A royalty is a payment made to someone for the use of something, an asset, that they have created or own. For example a musician who writes a song is paid a royalty each time the song is played on the radio, or each time another musician plays the song. The owner can allow other people to use their asset by paying a license or a franchise. The amount paid is usually a percentage of the all the money made from using the asset, the gross, or from the just the profit, the net. Another way is to set a fixed price, for example a set amount for each book or recording. There are many other ways that the royalty fee can be calculated and paid. A royalty interest is the right to collect a stream of future royalty payments.
A license agreement defines the terms for these payments. The agreement can also set conditions for how, where and when an asset can be used. License agreements can also be regulated. A government of a country might receive royalty payments for mining, or extracting oil, and would protect its interest in the agreement with laws.
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- What is royalty: in simple words