CONTROLLED COMPOSITIONS
Controlled compositions are common in recording agreements, feature/side artiste agreements, production agreements, and other similar agreements. Although the definition may vary from agreement to agreement, it typically includes that the performer’s musical compositions written, owned or controlled will be licensed to the other party, usually the record label, at a reduced mechanical rate.
Firstly, what are mechanical rates? Mechanical royalties are payments made to songwriters and publishers each time a song is reproduced, such as on CDs, vinyl records, streaming services, or digital downloads. Each song possesses two copyrights: the sound recording (master) and the underlying composition or musical work (publishing). Typically, the copyright for the musical work is held by the songwriter or composer (i.e., the producer). Since there can be no sound recordings or masters without the publishing rights, the owner of the master must agree with the songwriters or composers to utilise their rights embedded in the masters.
One of the key terms typically found in agreements is the mechanical royalties due to the rights holders of the publishing copyright in the masters. However, countries like the US, Canada, the United Kingdom, and many others establish the mechanical rates for which mechanical royalties are to be paid. In the US, for instance, the statutory rate for mechanical royalties is 12.4 cents per song or 2.38 cents per minute of playing time, whichever is greater. The rationale behind having statutory mechanical licence rates is to ensure that songwriters and publishers receive fair and consistent compensation for the use of their works, protect their livelihood, and incentivise the creation of new music.
Statutory mechanical royalty rates function like the minimum wage for songwriters.
The purpose of controlled compositions is to reduce the royalty rates paid, allowing the label to avoid the statutory rates. For instance, instead of paying the full 12.4 pence per song, the label or artist may choose to pay 75%. This can only occur if the artist agrees to it contractually. Consequently, labels and rights holders of the masters or sound recordings typically seek to include the clause “controlled compositions” in their agreements. This means that when the artist or another party to the agreement holds the publishing rights to the song(s), they will not pay the artist or third party the full rate but rather the agreed rate (often 75%). In simple terms, controlled compositions serve as a discount arrangement for your creations.
The controlled composition clause serves as a cost-saving measure for the label, as they invest heavily in music production, promotion, and distribution. Consequently, reducing the mechanical royalty payments enables them to recoup those costs by lowering their expenses on the songs they release, particularly when collaborating with artiste-songwriters who contribute significantly to their albums. While this benefits the label, it diminishes the income of the artistes. It’s akin to when a label signs you, granting themselves a loyalty card that allows them to pay less for your songs than they would if someone else had penned them.
Although controlled compositions have become quite common in the music industry, and most labels and masters’ owners insist on them, artists, songwriters, and composers should pay attention to specific aspects.
- The Reduced Royalty Rate: Whilst 75% is usually the common reduced rate, some labels or master owners push for even lower percentages. Artistes should negotiate these rates where possible, and in the event they do not understand the financial implication of this clause.
- Song Caps/Limitations:
Some controlled composition clauses limit the number of songs eligible for mechanical royalties. If an album exceeds this cap, the other songs that pass the limit could lose royalties, even if they are controlled compositions. This situation is often undesirable for the artist and should rarely be agreed to, especially when the artist releases deluxe editions or albums with lengthy tracklists. - Cover Songs and Third-Party Compositions
Controlled compositions do not apply to cover songs or works by third-party writers. Nevertheless, some labels require artists to ensure their agreements with these songwriters include controlled composition clauses to limit the amount of money the label must pay. Artists should be aware that not all third-party songwriters may agree to this, as it typically does not benefit them. From a legal perspective, controlled composition clauses are not static; they are negotiable, particularly for artists with considerable bargaining power. However, emerging artists may struggle to contest standard label terms. In such cases, it is vital to engage an experienced music attorney or entertainment lawyer. Nevertheless, artists and songwriters should negotiate rates whenever feasible, strive to eliminate or seek higher caps or limitations where appropriate, and ensure there are no concealed deductions or packaging fees that could further diminish royalties. Lastly, artists and songwriters must maintain meticulous records of all compositions and publishing arrangements to accurately monitor all royalty payments.
The controlled composition clause is a double-edged sword for musicians. While it allows labels to manage their costs, it often comes at the expense of songwriters, who are already navigating a complex and competitive industry. By understanding the mechanics of this clause, why it exists, and how to negotiate its terms, musicians can better protect their rights and earnings. Agreeing to a controlled composition clause without understanding it is like signing a contract blindfolded.
You might not see how much of your future income you’re giving away.
Ultimately, knowledge is power. Whether you’re a budding musician or an established artiste/songwriter, investing time and money in understanding the legal frameworks of your craft is essential. Controlled composition may be a standard part of record contracts, but it doesn’t have to control your career.
