"Greatest Hits" Albums
One area where a writer/artist can often negotiate an exception
to the "lock-in" rate date provisions of the recording agreement
(i.e., that the mechanical rate for a song on an album remains
the same as when first licensed . . . for example, if the
per song royalty rate was 5.66¢ when the recording was first
released, the rate will always be 5.66¢ even for sales of
that album 20 years later) has to do with "greatest hits"
Since "greatest hits" albums take recorded performances from
a number of different albums (with many of the compositions
being paid at differing mechanical rates because the albums
were released during a wide span of years), many writer-artists
are able to get the record company to agree that the mechanical
rate payable for all self-written compositions on such an
album will be the rate that is in effect when the "greatest
hits" album is released in the United States.
For example, if a number of the compositions were being paid
at 75% of a 6.25¢ rate because they were initially contained
on an album recorded and released in 1993 when the statutory
rate was 6.25¢, the mechanical payments for those compositions
for sales of a "greatest hits" album released in 2001 (when
the statutory rate had increased to 7.55¢) would be calculated
on the higher 2001 rate rather than the lower 1993 rate.
One-Use-Only Mechanical Royalties
Many record contracts provide that only one mechanical royalty
will be payable per composition, regardless of how many times
that composition appears on the album or single. For example,
if the same composition is repeated a number of times with
different mixes, the record company will usually pay mechanical
royalties only for the first use of the composition on a particular
recording, with the other uses being deemed non-royalty-generating
uses. To illustrate, if a recording company put two versions
of the same song on a single in 2001 and the song was licensed
at the statutory rate, the record company would pay only 7.55¢
per unit sold, not 15.1¢.
It is possible to negotiate better terms (e.g., payment for
up to two or three uses of the same composition), but it is
very difficult to receive mechanical royalties from the record
company on a per-use basis for unlimited uses of a composition
on an album, single, or EP.
Changing Mechanical Rates
The statutory mechanical rate has changed over the years and
will continue to change every two years through 2007 based
upon a negotiated agreement between writers, publishers and
Since statutory mechanical rates are subject to change, it
is possible for a writer/artist to have complied with the
maximum album cap at the time a particular recording is released
but still be financially penalized for recording outside compositions
at some time in the future depending on how those outside
compositions are licensed.
For example, if a writer/artist had a 10-times-statutory
album cap for a recording released in 2001, 75.5¢ would be
the allowable maximum royalties payable by the record company
for that album. If the album contained 7 compositions written
by the artist and 3 outside compositions written by other
writers, each would receive 7.55¢ for every album sold. When
the statutory rate is increased to 8 cents (as in 2002), however,
the 3 outside compositions would begin to generate 24¢ in
aggregate royalties (8¢ x 3 = 24¢) for album sales rather
than 22.65¢ previously paid (7.55¢ x 3 = 22.65¢). This leaves
51.5¢ (75.5¢ - 24¢ = 51.5¢) to be shared by the 7 artist-written
compositions (instead of the 52.85¢ previously paid).
This same re-calculation procedure will happen every time
the statutory rates goes up; which will result in the outside
writers earning more for every album sold and the writer-artist
The reason that such a changing statutory rate is able to
reduce the monies earned by the artist-written compositions
is explained by the way outside compositions are usually licensed.
Most music publishers license their compositions on what is
known as a "floating statutory rate," which enables the rate
to fluctuate depending on the current rate in effect when
the recording is manufactured and distributed rather than
the rate in effect at the time when the initial recording
was either first manufactured or first released.
How an outside composition is initially licensed can therefore
affect a writer/artist's earning capacity on any album recorded
during the term of the recording agreement. A recording artist
must accept the reality that, depending on the terms of his
or her controlled-composition clause and how such provisions
interrelate with the maximum album cap limitations, royalties
for artist-written compositions can decrease due to increases
in the statutory rate for outside songs.
Whoever said that songwriters had to be mathematicians as
well as creators?