Back 
Platform-based businesses thrive on strong partners—see how mass payments tech streamlines operations, reduces risk, and boosts partner retention.
Royalty payments encourage and protect creativity and innovation across industries.
From the photograph on your wall to the song playing in a movie —even the fuel in your car—royalties help ensure that the original creators, rights holders, or landowners are fairly compensated when their intellectual property, artistic works, or natural resources are used by others.
This article explores key concepts, including royalty definitions, royalty payments, typical royalty rates, types of royalty structures in business, and strategies for scaling royalty-based compensation, especially in the creator and digital content economy.
What is a Royalty?
Royalty is a payment stream to purchase rights to use, produce, distribute, or modify property. Royalties apply to intellectual property (like patents, trademarks, and copyrights), creative works (such as music, books, films, and art), and mineral rights (like oil, gas, or mineral extraction from land).
Key Takeaways
- Royalty payments compensate creatives and landowners for using their creations or property.
- Royalties include books, music, films, art, digital content, oil & gas, and natural resources.
- The terms of a royalty agreement include how to calculate and when to pay royalties.
- Automation software lets businesses make efficient global royalty payments.
Types of Royalties
Types of royalties include:
- Song or music royalties
- Songwriters, composers, and their publishers own the copyright
- Book publishing royalties
- Film royalties
- Digital content and social media influencers
- Oil, gas and mining royalties
- paid to mineral rights owners with a royalty interest
- Franchise fees in franchising businesses
- Patent royalties
Works That Can Be Copyrighted to Receive Royalties
The U.S. Copyright Office is used to register and copyright these (different types of royalty-related) works before publication:
- Literary works
- Performing arts
- Visual arts
- Other digital content
- Motion pictures
- Photographs
Royalty Income vs. Royalty Payments vs. Royalty Fees
Royalty payments, royalty income, and royalty fees differ based on the license agreement and the type of royalty.
Royalty Income
Royalty income is the amount received through a licensing or rights agreement for the use of copyrighted works, influencer endorsements, intellectual property like patents, or natural resources like oil and gas properties. It often includes an upfront payment and ongoing earnings and payments.
Royalty Payments
Royalty payments are funds paid to owners through a royalty agreement for the rights to publish or use copyrighted writing, music, movies, other intellectual property like patents, or types of tangible property like oil and gas land for drilling rights.
Royalty Fees
Royalty fees are amounts earned upfront and subsequently upon making product sales from their licensors or publishers of copyrighted works of literature, music, or other types of property, like patents or oil & gas land.
How to Calculate Royalty Payments
Calculate royalty payments based on the royalty rate or percentage, applying terms in the royalty agreement.
The royalty rate is calculated according to specific terms defined in a licensing agreement, including restrictions on geographic distribution, time period, or the number of uses of the licensed asset. A typical calculation for a royalty rate is paying a specific percentage of the sales generated from the asset.
Examples of Royalty Income in Different Industries
Royalty income is generated in different industries. Statistics and examples follow.
Royalty Income Statistics
Global royalty collections reached a record high of €13.09 billion (or $11.9B USD) in 2023, a 7.6% increase from the previous year, according to CISAC’s Global Collections Report 2024. Growth was driven primarily by digital income, which surpassed broadcast royalties as the largest revenue source for creators, thanks to rising streaming subscription revenues. Live and public performance royalties also showed strong recovery.
CISAC—the International Confederation of Societies of Authors and Composers—is headquartered in France and represents 227 societies across 116 countries. It compiles annual data covering collections for creators in music, audiovisual, visual arts, literature, and drama.
Royalties in Music
Types of Music Royalties
According to Songtrust, music industry royalties include Composition Royalties, which are performance royalties, and mechanical royalties related to physically reproducing, digitally streaming, or downloading musical compositions. Music royalties also include Master Recording royalties for digital performance royalties and master recording revenues.
Performance royalties are royalty fees paid by public broadcasters and users of copyrighted music performance royalties. Triggers include radio stations playing songs or music, movies, television shows, advertisements, and public events with theme songs or music used at political campaign rallies.
Performing Rights Organizations and Distributors
ASCAP is one of the three major Performing Rights Organizations (PROs) for songwriters, composers, and music publishers that help them register their music and see royalty statements online to collect royalties. BMI, another PRO, is the largest U.S. non-profit music rights organization that connects songwriters and music owners to the companies and organizations that want to play their music publicly. SESAC is a for-profit Performing Rights Organization.
Music industry distributors, like CD Baby, structure agreements to receive either fixed fees or percentage distribution royalties from the artist’s master recording royalties.
Keeping your musicians, artists, and other payees happy with on-time royalty payments is essential.
Tipalti’s mass payments software lets you efficiently pay global royalties in large batches using a choice of payment methods.
Book Publishing Royalties
Book publishing companies pay royalties to authors for their copyrighted work when they purchase the rights to publish their book. Published authors receive both advances and future royalties based on book sales. Once books are sold, the royalties are payable, then paid once or twice a year, according to the publisher, Penguin Books.
