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Learning Where the Money Comes From part 2

By Jason Blume

Previously we defined "Mechanical Royalties" and gave you several instances regarding how those royalties are paid to writers. In this issue, we're gonna talk about the actual rate of payment.

The Mechanical Royalty Rate for the United States has been negotiated to allow for increases in songwriters' income through January 1st, 2006. The rate structure, which took effect January 1st, 1998, is as follows:

January 1st, 1998    7.10 cents
January 1st, 2000    7.55 cents
January 1st, 2002    8.00 cents
January 1st, 2004    8.50 cents
January 1st, 2006    9.10 cents

These rates are applicable for compositions of up to five minutes in duration. Compositions exceeding five minutes are paid 1.3 cents per minute. Some quick math shows that, using the rate in effect January 1st, 1998, a song included on an album (or a single) that sells 500,000 units, generates $35,500 in mechanical royalties. Using this same rate, each song on a million-selling album earns $71,000. The mechanical royalty earned by one song included on an album that sells 20 million copies is $1,420,000!

Mechanical royalties are paid from the record label to the publisher. The publisher distributes the writers' share of the income to the writers, either quarterly or bi-annually. Payments for sales within the United States are made approximately six months after the sale of the product. However, it sometimes takes eighteen months or longer to receive mechanical royalties generated outside the U.S.

Collecting the money is not always an easy job for music publishers. Therefore, the majority of publishers contract an outside firm (the Harry Fox Agency or Copyright Management, Inc.) to handle the paperwork involved in the collection of their mechanical royalties.

The Harry Fox Agency (HFA) is the main organization for the administration of mechanical rights in the United States. HFA represents more than 19,000 music publishers, licensing the use of music on records, tapes, and CDs. They distribute more than $400,000,000 per year in royalties.

Although the mechanical royalty rate is set by congress, there are instances in which a record label contacts a publishing company and requests that it (acting on a songwriter's behalf), accept only 3/4 of the regular mechanical royalty rate. This is referred to as the "3/4 rate" or "controlled composition clause," and most commonly occurs when the record label anticipates that the recording artist or record producer will be writing or co-writing his or her own songs. If you collaborate with a recording artist or producer, some of the record labels insist that the artist, producer and his or her co-writers agree to accept the 3/4 rate.

Other instances in which the record label might feel justified to pay a 3/4 rate include the re-release of a product as part of a lower-priced catalog series, inclusion in a compilation, or inclusion in a box set that will be sold at a lower price. When these situations occur, the songwriter may be consulted by the publisher, but it is the publisher's decision as to whether to accept a reduced mechanical royalty rate.

From 6 Steps To Songwriting Success by Jason Blume. 1999 by Jason Blume. Published by Billboard Books, an imprint of Watson-Guptill Publications, New York, New York.