The recording contract series; (Part 20) the controlled compositions clause (continued)

The controlled compositions clause essentially puts a limit on how much (in mechanical royalties) the company has to pay a songwriter for each controlled composition. Record companies are very sensitive about the amount they pay in mechanical royalties, because (unlike artist royalties), the companies don’t recoup advances, recording costs or anything else from mechanicals, which have to be paid out before they even break even. Mechanical royalties are the most immediate form of income the artist has, if he wrote the songs.

The effect of these Controlled Composition Clauses can therefore be dramatic and can significantly reduce the potential income of the artist. Great care must therefore be taken in the negotiation and drafting the relevant clauses regardless of whether or not the artist usually records self-penned material. Any songwriter who already has a publishing agreement must, in any event, ensure that the Controlled Compositions Clauses are referred to his publisher before any recording agreement (that includes his songs) is signed. Mechanical royalties are often the only royalties that artists see for a while, because with the recoupment of recording costs, video costs etc., artists wait for a long time to see artist royalties (if ever).

It is worth reproducing a typical Controlled Compositions Clause here, so that we can really get to know it:

“A ‘controlled composition’ is hereby defined as a composition embodied in any Master delivered hereunder which is written or composed by the Artist, alone or in collaboration with others, or is owned or controlled, in whole or in part, directly or indirectly, by the Artist or by any person, corporation, partnership, firm, or other entity in which Owner has a direct or indirect interest. The Company is hereby granted a mechanical license for all controlled compositions as defined above, at a rate of fifty (50%) percent of the minimum standard mechanical copyright royalty rate in effect on the date of first release of the recording containing such controlled compositions.”

Note that the above clause not only halves the artist’s mechanical royalties, it also pegs the rate at half what it would be at date of first release, thereby protecting the company against any increase in the agreed rate (in SA) or the statutory rate (in the US).

There is an even worse type of controlled compositions clause: one that simply caps, as a Rand value, the amount that the record company will pay the artist for the mechanicals. It requires the artist to warrant the maximum mechanicals the label will have to pay, no matter who wrote the songs. Such a clause would look like this:

“The Artist hereby grants (and warrants that all applicable publishers will grant) to the Company mechanical licenses at the rates agreed herein (“the controlled composition rate”) with respect to musical compositions written, owned or controlled in whole or in part by the Artist or by any person or company affiliated with the Artist (“controlled compositions”) and embodied on records distributed hereunder. In respect of full-price records, the controlled composition rate for all musical compositions regardless of length shall be seventy-five percent (75%) of the minimum standard mechanical copyright royalty rate for compositions, with such controlled composition rate being determined at the time of first release of records embodying the composition concerned. This rate shall be subject to the following combined ceilings for all musical compositions, whether or not Controlled: Nine (9) times the controlled composition rate per compact disc album. In the event the actual aggregate mechanical copyright royalty rate paid by Record Company exceeds the maximum combined ceiling for any record hereunder, the company shall deduct from any monies payable to Artist hereunder (whether in respect of Controlled Compositions or otherwise) an amount equal to such additional payments. ...”

Note that in terms of this clause, the artist makes a warranty as to the amount the label will have to pay in mechanicals, it reduces the rate to 75%, it limits the controlled compositions on the album to 9, and it provides that the artist will pay any excess mechanicals. Nasty, very nasty, especially the last part.