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# Understanding Licensing and Royalties

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However, the songwriter can, in essence, establish whatever royalty rate they like. It is up to the artist to agree to that rate or not. As well as this, the songwriter might insist that the royalty is paid up front - i.e. if the artist wants to make 300 CDs and sell them for �10 each then the mechanical royalty can be calculated and the songwriter can invoice the artist before the CDs are manufactured. The benefit to the songwriter is - they won't have the potential credit problems of ensuring royalties are paid?once sales are made. Let's look at a test case. Say an artist - Steve - wants to record two of their own songs and two songs by other songwriter friends of his. Steve would request permission from them to record their individual songs and establish a royalty rate. One friend - Joe - might want the "industry rate" of 5.6% of RRP. But Joe's close friend Dave is happy with 2.5% of RRP. Steve then records the four songs and presses 300 CDs. Over a series of live shows he sells 260 of them for an average of �10 each (he is not GST registered). The royalties are then paid out as follows: As there are four songs on the CD; each song receives a quarter share of the?appropriate royalty base.? Joe receives 1/4 x 5.6% x 260 x �10 = �36.40 per song? ...read more.

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