6 reasons music royalty payments are broken

It's no secret that new technologies have thoroughly changed the music business over the past few decades. The emergence of the open internet blindsided the traditional gatekeepers of the industry—record labels, entertainment retailers, radio stations—and unlocked access for consumers and producers alike. In a short period of time, compact disks have been replaced by downloads, then by streaming. Indie artists emerged from every corner of the world to achieve international acclaim. Creation was both globalised and democratised as any aspiring musician with a computer could connect and contribute.

But amidst all this change, one thing has stayed more or less the same: the way in which people making music get paid.

Royalty payment distribution hasn't changed much over the past 50 years: the systems for managing payment information are out of date; payments are often delayed or lost; payees have no control over how they receive their earnings. In an industry burgeoning with creativity, few organisations have implemented a royalty payment process that puts artists first—and that needs to change.

Here are six ways that royalty payment distribution is broken (and why we need to fix it):

1. Providing payment information is a headache
Many record companies and performance rights organisations put artists through a rigorous identity verification process before they'll send a payment. Payees might be asked to provide multiple pieces of government-issued identification, tax forms, bank statements, utility bills, and more. Updating payment information can be equally difficult: some music organisations ask for a notarised document for something as simple as a change of address. Moreover, all of this document exchange still happens via snail mail. These sorts of complications can prevent low-earning artists from claiming their royalties altogether.

2. Many royalties fail to reach the recipient
According to a 2015 report by Berklee, the institute for contemporary music and performing arts,  anywhere from 20 to 50% of music royalty payments never reach their intended recipient. That is – in part – because of the antiquated processes still used to distribute payments. Music and media organisations typically send royalty cheques using the contact information provided by an artist at the time of signing, which might have been decades ago. When that information is outdated (say, because it's so difficult to update with the paying company), the payment is often returned. If the music organisation doesn't have the resources to chase down payees, the royalties can accrue unclaimed for years.

3. The frequency of payouts is unreliable
When it comes to royalty payout frequency, there's very little consistency across the industry. Record companies tend to pay royalties twice a year; performance rights organisations pay anywhere from four to ten times a year; music publishers, two to four times. Additionally, the cost of sending royalty payments—especially by cheque—means that payouts are often subject to thresholds, where artists are paid only after their owed royalties from a music organisation exceed a certain amount. With these delays, a royalty payment can take upwards of two years to be delivered.

4. Recipients have no control over method or currency
Between the globalisation of the music industry and the popularisation of digital payment methods, royalty cheques simply don't offer the kind of control that artists and contributors have come to expect. In today's on-demand technology landscape, payees want to be able to manage earnings on their smartphones and choose how to cash out their funds. Cheques are particularly cumbersome for international musicians, who can expect lengthy delays and punishing fees as royalty payments bounce between regional performance rights organisations.

5. There's no transparency in the payment process
That last point is important to keep in mind when discussing royalty payment transparency. Unless a cheque is delivered alongside a comprehensive statement (and most aren't), the recipient won't be aware of all the fees they've incurred. And even with an attached statement, artists have no insight into delivery delays or when a royalty payment will arrive. Combined with infrequent payout schedules, this makes it extremely difficult for musicians to forecast their earnings.

6. Cross-border royalty payments are expensive
It's not only cheques that are bad news for globally-dispersed artists. Any royalty payments sent that aren't in the recipient's local currency are going to be subject to significant foreign exchange fees, essentially docking the artist's pay. That $100 royalty that you were expecting might turn out to be just $60 after all the fees. Additionally, regional banks may not even accept foreign methods of payment, further complicating the payout process for international contributors.

Modernizing royalty distribution

Royalty payment distribution is broken, but it doesn’t have to be. Working with a modern global payout provider or platform, music companies and performance rights organisations can alleviate the issues that currently exist in royalty distribution. Some may require only basic information to send the first payment to an artist, and will offer payees the ability to manage funds and contact information through an online portal. A range of fast and convenient payout methods, combined with a global financial network, can provide localised payment delivery for contributors all around the world. Real-time payment tracking, funding notifications, and reporting features ensure greater transparency for everyone involved.

Technology changed the music industry—and it's changed the payments industry, too. It's time we bring royalty payment distribution into the 21st century.

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