How they are reduced; and what to do about it
This Article Originally Published August 2001
by Jeffrey & Todd Brabec
One of the most important areas in any recording artist agreement negotiation is that related to how the performer gets paid for self-written compositions ("controlled compositions" in industry lingo) on an album, EP, single or other recordings released by the record company. A controlled composition is defined in a number of ways depending on the record company, but it always includes musical compositions written by the performer and musical compositions that are either owned or controlled by the performer's publishing company. These provisions (known as "controlled-composition clauses") tend to be as hotly negotiated as any clause in the contract (including artist royalty rates, advances, video budgets, guaranteed releases, new technology issues and deductions), since they have a major impact on how much money a performer can make as a songwriter and, in many cases, how much money the performer will not make because he or she wrote a song. Mechanical Rates
Most record companies will try to reduce the amount of mechanical royalties (i.e., songwriter and music publisher royalties due for the sale of audio recordings) that they have to pay to their songwriter/recording artists. For example, most record companies will pay the writer/performer only 75% of the statutory mechanical rate per musical composition written by the artist for each CD, tape, or record sold in the United States.
To illustrate: The mechanical royalty computations for one copy of a 10-song album would look as follows:
|Statutory rate (2001)|
|Songs on album|
|Aggregate album mechanical royalties|
Under the above scenario, if one-million albums are sold in the United States, the record company would pay $566,000 in songwriter/publisher mechanical royalties
(56.6 x 1,000,000=$566,000),
rather than the statutory $755,000
(75.5 x 1,000,000=$755,000).
For information, the statutory rate will be increased to
8 for 2002-03 (with a 75% reduced rate being equal to 6 per composition).
Sales Plateau Royalty Increases
Occasionally, these controlled composition rates can be increased based on a recording artist's success in the marketplace (e.g., an album or single achieving certain predetermined sales levels), but such increases are always subject to negotiation and are rarely given voluntarily. To illustrate, if the writer/performer has to accept a 75% rate on all self-written compositions, some agreements will provide for the record company to pay a 75% rate for sales of each album up to 500,000 units, increase the royalty to 82.5% or 85% for sales between 500,001 and 1 million, and further increase the mechanical royalty rate to full statutory or 100% for all albums sold after 1 million. A sample sales incentive/royalty increase clause may read as follows:
"With respect to the writer/performer's self-written compositions that appear on any album recorded hereunder, the controlled composition royalty rate shall be increased from 75% to 82.5% for all full-priced sales in excess of 500,000 but not in excess of 1,000,000. For full-priced sales in excess of 1,000,000 but not in excess of 1,500,000 units, the 82.5% rate shall be increased to 90%. For full-priced sales in excess of 1,500,000 but not in excess of 2,000,000 units, the 90% royalty rate shall be increased to 97.5%. And for full-priced sales in excess of 2,000,000 units, the mechanical royalty shall be 100% of the minimum statutory rate."
Increased Royalties for Later Albums
If a writer/performer has to accept a 75% mechanical rate in the recording artist agreement, it is often possible to negotiate a higher rate for subsequent albums. For example, if a writer/performer has signed a 7-album recording agreement with a record company (e.g., 1 album plus options for 6 more), the mechanical rate might be increased from 75% to 82.5% or 85% for compositions on the fourth and fifth albums or even to 100% on the sixth and seventh albums. Variations in this area depend on one's bargaining power and the experience of one's representatives. All are based on the principle that if a writer/artist has recorded more than 3 or 4 albums for the same record company, the albums must be fairly successful and thus be generating profits for all parties. That being so, the writer/recording artist should not be penalized for being a songwriter. A sample clause might read:
"Notwithstanding the 75% Controlled Composition statutory rate provisions of this Agreement, it is agreed that all musical compositions written by the writer/artist which are embodied on the fourth and fifth albums recorded hereunder will be paid at 85% of the statutory rate. For musical compositions written by the writer-artist that are embodied on the sixth and seventh albums, payment of mechanical royalties for musical compositions written by the writer/artist shall be paid at 100% of the statutory rate."
© 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.