Royalties are a form of payment for the use of, or rights to, intellectual property or natural resources. Royalties are paid over time, rather than in a lump sum. Fields where royalty payments are common are writing, film, music, IP and technology, and natural resources such as oil, natural gas and mineral resources.
Royalties are a percentage of sales paid to the creator of a work. The size of the percentage depends on many factors--including how well known the creator is, how much money is paid up front and the expected life of the work. Royalties are negotiated by contract. In order to collect royalties, the creator generally must have a copyright or patent. Royalties are paid to authors, musicians, actors, directors, filmmakers, artists, software creators, game developers and many others who create and/or perform original material.
Authors of all kinds receive royalties. The author of a book usually sells the right to publish her work for a fixed sum paid in advance, plus royalties, which are paid as the book is sold. Further royalty payments may be negotiated separately for publication in other countries and languages, publication in magazines, paperback publication and the rights to adapt the book to film or television.
Filmmaking generally involves many people, and sometimes those people accept less money at the beginning in exchange for a percentage of the money generated by the film. Royalties are most often paid to the director, lead actors, scriptwriters and authors of the original story. Often the royalties for foreign release and DVD release are negotiated separately. Similarly, the royalties for television productions are often different for first broadcast, reruns, syndication and video distribution.
Music royalties are paid to the composer of the music and the lyricist, the publishers and to artists who record the music--but they are paid in different ways. There are basically four types of royalties related to music: 1) Performance rights, which are paid to the songwriter and the publisher by anyone wanting to perform the music live or broadcast GO 2) Print rights, which are paid to the songwriter and publisher based on sales of sheet music GO 3) Mechanical royalties, which are paid to the songwriter, publisher and recording artist each time a recording is sold GO 4) Synchronization rights, which are paid to the composer and publisher when a song is used as background for a film, TV production or commercial.
Royalties paid on non-renewable resources, such as minerals or petroleum, share the profits made from a resource between the owner of the land and the developer of the resource. A typical agreement pays the owner of the land between 1 and 5 percent of the gross revenues of an extraction operation until the costs have been recovered by the developer. After that, the royalty usually increases and can be either a percentage of net profits or gross revenues, depending on the contract.
Patents and Trademarks
Companies or individuals may collect royalties by licensing others to use patents or trademarks to which they hold the rights. Patents and trademarks can be sold outright but often produce more income when they are licensed and produce a steady stream of royalty income. This type of royalty is often seen in the pharmaceutical and software industries.