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The Basics Of Mechanical Licensing from Harry Fox

A “mechanical license” may sound like it has nothing to do with music, but it’s very important for both songwriters and recording artists. As an artist, it’s critical when you record any song you don’t control completely, and for a songwriter, it’s an important source of revenue.

The term dates back to the player piano days. When the U.S. Copyright Act was enacted in 1909, it recognized two distinct rights related to a song: a performance right and a mechanical reproduction right. Performance rights are, as they sound, the right to publicly play the song, which includes concerts, radio, and certain kinds of TV broadcasts. The mechanical right covers the right to mechanically “fix” the song onto a recording medium and reproduce it, such as on a CD or a digital download. Licenses are required for these uses, which generate royalties for the music publisher and songwriter.

ASCAP, BMI, and SESAC are the three performing rights organizations in the U.S., and a publisher will engage the services of one of these organizations to handle the licensing and income collection for that right. Mechanical rights are handled a bit differently, and this article will focus on those rights and how they are handled in the U.S.

First, we’ll look at mechanicals from the recording artist perspective. Basically, if you’re recording a song you do not completely control (meaning that if you wrote the song, you have assigned the rights to a publisher or it is a song written by someone else), you need to obtain a mechanical license or you will be in violation of copyright law. A reputable CD replicator will not duplicate your recording without one as they could also face stiff penalties.

There are three ways to obtain a mechanical license: directly from the music publisher, through a licensing agent such as The Harry Fox Agency (HFA), or you can obtain a compulsory license as described in § 115 of the U.S. Copyright Act. The royalty that is paid for the recording is based on the length and the number of reproductions of the song. Under current U.S. copyright law, the mechanical royalty rate is 9.1¢ for a composition five minutes or less in length, or 1.75¢ per minute for songs over five minutes, rounded up to the nearest whole minute. This is then multiplied by the number of copies of the recording that are manufactured. So, for example, for 500 copies of a recording of a composition that is 5 minutes and 30 seconds long, the math would be: 6 x $ 0.0175 = 0.105 x 500 = $52.50.

The reason mechanical licenses are so important to a recording artist? Aside from making sure the music publisher, and ultimately the songwriter, gets paid for the use of a song, the penalties for copyright infringement can be quite severe. Willful copyright infringement can carry statutory damages of up to $150,000 for every work infringed.

An important aside: While copyright law contains the concept of “fair use,” this is much more limited under copyright law than most people realize. Fair Use is generally considered to apply to purposes such as the use of excerpts for criticism, news reporting, teaching and research. You still need to obtain a mechanical license if you are, for instance, making a recording for charity. The flip side of this is that if you obtain the appropriate mechanical license and pay the full royalty rate, you cannot be prevented from recording the song (so long as it is not the first time the song has ever been recorded and distributed).

As a songwriter, the royalty part is probably what’s most interesting to you. If you have signed with a music publisher, how your mechanical licensing and royalties will be handled will probably be delineated in your contract. If you have not assigned your publishing rights yet, you’ll need to handle any mechanical license requests that come your way.

One way to do this is to affiliate with a mechanical licensing agent such as HFA. You then register your song catalog with them, and you can direct any inquiries to the agent. HFA requires that licensees pay royalties on a quarterly basis. The HFA mechanical license also gives the company the right to audit the licensee to make sure the payments true up to the actual quantity distributed. HFA also has reciprocal agreements with similar agents around the world, so it can handle your royalty collections on a global basis. For this service, HFA takes a commission on the royalties it pays out to you. However, some of its licensing services are provided on a commission-free basis.

It’s important to note that “mechanical” does not just mean CDs and other physical products. A mechanical license is required for many digital uses – permanent downloads, limited downloads, on-demand streams, ringtones, ringbacks, and more. Right now, only permanent downloads fall under the current statutory royalty rate.

In addition, both recording artists and songwriters should be aware of something called a “controlled composition clause,” which is common in many recording artist contracts. It requires the artist to secure lower rates from publishers on certain songs that are either written or indirectly “controlled” by the artist. The controlled composition clause usually reduces the per-song royalty payable on these compositions as well as the label’s total mechanical royalty obligation for the album as a whole. These provisions can vary in complexity but are usually based on a percentage reduction of the statutory rate.

A common controlled rate clause provides that controlled compositions are licensed at 75% of the statutory rate (a “three-quarter rate”) and that the label is only required to pay mechanicals on a maximum of 10 songs (in general known as the “Album Cap” and in this example known as a “10 Cap”). So if the artist chooses to have 12 songs on the album, the mechanicals are then divided over 12 songs instead of 10. If non-controlled songs (such as covers) are included on the album, another layer of complexity is added. In this case, the non-controlled songs can generate full statutory royalties and the aggregate amount of those full statutory royalties would be deducted from the aggregate amount allocated to the controlled rate songs.

So, for example, say an artist’s controlled composition clause calls for a three-quarter rate and a 10 cap. They then record an album of 12 songs, with 10 controlled and 2 non-controlled songs. The mechanical royalty rate would be calculated as follows:

Maximum Album Rate:
10 (the Album Cap) x 75% (the controlled rate) x $0.091 (the statutory rate) = $0.6825

Less the 2 non-controlled songs at full statutory rate:
2 x $0.091 = ($0.182)

The result is $0.5005 for the total mechanical royalty for the 10 controlled songs. This means the actual royalty for each of those songs is $0.05005 ($0.5005 divided by 10). This is a 45% reduction from the statutory rate.

You need to be particularly aware of controlled composition clauses if you are a co-writer for a singer-songwriter, as you may find yourself asked to accept the reduced rate your partner agreed to in their contract. This can obviously create some friction between you and your partner, so this is something you should agree upon before the song is recorded, and preferably, before you start writing together.

Songwriters and performing artists need to realize that in regards to mechanical rights, they represent two sides of the same coin. Without the songwriter, the performing artist wouldn’t have the great material; and without the performing artist, the song has no opportunity to create revenue for the songwriter. The more you can educate yourself about mechanical licensing and related rights, the fewer nasty surprises can come up in your music career.

Michael Simon is the General Counsel at The Harry Fox Agency (HFA).

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Published: 07/12/2007