Learning Where The Money Comes From, Part 2
In Part One, we defined "Mechanical Royalties" and gave you
several instances regarding how those royalties are paid to
writers. In this issue, we're gonna talk about the actual rate
The Mechanical Royalty Rate for the United States has been
negotiated to allow for increases in songwriters' income through
January 1st, 2006. The rate structure, which took effect January
1st, 1998, is as follows:
- January 1st, 1998 7.10 cents
- January 1st, 2000 7.55 cents
- January 1st, 2002 8.00 cents
- January 1st, 2004 8.50 cents
- January 1st, 2006 9.10 cents
These rates are applicable for compositions of up to five
minutes in duration. Compositions exceeding five minutes are
paid 1.3 cents per minute. Some quick math shows that, using
the rate in effect January 1st, 1998, a song included on an
album (or a single) that sells 500,000 units, generates $35,500
in mechanical royalties. Using this same rate, each song on
a million-selling album earns $71,000. The mechanical royalty
earned by one song included on an album that sells 20 million
copies is $1,420,000!
Mechanical royalties are paid from the record label to the
publisher. The publisher distributes the writers' share of
the income to the writers, either quarterly or bi-annually.
Payments for sales within the United States are made approximately
six months after the sale of the product. However, it sometimes
takes eighteen months or longer to receive mechanical royalties
generated outside the U.S.
Collecting the money is not always an easy job for music
publishers. Therefore, the majority of publishers contract
an outside firm (the Harry Fox Agency or Copyright Management,
Inc.) to handle the paperwork involved in the collection of
their mechanical royalties.
The Harry Fox Agency (HFA) is the main organization for the
administration of mechanical rights in the United States.
HFA represents more than 19,000 music publishers, licensing
the use of music on records, tapes, and CDs. They distribute
more than $400,000,000 per year in royalties.
Although the mechanical royalty rate is set by congress,
there are instances in which a record label contacts a publishing
company and requests that it (acting on a songwriter's behalf),
accept only 3/4 of the regular mechanical royalty rate. This
is referred to as the "3/4 rate" or "controlled composition
clause," and most commonly occurs when the record label anticipates
that the recording artist or record producer will be writing
or co-writing his or her own songs. If you collaborate with
a recording artist or producer, some of the record labels
insist that the artist, producer and his or her co-writers
agree to accept the 3/4 rate.
Other instances in which the record label might feel justified
to pay a 3/4 rate include the re-release of a product as part
of a lower-priced catalog series, inclusion in a compilation,
or inclusion in a box set that will be sold at a lower price.
When these situations occur, the songwriter may be consulted
by the publisher, but it is the publisher's decision as to
whether to accept a reduced mechanical royalty rate.