Black box royalties or the unclaimed money you should get

Unclaimed royalties end up in the black box.

Have you ever heard of the term “black box royalties” in the music industry? It’s a mysterious concept that often leaves songwriters and artists in the dark about their earnings – and we are talking about hundreds of millions of dollars here.

In this article, let MusicTeam® shed light on what black box royalties are, why they often go uncollected, the financial impact of unclaimed royalties, and how you can prevent your hard-earned performance and mechanical royalties from disappearing into the black box.

What is the “black box” in the music industry?

The term “black box” in the music industry refers to a pool of unallocated and unclaimed royalties. These royalties stem from various sources, including streaming services, radio airplay, and public performances.

The “black box” gets its name from the obscure nature of these funds. They accumulate over time and remain unclaimed because the rightful recipients are often unaware of their existence. In 2021 in the United States alone, the MLC (Mechanical Licensing Collective), the society that collects the mechanical digital royalties on musical works reported an amount of $424 million dollars (USD) of unclaimed royalties lost in the black box.

Black Box royalties imply royalties related to both musical works and sound recordings. In this article, we specifically address musical works’ royalties. The two primary types are those associated with public performance and mechanical reproduction. Let’s focus on public performance royalties.

Where do performance rights royalties come from?

When it comes to public performance, we can think of public events like concerts, for example, but also the streaming economy.

Businesses and live performances: concerts, festivals, etc…

In various public venues where music is played such as restaurants, stores, concert halls, and festivals, it is essential for companies to obtain licenses from organizations like Entandem, which acts as a bridge between businesses and SOCAN. These licenses allow for businesses to play music in public and from this, performance rights royalties are generated. Once the music performed is reported back to SOCAN or declared with their Notification of Live Performance, royalties can trickle back to their members.

The amount of that license will depend on the size of the business and the type of event. Also, it is important to mention that businesses shouldn’t be using their employees’ personal Spotify or Apple Music accounts for commercial use.

Establishments seeking to effectively manage the distribution of royalties for music licenses should consider leveraging advanced platform solutions that facilitate the generation and dissemination of broadcast reports. These platforms help ensure that the content broadcasted to an audience is accurately identified and promptly communicated to SOCAN, the PRO. This process guarantees that the funds paid to Entandem for licensing are meticulously tracked and efficiently redistributed to the rightful owners.

Moreover, in nightclub settings, several emerging MRT (Music Recognition Technology) companies collaborate with collecting societies to identify the musical works played and compensate the respective rights holders. For live music shows, concerts, or festivals, it is required to declare the setlist but too often not done.

Streaming Economy

Digital service providers (DSPs) such as Apple Music, Spotify, etc. have agreements in place with collecting societies around the world. These DSPs provide reports and distribute royalties to the societies, and it is the societies’ responsibility to allocate musical works’ royalties (performance rights and mechanical rights) from streaming. If the collecting societies lack accurate metadata for a musical work in these reports, they are unable to identify the work or its rightful owners, leading to royalties being placed in the proverbial “black box”. Instead of being directly allocated to the songwriters, composers and lyricists, PROs may step in and redistribute the “black box” money, pro-rata, among their members or reinvest the money in the organization.

Why are those black box royalties not collected?

We can highlight three main reasons why black box royalties for musical works are not collected:

  1. Rightsholders are not affiliated with a PRO/MRO or musical works are not registered
  2. Missing or incomplete metadata
  3. Inaccurate reporting

1. Are you registering your musical works with a PRO?

The absence of an affiliation with a PRO and improper music rights registration will lead to royalties being stuck in the “Black Box”. When songwriters, composers and lyricists fail to become affiliated with a PRO and register their music rights, they miss out on the crucial mechanisms that facilitate the collection and distribution of performance rights royalties for their musical works.

These societies play a pivotal role in monitoring and licensing the public performance of musical works. Without this affiliation, the PRO cannot effectively track when and where music is being played, leading to uncollected royalties.

NB: the same process applies for mechanical or reproduction royalties on your musical work. Your PRO may collect these royalties and act as your MRO. If they don’t, you should become a member of an MRO and register your musical works with them.

2. The absence or inaccuracy of metadata

Another issue is metadata accuracy. Sometimes, royalties are generated but cannot be distributed to rights holders because of missing or incorrect metadata. This can happen when musical works have incomplete information, making it challenging to identify the rightful owners. When it comes to music streaming, meticulous attention must be given to the inclusion of key identifiers like IPI (Interested Parties Information), the legal names of songwriters, and ISWC (International Standard Musical Work Code) during the music distribution process. Metadata accuracy is particularly challenging in the case of international music distribution. Music transcends borders, and artists frequently have a global audience. In this international landscape, different countries have their own regulations, collection societies, and reporting standards.

When data about music usage and royalties crosses borders, it can become muddled or lost in translation. The complexity of international music rights, combined with varying data standards, adds an extra layer of difficulty in accurately tracking and distributing royalties to artists and songwriters.

