Who Typically Pays Royalties to Producers? (Explained)

You want to ensure you are fair with royalties, but who typically pays royalties to producers?

Independent artists are in charge of paying royalties to their producers. The label will handle royalty dispersing if an artist works with a record label.

It is important to draft and sign a Producer Agreement before heading into the studio to record. This document will set up the percentage of royalties owed to a producer. 

The financial side of music can be overwhelming, especially if you’re independent- but you don’t have to fly blind into the world of royalties.

We’re here to help you understand who pays producers and the types of royalties a producer may be entitled to, so let’s dive in!

Who Typically Pays Royalties to Producers?

Who Typically Pays Royalties to Producers

Paying royalties to music producers is important and normal in the music industry, and music producers typically receive a portion of royalties in addition to an upfront fee for their work. 

Usually, the music producer is paid by the recording artist. 

If an artist is independent though, it is their sole responsibility to pay the producer, but if they are attached to a record label, the label handles it. 

Independent or Indie artists will often pay their producers higher royalty rates than those with a record label. 

Record labels will pay more upfront fees to a producer, resulting in fewer royalties, 

Independent artists, however, will usually not have as much money at their disposal, resulting in an agreement to pay more royalties to the producers instead of a higher upfront fee. 

Have an artist-to-producer conversation and draft a Producer Agreement. This legal document can save later confusion and frustration if done first before any recording. 

For help with a Producer Agreement, check out this video:

Types of Royalties a Producer Can Receive

Production Points

Production points are a percentage of the total royalties collected from a song. It’s the producer’s cut of an artist’s royalties. 

When deciding on production points, the amount of upfront fees you pay a producer has a big effect. For example, if the producer charges a larger immediate fee, they will receive less of the total royalties.

Production points are the main way that producers receive royalties from songs. 

Mechanical Royalties

One key thing to decide in your Producer Agreement is whether your producer will get co-songwriting credits.

They deserve a mechanical royalty on top of their initial royalties if they create any aspect of the song.

  • Record companies pay mechanical royalties to songwriters as a right to record their music. 
  • Mechanical royalties are generated from listeners selecting specific songs to play on streaming services, such as Spotify.

These are not the same as performance royalties, which are paid to the artist if their track is performed publicly or on a radio streaming service. 

If you do not list your producer as a songwriter on your record, companies will assume that they do not deserve mechanical royalties and will not distribute them. 

It is up to you to ensure that everything is above board and that if the producer created aspects of your song that they want credit for, they receive proper compensation in mechanical royalties. 

Publishing Royalties

Publishing royalties are usually split 50/50 between composers and publishers. That 50/50 split gets further separated between lyrics and music, including beats. 

Producers sometimes get overlooked with publishing royalties, especially if they are new to the scene and have a weak legal team. 

Generally, a producer is entitled to a portion of the publishing royalties even if they only made the beat of a song.

Some producers prefer to take a hands-on approach and work alongside lyricists and musicians to create the music, which will entitle them to more publishing royalties. 

Big-name producers will request a portion of the publishing royalties solely because their name will influence the sale of the record. 

Beat Leasing

Producers can lease beats to artists while recording. This process enables the producer to retain full ownership of the beat’s copyright while giving the artist a license to use it.

The permit usually has a set period or number of sales and streams. 

Think about beat leasing as similar to leasing a car. Artists may not have the money to purchase full rights, but they still want to use them. 

For a producer, it is a great way to increase their income while getting their work out into the world. 

If an artist wants exclusive rights to a beat once their record takes off, it opens the door for a producer to get compensated further with a renegotiation. 

How to Calculate Producer Royalties

Depending on varying skills and involvement, different producers will ask for different amounts of production points.

  • On average, producers receive about 3% or 4% of a record’s sale price or 20% of an artist’s royalties. 

Before you start calculating, you need to decide whether the producer will receive a portion of the suggested retail list price (SRLP) or the published price to dealers (PPD). 

  • The SRLP is what retailers, such as Target, will charge for the record. A 3% royalty off of a $10.99 album results in $0.32 per record to the producer. 

The PPD is the wholesale price. It’s what the initial distributor charges the retailers. On average, these units get sold for half the cost of SRLP.

So, if your album sells for $10.99, it was likely purchased by the retailer for $5.50.

Giving a producer the same 3% royalty off of the PPD means they make $0.16 per record. 

You should aim for the royalty income to be the same for your producer, regardless of which sales amount you choose.

For example, if you decide to give the producer a cut of the PPD sales, you will need to raise their royalty percentage to 6% to even it out. 

Which is Better for Producer Royalties?

While PPD is half the cost of SRLP, it is quicker and more reliable. You cannot guarantee how quickly consumers will purchase your record.

PPD ensures that your producer gets their cut quicker if retailers agree to pick up your record.

Their royalties depend only on the retailer’s purchase and not the consumer’s. 

Ultimately the decision is up to you and the producer.

While PPD results in a quicker turnaround for money, it usually stops collecting revenue quicker too.

Once retailers receive a good stock of your product, they are unlikely to purchase it again for a while unless it’s a hot item. 

When Do Producers Get Paid?

Producers receive their first royalty from the record after the recording costs have been regained.

In other words, once the gross income from the record sales has exceeded the recording costs, the producer will start collecting their royalties.

The royalties will continue for all sales going forward. 

However, artists don’t receive their first royalty income until all costs are recouped. 

Final Thoughts

Producers receive royalties, or production points, from a share of the artist’s royalties.

A record label usually pays this sum, but if an artist is independent, the responsibility falls on them.

Consider whether the sum will come from SRLP or PPD. 

If a producer contributed to the song with a beat or created other aspects of the music, they may also be entitled to mechanical or publishing royalties. 

Above all, discuss everything at the start.

Have an open conversation with the producer about expectations regarding the project and the fees. 

Sources

https://medium.com/the-courtroom/the-basics-how-do-songwriters-and-producers-get-paid-5d5debef25c7

https://www.musiccontracts.com/blog/2018/4/23/first-steps-to-setting-up-a-label-sjk55

https://lawyerdrummer.com/2020/09/producer-royalties-what-to-pay-your-producer/

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