Music royalty is a $10 billion per year industry. In 2016, over $30 billion in oil and gas royalties were paid to U.S. landowners. Over the past fifty years, the Gatorade Trust has made over a billion dollars in royalties from the sale of a beverage.
Clearly there’s a lot of money in licensing the use of a particular asset. Royalties can be generated from minerals to music and just about everything in between. For the most part, if there’s a marketable asset—physical or intellectual—there can be a royalty attached to it. But where did the concept originate? The answer is actually quite interesting.
In the Middle Ages, monarchs had a “royal right” to all the land, and their subjects could use the land on the condition of feudal service. If miners wanted to produce minerals, they were required to get permission from the king as well as pay a fee or “royalty” to the monarch. The term eventually evolved to encompass any arrangement where a landowner received payment for mining operations.
During the Renaissance, there was an explosion of intellectual property and the patent system was birthed to protect inventions and music compositions. The term royalty eventually expanded to include payments received from intellectual property, most notably the sale of sheet music.
The US continued to evolve and formalize this process with the Copyright ACT of 1790, which gave protection to original scores and lyrics. Subsequently, the American music industry really started to take off in the 1830s and 1840s. The preeminent songwriter of this time was Stephen Foster, whose songs “Oh! Susanna” and “Camptown Races” remain incredibly well known up to this day. A New York publishing company struck a deal with Foster to pay him a royalty of two cents for every printed copy they sold.
As other forms of entertainment rose in popularity such as audio books, movies, and television, the royalty format was applied to these new mediums.
During the oil boom of the early 20th century, the term seemed to come full circle, as royalty interests were paid to landowners to produce their minerals. But instead of silver and gold, these companies were producing oil and gas.
While the term “royalty” has come a long way and is used in many different industries, it’s more or less lost its original meaning of paying the monarch just to make money. That’s probably because there’s a new term for that…taxes.