3. You don’t – or can’t – report correctly

Another reason black box royalties remain uncollected stems from the absence of a system established by licensing companies to receive reports on public performances. Even when a musical work is identified in a public performance, its identification hinges on the existence of a corresponding report. If such a report is absent, the royalties remain unallocatable.

Unclaimed “black box” royalties make artists lose money

Unclaimed “black box” royalties have a significant impact on songwriters and artists, causing them to lose out on hard-earned income. These royalties, instead of benefiting the creators, accumulate in the “black box”, leading to substantial financial losses. For many songwriters, this lost income can be a vital part of their livelihood. As these royalties go unclaimed, it can result in financial struggles, making it difficult for creators to sustain their careers, create new music, or invest in their artistic endeavors.

Furthermore, the issue of unclaimed royalties exacerbates income inequality in the music industry. Established and well-connected artists often have better systems in place to ensure they receive their earnings, while emerging or independent creators may find it challenging to navigate the complex landscape of music rights, metadata and royalties. This inequality can hinder the growth and creative expression of emerging artists, perpetuating an uneven playing field.

Where does the money go?

Unclaimed royalties typically linger in the “black box” for a certain period, and their fate can be rather intricate. The question arises: where does this unclaimed money end up?

Firstly, some PROs and CMOs allocate a portion of unclaimed royalties to a general fund for eventual distribution among their affiliated members. While this may ensure some level of fairness, it can lead to a dilution of earnings for active creators.

Secondly, administrative costs play a role in the process. To manage and distribute royalties, a portion of unclaimed funds may be employed to cover these administrative expenses. In this way, a portion of unclaimed money goes towards the operation of societies.

In some cases, unclaimed royalties may be classified as “abandoned” after a specified period. These royalties may not be distributed to anyone, effectively becoming lost to the rightful owners.

Lastly, certain contractual agreements, especially those involving record labels and publishers, might allow them to recoup unclaimed royalties. This means that even less of the money reaches the artists themselves.

How to prevent your musical works royalties from ending in the “black box”?

Preventing your hard-earned royalties from disappearing into the “black box” requires proactive measures and a keen understanding of the music industry’s intricate royalty system. Here are some comprehensive steps you can take to safeguard your earnings:

 1. Register your Musical Work with a Performing Rights Organization (PRO) and/or MRO

Performance Rights Organization (PRO), such as SOCAN, ASCAP, BMI, PRS, SACEM and GEMA to name a few, play a pivotal role in collecting and distributing royalties. By affiliating yourself with a PRO, you can ensure that your musical works are properly registered, and royalties are systematically collected whenever your work is performed, broadcast, or streamed. These organizations have a vast network of international counterparts, helping you receive your earnings not only in your home country but also globally.

In Canada, you also need to become a member of an MRO (Mechanical Rights Organization) like SOCAN RR or the CMRRA to recover your royalties for mechanical reproduction. (NB: In some countries, PRO and MRO are the same organization.)

You must declare your musical works to these societies. The good news is that we, at MusicTeam®, can help you register your musical works.

2. Ensure accurate and comprehensive metadata

Accurate music metadata is the lifeblood of royalty collection. Metadata includes information about songwriters, composers, publishers, and other rights holders including their IPI, ISNI or IPN as well as ISWC for musical works and ISRC for sound recordings. It’s crucial to provide complete and precise data when you distribute music to DSPs to help PROs and MROs identify rights holders quickly and ensure that  royalties are distributed to the correct parties.

Missing or incorrect metadata can result in royalties becoming stranded in the “black box”, as identifying the rightful owners becomes a daunting task. All your musical works and sound recording metadata can be documented in your MusicTeam® account. This will ensure you always have your accurate metadata ready and available for music rights registration or for distribution.

3. Keep detailed records of your music’s performance

It is unfair to expect creators to continuously monitor their music’s performance and streaming metadata. However, there are cutting-edge technologies that simplify the process of reporting setlists to copyright management organizations. Platforms such as the SOCAN portal, Seeqnc, and Muzooka enable artists to confidentially document their musical performances, thereby contributing to the equitable distribution of royalties.

When artists observe their music being played on streaming platforms (DSPs), ideally, this should be reflected at the level of their PRO. While the royalty percentage may be lower than that of distribution, each stream generates royalties for the musical composition, encompassing both public performance and mechanical reproduction rights.

MusicTeam® helps you claim all your royalties

To prevent these losses, proactive management of your music rights is vital to ensure that you can claim what is rightfully yours. Royalties should not end up in the “black box” but rather in your pockets.

Our all-in-one platform for independent creators is here to help you. We can register your musical works with SOCAN so you can receive what you’re really owed. Let’s work together and create your MusicTeam® account now!

Published On: November 24th, 2023Categories: Music Rights

About the Author: Fiona Ham

Head of Operations at MusicTeam®. Always passionate about the music industry, she's bridging gaps between innovative technologies in music business, copyright law and users.