Are you a songwriter and an artist? If you plan to sign to a label and release your music, watch out for the Controlled Composition Clauses! What are these feared clauses you may ask?
As a songwriter, when you write a song that is sold and released to the public, you are owed a mechanical royalty. In many countries this royalty is set at a percentage of wholesale. In the United States, that rate is currently at 9.1 cents for a song under 5 minutes in length. When you sign with a label as an artist, the mechanical royalties you are owed as a songwriter are different from your artist royalties as they are not subject to recoupment and they represent immediate out of pocket costs for the label. Because of this, many labels add “Controlled Composition Clauses” to their recording contracts that reduce, limit, and suppress many mechanical royalties you may be earning now or in the future.
Because the statutory mechanical rate in America changes every few years, your mechanical royalties could also increase in the coming years. Labels don’t like this, thus a clause may be added that would freeze your mechanical rate to the date of signing the agreement or the date at which your album was due to be finished. This can come as a problem when labels sometimes push or stall releases and substantial royalties are not generated for several years. When it comes to your mechanical rate, you always want a “floating” mechanical rate, not “fixed”.
When you are looking over your first recording contract always watch out for the “you are hereby licensing” wording. This phrase will cause many problems and haunt you years down the road. It essentially allows you to act as the publisher and sign over exclusive rights to your music. This is especially true for controlled composition clauses. Also watch out for “your mechanical rate” as labels will attempt to negotiate a 75% of the statutory mechanical rate specifically for you (keep in mind this is 75% of the mechanical rate that is frozen in time if you had agreed to the previous paragraph). On top of this many labels with throw in an “aggregate mechanical cap” on your first album, meaning “your mechanical rate” can only be multiplied by 10 - 12 on your album. This works fine if you only have 12 songs on your album but what if you have 14?
If this wasn't bad enough, all of these rules and regulations will typically apply to anyone you co-write with on a song that is on that album released by your label. And what if your co-writers do not agree with this? What if they don’t want to be “controlled” and accept “your mechanical rate” that you agreed to with your label? They will be paid a full mechanical rate and the difference used to pay them will come out of “your mechanical rate” and your “aggregate mechanical cap” which is already vastly reduced.
I know it is exciting when you get that first offer and you get wined and dined by those majors. They may even offer you a hefty advance! We highly recommend however, that you hire an experienced entertainment attorney to help negotiate the deal. Finally, always remember to think of your career in the long term and imagine where you will be in 5, 10, 15 years.
DISCLAIMER: This article is not in any way intended to be taken as legal advice.