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by Jeffrey & Todd Brabec
"Lock In" Rate Date
Since the statutory mechanical royalty rate payable to songwriters
and music publishers has gradually increased over the past
years (for example, in 1986 it was 5¢ per song in contrast
to 7.55¢ in 2001), most record company contracts will
provide that the royalty rate for a composition on a particular
album or single will be frozen at the rate in effect on a
particular negotiated date. In this way, the record company's
mechanical royalty costs for songs written by its writer/artists
will be fixed at a certain amount and will not be increased
if the statutory rate goes up in the future.
For example, some contracts provide that the rate will be
that in effect when the recording of an album commences; others
calculate the effective date as the year in which the album
is released; others use the year in which the record contract
is signed; and still others fix the mechanical rate as of
the date that an album is delivered to the record company.
Sometimes the contract will provide that the earlier of either
the actual delivery of an album or the date on which the album
should have been delivered is the date that should apply.
Maximum Royalty Cap
In addition to the controlled-composition rate and the lock-in
date for a particular album, the other important clause in
the record company's controlled-composition provisions is
that which determines the maximum amount of mechanical royalties
a record company is willing to pay for all songs on a particular
album. Here a writer/performer's lawyer must be not only a
proficient negotiator of the legal aspects of an agreement
but also an accountant and mathematician, since all these
clauses work in concert with each other and cannot be considered
independently of one another. If they are dealt with in isolation,
financial disasters can, have, and will continue to happen.
The way these clauses usually work is that the record company
dictates that no more than 10 times the controlled artist/writer
rate of 75% times statutory (10 x 7.55¢ x 75% = 56.6¢)
will be payable in mechanical royalties on any 1 album regardless
of how many compositions are on the album or when sales actually
occur. If the writer/artist records 12 or even 14 compositions
on the album, the maximum album cap will still be 56.6¢,
the same as for 10 songs.
In the case of the writer/artist recording only self-written
compositions, the royalty calculation is a straightforward
procedure. The tricky part occurs when the writer/artist writes
a portion of the album and elects to include compositions
by other songwriters.
For example, if the writer/artist records 12 compositions
for an album, 5 of which are self-written and 7 of which are
by outside songwriters, the writer/artist might receive only
a minuscule mechanical royalty for each self-written song
because of the mechanical payments made for the outside songs.
If we make the assumption that the music publishers of the
7 outside songs all demand a 100% statutory mechanical rate
(i.e., 7.55¢ per song in 2001), the record company will
be obligated to pay 52.8¢ in mechanical royalties (7.55¢
x 7 = 52.8¢) for all the outside songs each time an album
is sold. Since the maximum amount of aggregate royalties that
the record company has agreed to pay per album is 56.6¢,
there remains a total of 3.8¢ that can be paid to the
writer/artist for the 5 self-written compositions, which means
that the writer/artist will be receiving only 0.76¢ per
composition (3.8¢ divided by 5 = 0.76¢) each time
an album is sold. If the album sold 1 million copies in the
United States, the writer/artist would receive $7,600 in mechanical
royalties per song—a far cry from the $75,500 earned
by each outside song licensed at the statutory rate.
If you have the bargaining power, a modification that has
been negotiated is to have the royalty cap per album calculated
on a rate of either 12 times 75% of the statutory rate or
10 times the statutory rate (rather than 10 times 75% of statutory)—or,
in the case of CDs, which contain more compositions than cassettes,
12 to 13 times the statutory rate. Another variation is to
provide that 1 or 2 compositions written by outside writers
will be excluded from the cap calculations. These types of
negotiated revisions give the writer/artist more leeway to
pick outside songs to make the best album possible without
being financially penalized for such a decision.
© 2001 Jeff Brabec, Todd
Brabec.
This article is based on information contained in the new,
revised paperback edition of the book "Music, Money, And Success:
The Insider's Guide To Making Money In The Music Industry"
written by Jeffrey Brabec and Todd Brabec (Published by Schirmer
Trade Books/Music Sales/435 pages). Click
Here to buy this book.
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