In addition to the master recording royalties, Spotify also has to pay song (also called publishing) royalties. This is where it really gets complicated. As mentioned above, when a song is streamed, the master recording and the song are being used. So the owner of the song also has to get paid royalties by Spotify for the right to use it. These royalties are usually being named publishing royalties.

When someone (like Spotify) wants to use a song, there are actually six types of rights that have to be acquired.

• Public Performance rights. Whenever a song is being played for one or more people to hear, it is considered a public performance. For example, when a song is played in a club or festival, it is considered a public performance. But it is also considered a public performance when it is being played in a restaurant, store, or when it is streamed.
• (Mechanical) Reproduction rights. Whenever a song is reproduced into copies, it is considered a mechanical reproduction. This was more obvious when vinyl, tape, and CD’s would be physically reproduced, but it is also considered mechanical reproduction when a song is streamed.
• Public Display rights. This is a bit more broadly defined, but generally it means showing the work where people can see or hear it. In the case of an image, it is showing it on a screen or print. In the case of a song, it could mean playing it or showing the written music, but it has not been clearly defined.
• Derivatives rights. This is when someone takes a copyrighted work and uses it to make something new. In music, it can be making a remix of an existing song, or using a sample of an existing song in a new song.
• Digital Transmission rights. This is the right to perform the copyrighted work publicly by means of a digital audio transmission (as stated in United States copyright law). This can mean playing a song digitally so that people can hear it.
• Distribution rights. This is the right to sell, rent, lease, or lend the work.

For unknown reasons, Spotify only pays for Public Performance and Reproduction rights. Without these two rights, a song cannot be streamed on Spotify. The money paid for public performance rights is (logically) called public performance royalties, and the money paid for reproduction rights is called mechanical royalties.

Spotify reserves a part of the money it has earned in a certain month for public performance royalties + mechanical royalties (also determined by the US Copyright Royalty Board; more on this in Recommended Reading). Then, Spotify determines how this money is split between public performance royalties and mechanical royalties (see Recommended Reading to learn how this split is made). These two types of royalties are then paid to the owners of the music.