you have to address in your executive summary is to identify the big problems that you see in the South African music industry.
For example, you might see that there aren't enough prominent female rappers in SA Hip Hop. And that it's on maybe enough motivation why you are passionate about venturing in the SA Hip Hop market.
3) Once you have identified a "big problem" you need to follow through with a feasible solution to address all the above points you would have raised and highlighted.
For example, earlier on we mentioned that your big problem maybe a scarcity of prominent female rappers in SA Hip Hop.
So to resolve that you need to develop a realist solution on how your record company will implement measures to work with female SA rappers by giving them an equal opportunity as male SA rappers.
4) Now one of the most important things you have to deal with in your executive summary is to explain how you are going to handle your competition in the South African music industry. You must answer questions such as:
Can your competition replicate your success? e.g. your marketing strategy.
Does your record company have a competent management team to stay in business?
Does your record label release music that can sell out arenas and concerts?
Yeah, you should decide whether the record company is going to be using a cash basis or accrual accounting method to keep track of all transactions.
If you have no idea about the difference between cash basis and accrual accounting we will do our best to explain the difference between these two accounting methods.
Now cash basis accounting means you only record the money you have received in your books. For example, if your record label manufacturers say 10 000 CDs or vinyl records, and in that same process you manage to sell 5 000 records. You would therefore only show in your books that you have sold 5 000 records.
On the other hand, with accrual accounting, if your record company manufactures 10 000 CDs or vinyl records. You will record in your books that you have sold 10 000 CDs even though you haven't received the money.
NOTE: With cash basis accounting you only record transactions when you receive money or when you pay for expenses but with accrual accounting, you record transactions when they take place without you actually receiving the money you are owed or the expenses you incur.
The Advantages Of Cash Basis Accounting When Starting A Record Label.
One of the main benefits of choosing a cash basis accounting over accrual accounting is that cash basis accounting is a very simple accounting method that keeps track of your business cash flow.
In addition, cash basis accounting is best suited for small businesses meaning if you are just getting started in the day-to-day running of your record label cash basis accounting will be capable of handling your transactions in cash.
The other advantage of cash basis accounting is that it immediately captures the amount of money your record label has in the bank account and the amount of money that is owed to the record label.
The Advantages of Accrual Accounting When Starting A Record Label.
Accrual accounting is a very complicated method of accounting for a record label owner who has absolutely no clue about Generally Accepted Accounting Principles, to begin with.
Therefore, it is certainly a better solution to hire a certified accountant to do your books if want your record label to use the accrual accounting method.
The accrual accounting method is best suited for a large business that doesn't get paid straight away when transactions occur and are capable of capturing money owed to other financial institutions and the money that you are going to be paid.
NOTE: If your record label is dealing with complicated contracts and large amounts of money then it would be in your best interest to implement accrual accounting.
Net income after taxes is the residual amount of money that your record company will be left with after all the expenses have been deducted from sales.
Generally speaking, you have two options you can choose from as to how you want to handle your record label's net income:
The first option is to pay cash dividends to the shareholders or to yourself as the owner of the record company.
The second option is to reinvest the net income after taxes as returned earnings.
However, if you are just getting started when running your record company it may be in your best interest not to pay cash dividends earlier on because cash dividends can hinder the progress of long-term growth of your record label.
So instead of paying cash dividends you can then take that money and expand the operations of your record label towards the goal of it being a multi-national corporation.
Nevertheless, sometimes you may need to cash dividends for a major upcoming expense in your daily life and in that sense perhaps you can proceed to declare a cash dividend to honor your personal obligations.
We can define an online interactive music streaming service as a music streaming service were the end-user (or the listener) has the choice to choose what songs they want to listen to at any given time e.g. Spotify & YouTube.
Therefore you can pretty much think of an "interactive music streaming service" as an on-demand service that comes with a wide range of a large music catalog at the listener's fingertips.
On the contrary, you have an online non-interactive music streaming service and that's a music streaming service were the end-user (or the listener) doesn't have a choice to choose what songs they want to listen to any given time e.g. Internet Radio.
In addition, an online non-interactive music streaming service can be thought of as a programmed broadcast because all the music that is played on the platform is handpicked and assigned to the playlist for broadcast.
The overview of accounting information for your record label will show you how healthy the business is and not only that but will illustrate any necessary changes that need to be implemented in terms of long-term strategic planning.
NOTE: When we say "financial reporting" we are referring to both internal and external financial reporting. Therefore, it is important as record label owner to be able to interpret financial statements such as:
The Balance Sheet (i.e. The statement of financial position or Statement of Financial Condition)
The Income Statement (i.e. The Statement of Operations or The Profit and Loss Statement)
Statement of Cash Flows
So in the event that you may want to borrow money to cover short term expenses or capital to invest in the business, the creditors or investors will definitely want to take a look at the record label's financial statements and this is why you should be familiar with the objectives of financial reporting.
The Objectives Of Financial Reporting For A Record Label
There are a certain number of goals that should be met with the noble task of financial reporting and we are going to look into those objectives in the context of a record label.
The "first financial reporting objective" is to keep track of your record label's cash flow. By doing so you should ask yourself the following questions:
How is your record label generating income? For example, is the record label making money from interactive music streaming services (Spotify & YouTube) or from digital downloads (Amazon & iTunes)
How is the record label spending that money? For example, how much of the revenue is being used to meet the payroll and paying royalties to the artist?
When the record label has met all it's financial obligations how much profit or loss is it left with?
The "second financial reporting objective" is to monitor the changes of record label's assets, liabilities and owner's equity by asking the following questions:
Are there any changes in the value of resources owned by the record company? For example, changes in reference to the record label's assets.
Are there any changes in the claims that creditors have against the record company? For example, changes in terms of liabilities that the record label owe to creditors or financial institutions.
When it's said and done does the record label have sufficient economic resources for future growth?
The "third financial reporting objective" is to provide information to potential investors and financial institutions for securing loans and long term investments by addressing the following questions:
Is the record company in a favorable position to secure a long-term loan for further business expansion?
Does the record label have quality management to warrant capital injection into the business due to the good management of resources?
A co-publishing agreement means you contractually assign 50% of your publishing copyright ownership to a music publishing company.
Consequently, as a songwriter, you keep 100% of your songwriter's share whilst the other 50% of your publisher's share goes to the music publishing company.
Therefore when it's all said and done as a songwriter you will generally be eligible to receive 75% of the overall publishing royalties income derived from the following sources:
mechanical royalty income (e.g CDs, Vinyl, or sometimes Digital Downloads depending on the contract signed with the record label)
print income royalty income (i.e sheet music)
synchronization royalty income (otherwise known as "sync royalties")
public performance royalty income (e.g radio, television broadcast, film, nightclubs, and concerts)
NOTE: When it comes to music publishing copyrights there are two aspects worthy to remember and those are the songwriter's share & the publisher's share.
This is why songwriters usually receive 75% of the gross income generated by the music publishing copyright whilst the music publishing company is paid 25% of the gross income generated from the music publishing copyright.
For example, 150 of 200 = 75% gross income from music publishing royalties.