CD Mechanical Royalties From 2004 to 2008

By Jeffrey and Todd Brabec

Effective as of January 1, 2004, the compulsory mechanical royalty rate has been increased to 8.5 per composition and 1.65 per minute (the latter timing royalty being sometimes referred to as the "long song" rate). The rate for 2002 and 2003 was 8 per composition and 1.55 per minute.

This new statutory mechanical rate applies to all physical audio recordings which are made and distributed from January 1, 2004 through December 31, 2005 regardless of the date of the mechanical license or the date that the particular recording was initially released. This is true unless the music publisher and songwriter have agreed to different provisions in the mechanical license or controlled composition clause of the recording artist agreement.

The agreement between the music publishers, songwriters and record companies which established the 2004-2005 rates also specified what the mechanical royalty would be for the 2 year period from 2006 through 2007.

The statutory mechanical rates for 2004 through 2007 are:

YEAR.....RATE.....PER MINUTE RATE

2004........8.5¢.....1.65¢

2005........8.5¢.....1.65¢

2006........9.1¢.....1.75¢

2007........9.1¢.....1.75¢

To illustrate, if an album is first released in the United States in 2004 and a composition on that album is licensed at the minimum statutory rate, the publisher and writer of the composition would receive a combined 8.5¢ for each album sold during the years 2004 and 2005.

These monies would be paid by the record company to the music publisher, which would then pay the songwriter his or her share of the royalties per the terms of the songwriter agreement (e.g., 50%, 75%, etc.).

If the album continues to sell through the years 2006 and 2007, the mechanical payments for the composition will be increased to 9.1� for each album manufactured and distributed in 2006 and 2007.

The following chart tracks the sales of one composition on an album licensed at a statutory rate over a 4 year period. In our example, the album is released in early 2004 and sells 1,500,000 copies in the United States between 2004 and 2007.

COPIES
MANUFACTURED
AND DISTRIBUTED YEAR RATE TOTAL MECHANICAL
ROYALTIES 1,000,000
350,000
100,000
50,000
1,500,000
2004
2005
2006
2007
0.085
0.085
0.091
0.091
$85,000
$29,750
$9,100
$4,550
$128,400 Total

The above example applies when the songwriter or music publisher have issued what is known as a floating statutory rate license which makes sure that the mechanical rate for the song on the album goes up as the per song statutory rate increases.

The example does not apply when the songwriter and publisher have agreed to a fixed per song penny rate which never changes (e.g., 6).

This usually occurs when the songwriter is a recording artist and has to agree to the demands of the record company in the recording artist agreement that the mechanical rate has to be reduced and fixed at a certain date (e.g., usually the date that the album is either recorded, delivered or released) with no change in the future despite U.S. Copyright Office approved increases in the per song statutory mechanical royalty rate.

This type of restriction also occurs when the songwriter is a record producer and writes compositions for the album being produced.

© 2003 Todd Brabec, Jeff Brabec

This article is based on information contained in the new, revised paperback edition of the book Music, Money, And Success: The Insiders Guide To Making Money In The Music Industry written by Jeffrey Brabec and Todd Brabec (Published by Schirmer Trade Books/Music Sales/435 pages). Check out also www.musicandmoney.com