How the Music Industry Works: Labels, Distribution and Royalties Explained

Global recorded music revenue reached $31.7 billion in 2025, up 6.4% year on year and the eleventh consecutive year of growth, according to the IFPI Global Music Report 2026. Streaming accounted for more than $22 billion of that total, or 69.6% of all recorded-music income, with paid subscription services alone making up 52.4% of global revenue and 837 million paid subscribers worldwide, IFPI reported.

Behind those headline numbers sits a system of contracts and copyrights that most listeners never see. Every recorded song generates two legally distinct kinds of income, and understanding that split is the starting point for understanding how money moves through the industry.

Two copyrights, two royalty streams

The first copyright covers the master recording — the specific captured performance, including the vocals, instrumentation and production choices. According to royalty-data platform Royalty Exchange, the owner of the master, usually a record label on standard deals, collects master or 'recording' royalties whenever that specific recording is streamed, sold or synced to film and TV.

The second copyright covers the composition — the underlying melody and lyrics, independent of any one recording. This is where songwriters and their publishers earn money, through mechanical royalties (for reproductions, including interactive streams) and performance royalties (for radio play, live performance and public broadcast), Royalty Exchange explains.

Who collects what

In the United States, performance royalties for songwriters and publishers are collected by Performing Rights Organizations such as ASCAP and BMI. Mechanical royalties generated specifically by streaming and downloads are instead collected by The Mechanical Licensing Collective (MLC), a nonprofit body designated by the U.S. Copyright Office under the 2018 Music Modernization Act. The MLC issues blanket mechanical licenses to streaming services and has distributed more than $4.2 billion in royalties to songwriters, composers and publishers since it began operating in January 2021, according to the organisation.

Master-recording royalties, by contrast, are paid out directly by streaming platforms and distributors to whoever owns the master — typically the label, or the artist if they are unsigned and self-released.

Record deals and recoupment

Labels fund recording, marketing, video production and tour support as an advance against future royalties, taking ownership or control of the master in exchange, Royalty Exchange reports. Standard major-label contracts typically pay signed artists 10% to 25% of recording-royalty revenue, but only after the advance has been fully recouped — meaning the artist's royalty share goes toward repaying the label's upfront investment before any income reaches the artist. Royalty Exchange notes that for many artists, full recoupment never happens.

Independent artists who own their own masters keep a far larger share — roughly 70% to 90% of streaming and sales income — after paying a distributor's fee, which commonly ranges from 10% to 30% depending on the service, according to the same analysis.

Distribution: getting music onto streaming platforms

Distribution is the separate function of delivering audio files and metadata to streaming platforms such as Spotify, Apple Music and YouTube. Independent artists can use digital distributors to upload music without signing to a label, paying the distributor a fee rather than handing over ownership of the master, according to Royalty Exchange. Major labels typically distribute through in-house or affiliated distribution arms rather than these consumer-facing independent services.

Majors, independents and market share

Three companies — Universal Music Group, Sony Music Entertainment and Warner Music Group — remain the dominant forces in recorded music. Industry newsletter Music & Copyright, published by research firm Omdia, reported that in 2025 Universal Music Group held 32.5% of combined digital and physical recorded-music revenue, Sony Music Entertainment held 22.7%, Warner Music Group held 14.8%, and the independent sector as a whole held 30%.

IFPI's 2026 report also recorded growth in physical formats, up 8.0% overall with vinyl sales rising 13.7%, and in performance-rights income, which reached $2.9 billion, a 0.3% increase.

IFPI's Oakley also addressed streaming fraud in the report, describing it as outright theft and calling on streaming services, content aggregators and distributors to take action against it.