What Is Royalty Distribution? Agreements, Software & More

When something is sold on a royalty basis, its license holders calculate and put aside a share of the earnings to compensate the original creators. That money is then distributed to recipients in an agreed manner and on a set cycle.

Responsibility for these processes lies with the business that sells the content. Unfortunately for them, royalty management can become a lot more complex than it seems at first glance. Here are some of the common pain points—and how best-in-class solutions from MetaComet® can help ease them.

Calculating royalties

As we explain here, agreements are the starting point for everything to do with royalties. They formalize the rates and percentages that make up the basis of calculations, as well as other important things like the terms of use. There are many different types of royalties, all with their own definitions, and because agreements aim to account for every possible eventuality, they can be lengthy and complicated. Royalty rates can vary widely, according to sector, format, source of sale and much more, and there’s an important distinction between the ‘net’ and ‘list’ basis of calculation. Clauses may include ‘escalators’ or bonuses that deliver higher rates when volumes reach a certain level.

These and other complications can make it hard to keep track of the royalties that need to be distributed. When a publisher or other license holder has a small volume of content, limited sources of sales and straightforward terms, it may well be possible to handle calculations manually or build spreadsheets to do the math. However, royalty accounting soon becomes unwieldy when the volume of content grows and sales rise, and as different rates and clauses kick in. Statements take longer to prepare, soaking up hours and creating frustration.

Automate Your Distributions

Reduce your workload by 90%!

Whether you’re a publisher distributing royalties or a tech transfer office distributing revenue from an IP royalty payment, MetaComet® has an automation solution for you. Let us show you how it works!

Making payments

When complexities increase, so do the risks of error in statements and delays in payments. Royalties are normally paid on an agreed timeframe—once, twice or more times per year—and authors, illustrators and other content creators expect them to arrive on time. Running late can cause them cashflow issues and brings the risk of reputational damage to the business that is supposed to be paying them. 

Even when calculations are complete, the practicalities of sharing statements and distributing payments can add more time and stress. Until relatively recently, and in some cases to this day, royalty statements would have been printed and mailed to each recipient, alongside a check for the money due. Online bank transfers and digital communications have thankfully reduced the need for stuffing envelopes, buying stamps and signing checks. Nevertheless, handling royalty distribution offline can be just as labor intensive if it requires admin teams to check every line of a statement and manually arrange transfers to every recipient.

Automating royalty distribution

The good news is that royalty distribution doesn’t have to be so hard. Tools like MetaComet’s Royalty Tracker® are available to automate the many stages of the process, slashing the time spent buried in spreadsheets and organizing payments.

At the calculation stage, the software integrates multiple sales sources with the Sales Aggregator tool and determines the royalty that is due on every sale. It makes sure that each sum adheres to the terms of the royalty agreement, then calculates the total that is due. It can account for the most sophisticated and convoluted clauses of a contract and adjust for variables like international currencies if required. It automates other types of revenue sharing calculations as well, and flexes to the needs of the many different industries that rely on royalties.

With all the numbers crunched, Royalty Tracker prepares the professional statements that are due to every recipient. These can be scheduled for set points in the cycle, ensuring they are ready to be dispatched by the dates set out in the agreement. In tandem with the statements, payments can be automated and pre-programmed too, providing the certainty that all recipients will get their money on time. 

From calculation to bank transfer, everything can be handled at speed and with reliable accuracy. Distribution is reduced to a ‘magic button’ click that coordinates it all, whatever the volumes of contracts and recipients that are being handled. There’s robust security in a state-of-the-art data center that ensures all the data involved in royalty distribution remains protected.

The savings of automating royalty distribution in terms of time, cost and headaches are obvious. But there are big benefits for content creators too. MetaComet’s suite of solutions also includes a secure Royalty Portal for recipients, through which they can get easy and instant access to real-time statements and payment information, creating welcome transparency and maintaining trust between payer and payee. Contacts can also use the portal to update their information and find answers to queries, saving on back-and-forward communications and reducing payment errors.

It’s crucial that all software is scalable, and MetaComet’s solutions are built to grow alongside your distribution—whether that’s to a handful of royalty recipients for start-ups, or to thousands for well-established businesses. Royalty Tracker integrates easily with other software as well, including the accounting packages that are the foundations of your business. Yes, royalty distribution can be complex—but it doesn’t have to be.

To discuss your royalty distribution, get answers to your questions, learn more about MetaComet’s solutions, and schedule a demo, contact the team.