What is Royalty Accounting? – Music industry jargon busting

Royalty accounting is mostly applicable when you’re with a label. In an ideal world, it should be quite a straightforward and transparent process: once or twice a year, your label works out how much they spent, how much they brought in, and what they owe you. Then, they send this to you in a spreadsheet or fancy accounting software, and you can pocket the profit. 

But is this always as straightforward as it should be?

The Basics

Turns out it’s not as straightforward as it seems to be. Firstly, accounting usually happens bi-annually (June & December usually), or just annually (whenever they feel like it). Contracts usually state the label has 90 days after the books have been completed to issue a statement. Standard payment terms are usually 30 days from receipt of invoice – so, you’re looking at a considerable delay between the time the label does their sums to you actually getting some cash. 

Secondly, label statements might not be as accessible as you want them to be. They either overwhelm the artist by providing an ultra-detailed breakdown of sales. Else, they can be frustratingly useless or downright dodgy. 

In the case of physical products such as vinyl records and CDs, labels automatically deduct a percentage to cover assumed “breakages”. If not properly accounted for, this would technically be a case of a label unashamedly ripping an artist off. Plus, there’s also often a whole chain of players in the physical distribution system. If the label partners are reporting late or badly, it has a knock-on effect on your statement. Different territories might report at different times, in different formats, or currencies. Technically, you have the right to audit a statement, but note that this is going to be at your expense. 

When it comes to the digital music economy, things are (kind of) simpler, as you’re not dealing with a physical product that might be damaged along the way. However, streaming is another world altogether. Spotify and Apple Music pay artists on a “pro-rata” basis – meaning that the paid users’ monthly fees generate a total amount, and then the artists get paid in proportion to all listening times. Around 70% of the streaming money generated by the artist goes to the label. The label takes a cut and then pays the artist. 

The better news is that, if you’re with an indie label and you have a good relationship with the label heads and staff, statements tend to be a lot simpler and clearer – as the deal you signed with them is probably a lot simpler in the first place when compared to major label deals. Furthermore, it’s a lot easier to talk to someone and discuss statements. If you’re a fully independent artist, there’s no middle person between you and the money – but this means that you have to filter through the data from your distributors and streaming partners and sort out the accounting part yourself. 

Final notes

Striving to become a professional artist can feel like a constant balancing act. In addition to taking care of all the creative elements, you also need to sort out the behind-the-scenes and the business aspects. Therefore, adding a professional accountant and lawyer to your team is a wise move, as you can rest assured that you’re ultimately getting the money that you’re really owed.

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