This Article Originally Published October 2001

by Jeffrey & Todd Brabec

part one  |  part two  |  part three

"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" packages.

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 record companies.

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 earning less.

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?

© 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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