When a piece of copyrighted music is used, there is usually a financial transaction involved. Depending on who owns the rights, payments may be owed to the artist, songwriter or composer, music publisher, record label, or other copyright holders. A single song can have multiple owners, each entitled to a share of the royalties.

Music rights generally fall under two main copyrights: the composition (the underlying song, including the lyrics and melody) and the sound recording (the specific recorded performance of the song). Royalties are the payments made to the owners of these copyrights whenever the music is used, whether through streaming, radio play, live performances, sales, or licensing for film, television, and other media.

A single song is generally divided into two types of copyrights, each with its own way of tracking ownership and income. The first is the composition copyright, which covers the underlying musical work, including the lyrics, melody, and harmony. This copyright exists whether the song is written on sheet music, documented in another form, or fixed in a recording.

The second is the sound recording copyright, which covers the specific recorded performance of the song. The owner of the recording, often the performing artist or a record label, controls how that recording is used and receives royalties generated from the use of the recording itself.

These two copyrights come together when a composition is recorded. At that point, the song has both a composition copyright and a sound recording copyright, and each can generate its own royalties depending on how the music is used.

The 1909 Copyright Act established what became known as the mechanical royalty. At the time, "mechanical reproduction" referred to technologies such as piano rolls and phonograph records that could reproduce a musical composition. The Act gave copyright owners the exclusive right to authorize these reproductions. However, once the copyright owner had allowed the composition to be mechanically reproduced, anyone else could also reproduce the work by obtaining a compulsory license and paying a statutory royalty.

Physical products are tangible formats through which music is distributed to consumers. Unlike digital formats, physical products require the musical composition and sound recording to be reproduced onto a manufactured medium, making them an important source of mechanical royalties. Each unit that is produced and sold represents a reproduction of the copyrighted work and generates royalties for the copyright owners according to applicable licensing agreements and statutory rates.

Common physical products include compact discs (CDs), vinyl records, cassette tapes, DVDs containing musical content, and other manufactured audio formats. While physical music sales represent a smaller portion of the industry than they once did, they remain an important revenue stream for many artists, particularly through vinyl releases, collector's editions, and merchandise bundles. Each format follows the same fundamental principle: because the copyrighted composition is reproduced onto a physical medium, the manufacture and distribution of those products create royalty obligations that must be tracked and paid to the appropriate rights holders.

Performance royalties are payments made to the owners of a musical composition when that music is performed publicly. A public performance occurs whenever a song is played outside of a private setting, whether through radio broadcasts, television, live concerts, restaurants, retail stores, sporting events, or digital streaming services. Unlike mechanical royalties, which are generated through the reproduction of a composition, performance royalties are generated by the public use of the music.

Performance royalties are typically collected and distributed by Performance Rights Organizations (PROs), which monitor where music is performed and ensure that songwriters and music publishers are compensated. Businesses and organizations that publicly perform music obtain licenses from PROs, which collect licensing fees and distribute royalties to rights holders based on reported and monitored performances. These royalties provide an ongoing source of income for songwriters and publishers whenever their music is publicly performed.

Synchronization royalties, commonly referred to as sync royalties, are generated when a musical composition is synchronized with visual media. This occurs when music is used in films, television shows, commercials, video games, online videos, or other audiovisual productions. Before a song can be used in these projects, the producer must obtain permission from the owners of both the composition copyright and the sound recording copyright, unless a new recording is created for the project.

Unlike mechanical and performance royalties, sync royalties are not set by statute or collected through a blanket licensing system. Instead, they are negotiated directly between the rights holders and the party seeking to use the music. The resulting synchronization license outlines the terms of use and the fee to be paid. Because every project differs in its audience, duration, distribution, and budget, synchronization fees can vary widely. Sync licensing has become an important source of revenue for songwriters, publishers, recording artists, and record labels, while also providing valuable exposure for the music through its association with visual media.