This Article Originally Published September 2001

by Jeffrey & Todd Brabec

part one  |  part two  |  part three

"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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