Recording - September 2010 - 54

By Todd Gascon and Bruce Kaphan

Chapter 6: Income Earned by songs—Part 1
In this month’s and next month’s columns we will discuss the four ways your compositions generate income. As we discussed in the very first article (March 2010), a copyright owner has several exclusive rights that are protected under U.S. Copyright law, including: To calculate the “long rate”, you “round up” the recording of your song to the next full minute and multiply it by the long rate (i.e., $0.0175). For example, if a recording of your song is 5 minutes and 14 seconds, you would simply round the timing of your song up to 6 minutes and multiply it by $0.0175 (6 x $0.0175 = 10.5 cents). In this example, you would be entitled to a mechanical royalty of $0.105 per record. This would be the mechanical royalty a record company would pay you for this particular recording of your song. As you probably imagined, a record company does not want to pay you the full statutory rate. It is standard practice for record companies to negotiate mechanical licenses that would obligate them to pay you less than what you are entitled to under the law. If you are a recording artist and you write your own songs, the record company will often commit to paying you a reduced rate for the songs you wrote alone or with others. This is called a “controlled composition” clause. An example of such a provision is set forth below: “For each musical work written, composed, owned or controlled, in whole or in part, by Artist (a “Controlled Composition” herein) which is embodied in a Master, Artist hereby grants us [i.e., the record company] a mechanical license at seventy-five percent (75%) of the statutory compulsory license rate under the copyright laws of the United States as of the date the applicable Master is or was initially released on Records (the “Controlled Rate” herein). Notwithstanding anything to the contrary contained herein, Artist agrees that in the United States and Canada, we shall have no obligation whatsoever to pay an aggregate copyright royalty rate in respect of any Record hereunder regardless of the number of Controlled Compositions and/or other compositions contained thereon, in excess of the following amounts: (i) In respect of an album, ten (10) times the minimum statutory compulsory license rate applicable to a composition of less than five (5) minutes under the copyright laws of the United States as of the date the applicable Master is or was initially released; (ii) In respect of a single, two (2) times the minimum statutory compulsory license rate applicable to a composition of less than five (5) minutes under the copyright laws of the

(a) The right to reproduce the work; (b) The right to distribute the work; and (c) The right to publicly perform the work.
Because you have these exclusive rights, a third party must obtain your permission if they want to exercise any of these rights and exploit your work. For purposes of this article, when I refer to “you” it is assumed that you own the song yourself and you did not co-write the song with anyone. This month we’ll look at Mechanical Royalties; next month we’ll move on to deal with Performance Royalties, Synchronization Fees and income from Print Fees. Mechanical Royalties Mechanical royalties (“mechanicals”) are the royalties paid by a record company so that they may reproduce the composition on a physical device, such as a compact disc, vinyl LP, or digital download. Under the U.S. Copyright Act, these mechanical royalties are to be paid to you for each record (e.g., compact disc, vinyl LP) manufactured. As discussed below, a record company will often negotiate terms so that they only have to pay you for records that are sold and not returned, as well as other allowances. In the United States, mechanical royalties are based on a “statutory rate” set forth in Section 115 of the U.S. Copyright Act. This rate has been increased over time to follow changes in the economy based upon the Consumer Price Index. As of the date of this article, the statutory rate is $0.091 for a composition that is five (5) minutes or less in length and $0.0175 cents per minute for a song that is over five minutes in duration (sometimes called the “long rate”).
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RECORDING SEPTEMBER 2010

Recording - September 2010

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