What Are Royalties?

Royalties are payments made usually in the course of a licence agreement to the owner. The type of property royalties can be paid on include a broad range of physical and intellectual property, for example film, music, publishing, and mining.  

Royalties are a way of making profit without giving up ownership and are usually arranged through some form of licence agreement. A license agreement will usually set out property/intellectual property ownership, how the property can be used, for how long, and how payment of royalties work.

For example, if a musician wishes to sell the right to use their music to a company, they would include identifying details of the songs included in the licence agreement, outline specifics of how and when payments are made, how long the agreement will last for, and how the songs can be used.

Where there are multiple owners, for example in a piece of music where there might be several vocalists and a producer, royalties are often split according to the contribution of each author to the piece of music. Collection services such as APRA in Australia allow one of the owners of the music to register each song, its split, the contributors, and how many times it is performed live for live performance royalties. When radio stations play a song, this information is sent to APRA which sends out automatic payments annually to each copyright owner of the song. In this way musicians can avoid drafting licensing agreements each time they perform their music for instance, and still be paid royalties.  

It is also common for owners of patented technology to receive royalties when others wish to use a patentable invention. Royalties are often a percentage of income generated by the patent.

Depending on the type of property, licensing agreements may have other names. For example when an author wishes to publish their book, a publishing agreement is a common way to control royalties and intellectual property ownership.

Examples of royalties for physical property in Australia include for mining minerals (coal, petroleum or non-coal) which are paid to the crown.

Royalties are considered part of one’s taxable income, for the person paying royalties, this may be a business expense.