Where's the Money?
The following article is reprinted from the Taxi website.

Learning Where the Money Comes From (part one)

By Jason Blume

Many developing songwriters resent having to be a businessperson. I've heard them lament, "I've written the songs—now let somebody else take care of the business." But the reality is that this is the music business. The greatest song in the world will not become a hit if it's neither demoed or brought to the attention of music business professionals.

Although it's perfectly acceptable to write solely for your own pleasure, if your goal is to be successful in the music business, you have to pay as much attention to the business as you do to the music.

For starters, it would be helpful to understand the difference between a music publishing company and a record label. A publishing company's primary function is to generate income from songwriters' songs. This income typically results from getting these songs recorded by recording artists, or included in television shows or films. The term "publisher" is often used interchangeably to refer to an individual who's employed by a publishing company to pitch songs, and to the company itself.

A record label is a company that's in the business of producing, distributing and selling albums. A record label signs recording artists. If these artists do not write their own songs, members of the label's A&R department will meet with publishers in the hopes of finding hit songs for their artists.

Songwriters' incomes come from a variety of sources. Songwriters earn money primarily from mechanical royalties, performance royalties, print royalties, synchronization licenses and publisher advances. If a songwriter is also a recording artist and/or producer, he will earn additional royalties, but those royalties are totally separate from moneys generated by the songs themselves.

Mechanical Royalties

Mechanical Royalties is the name given to revenues paid for the "mechanical reproduction" of musical compositions on sound recordings. It refers to the royalties paid for the sale of a physical, tangible product containing music—audio cassettes, CDs, record albums, and videocassettes all generate mechanical royalties. In plain english, mechanical royalties are the moneys you are paid for the copies of your songs that are sold.

In the United States, the mechanical royalty rate is established by Congress and is called the "Statutory Rate." With one exception (the 3/4 rate which we'll discuss another time), the Statutory Rate is not negotiable and applies equally to all songwriters. Therefore, Michael Jackson, Diane Warren, Garth Brooks and you, all receive the same mechanical royalty for each album or single sold.

Payment is made per unit. A "unit" refers to one recording of a song on an audiocassette, CD, or record, whether it's an album or a single. Each song included on an album is considered one unit. If you are lucky enough to have written 10 songs on an album, you will be paid for 10 units for each album sold.

Occasionally, more than one version of a song may be included on an album or single—the radio mix, the dance mix, the urban mix, etc. In these instances, the writer is paid for each version of the song, just as if it were a separate song.

For single releases, mechanical royalties are paid equally for the "A" Side (the song that is sent to radio stations and marked as the probable hit) and the "B" Side (a song that the buyer is probably not familiar with). Therefore, the writer of the hit song and the writer of the unknown song receive the same amount of money for the sale of each single. Although this may not seem fair, you should know that the writer of the hit will earn the bulk of his income from performance royalties.

Learning Where the Money Comes From (part two)

By Jason Blume

In Part One, we defined "Mechanical Royalties" and gave you several instances regarding how those royalties are paid to writers. In this issue, we're gonna talk about the actual rate of payment.

The Mechanical Royalty Rate for the United States has been negotiated to allow for increases in songwriters' income through January 1st, 2006. The rate structure, which took effect January 1st, 1998, is as follows:

  • January 1st, 1998     7.10 cents
  • January 1st, 2000     7.55 cents
  • January 1st, 2002     8.00 cents
  • January 1st, 2004     8.50 cents
  • January 1st, 2006     9.10 cents

These rates are applicable for compositions of up to five minutes in duration. Compositions exceeding five minutes are paid 1.3 cents per minute. Some quick math shows that, using the rate in effect January 1st, 1998, a song included on an album (or a single) that sells 500,000 units, generates $35,500 in mechanical royalties. Using this same rate, each song on a million-selling album earns $71,000. The mechanical royalty earned by one song included on an album that sells 20 million copies is $1,420,000!

Mechanical royalties are paid from the record label to the publisher. The publisher distributes the writers' share of the income to the writers, either quarterly or biannually. Payments for sales within the United States are made approximately six months after the sale of the product. However, it sometimes takes eighteen months or longer to receive mechanical royalties generated outside the U.S.

Collecting the money is not always an easy job for music publishers. Therefore, the majority of publishers contract an outside firm (the Harry Fox Agency or Copyright Management, Inc.) to handle the paperwork involved in the collection of their mechanical royalties.

The Harry Fox Agency (HFA) is the main organization for the administration of mechanical rights in the United States. HFA represents more than 19,000 music publishers, licensing the use of music on records, tapes, and CDs. They distribute more than $400,000,000 per year in royalties.

Although the mechanical royalty rate is set by congress, there are instances in which a record label contacts a publishing company and requests that it (acting on a songwriter's behalf), accept only 3/4 of the regular mechanical royalty rate. This is referred to as the "3/4 rate" or "controlled composition clause," and most commonly occurs when the record label anticipates that the recording artist or record producer will be writing or co-writing his or her own songs. If you collaborate with a recording artist or producer, some of the record labels insist that the artist, producer and his or her co-writers agree to accept the 3/4 rate.

Other instances in which the record label might feel justified to pay a 3/4 rate include the re-release of a product as part of a lower-priced catalog series, inclusion in a compilation, or inclusion in a box set that will be sold at a lower price. When these situations occur, the songwriter may be consulted by the publisher, but it is the publisher's decision as to whether to accept a reduced mechanical royalty rate.

From 6 Steps To Songwriting Success by Jason Blume. © 1999 by Jason Blume.
Published by Billboard Books, an imprint of Watson-Guptill Publications, New York, New York.

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