Music Royalties Explained for Independent Record Labels

Tracking royalties probably isn’t the reason you started your record label. But it’s one of the most important parts of the job. If your artists don’t believe they’re being paid fairly, your ability to sign talent, grow catalogs, and build a reputation will quickly fall apart.

Your biggest challenge is that music royalties are complicated. Revenue comes from multiple sources, each with its own reporting formats, timelines, and rules. Independent record labels don’t have the finance teams or legacy infrastructure that majors do, which makes staying on top of payments incredibly difficult.

The good news? With the right system, royalties don’t have to be overwhelming. Let’s break down where music royalties come from, how royalty splits work, and smarter ways to keep payouts transparent and accurate for your artists.

The Royalties You Need to Track (Recording-Side)

Independent labels typically focus on recording-side royalties. Some labels also own or administer publishing rights, meaning they’re responsible for both the composition and the master. For most indies, though, the recording side is where the day-to-day royalty work happens.

Streaming & Downloads

Streaming is the backbone of income for a record label. DSPs like Spotify, Apple Music, and Deezer pay out royalties based on streams, but how they calculate it differs. Most use a pro-rata model (a pooled system where the biggest artists take the largest share). Others, like SoundCloud, are testing user-centric models, where each listener’s subscription is divided only among the artists they stream.

Revenues come from two sources: subscriptions (monthly fees) and advertising (free tiers). Both feed into the overall pool before being split between sound recording rightsholders, publishers, and the platforms themselves.

Sync

Sync placements (TV, ads, film, games) can transform an artist’s career overnight. The placement itself is usually a one-off fee, but the exposure can also drive streams, sales, and new fans.

Performance & Neighboring Rights

Every time your recordings are played in a gym, a bar, or on the radio, they generate royalties. These are collected by neighboring rights organizations.

In most of Europe and many other markets, terrestrial radio pays performers and master rightsholders. - In the U.S., as of mid-2025, terrestrial (AM/FM) radio still does not pay sound recording performance royalties — labels and artists don’t earn from those broadcasts. That would change if the American Music Fairness Act is passed. - For U.S. non-interactive digital services (like Pandora’s radio mode and SiriusXM), master royalties are collected and paid through SoundExchange.

Physical

Physical formats are making a comeback, especially vinyl. In the U.S., vinyl revenue grew about 7% in 2024 to ~$1.4B, accounting for nearly three-quarters of all physical format revenue. If you press records or CDs, remember royalties are usually calculated on net receipts — after manufacturing, distribution, and retail costs are deducted.

Contracts Define the Flow

Before you think about reporting, you need to be clear on who gets what and how often. Deals between rights holders shape how royalties move:

Profit Share Deals

Label and artist split net profits after costs.

Example: A band signs a 50/50 profit share. After costs, their EP nets £26,000 in six months. The label pays £13,000 to the band and retains £13,000.

Royalty Deals

The artist takes a percentage of revenue. The catch? Costs are deducted first. A 20% royalty rate doesn’t mean much if £30,000 in expenses are recouped before payouts, and with the majority of royalty deals, the advance is only recouped at the royalty rate.

Producers

They might charge a flat fee or take 1–5% of royalties (sometimes 20% of the artist’s share). Most production fees are recoupable from the percentage allocated to the producer or mix engineer.

Advances

Advances give artists cash up front, but they’re recoupable. A recording contract will usually stipulate what the advance is intended to be used for, and whether part of it is set aside for A&R, marketing, or legal. If an indie band signs a £10,000 advance and earns £7,000 in year one, they won’t see new income until that advance is fully repaid.

Mechanical Royalties: What Labels Need to Know

Mechanical royalties are owed when a song is reproduced, physically or digitally. For most streaming platforms in the U.S., DSPs pay these directly to The MLC, which then pays publishers and songwriters. Labels generally don’t see this flow unless they also own the publishing. However, labels are responsible for mechanicals in certain cases, like permanent downloads not covered by the blanket license, or if they sell downloads directly.

Covers always require a proper mechanical license. To simplify this process, labels using Revelator can access Easy Song Licensing directly through the Marketplace — a partner that helps secure the necessary licenses quickly and compliantly.

The Data Challenge

Here’s where things get messy. Every DSP, distributor, and collection society has its own reports, with different columns and codes.

Most DSPs don’t pay labels directly. Revenues usually flow through distribution partners or licensing partners like Merlin. Each partner uses different reporting formats, adding another layer of complexity.

It adds up to billions of rows of data when you manage multiple artists and releases.

Spreadsheets can handle a couple of releases, but not at scale.

Best practices for independent labels

Royalties don’t have to be overwhelming if you build good habits early. A few simple rules go a long way:

• Agree splits before release. Avoid disputes by locking this in upfront.
• Keep metadata clean. ISRCs, UPCs, and credits are the backbone of accurate payouts.
• Centralize contracts and payment details. One source of truth saves endless back-and-forth.
• Stick to a regular payout schedule. Quarterly works well for most labels.
• Be transparent. Clear statements strengthen trust with your artists.

In practice, the easiest way to stick to these habits is to keep everything in one place. With Revelator, royalties, contracts, and splits all live in a centralized system. Once terms are set, payouts are applied automatically across future runs — no manual approvals, no chasing collaborators. Artists and contributors can log into their portal to view statements and receive payments directly, keeping everything transparent and organized.

Best practices for independent labels

Royalties don’t have to be overwhelming if you build good habits early. A few simple rules go a long way:

• Agree splits before release. Avoid disputes by locking this in upfront.
• Keep metadata clean. ISRCs, UPCs, and credits are the backbone of accurate payouts.
• Centralize contracts and payment details. One source of truth saves endless back-and-forth.
• Stick to a regular payout schedule. Quarterly works well for most labels.
• Be transparent. Clear statements strengthen trust with your artists.

In practice, the easiest way to stick to these habits is to keep everything in one place. With Revelator, royalties, contracts, and splits all live in a centralized system. Once terms are set, payouts are applied automatically across future runs — no manual approvals, no chasing collaborators. Artists and contributors can log into their portal to view statements and receive payments directly, keeping everything transparent and organized.

Choosing the right platform

Best practices are a great foundation, but they won’t scale on their own. If your royalty process is tied up in spreadsheets and manual checks, you’ll eventually hit a wall. As catalogs grow, the admin grows faster — and that’s when the right system makes all the difference.

Revelator was designed for labels that want to take the work out of royalties and keep artists confident they’re being paid fairly. With Revelator, you can:

• Set contracts and splits once and know they’ll be applied automatically across all future runs.
• Generate royalty statements in minutes, not weeks.
• Give artists their own portal to see earnings and statements in real time.
• Pay artists globally with integrated, compliant payments.
• Get clarity with detailed breakdowns by DSP, territory, artist, or release.

Instead of spending your time buried in spreadsheets, you can scale with confidence — knowing every collaborator is paid correctly, transparently, and on time.

Why it matters for your label

Paying out royalties isn’t just an operational task. It’s the foundation of trust between you and your artists. When artists know they’re being paid fairly and on time, everything else signing new talent, expanding your catalog, building your reputation gets easier.

With the right tools in place, you can step out of the admin weeds and put the focus back where it belongs: helping your artists grow and your label thrive.