Costs and Incentives in Music Publishing

Photo by Vitaly Gariev

Everyone in publishing knows the simple truth- there shouldn’t be missing royalties in the digital age and there is a tax to identifying and retrieving them.

The explosion in the number of recordings being released and songs being registered is still stretching the system- leaving billions in royalties that remain unclaimed or misallocated ($196m at The MLC minimum at the time of writing). If optimising royalties has a necessary cost, it begs a nuanced question: who should foot the bill?

Is it the publisher’s operational cost, or a shared deduction from the writer’s royalties? Is it a cost allocated before the contractual obligation (gross), or after (net)? It’s a conversation becoming ever more pertinent because of the very nature of the ‘micro penny’ business in a digital age- given the intersection of an explosion in sheer quantity of data to process, and the efficiency (and cost) of having to process each and every line.

The uncomfortable truth is a well worn path- that there’s revenue ‘left on the table’, waiting to be claimed in the digital music economy. Highlighting, and critically, recovering these royalties is increasingly becoming its own line of work, and the cost basis has evolved in step.

The Hidden Cost of Collecting

When publishers invest to identify and claim royalties on behalf of their songwriters, there is a value exchange involved by necessity- particularly if third-party services are involved. Specialist tooling is often required to parse and analyse complex and vast data sets. These have an associated cost to build, maintain and deploy. Innovation costs. Whether through an external 3rd party or internal investment, the paradox is the same- how is this cost of ‘doing business’ borne? And by whom? The financial model behind these investments matters.

If fees are treated as a gross cost- coming off the top before the publisher and writer split royalties- it means the songwriter effectively pays a share. If it’s treated as a net cost, covered by the publisher out of their commission alone, it means they are the sole party absorbing it as a part of doing business.

Which model is commercially, and morally, fair? They reflect different philosophies about the role and responsibility of a publisher. Are they an administrator, paid a minor % to manage and deliver revenue? Or a partner, more wholly sharing in both upside and risk? It cuts to a deeper layer- what is a publisher? Especially in the modern, digitized, age. This is all the more stark if we leave the realm of ‘value add’ publishers and focus exclusively on administrators and other publishing service providers further down the value chain.

Misaligned Incentives Slow Innovation

I’ve moderated a ‘Collecting Income’ panel for the MPA’s Publishing 101 Course for several years- a discussion centered around options for collecting global publishing revenue, including via sub-publishers. The need for localized, ‘on the ground’ specialisation in works registration and revenue collection is a direct contributor to the ‘who pays’ equation- it boils down to a question of incentives.

In the global rights ecosystem sub-publishers can be in place and responsible for collecting royalties in foreign territories on behalf of a domestic publisher. The commercial arrangement is typically based on between 5% and 15% of collected income.

If a sub-publisher uses a revenue recovery service that charges 10% to find local unclaimed royalties, but the sub-publisher’s fee is only 10%, it can create a negative margin depending if their agreement is on an ‘at source’ or ‘net receipts’ basis- essentially whose balance does the recovery fees come out of. This can create a clear disincentive to commit resources to recovery- even if there are unclaimed royalties sitting on the table.

It’s not a moral failure, but pure economics.

The result? Money that could have been recovered for songwriters stays stuck in the system because the current incentives may not support going after it.

Publisher-led Investment

Publishers (i.e. “original publishers” in CWR-parlance) are closest to the songwriter. They’re the ones promising proactive royalty collection, metadata management, and revenue maximisation. That promise naturally includes investing in infrastructure and tooling (and/or partnerships) to maximise royalty collections. This is in the publisher’s remit, after all.

That means publishers making the necessary investments themselves. All business deals built for longevity must be win-win, and add value to both sides- a publisher should be using best efforts and investments because they, as well as the creators, will draw benefit. This is obvious financially when there is clear ROI, but there are also softer ways a publisher can benefit, for example in market positioning.

Look at just how hard Kobalt marketed the news of their tech investment levels! That’s the reputational angle- publishers that invest in better systems, smarter tooling, and fairer economics don’t just recover more revenue, they build trust.

It also means rethinking some legacy models- especially when sub-publishing is involved. If a sub-publisher’s fee structure actively disincentivises royalty recovery, it’s logical to ask whether that model still serves the songwriter’s best interests? This doesn’t even touch on more modern approaches to multi-territory licensing, or the ability to go more ‘direct’ in the digital age.

Modernising the VALUE chain

The publishing industry has rightly focused on expanding rights, increasing transparency, and modernising operations. But if we ignore the foundational economics behind royalty tracking we risk undermining the very innovations we’re trying to facilitate.

Writers shouldn’t be penalised for the industry's complexity. And publishers shouldn’t shy away from investing in the tools that make their core function, getting creators paid, more effective.

Ultimately, the most forward-thinking publishers won’t ask whether they should cover the cost of investment- but how much more value they can create by doing so.

Royalty tracking as one example investment area isn’t a luxury service, but a critical function in the modern music economy. The question is: will we build models that encourage its adoption, or continue to subconsciously disincentivise it?

In a data-rich, revenue-fragmented landscape, we need to align incentives vertically across the value chain. When publishers, administrators and songwriters are equally invested in royalty recovery- not just financially, but philosophically- we can develop a healthier ecosystem, stronger relationships, and better results for all.

In the end, everyone should win when the money flows where it’s supposed to.