What is a “Controlled Composition Clause” in a Recording Contract?
Updated: Apr 7, 2021
The Controlled Composition Clause grants record labels the right to reduce payments on mechanical royalties owed to a songwriter. The song the artist writes and controls (the composition they control, thus controlled composition) which entitles the writer to a mechanical royalty payment, to be paid out by the record company every time a song is “created” or “reproduced” such as in the creation of a CD or now, in reproduction for digital distribution. This payment is usually the minimum statutory mechanical rate (we break down mechanical royalties here and more info here) and is further reduced when the artist/writer agrees to the Controlled Composition reduction in their contract. The current statutory minimum mechanical rate (rate ordered by law) is $0.091 per for each composition. For songs over 5 minutes, the rate is $01.75 per minute. Most recording and publishing agreements reduce these rate to payout 75%, or three quarters of the statutory minimum rate which reduces the rate to $0.06825 cents per composition.
So how does this impact me as a writer/artist?
From the ASCAP website: “The figures are computed at the mechanical rate in effect at either (a) the time the recording is produced, (b) the date of the recording contract with the artist, (c) the date that a particular album commenced recording (or should have commenced recording per the contract), or (d) the date the recording is originally released (regardless of whether the same recording is released again at a later date in another album).
In other cases, the record company will establish a maximum aggregate mechanical penny royalty limit for an album (for example, 10 songs x 6.82¢ = 68.2¢ per album) - in a sense, a cap on royalties.”
So lets look at the math: an album that contains 10 songs and on which an artist wrote each of those 10 songs, the mechanical royalties due to that artist/writer would, if calculated at the reduced rate, $0.0682 x 10 = $0.68 cents per album. Thus 100,000 albums sold would equate to $68,250 and 1 million albums would be $680,250 and so forth.
Who Collects Mechanical Royalties for Artists/writers?
In the U.S. digital mechanicals are generally collected by a royalty collection agency, usually Harry Fox, however in some countries such as the Germany, the UK and France, there is one agency that collects both performance rights royalties (ASCAP, BMI and SESAC in the US) and mechanical royalties. (Soundcharts). In the case of physical “reproduction” of music, such as when a record label manufactures (thus reproducing) an artist’s music by pressing CDs, the record label would in essence be responsible for paying the mechanical royalties.
Does Digital Streaming Generate Mechanical Royalties?
Yes and no as it depends on the type of streaming. For example, a listener on Spotify that chooses the exact song they want to stream forces Spotify to generate both performance royalty (ASCAP, BMI and SESAC) for playing the song as well as a mechanical royalty for “recreating” the song to generate the stream (ibid). However, if the listener utilizes a “Non-interactive” digital service, wherein the listener does not choose the song to play but listens to pre-programed playlists or songs, the service is broadcasting a composition and not recreating the composition. Soundcharts.com adds that, “[f]or streaming services, mechanical royalties go side by side with the public performance royalties, making what is known as an “All-In Royalty Pool”. In the US, all in royalty pool is currently set at 11.8% of the streaming platform’s total revenue — with a plan in place to increase that percentage to 15.1% by 2022. Then, the public performance royalties are deducted from the “All-In Royalty Pool”. The share of Public Performance royalties is a subject of negotiation between streaming services and performance rights organizations and is around 6-7% of the services revenue. What is left is the mechanical royalties — distributed between the songwriters on the per-rata basis, same as payouts the master copyright owners.”
“THE MORE YOU LEARN, THE MORE YOU EARN!”
Jason Bost, Esq., MBA, is an author (his book can be found here), adjunct professor of law, and an attorney with a focus on entertainment and creator based law and is the head of the entertainment law division at the Law Firm of Patel, Soltis, Cardenas and Bost. He spent more than twenty years in the entertainment industry as an artist manager, A&R, entertainment executive for independent labels and now as an attorney. He can be reached by email at firstname.lastname@example.org or by phone at (973) 834-8588.