What are Performance and Mechanical rights?
Historically royalties have been split into Performance and Physical Sales (Mechanical). The Mechanical side has expanded from just physical sales of CDs and Vinyls to incorporate downloads, and other things such as Video game use, Film & TV, library music etc.
Incomes are generated from allowing the legal ‘right’ for material to be ‘copied’ in exchange for payments. The holders of the ‘rights’ are generally the writers of the lyrics and music. The money is generated from actual sales of downloads / physical CDs / Vinyls, advertising on streaming services, and users payment for ad-free streaming services. It is also generated from venues paying licence fees to organisations such as PRS which represent their members' copyright. All of these are called royalty payments.
Trivia point: The term originated from the fact that in Great Britain for centuries gold and silver mines were the property of the crown; such “royal” metals could be mined only if a payment (“royalty”) were made to the crown.
For a pure songwriter who does not perform as the Artist, then their source of income is royalties from Performance and Sales (Mechanical). A publisher sometimes collects these for a songwriter. A publisher will usually take a cut of payments, this can be typically 40% or more. These days unless an Artist is signed to a major record label then the majority of income comes from live performances. This is why in 2020 not having live music is a massive blow to the income of independent artists who may well have been financially dependent on that income.
An Artist releases material via a distributor (e.g. CD Baby) to all the streaming services (e.g Spotify etc). The Artist will pay a distributor to get their music released in the first place (sometimes annually, or sometimes a one time payment). The distributor collects income directly from those streaming and download services and pays that to the Artist.
So for a songwriter who collaborates with an Artist, you either need to have a publisher (who can collect from the Distributor) or make a direct agreement with the Artist to share applicable incomes. Some distributors now offer direct split payments, so this is another option to look out for.
When the Artist performs live at a PRS licenced venue, then that performance can be logged onto PRS live performance system (either by venue, artist, or both) and that allows a payment to be made to the rights holders according to any agreed splits. This also works for UK Radio play including internet radio stations in the UK which should hold a PRS licence.
This is the tip of the iceberg in terms of possible income streams, but I wanted to keep this aspect simple. If you want to see all the rest, here is a link which shows all the possible routes to market for a song and all the possible income streams.