Neighbouring or related rights apply to the rights connected with sound recordings or phonograms. Generally, a sound recording exists on a data carrier (e.g., .wav, .mp3 files on a computer hard drive or CD) and its creation requires various resources and activities, thereby conferring new rights on the final result. The production of a phonogram involves various performers and phonogram producers, example. For example, factors such as the initiative, financial and time investments, and sometimes the fame and network of the parties are considered.

Although today's technological advances have often merged roles in the music world (for example, a songwriter can independently produce, mix, master, distribute and market the recording at home), we will present a traditional example where the recording's creation was assisted by respective specialists in their field, later connecting these to established practices in the music industry.

Recording a song professionally may require a studio, vocalists, a producer, a sound engineer, and various musicians whose instrumental performances need to be recorded. The person managing the planning, coordination, and financing of these resources gains rights to the final result and is usually referred to as the (record) producer. There can be multiple initiators, financiers, and those responsible for the phonogram's production. Accordingly, the fees arising from the producer's rights are shared among all contributors based on their input.

The Copyright Law defines a performer as a singer, musician, or other person or collective who sings, plays a musical instrument, or otherwise performs creative works. Since professionals mentioned above are needed to record the composition and lyrics, they too acquire performance rights upon the completion of the recording. A single recording can have multiple performers, hence performance rights and the ensuing fees are shared. The question arises on how to distribute these fees among performers and what portion of the total fees from the phonogram should belong to the performers.

To simplify the current distribution of fees from both copyright and master-related rights, it can be pictorially represented as follows:

According to the law/convention, fees for the use of a phonogram are equally distributed (50%-50%) between performers and phonogram producers, unless agreed otherwise. Considering that a large part of new music (especially for emerging musicians) is released independently (without a record label involved), the distribution of fees typically takes into account not only the contributions of the phonogram producer and performers but also the division of costs and tasks in production and exploitation (music distribution, marketing, etc.).

Since roles in phonogram production can vary and the activity includes many additional tasks, complications may arise in fair distribution of fees. Below are some situations where I share my vision of possible distributions.

Phonogram production typically begins when a musician wishes to produce a recording of a written song or a producer wants to create a recording from someone's song/composition. To create a recording, the following activities are required: recording vocals and instrumentals, and post-production (mixing and mastering). Assuming that the producer and musician are not multitaskers and do not possess all the skills needed for the production, they need to collaborate to achieve their goals. For instance, consider a singer who does not play instruments and approaches a producer who uses a digital audio workstation (e.g., Ableton, FL Studio) for producing tracks, and neither of them is skilled in mixing or mastering.

In this situation, the musician, as the initiator of phonogram production, might pay the producer a one-time fee for the work, make a deal based on phonogram fees, or combine both. In this example, the musician is capable of recording vocals but has two options for recording instrumental parts: 1) find musicians to record the instrumental part and pay them similarly to the producer or 2) use pre-recorded samples or software-based instruments (thus technically making the producer a performer).

Of course, a combination of both options can be used. An example of a specific and integrated role distribution might include: the musician records the vocal part, a guitarist plays the guitar part, and the producer creates the drum track based on samples. In this situation, rights applicable to the phonogram producer can belong to both the vocalist, responsible for the phonogram production, and the producer, responsible for the artistic concept of the work, while performance rights are shared between the vocalist, producer, and guitarist. In the final phase, a sound engineer who mixes and masters the track is also involved, and payment for their work can be made similarly to the producer.

Scenario 1: The artist pays the producer, guitarist, and sound engineer a one-time fee for their services. In this case, the artist essentially buys out the other parties' rights and maintains 100% of the rights and revenues associated with the phonogram (both performer and phonogram producer parts).

Scenario 2: The artist pays the guitarist and sound engineer a one-time fee, but the producer receives a share of the phonogram's revenues. Since the guitarist and sound engineer have been paid for their work, they have no claim to the revenues. How then are the rights divided between the artist and the producer? Firstly, we should look at the roles each played and what portion of the phonogram rights belong to them.

