October 23, 2015 Rock & Roll Librarian

Free Freaky Friday: The Myth of Passive Income

Dear Rock and Roll Librarian,

I was at a music conference for songwriters the other day. This guy on a panel they had about publishing said that songwriter’s income is passive. They talked about royalties. It sounded awesomely good. I mean, money just showing up and that. I wanted to talk to him more about how that works, but he was covered up with other people talking to him, so I didn’t get to. I was wondering. Can you explain a little bit more about that? If you could help me on this, I sure would appreciate it.

Thnx and so forth,

Maggie S—-

PS: I sure do appreciate having you as a resource I can go to.

 

Dear Maggie,

Glad to help. And you are most welcome.

For songwriters, passive income is simply income that continues to accrue to you from songs you’ve written and had placed on projects that are monetizing (i.e. albums or singles, whether downloads or physical product like CDs or vinyl), or from terrestrial radio play anytime in the future. I’m not mentioning streaming because with that you’ll probably never see enough money to buy even one cup of coffee.

However, passive income is awesome, but it can only be generated by not being passive in your business dealings.

How one gets it, though, is a myth.

You see, the myth is that by simply having a song placed on an album, somehow everybody will know to send money to you, the songwriter, because you wrote it. You must ask the following questions.

FIRST: How do “they” know you wrote it?

SECOND: Who are “they” that have to be told you wrote it?

THIRD: Who must tell “them” you wrote it?

FOURTH: How can you prove you wrote the song?

FIFTH: How do you know what your percentage is going to be for that song?

SIXTH: Did you sign contracts for that placement?

SEVENTH: Before you signed, did you have contract(s) reviewed by an attorney and were they understood by you?

 

There are more questions, but I think you are beginning to see the overall theme here:

PAPERWORK MUST BE GENERATED, UNDERSTOOD, AND TRACKED.

Maggie, the truth of the matter is that passive income can only happen if the songwriter does several things. So, to the questions above, here are the answers.

FIRST: Document your creative process by using a variety of time/date stamped methods from the first time your idea came to be. There are a variety of ways. One way we recommend putting into your proof flow is MyDigitalCatalog.com. They are a third-party validater of your creative information and

SECOND: If you are not a member of a performing rights organization (PRO, for short), we recommend you join one as both a writer and a publisher. SESAC costs nothing to join, but they don’t just sign people up willy nilly. You must be vetted by them first to join. ASCAP and BMI have small fees to pay, and some requirements.

THIRD: Then you must register your song with the performing rights organization just before it is released by going to your online member portal for the PRO. You will let them know who you are in business with, and what your previously agreed-upon splits are. In other words, you will tell them the basic details of your financial arrangement, and who the artist is that is releasing it. You should also upload a copy of the song to them. DO NOT RELY solely on your PRO keeping your information correct as they will not guarantee to do that.

FOURTH: Document and validate the basis of your deal with the split sheet by using MyDigitalCatalog.com. MDC offers free split sheets to everybody, but if you upgrade to the paid version you’ll get everything you need to document the full life cycle of the song. Also, you must register the song with Copyright.gov just before release. Do NOT trust that anybody else will let the government know. In the music business, there is something called convenient amnesia.

FIFTH: By using the split sheets, all songwriters and publishers will agree as to the percentage of the song each will get. If you have no copy of the agreed-upon split sheet, then you have no proof of the basis of your deal. Do NOT let anyone tell you that they will do all the registering for you. You must do it in your member portal, and you must have eyes on the information.

SIXTH: Before putting your song on the album, the publisher and/or label for the project should have supplied for your review a written contract spelling out the terms of the deal for placing your song on that project. It should cover quite a few things that I will not go into detail about here, and recommend you contact an entertainment attorney for review.

SEVENTH: Get an attorney.

 

So, you see, Maggie, that passive income can only be generated by not being passive in your business dealings. There is an old saying, “It takes money to make money.” As a small business owners, which songwriters are, you will have expenses.

You are wanting to go in business with these people, you are not an employee, so you must deal with these. But if you need some help in the meantime, and want a complete report on any contracts you are asked to sign, I am not an attorney, but you can sure use this option to begin to understand whether or not you will even want to move forward with a deal and have an attorney review it.

Gotcha Report Offline Contract Review