Music Publishing & Songwriting

Those who have been following this blog regularly will recognize this as a dispatch from the war-zone. At the moment, the music industry is embroiled in a battle that could be a matter of survival for publishers and songwriters, and arguably, for record companies and other content providers as well.

The fight is centered on the Copyright Tribunal, the board that will determine the statutory mechanical royalty rate to be paid for records sold (people do still sell records, right?) as well as downloads and digital streams. On side of the battle lines, we find music publishers and songwriters who want the rate raised–on the opposing side, we find record labels and digital music distributors, who claim that the current rate should be reduced. The lines are drawn, and the battle is raging in full—last week, music publishers began, not terribly successfully, to make their case. Now, the labels will have their day in court. It would not be an overstatement to say that in many cases, both sides are fighting for their lives.

For those joining us with the war already underway, here’s a quick bit of background. A mechanical royalty is the amount that a label or digital distributor must pay to the music publisher (who collects on behalf of the songwriter) for the use of a song on a physical record that is sold commercially, or through some means of digital distribution. Here’s a quick trip down the income stream, to try to clarify the process:

You, Joe Songwriter, and your publisher, Pennies Music, have a song on the new album by Next Big Thing, on the Cut-Rate Records label. Every time Cut-Rate sells that Next Big Thing album, the label must take part of that income, and pay a mechanical royalty to Pennies Music, who will then, in turn, pay a portion of that royalty to you, Joe Songwriter. At present, that mechanical royalty is: 9.1 cents. In other words, for every $20 CD sold, the publishers of each song on the record receive 9.1 cents. If there are ten songs on the album, then the label will pay out roughly one dollar in mechanical royalties, for every album sold.

This “statutory” rate of 9.1 cents is determined by the Copyright Tribunal, and reset every few years—which is precisely what’s happening at the moment. But what’s being lost in this debate is the difference between theory and reality. Unfortunately, what I just described above is “theory”. It’s the way that things are supposed to work. Publishers will grant mechanical licenses, record labels will sell records, and pay the writers and publishers 9.1 cents a song. But as Steven Tyler might say: Dream on.

The truth is that record labels have devised a myriad of ways to avoid paying full statutory rate—that whopping $1 per album. Instead, the labels have created the controlled composition clause, which simply means that the label pays only 3/4 of the full royalty rate, or roughly 6.8 cents a song. Why? Because they said so. This is one of the great bargaining maneuvers in history—try it sometime at your local supermarket. Just tell your grocer that you’d prefer to pay only 3/4 of your bill. Let me know if that works for you.

On top of requesting a 3/4 rate, many labels also employ the “cap”, which they have cleverly inserted into artists’ recording agreements. The cap stipulates that the total amount of mechanical royalties shall not exceed ten times the 3/4 rate, for all of the songs on the album. This means that if the album contains 12 songs, the label pays only 5.12 cents, or 10 x .068 divided by 12. And it gets worse.

Not everyone on the album is necessarily subject to the controlled composition clause. The artist (assuming they write at least part of their own material) is almost always considered “controlled”, and usually any producer or other person associated with the artist will be considered “controlled” as well. However, covers of songs not written by the artist or the producer, samples, or interpolations of outside songs are not generally “controlled”. That is to say, if you sample a Gamble & Huff composition in your song, you can be sure that Gamble & Huff will be demanding full rate. The result of this can be brutal:

When one or more writer receives full statutory rate rather than the controlled rate, the difference (2.5 cents) is made up out of the share of the controlled writers. This means that if you have a song on an album that contains 13 songs, one or two of which are covers of well-known earlier hits or which contain sizeable samples, you could find yourself earning not 9 cents per record sold, but as little as 4 cents or less—if you are unlucky enough to be subject to the controlled composition clause.

When that happens, this whole war over statutory mechanical rates seems pretty irrelevant indeed. In fact, I’m prepared to offer a simple settlement that could stop this whole war over statutory rates with nary a casualty. Try this:

The publishers agree to leave the full statutory rate where it is right now, at 9. 1 cents. But for their part, the labels agree to actually pay the real statutory rate. No clauses, exceptions, negotiations, or extortion. Just pay the amount on the price tag. Period. Maybe the courts could even close a couple labels down for putting music out on the market without a mechanical license—a practice that has now reached the point where multi-platinum albums remain unlicensed four and five years after their release.

I suspect that any real-world publisher would take this solution in an instant. Fast, easy, no fuss licensing? A chance to actually collect what is owed? That would be a peace treaty any publisher could accept.

Please visit the below site for information about National Music Publisher’s Association: NMPA