As a filmmaker, you know a bit about intellectual property. According to Don Passman’s excellent book All You Need To Know About the Music Business,
Copyright is a “limited duration monopoly.”
You as a creator of original content have the EXCLUSIVE right to
1) reproduce the work
2) distribute it
3) perform it publicly
4) make a derivative work
5) to display it publicly.
Royalties are the payments the creator receives for one of the 5 rights described above. For any creator of intellectual property, royalties are an important source of revenue. For songwriters/ composers, there are basically two kinds of royalties.
Mechanical royalties and performing rights royalties. Mechanical royalties are misnamed but come from the time when you mechanically reproduced the music . It refers to sales of records and a percentage of each sale goes back to the owner of the copyright (a writer and a publisher). In the case of royalty-free music libraries, this is the royalty that is no longer paid in exchange for an upfront payment and the non-exclusive use of the music. It can be sold over and over again to recoup it’s investment and expense.
Performance royalties are monies paid to the creator/copyright owner when the music is performed in public. In the United States, there are three Performing Rights Societies (ASCAP, BMI, and SESAC) that handle the licensing and collection of fees for the right to perform music in public. These are the royalties that broadcasters pay and you as the film producer do not have to worry about. You do have to sign off on and provide a “cue sheet” for your film. More on this later.