George Howard is the former president of Rykodisc. He currently advises numerous entertainment and non-entertainment firms and individuals. Additionally, he is the Executive Editor of Artists House Music and is a Professor and Executive in Residence in the college of Business Administration at Loyola, New Orleans. He is most easily found on Twitter at: twitter.com/gah650
My friend and colleague John Snyder, wrote an article entitled "The Magic of Copyright" for this blog a few weeks back. The article brilliantly puts forth the idea that by creating an original work and fixing it in a tangible form (writing it down or recording it), you not only immediately and automatically create a copyright in the work, but you create an asset.
In an era of artists needing to become self-sufficient, and decrease (cease) their reliance on labels for success, it's crucial to begin thinking in terms of assets; they are what you have in order to generate the revenue needed to build a self-sustaining career in the music business….on your own terms!
6 EXCLUSIVE RIGHTS
As John mentioned, when you create a copyright, you are immediately and automatically granted six exclusive rights. As set forth in Title 17, Chapter 1 §106 of the United States Code They are as follows:
- to reproduce the copyrighted work in copies or phonorecords [In layman’s terms, a “phonorecord” is a material object that embodies sounds (a CD, a cassette, vinyl, etc.). Importantly, a phonorecord is not the embodiment of sound when it is synchronized with a movie, tv show or ad.]
- to prepare derivative works based upon the copyrighted work;
- to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;
- in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly;
- in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly; and
- in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission.
We'll work our way through each of these in the coming weeks.
THE FIRST RIGHT: RIGHT TO REPRODUCE
In this article, we'll look at the first right, and show how it relates to one of the most fundamental assets, but also most misunderstood, elements of the record business: the mechanical license.
As stated in rule number one above, when you create a copyright, you are the only one who is allowed to reproduce the work. This is HUGE. It means that any time a work you hold the copyright to is reproduced physically (i.e. on a CD, vinyl, etc.) or digitally (download), the person who is doing the reproducing must get your permission to do so. If they don't get your approval, they are infringing on right number one of your exclusive copyright, and, so long as you have registered your copyright, you can take action against the infringing party — including suing them for infringement and, potentially, collecting both actual and statutory damages for the infringement.
Because of this exclusive right, and because of the ability to sue and recover damages should this right be infringed upon, this right is a significant asset. It means that if someone – typically a label – wants to reproduce your copyright on, for instance a record or download, you have the opportunity to negotiate a fee in exchange for granting them a right to reproduce.
MECHANICAL ROYALTIES V. ARTIST ROYALTIES
This fee is negotiated via a legal instrument known as a "Mechanical License." You, the copyright holder, grant the label the right to make a "mechanical" reproduction of your copyrighted work(s) in exchange for a payment from the label.
So, imagine you're a songwriter who also performs the material you write. You hold the copyright to the songs you've written, and thus — in addition to the other five exclusive rights — have the exclusive right to reproduce this work. Now imagine that a label approaches you, and wants to put out a record of you performing your songs. The label will make a deal with you as a performer that (typically) grants the label the exclusive right to release the music you perform (whether you write the songs or not) for some period of time. In exchange for this exclusivity, the label will (in theory) pay you what's known as an "artist royalty." This artist royalty is typically a percentage of the list price of the sale of the album. You'll hear, for instance, an artist say, "I have a 15 point deal with my label.” This would mean that the artist receives 15% of the list price from the sales of records (after recoupment of certain expenses and costs associated with the sale of the record), but this is a lesson for another time.
This artist royalty satisfies the label's obligation to compensate the performer for the exclusive right to release the album of the artist’s performances, but does not satisfy the label's obligation with respect to the songs themselves. Remember, as a songwriter with a copyright to your songs, you have the exclusive right to reproduce the songs. The label must therefore negotiate a mechanical license with you for the right to reproduce these songs on the album they release.
This "dual" royalty — an artist royalty, paid to the performer signed to the label, and a mechanical royalty, paid to the writer of the song (whether he or she is signed to the label as a performer or not) — is one of the most misunderstood parts of the music business. It's a dangerous thing to misunderstand.
What it fundamentally means is that the asset you created as a songwriter, and thus has a copyright to the song released on an album, are going to get paid two times (assuming you recoup costs associated with the artist royalty), while those who are performers, but aren't songwriters will only get paid once (if that – remember, it's hard to recoup).
Equally important, as the owner of the asset (the copyright of the song that is being reproduced) you are to be paid from record one; irrespective of whether the label has recouped their recoupable costs that they must prior to being obligated to pay an artist royalty.
