9.0 Controlled Compositions

9.1 Back to Basics

Most recording agreements contain what are known as “controlled compositions” clauses. This is the part of the recording agreement which interlocks with the publishing arrangements of artists who write and compose their own material. The aim of controlled compositions clauses is to reduce the “mechanical” (i.e. publishing) royalties paid by the record company for the use of the artist’s own compositions.

Before explaining controlled compositions clauses in more detail we must look at the differences between recording and publishing. Every recording contains at least two copyright works. Firstly, there is copyright in the recording itself, which is normally owned by the record company. Secondly, there are separate copyrights in the music and the lyrics of the song featured on the recording. These are owned in the first place by the writers of the music and words of the song. If the writer has entered into a publishing contract then usually under the terms of that agreement he or she assigns copyright in the words and music to the music publisher.

9.2 Mechanical Licences

Each time the record company manufactures a CD or other record it copies or “reproduces” the music and lyrics of the song. Unless that reproduction is authorised, this will amount to an infringement of copyright in the song. The record company must therefore obtain permission from the owner of the copyright in the song for it to be featured on the record. This permission is known as a “mechanical” licence, because it allows the record company to reproduce the song by mechanical means. There is a set rate for the mechanical licence, which has been negotiated between organisations representing publishers and record companies. [In most European countries the rate paid by the record company to the owner of copyright in the song (usually the music publisher) is 9.306% of the dealer price of the record although in the UK the lower rate of 8.5% applies.]

9.3 Availability of Licences

Recording agreements include a warranty (a legallybinding promise) from the artist that the publisher will grant the record company a mechanical licence on standard terms for every song used on recordings made under the agreement. The artist should take care that this warranty does not extend to songs written by other people (particularly if the record company has chosen the material).

9.4 USA and Canada

The position is more complicated for records manufactured in the USA and Canada. Outside these territories it does not matter how many songs are used on an album because the total mechanical royalty liability will be the same; the appropriate percentage of the dealer price of the record. On a twenty track album each song will receive a payment equal to one half of what would be paid for a track on a ten track album. The record company’s liability remains the same. In North America the mechanical royalty is not calculated as a percentage of the price of the record. Instead record companies pay a fixed fee per song. The US Copyright Tribunal increases the per song rate from time to time, if only to take account of inflation. The rate at the time of writing is 9.1 cents per song.

This system gives rise to two problems for record companies. Firstly, it means that an album with an unusually large number of songs will attract too high a mechanical royalty payment. The second problem for the record companies is that they perceive the US per song rate to be too high. US record companies long ago decided that they should only have to pay 75% of the “statutory” per song rate. Accordingly, US record companies use controlled compositions clauses to oblige the artist to grant mechanical licences of the artists own works at 75% of the statutory rate. These clauses also usually limit the company’s liability to a maximum of ten times the reduced per song rate for any album no matter how many songs are used on that album. Although this problem only affects North America, record companies outside North America insist on controlled compositions clauses so that they can comply with their obligations to their North American licensees.

9.5 The Publisher

The artist’s publisher (if he or she has one) must approve the controlled compositions clauses before the record deal is signed. Otherwise, if the publisher later refuses to accept them, the artist will be in breach of the recording agreement. This will normally give the record company the right to claw back any excess mechanical royalties from payments otherwise due to the artist. Understandably, publishers are very sensitive about controlled compositions clauses because those clauses are intended specifically to reduce their income. Of course, major publishers are affiliated to major record companies and perhaps as a result their criticisms are tempered. A ritual dance has developed whereby the artist (or his lawyer) sends the controlled compositions clauses to his publisher and asks for confirmation that the publisher will comply with them. The publisher often expresses outrage at the idea of a reduced mechanical royalty rate and seeks numerous amendments to the clauses. Depending on the flexibility or otherwise of the record company, the publisher may sometimes improve the provisions. The publisher may insist on dealing with the record company direct, but usually any dialogue between the publisher and record company will be conducted through the artist’s lawyer. After all the huffing and puffing, the publisher will accept the controlled compositions clauses. No publisher will run the risk of being responsible for the failure of negotiations over a record deal. Some record companies agree, even for new artists, to pay more than 75%. Successful artists should expect to secure 100% at some stage. Some companies are more flexible than others. Sometimes a builtin escalation may be agreed so that, for example, the rate improves from 75% to 85% after a given number of sales in the USA and then perhaps to 100% when a higher level is reached. Since CD’s now tend to carry more than ten tracks it is sometimes possible to agree a restriction of say twelve, rather than ten, times the per song rate. Most controlled compositions clauses attempt to set the per song rate at the rate in force at the time the master is first delivered. The publisher will wish to apply the rate in force at the time of manufacture of the record.