Let’s talk money. All forms of income from music stem from the protection offered by the existing copyright laws.  The monies that are generated by a song’s copyright are usually split evenly between the writer(s) and the publisher(s).  If you are the sole writer of a song and haven’t signed an agreement with a music publisher, YOU are in effect both the writer AND the publisher.  If you are an artist with a song somewhere on the internet and you haven’t entered into an agreement with a recording company, YOU ARE the recording company as well.

Unless you are negotiating directly with someone for the use of your music, another company is collecting these royalties for you (and for everyone else like you).  If you don’t register with them, the money they collect for you goes into a big pile and gets distributed to the ones who HAVE registered.

So, getting down to it, in the copyright law passed in 1976, your rights were:

Public Performance Concerts, radio and TV broadcasts,nightclubs, etc Broadcasters pay the performing rights societies: ASCAP, BMI, SESAC.  They in turn pay both the publisher and the writer.
Mechanical Rights Any form requiring a mechanical device for playback: cassettes, CDs, MP3s Recording companies  (Sony, UMG, your indie label) pay the publishers or publisher representatives (Harry Fox Agency).  The publisher then pays the writer according to their agreement.
Synchronization Synchronizing music with video – whether TV or film or commercial. This is usually a negotiated one-time fee. The publisher of the song negotiates directly with the film or TV or advertising company, then pays the writer according to their agreement.
Print Sheet music, TAB transcriptions, etc. The print publisher pays the song publisher, who then pays the writer according to their agreement.
Grand Rights The use of the song as the basis for another art form, such as film or book.  This is, again, usually a one-time fee. The publisher negotiates the fee directly, and pays the writer according to their agreement.

OK, that’s the ‘what.’  How much money are we talking about, and how does it get paid?

Radio & television Stations pay a blanket license to the performing rights societies for the right to play ANY song in their catalog.  The fee is based on the size of their listenership. Generally, this is the lion’s share of income received by a songwriter or writer/artist.
Nightclubs Clubs also pay a blanket license for the right to play music in their clubs for their patrons, based on their capacity.
CD sales Record companies pay a per song rate to the publisher or a publisher representative such as the Harry Fox Agency. Congress has established a minimum rate (statutory rate – currently 9.1 cents) that is reviewed every few years. FYI, record companies will generally submit a separate agreement to the writer(s) prior to a CD release for a sub-statutory rate. Gotcha!
Synch License (Film), Grand Rights The film production company pays the negotiated fee for synchronization to the publisher directly.   This is normally a one-time fee ranging from free (for exposure) to thousands of dollars.
Advertising The advertising agency negotiates either a one-time fee (buyout) or a residual fee with the publisher.  Many factors determine the amount paid: the number of markets in which the ads will air, artist name recognition, lyric changes, etc.
Print The print publisher pays the song publisher a percentage of the wholesale price as a royalty. Traditionally this has been between 10%-12.5%.  Also, traditionally, this is not split 50/50 (a holdover from the days of print), but that is changing.

In 1998, the Digital Milennium Copyright Act was passed which expanded the 1976 law into the digital realm of the internet.  It also criminalized attempts to circumvent digital rights management and heightens penalties for copyright infringement. There’s a great article from back in 2007 written by Dina LaPolt that goes into great detail about the various ways artists and writers are paid for digital streaming and downloads.  Click here to read it in its entirety.  Here are the highlights:

Digital Downloads Treated as a form of mechanical license, these are files downloaded for a fee from sites such as iTunes or Amazon. The download site pays the recording company or administrator such as CDbaby, who then pays the song publisher a percentage of the fee.
Interactive Webast The consumer interacts with the website to hear music of their choosing as either custom playlists (Grooveshark, Rhapsody) or random automatic selections based on preference (Pandora). The web site owner pays the recording company, since this is not a broadcast situation. They in turn pay the song publisher a percentage of their fee.
Internet Radio (Master Recording License) XM Radio, internet versions of terrestrial radio, cable music stations such as Music Choice. The Master Recording license is the fee paid for the right to stream the sound recording. Soundexchange collects streaming royalties on behalf of the owner of the master recording (usually the record company). 50% goes to the label, 45% to the featured artist, and 5% to the non-featured musicians and vocalists.
Internet Radio (Broadcast performance license) XM Radio, etc. as above.  This is the fee paid because it fits the legal definition of a broadcast. These fees are collected by the performing rights societies (ASCAP, BMI, SESAC) and are paid to both the publisher and the songwriter.
Video Games X-Box, Wii, online games, mobile apps Publisher negotiates the fee directly – usually a ‘buyout’ (one-time fee for unlimited use)
Ring Tones Treated as a mechanical license, these are short portions master recordings used to identify callers musically. Carrier keeps half the money, record label gets the other half, and pays the statutory rate (24 cents) to the publisher.

So now you know – at least some of it. SOPA (Stop Online Piracy Act) and PIPA (Protect Intellectual Property Act) are current legislative attempts to protect and further strengthen copyright law enforcement.  Unfortunately, the wording of the legislation opened the possibility of abuse and it has been tabled indefinitely (largely because the lawmakers on the government’s Technology Subcommittee have no experience in the field).  Even without it, current intellectual property law gave the US Justice Department the power to shut down the site megauploads.com – an operation based in China and headquartered in New Zealand – and extradite its principals to the US for trial.  I think that this case will be a bellweather for the future of copyright law, and our future income.