Mechanical royalties are due whenever a song is reproduced, in whichever format that may be. In principle, Mechanical rights are a fairly simple concept. However, the execution and management of these rights vary around the globe, as we shall now explore.
Just as with performance rights, there are mandated mechanical societies in each territory that collect mechanical royalties on their member’s behalf. These societies may have reciprocal agreements with other mechanical societies throughout the world, to form a global network of mechanical societies. Some rules are unique to the mechanical right, however, most notably the rules around the writer’s and publisher’s share.
We learned performance societies will always pay a writer’s share directly to their songwriter members. Similarly, mechanical societies in mainland Europe will pay a writer’s share. However, mechanical societies in Anglo-American territories do not pay a writer’s share, and instead forward these royalties entirely to the publishers.
The standard definition of ‘Anglo-American repertoire’ means the shares of works where the writer/creator is:
Different rules may apply to different societies, so always check with your societies which rules may apply to you and your repertoire.
Once the dominant format in the music industry, these days physical products would just be a footnote if it wasn’t for the impressive revival of vinyl as a collectors item. Whenever a record label either manufactures a physical copy or distributes it, they will pay a mechanical royalty either directly to the publisher or make this payment to a mechanical collection society. You may have noticed the frequent use of the words “either” and “or” in this sentence, which is because many different rules apply in different territories.
The mechanical royalty is generally calculated as a set percentage of the Published Price to the Dealer (PPD) or Retail Price. The PPD is the price that the retailers purchase the record at (also sometimes referred to as the Wholesale Price), whereas the Retail Price is the end price for the consumer. For example, in the UK this rate is set at 8.5% of PPD or (if unavailable) 6.5% of the Retail Price. So if a record store pays £8 for a CD, the mechanical due to the publishers is equal to 8.5% of £8 or 68p per CD. It is the commissioning party’s responsibility to make the payment to the collection society.
In some territories, such as the United States, the mechanical royalty is calculated at a fixed rate per sound recording per unit. This unit rate is referred to as the Statutory Rate, and in the United States is currently set at 9.1 cents or 0.0175 cents per minute for tracks over 5 minutes, but is thought to increase by 2023 onwards. For example, if a record label sells an LP with 10 tracks (each of them under 5 minutes), then the record label pays a mechanical rate of 91 cents (equal to 10 times 9.1 cents, as per the 2022 statutory rates). Additional deductions, such as discount rates or Track Caps (where the total stat rate is limited to that equal to a limited number of tracks) may still be applied.
In the below flowchart we can see the income for a physical sale. The retailers pay the labels, who in turn pay part of it to the performers and part to the MROs. An MRO generally pays income to publishers who then pay it to composers, but some MROs also pay income directly to the songwriters themselves.
The private copy legislation can be seen as a tax imposed by the music industry on manufacturers of blank audio carriers such as CDs, Cassettes, USB Sticks and even smartphones. The idea behind this being that consumers will use these products to privately copy and burn music on these audio carriers. It is a legislation that exists in plenty of countries to this day, but many countries instead have a private copying exception which allows punters to make copies for private use without the need to obtain permission from rights holders.
The private copying legislation covers both the master and publishing rights. Record labels can collect these royalties via their neighbouring rights societies, whilst publishers can collect these via their mechanical collection societies. The mechanical societies of course do not know whose rights holder’s compositions will eventually be copied. So they pro-rate this lump sum of money to the rights holders, meaning they will look at similar types of revenue and apply the same share in revenue for each rights holder.
Also online royalties, such as streaming and downloads, are partly collected by mechanical collection societies. However, due to its complexity and close relation to performance royalties, we have dedicated a separate chapter to these online rights.
Before we go to our next chapter about Online royalties, let's put your knowledge on Mechanical royalties to the test.