This is why in a band where there is one songwriter, and a handful of other band members who are also signed to the label, but don't write, it will be the songwriter who will be buying the house, while the other members are living in Mom's basement.
TERMS OF MECHANICAL LICENSES
At this point you should be asking, "How much do I get paid by these labels in order for them to have the right to reproduce my copyrighted work?" The answer, as it is with all things vaguely legal is, "it depends." However, mechanical licenses are a lot more calculable than other types of licenses (which we will discuss in future articles).
This is because the mechanical rate is set by "statute." You may have heard of the term "statutory rate." This relates to the maximum amount someone who wishes to mechanically reproduce another's copyrighted work must pay the copyright holder. The current statutory rate is $.091 cents per song i.e. just about a dime). The rate goes up fractionally if the song is over five minutes in length.
This statute was enacted into law by the United States Congress in order to reduce transactions costs associated with innovation. Copyright is always a play between the tensions of protecting and giving incentive to authors to create, and allowing for innovation to occur.
What this statutory rate means is that anyone who wants to record and reproduce another's copyrighted work is able to… so long as they pay the copyright holder $.091 per song reproduced. This is referred to as a compulsory license; compulsory meaning that the copyright holder must (is compelled) to grant the license. The only caveat being that the compulsory license rule doesn't go into effect until the copyright holder has commercially released the copyrighted work. This is called the "first use" exception to the compulsory license. It allows the copyright holder to pick who gets to release their song first, and, importantly, negotiate whatever rate the copyright holder can get for that first use. Once it's been commercially released, however, anyone who wants may cover the song so long as they pay the mechanical royalty to the copyright holder, and abide by the other provisions of the statutory license rules: pay on all copies manufactured, pay monthly, pay the full rate, pay the current rate.
Those of you interested in putting a cover on your record who are self-releasing a record, must abide by these rules. The Harry Fox Agency acts as a clearinghouse for many publishers, and your first stop should be there website in order to secure the license.
As above, the statutory rate sets the maximum amount one who reproduces a copyrighted work must pay to the copyright holder (the rate is adjusted periodically, and has historically gone up). This baits the question, "is there a minimum rate?" The answer is, "sure." If you're the copyright holder, you can elect to waive your mechanicals, and provide a gratis license. This might occur, for instance, if your song was being used on a record where the profits were being given to a charity or if you wanted to give it away as a free download for promotional reasons.
CONTROLLED COMPOSITION CLAUSE
Of course, between the max and the min there is an infinite range. The labels will tend to negotiate the rate down by 25% for songs that they reproduce on their albums that are written by artists who are also signed to the label as a performer. These songs are called "controlled compositions," and this clause in the recording agreement is called the "Controlled Composition Clause." In addition to reducing the rate, it typically provides that the label will: only pay on songs that are reproduced and sold (i.e. not paid on promotional CDs or songs given away for free to promote the release – like a CD mailed to a radio station for airplay); that they will treat songs over five minutes as if they were under five minutes; and that the rate is fixed at the time of delivery or release of the record (remember, from time to time, by law, the statutory rate goes up, but with the “fixed rate” provision you'll still get the same amount as you did when the songs was delivered or released); only pay on a fixed number of songs – typically 10 or 11 – so, if you deliver a record with 20 songs that are all controlled compositions, you're only going to be paid on 10 or eleven.
These caveats aside, it should now be clear just how important the asset of the exclusive right to reproduce a copyright is. In some respects, it's the songwriter's best friend.
Thanks for bearing with me through this. As above, the amount of misunderstanding about the mechanical royalty, and what exclusive right it relates to is second only to the misunderstanding around public performance royalties. We'll get to those soon.
Please leave questions in the comments.
For more information on subjects covered in this article, check out these videos from Artists House Music or download the free TuneCore Music Industry Survival Manual: The Basics You Should Know About Music Publishing and Copyright: Cover Songs:
Donald Passman — one of America’s foremost entertainment lawyers and author of All You Need to Know About the Music Business, widely considered to be the single most essential and influential book ever written about how the music industry works — on the difference between artist royalties and mechanical royalties:
The Difference between artist royalties and mechanical royalties
Michelle Singer, Director of Business and Legal Affairs for Jazz and Classics at Blue Note Records.
Controlled composition clause and excess mechanical royalties
TuneCore Music Industry Survival Manual
The Basics You Should Know About Music Publishing and Copyright: Cover Songs