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​What it is

Royalties are a legally entitled payment made to a copyright owner in consideration for the use of their work.

Put another way: getting paid when others use your work. 

Note: royalties arise in wide array of situations and in respect of a range of rights. For example, music performance royalties concern a complex network of payments, rights and stakeholders that include streaming royalties, neighbouring royalties and synchronisation (or sync) licence fees. Royalty rights can also arise automatically by law, as well as by contract. This entry does not cover that spectrum of rights but is concerned with royalties for copyright use that arise from, and are set out in, an express agreement such as a licensing agreement.

When it applies

The right to receive a royalty arises when someone uses another person’s copyrighted work, often under the terms of a licensing agreement.

The licensing agreement will usually (and should) set out the out the amount of the royalty (or how it is calculated) and when it will be paid. Royalties can be a single lump sum but are often based on a percentage of sales revenues, with payments being made periodically in arrears e.g. quarterly or annually.

Royalty rights are often very specific to the sector they relate to, both in terms of the amount and structure. In some cases, highly bespoke royalty arrangements will be agreed, depending on the commercial needs and interests of the parties.

Who/what it applies to

Royalties apply to one person’s use of another person’s copyright, in circumstances that do not fall within an exception.

In a direct licensing relationship, royalties are paid by the party using the copyrighted work to the copyright owner.

However, in more complex situations, royalties can involve multiple stakeholders. For example, royalties arising from the public broadcast of a song may involve the recording artist, the composer (if different), the record label, licensing (or collective management) agencies, streaming platforms and the venue playing the song (to name but a few).

Core principles

1. Royalties are a legally owed payment for the use of copyrighted work.
2. They allow different parties to utilise their expertise in a mutually beneficial way.
3. The nature and amount of royalties is highly context specific, depending on the industry and type of use e.g. music, visual arts, playwrights.
4. Payment is often periodic, based on sales revenue or usage, although the parties have freedom to structure the payments as they wish.
5. The amount, structure and term of the royalty is commonly set out in a licensing, or other form of royalty, agreement.

Why it matters (risks/opportunities)

Risks

• Royalty payments can be complex to determine, especially when there are multiple stakeholders.
• It can be difficult to identify when work has been used and therefore when a royalty payment is due.
• Enforcing royalty rights can be expensive, creating a practical barrier to legal action.

Opportunities

• Royalties support collaboration by ensuring parties are remunerated for their contribution to a product or service.
• Parties are able to gain access to new markets in a low-risk way as someone with relevant market expertise can develop the new product and simply pay a copyright owner for the use of their work e.g. the use of a photographer’s work on a clothing line.
• Long-term royalty agreements provide a copyright owner with a pipeline of income.

Key legal considerations/elements

Licensing (or other royalty) agreement

In many cases the terms of the royalty will be set out in a licensing or other type of royalty agreement. This agreement gives the licensee the right to use the work subject to the obligation to pay a royalty.

Royalty rate

This is how much the copyright owner will be paid. Depending on the context and their negotiating power, the parties can negotiate highly bespoke arrangements. This could be calculated as a percentage of sales (less deductions) or a per unit amount e.g. £5 for every unit sold.

Deductions

Deductions can be made when calculating the royalty payment. For example, tax, the cost of shipping relevant goods, marketing, returns.

Guaranteed minimum royalty payment (GMRP)

GMRP is sometimes referred to as a minimum royalty payment. It's an agreed minimum that the copyright owner will receive each year. If the royalty entitlement exceeds the GMRP the owner will receive the higher amount, if the entitlement would have been less than the GMRP the licensee will incur the loss.

Key commercial considerations/elements

To avoid dispute, royalty agreements should be in writing and clearly set out the royalty rate, permissible deductions and payment dates.

When agreeing a royalty rate think ahead. How could this relationship grow, what other product markets or countries could eventually be involved? The language of the agreement must be clear to ensure that it does not inadvertently include or exclude (as the case may be), transactions that are not in the contemplation of the parties.

Agreeing permissible deductions is critical. If deductions are to be made from royalties, this should be limited and clearly set out in the agreement. Copyright owners should take time to work out the likely payment of various royalty structures to maximise their returns.

Copyright owners can receive an advance against royalties, which will then be deducted from future entitlements. Consider whether this will be necessary e.g. if there is a long lead time between agreeing to the license and receipt of the first royalty.

Collective agencies often work on behalf of copyright owners to collect and distribute royalties. Creators should ensure they're registered with the relevant agency for their field e.g. authors may register with the Authors’ Licensing and Collective Society.

FAQs

What types of royalties exist?

Royalties arise across a large spectrum of uses, which can be sector specific. Examples of royalties include book publishing royalties, streaming royalties, artists resale rights, mechanical royalties and public performance royalties.

What are sync licencing fees (or sync royalties)?

Sync (synchronisation) royalties are (often single, upfront) payments made to a copyright owner when their music is used in television (including commercials), videogames and film. With the advent of digital platforms for film and television, the demand for music and therefore sync rights has increased, providing an additional stream of revenue for recording artists and composers (both of whom are rewarded under a sync licence).

What are artists’ resale rights?

Unlike royalties paid for the use of an author’s work, artists’ resale rights entitle the original author to a royalty payment in the event of certain sales of their work. This right is considered more in our entry on artists’ resale rights. 

How do I recover royalties from a collective management agency? (e.g. the performing rights society or authors’ licensing and collecting society)

The agencies are often sector specific so first identify the right agency for your work. When you have identified the agency you want to register with, you'll generally be required to create an account and register each work that you intend to recover royalties for. Register each work as soon as possible to maximise your returns – agencies tend to make payments at set times (e.g. twice a year) for all royalties accrued in the prior period.