Are you curious about how royalty checks work? When I was in grad school one of my classmates was a former actress turned journalist. She talked about her work during study sessions, telling my classmates and me stories about her time on Broadway and the one time she was in a show of CSI: New York.
In fact, she was still earning money from that one episode, as she got royalties every time there was a rerun on TV. Royalty checks are one of the ways that artists and actresses like my friend make money from their work.
These checks are often in relation to creative industries but you can get a royalties check from other industries as well. Find out more about how to get royalties, where royalties come from, and the advantages and disadvantages of getting royalty checks.
What are royalty checks?
Before we discuss how to get royalties, let's dig into what they are. Royalty checks are money that creators or owners get based on the sales of a product. For example, every time you buy a book, the author gets royalties. The same goes for musicians.
These royalty checks can bring in a ton of money, so much so that private equity giant Blackstone made a deal with Beyoncé’s royalties firm advisor to acquire $1 billion worth of music rights.
While artistic royalties are the most well-known, there are two other types of royalties - mineral royalties from the extraction of oil or minerals, and patents. We'll discuss these in more detail below!
How do you establish royalties?
Whether or not you will get royalties for your creative work depends on the type of contract you have. To get a royalty check, you need to have it specified in the contract.
Some publishers, for example, will pay a flat fee instead of royalties. The exact terms are in the licensing agreement between the third party and the owner.
Royalty checks can also be in perpetuity, which means the checks will keep coming as long as sales continue. But some contracts will limit how long you can get royalties.
You don’t necessarily have to be the content creator to get a royalties check. For example, rights to The Beatles music are split between Paul McCartney and Sony Music Publishing.
Examples of different royalties
As we mentioned earlier, there are three different types of royalties. But how does each one work?
Artistic royalties are specific to artists, writers, and musicians. The rate varies by the creator. A famous artist will get more than a writer who is publishing their first book.
In general, publishers offer anywhere from 5% to 20% on printed books or 25% on ebooks. A self-published author can make upwards of 70% in royalty checks. Music streaming services like Spotify pay between $0.0031 and $0.00437 per stream.
Actors also earn money from reruns, but the amount varies drastically by the show. The stars of Friends, for example, earn about $20 million every year in royalty checks.
Patent royalties are specific to inventors who create new devices. You can license the concept to a manufacturer and get royalties on sales. How much you get will depend on the device and the industry, as some industries like pharmaceuticals pay more in royalties than say a lighting device.
Finally, mineral royalties are specific to the landowner for access to the commodity on the land. For example, if an oil company thinks there is oil on your land, they might offer to lease the rights from you. Once drilling starts, you can get royalty payments on the oil, gas, or other minerals you obtain.
How can you get royalty checks?
As mentioned, you earn royalties if someone buys a copy of your creative work. That said, if you want to get royalty checks you can either make a creative work or project. For example, a book you write, music you write or record, television work, etc.
If you’ve worked on a music project or were on a TV show, you could be owed royalties. In fact, SoundExchange is a site set up to help track down artists with unclaimed royalties.
Buying a share of the rights to songs from other artists in a writer’s auction is another way how to get royalties. Sometimes when an artist dies their family will put the song up for sale to raise money. There are a few sites like SongVest that let investors buy fractional shares of songs.
One thing to keep in mind though when it comes to creative work is how many years are left on the copyright. Once the copyright runs out, you will no longer receive royalties, so make sure you have a few years left before you invest in fractional shares of a song.
Can you negotiate royalties?
You can usually negotiate royalties if you’re a creator or writer. For example, it’s not uncommon for writers to ask for publishers to pay an advance on their royalties.
You should also keep in mind that some fees could be deducted from your royalty checks. If you’re negotiating a royalty deal, make sure the payment is based on gross profit and not net profit. But if you’re buying a royalties check share, the terms of the deal are likely already set in stone.
Advantages and disadvantages to royalty checks
Everyone likes to get money for something they’ve created. But does it always make sense to get a royalties check instead of a fee?
Advantages of royalty checks
The advantage of getting royalty checks is that you can get extra money on a regular basis. This consistency makes it easier to predict and is a safer investment than investing in stocks. In the case of mineral royalties, you get the perks of getting payments without having to deal with the operations.
Main disadvantages of royalty checks
The main disadvantages of royalty checks include needing to pay income tax on both a federal and state level, which will lower your overall payments.
Plus not all royalties payments are forever. Some royalties can run out depending on the contract. And if you’re an inventor and license your patent to a manufacturer, you have less control over your final product.
You can earn money from royalty checks!
Now you know the different ways how to get royalties. Royalty checks reward creatives and inventors for their work. It’s also possible to purchase royalty shares from artists who have passed on or to get royalties from owning land that has oil or another mineral on it.
While you can’t always negotiate royalties, they can give you an added revenue stream and can be a bit more predictable than investing in stocks. Earning royalty checks is a great way to increase your income so you can save more money!