Record companies must license the right to sell reproductions of songs in records (or what the Copyright Act defines as “phonorecords”). Record companies (and I use the term broadly to include any distributor of phonorecords) typically will negotiate the maximum mechanical royalty rate that they must pay on records they release. These terms apply to songs written, owned or controlled by the recording artist. These special terms are found in a clause in the recording artist agreement which is called the “controlled compositions clause.” The terms typically will include a maximum cap, a reduced mechanical rate applied as a percentage of a fixed rate and a limitation on the types of records for which a mechanical is paid. For example, a maximum rate of 10 times ¾ of the minimum statutory rate on the date of delivery of the record concerned applied to sales of records for which an artist royalty is also paid would be a fairly customary (and low) controlled compositions rate.
Controlled compositions clauses do not apply to sales in the world outside of the United States and Canada, and even in the United States and Canada there have been developments that reduce the effects of certain controlled compositions clause provisions, especially for digital sales.Controlled compositions clauses must be carefully negotiated, particularly in light of the prevalence of 360 deals.
The deal memo for your record deal has this section:
Controlled Compositions: 10 x 3/4, 5 on EP, 2 on Single, bumps to 87.5 and full at gold and platinum, full on digital and club, 3/4 of 3/4 on mid and budget, protection for 2 outside, rate fixed on delivery, no crossing, paid on royalty bearing, US and Canada.
What did you just agree?
Answer next week.