Considering that the producer is responsible in the recording process, he would have rights to the producers' share. Since the music producer created the drum track with samples, he is thereby also a performer. The artist in this scenario is both a performer and a phonogram producer – a performer because they sang the vocal part and a phonogram producer because the recording happened on their initiative, responsibility, and financing (hiring the guitarist and sound engineer). In our view, rights could be divided as follows: ⅓ of performer rights to the producer and ⅔ to the artist, since the drum performance is ⅓ of the entire recording in this case (in addition to guitar and vocals), and ½ of the producers' rights to the producer, who is responsible for production, and ½ to the artist. In summary, as follows: 41.5% to the producer and 58.5% to the artist, or 40%-60% to make it round numbers.

Scenario 3: The artist lacks financial resources, and all parties are compensated with a share in the phonogram's revenues. In this situation, we can again consider the work contributions to the creation of the track, and a vision of the distribution of the phonogram could be as follows: ⅓ of performer rights to the guitarist, ⅓ to the artist, and ⅓ to the producer, and ⅕ of phonogram producer rights to the sound engineer (often sound engineers are allocated 5–10% of the phonogram) and the remaining ⅘ should be divided between the artist and producer by agreement, for example, equally. In summary, the rights distribution results would be as follows: 16.5% belongs to the guitarist, 5% to the sound engineer, 41.5% to the music producer, and 36.5% to the artist. Due to rounding, an extra 0.5% in this example would belong to the artist as the project initiator.

In addition to the distribution of the phonogram, it is also necessary to consider what happens to the phonogram after its creation. To make the recording available to listeners (e.g., through Spotify, SoundCloud, or YouTube) the following steps are needed: create cover art and distribute the finished track (upload the track to SoundCloud, YouTube, or deliver the track to Spotify through an aggregator, e.g., DistroKid, CD Baby, etc.) and, ideally, subsequent activities: marketing (e.g., social media, playlisting, press coverage, blogs, newsletters, sending to radio channels, etc.) and seeking usage (e.g., finding artists or DJs who might perform the track, synchronisation opportunities in advertisements, etc.). All these activities involve various nuances and/or costs that should be kept in mind when distributing the phonogram's revenues. These are also the circumstances that copyright societies would consider when it comes to disputes. In the last scenario, the artist might receive a larger share of the revenue for distribution than the guitarist and producer, who do not actively participate in these tasks. In summary, the distribution of the neighbouring rights must consider the contributions, financial investments, and agreements of all parties involved.

Collecting Neighbouring Rights Royalties

Similarly to the collection of copyright fees, public and private organisations have emerged for collecting royalties on behalf of producers and performers. In The Nethelands, Sena collects fees for both parties (producers and performers), through which rights owners can join and register their tracks for collection. Like copyright societies, phonogram/performers societies operate on free market principles, and rights owners have the freedom to choose their rights executors. Thus, one may also join, for example, the Dutch phonogram producers and performers rights administration organisation Sena (in many countries, these organisations are separate) or use services from a private company that administrates neighbouring rights. Like copyright societies, performers unions and producers associations collect fees each time a phonogram is played on television, radio, or public places (restaurants, nightclubs, etc.).

The aforementioned unions and associations do not, however, collect fees from streaming platforms or digital service providers (DSPs) like Spotify, Apple Music, etc. While fees for copyrights reach authors through a copyright society (e.g., Buma/Stemra or ASCAP), royalties for phonograms reach artists directly through aggregators like CD Baby, DistroKid, TuneCore, etc., or the label. Thus, when distributing phonogram-related revenues, it must be considered that someone must manage the distribution of income received from aggregators according to the shares in the rights.

As a final note, it is worth mentioning that the USA is essentially the only country in the world that does not require royalties for the use of a recording and only requires such fees to be paid by digital radios, satellite radio services, and cable music channels like SiriusXM, Pandora, iHeart Radio, etc. An organisation called SoundExchange has been created to collect fees from these services, which one can join if tracks are played on US digital or satellite radios. In summary, the above can be visualised as follows (green lines illustrate the flow of royalties):