Any original work produced by a content creator is automatically copyrighted, giving the creator the right to license the asset and charge royalties for ongoing use.
Under U.S. copyright law, original works receive “copyright protection the moment it is created and fixed in a tangible form that it is perceptible either directly or with the aid of a machine or device”.
Film Royalties
The movie company receives royalties when movies are shown in theatres or streamed.
Digital and Video Content
Digital and video content creators have different talents and specialties.
Types of Online Content and Creators
Companies are turning to online content creators—bloggers, vloggers, dancers, music artists, and more—for a new take on digital marketing. From web videos on YouTube and TikTok to blogs, creative partners cover a wide range of content specialties and niches.
No Standard Royalty Rate
The diverse content specialties demonstrate that every collaboration is its own production, which means a standard royalty rate doesn’t exist. In a Collaborator Academy course, YouTube shared a list of various costs to keep in mind when collaborating with a content partner:
Costs Requiring Adequate Royalties or Partnership Fees
Talent: paying for the on-air talent and whether that contract is exclusive, non-commit, or just a talent fee.
Production: the work behind the scenes, such as special effects or on-location fees.
Intellectual property: the rights and terms to use the video for commercial use.
Distribution: placing the content on websites or streaming services.
Media amplification: promoting the video collaboration through social channels.
These pricing considerations can also apply to partnerships with other creators, such as lifestyle bloggers or songwriters. Understanding the various aspects of producing content will help you develop productive partnerships with creative content creators domestically and abroad.
Franchisee to Franchisor Royalties
In the franchising industry, the franchisee pays the franchise company ongoing franchise royalty fees as a percentage of revenues to remain in the franchise. According to FranConnect, a franchise industry software provider, the average franchise royalty fee is 6%.
According to the Small Business Administration (SBA), in franchising, franchisees pay monthly franchise royalties (franchise fees) of 4% to 12 %+ of gross sales to a franchisor to “own and operate the business.”
Oil and Gas Royalties to Mineral Rights Owners
Oil and gas producers pay royalties to land mineral rights owners monthly based on their royalty interest for production. The royalty payment is the negotiated percentage of gross revenue from production, based on the oil and gas lease.
Patent Royalties
A patent licensee pays the patent owner for the rights to use the invention based on a negotiated agreement. The patent license may be a fixed-rate or royalty-based license fee. The arrangement may be exclusive or non-exclusive use of the patent’s intellectual property, providing the know-how to become a licensed product and legal protection. The length of the patent license is determined in the license agreement.
Are Royalty Payments Considered Income?
Royalty payments are considered taxable income for the recipients and a business expense for the companies making the payments.
What is Royalty Payments Tax Treatment in the U.S.?
In the U.S., businesses can generally take a tax deduction for royalty payments as expenses, and payees receiving royalties report royalties as income on their tax returns.
The IRS treats royalty income received as ordinary income reportable either on Schedule E for Supplemental Income and Loss or Schedule C for self-employed individuals. IRS Publication 525 has more detailed information about Taxable and Nontaxable Income.
Payers report $10 or more royalties paid to recipients in Box 2 of the information return, Form 1099-MISC. Payers send or file a copy of each form with the IRS, any applicable state, and the recipients to prepare their income tax returns.
How Royalty Payments Work
Royalty payments are negotiated once through a legal agreement and paid continuously by licensees to owners. They grant a license to use their intellectual property or assets over the license period. Royalty payments are often structured as a percentage of gross or net revenues.
Manual vs. Automated Royalty Payment Workflows
| Task | Manual Process | Automated Workflow |
|---|---|---|
| Payee Onboarding | Multiple bank portals and systems, often delayed or incomplete international payments. | Self-service portals collect and validate payee details digitally. |
| Payment Calculation | Royalties calculated in spreadsheets; high risk of miscalculations and missing splits. | Payment calculations triggered from integrated systems; reduce errors with automated logic. |
| Payout Execution | Batch payments are executed globally through a single platform, faster and more reliably. | Proactive compliance processes embedded in the workflow, including country-specific tax and sanction checks. |
| Tax Document Collection | Manually requesting and tracking forms (e.g., W-9/W-8); limited validation. | Digital collection and storage of tax documents with built-in validation rules. |
| Compliance Checks | Limited visibility into local tax or AML requirements; often managed reactively. | Reconciliation is done manually in spreadsheets or multiple systems; it is a time-consuming close process. |
| Payee Communications | Email follow-ups for status updates; difficult to track. | Automated notifications and real-time dashboards for payment tracking. |
| Dispute & Inquiry Resolution | Heavy reliance on finance/support teams to answer payment questions. | Payees have self-service access to payment status and history. |
| Reconciliation & Reporting | Payment data is synced in real-time with reporting tools or ERP systems. | Payment data synced in real-time with reporting tools or ERP systems. |
| Scalability | Workload increases linearly with more payees or partners; hard to scale without more staff. | Automation enables lean teams to scale payment operations efficiently. |
What is a Royalty Deal?
