Every Stream Owes Two Royalties to Two Different Owners
A recorded song contains two separate copyrights, one in the composition and one in the recording. Paying for a stream requires licensing both, from parties who are frequently different companies.
Two Copyrights in One Song
Playing a recorded song involves two distinct works.
The musical composition is the underlying melody and lyrics, owned by the songwriters and generally administered by music publishers.
The sound recording is the specific recorded performance, owned typically by the record label.
Those are separate copyrights held by separate parties, and using a recording requires permission from both. The distinction explains almost every complication in music licensing.
| Right | Covers | Typically Owned By |
|---|---|---|
| Composition | Melody and lyrics | Songwriter and publisher |
| Sound recording | The specific recording | Record label |
The Mechanical Royalty
The mechanical royalty is owed to the composition owner for reproducing the work, a term inherited from mechanical piano rolls.
It applies to physical copies, downloads, and, critically, to interactive streaming, where each stream is treated as involving a reproduction.
American law provides a compulsory licence for this: anybody may reproduce a composition that has been commercially released, without negotiating, provided they pay the statutory rate and follow the notice and accounting procedures.
That compulsory structure exists so a songwriter cannot block a cover version, and it is the reason the rate is set by a rate setting body rather than by negotiation.
The compulsory licence guarantees the right to use the composition and requires identifying and paying the owner. When millions of tracks are streamed billions of times, identifying the owner turned out to be the hard part.
The Problem That Required Legislation
The compulsory licence procedure required serving notice on the copyright owner. Where the owner could not be identified, the licensee could file with the Copyright Office instead.
Streaming services processing enormous catalogues found that composition ownership data was incomplete, inconsistent, and frequently split among multiple co writers and publishers in shares nobody had recorded centrally.
Unmatched royalties accumulated, and litigation followed alleging that services had reproduced compositions without proper licences.
The response was legislation in 2018 establishing a blanket licence for digital services covering all compositions, administered by a newly created mechanical licensing collective.
How the Collective Works
The collective maintains a public database of musical works and ownership shares, receives royalty payments from digital services, matches usage to owners, and distributes.
It is funded by administrative assessments paid by the digital services rather than deducted from royalties, which was a deliberate design choice so that the cost of solving the identification problem falls on the parties who benefit from the blanket licence.
Services obtaining the blanket licence receive a limitation on liability for past unmatched uses, which was the commercial trade that made the legislation possible.
Unmatched royalties accumulated historically were transferred to the collective for distribution, and where owners cannot be identified after a period, the funds are distributed to identified rights holders in proportion to market share.
That last mechanism is genuinely contested, since it distributes money belonging to unidentified small rights holders to the largest publishers.
The Rate Setting Fight
Because the licence is compulsory, the rate is set administratively through a rate setting proceeding, and the outcome moves substantial money.
Songwriters and publishers argue for a higher share of streaming revenue, on the basis that composition owners receive far less than recording owners for the same stream.
Services argue that higher rates threaten the economics of a business with thin margins.
The disparity is real. The recording side of a stream typically receives several times what the composition side does, which reflects negotiating leverage rather than any judgement about relative contribution, since label rates are negotiated and composition rates are set by a tribunal.
The Adjacent Rights
Two further rights complete the picture.
Public performance of the composition is licensed through performing rights organisations, which issue blanket licences to radio, venues, and services and distribute to writers and publishers.
Synchronisation, meaning use of music with visual media, is not compulsory at all. It requires negotiated permission from both the composition and recording owners, which is why clearing a song for a film or advertisement is slow and why productions frequently commission original music instead.
The Bottom Line
Every recorded song carries two copyrights owned by different parties, and every stream owes both. The composition side operates under a compulsory licence at an administratively set rate, which guaranteed access and left the identification of owners unsolved until legislation created a collective to do it. The recording side is negotiated and receives several times as much per stream, which is a difference in bargaining position rather than in contribution, and it is the central grievance of songwriters in the streaming economy.