How Do Royalties Work?

by Ruth O'Neil; Updated September 26, 2017

Royalties are monies that a person receives as a particular product makes money over time. A royalty is the amount of money paid to an author of a book, screenplay, music and even some ideas. How the royalties work depends on what type of royalty it is, such as from a book publisher or a movie company, and what the contract states.

Producer

The producer, whether a book publisher or an actual movie producer is the one that puts out a great deal, if not all, of the money to have the item produced. The item can be a completed book or a movie. This relieves the author of having to put out possibly hundreds of thousands of dollars to get his product on the market.

Author

Sometimes the author has a say in the actual finished product; sometimes it is just his idea that someone else takes and builds into something marketable. Because of the author’s involvement or idea, the contract states the percentage amount of money that the author will receive when the product becomes available to consumers.

Royalties

If you are the one signing the contract, it is always best to have a lawyer who is familiar with royalties read it over first, especially if you have never had this type of contract before or are working with a new company. You may think you are getting one amount of money when it is actually something else altogether. For example, find out if your contract states that your royalty percentage is on the gross amount of receipts or the net amount. The figures you receive from these can be quite different.

How Often

The number of times per year you will get paid royalties depends on your contract. Some authors receive royalties on a monthly basis, especially self-published book authors. Other authors of song lyrics or traditionally published books through a publishing house receive royalties on a quarterly basis. Some royalties may only start after the production company makes a certain amount of money. For example, some book publishers, self and traditional, only pay royalties after they reach the amount spent on production. Other publishers will send an advance. Expect an advance from many book publishers only if you already have a ready platform for selling or if you have a well-known name.