A royalty deal is when an investor gives funds to a company, not the individual, in exchange for a certain percentage of total sales. For example, an investor invests in a clothing company and receives 5% of gross sales. This means the investor earns $2.50 on every $50 shirt sold.
Example of Automated Royalty Payment Processing
Because royalty payments are made to many payees at once, using a system for mass payment automation is essential to streamline the process.
Lean operations are ideal in many industries, but they’re critical for companies that offer digital creative services.
GoDigital Media Group, Automates Mass Global Royalties, and AP
GoDigital Media Group, with its multi-subsidiary global operations, has been a Tipalti customer since 2018. It switched to Tipalti mass payments for payouts and AP automation software for supplier invoice processing because Tipalti enables electronic payments to 196 countries (and 120 currencies), covering the essential locations of GoDigital’s payees.
GoDigital Media Group’s subsidiary companies help music and entertainment content owners manage, market, and monetize their products. These subsidiaries include music label and distributor Cinq Music, music television network VidaPrimo, and social media monetization service AdShare.
GoDigital has used its lean operations to make global mass payments, including royalty payments, with Tipalti automation software, and it saves 20 days annually on accounts payable.
“From sign-up to implementation, we went live in four weeks, which was incredibly fast. It’s been smooth sailing since, and our clients love it. I’m spending more time structuring deals and really focusing on all the strategic aspects of helping the business. I’m freed from the administrative operative burden I had before,” according to Hunter Paletsas, CFO of GoDigital Media Group.
Izo, a Digital Media Firm, Automates the Tax Identification Process
Izo, the parent company of Dance On, is well aware of the challenge. The Los Angeles-based digital media firm partners with thousands of dance groups worldwide to produce videos aimed at Millennial and Gen-Z audiences. Izo’s influence network is best known for creating dance music videos to Silentó’s “Watch Me (Whip/Nae Nae),” helping propel it as the top trending song in 2015.
Collaboration and distribution of content are the heart of Izo’s business, but the company knew that cumbersome back-end processes would distract it from its focus.
“For a lot of early-stage digital media entertainment companies, in order for them to become cashflow positive, it behooves them to run very lean,” Izo Chief Finance Officer Dan Steinberg told Tipalti. “Digital media involves much more guerrilla approaches to production. You’re filming a lot more with lower budgets, and ideally employing data-driven approaches to extend the value of content.”
With the help of the Tipalti mass payment platform, Izo improved its royalties payment workflow by automating tasks related to tax identification. Previously, Izo had to request, collect, and validate the tax identification of its growing community of content creators. However, after Izo implemented the Tipalti platform, new artists and partners could complete digital IRS W-9 and W-8 documents through Tipalti’s onboarding portal. The streamlined workflow reduced the paperwork for partners and Izo management, enabling the company to run a lean finance operation.
“From our partners’ standpoint, the process is smooth and transparent,” Steinberg said. “We don’t hear complaints. That’s the golden indicator that nothing is going wrong, and that’s the payment experience you want.”
Use Automation to Create a Lean Finance Operation
Ways automation can help your business create a lean accounting and finance operation:
- Scale payments: Mass payments automation like Tipalti can efficiently pay global royalties and creator payouts in a batch of up to thousands of transactions in multiple currencies and payment methods.
- Stay tax compliant: Receive simple tax preparation reports or optionally e-file forms 1099-MISC that report royalties in Box 2.
- Self-service onboarding: Suppliers perform payables tasks through a portal, including entering contact and payment information, W-9 or W-8 tax form data, and their preferred payment method.
- Approvals: Remove bottlenecks from the payment approval process and automatically route approvals electronically.
- Payment status notifications: Your suppliers receive automated notifications, minimizing payee inquiry disruptions to the AP team.
- Digitization: Eliminate paper-based systems and manual data entry to save time, prevent lost documents, and reduce current filing and storage costs.
- Instant payment reconciliation: Tipalti syncs data with your ERP and provides instant payment reconciliation, accelerating your financial close.
A mass payment platform like Tipalti performs manual tasks, such as verifying country-specific tax compliance. It keeps you focused on partnering with influencers and other creatives without geographic limitations.
Scale Global Creator Payments with Smart Royalty Solutions
We have provided in-depth answers to the question, “How do royalties work?”. Businesses and organizations pay royalties to owners to use their creative works and pay owners for their intellectual property or ownership interests, like mineral rights. Users pay royalties based on the terms of a legal license agreement. A royalty payment received by licensees is royalty income to the recipient, subject to U.S. ordinary income taxation.
Streamlining the royalty payment process with mass payments (and paying supplier invoices with AP automation software) significantly increases business efficiency. If your business pays royalties, explore Tipalti’s automated royalty payments software to see how you can streamline payments, offer flexible payment methods, and better support and retain creative talent.
