CONTROLLED COMPOSITION PROVISIONS IN RECORDING AGREEMENTS Ivan Hoffman, B.A., J.D.

        1. The reduced rate can be anywhere from 75% or less up to 100% of the minimum statutory rate as set forth in the United States copyright law as of the date of the agreement.  Since rates (along with most other things) rarely go down and instead almost always go up, this means that the artist gets paid the reduced rate based upon the rate for the shortest of recordings (under 5 minutes).  The statutory rate covers recordings of varying duration and the rate increases with longer recordings but under this clause, the artist is only getting 75% of the minimum rate no matter how long the recording is and no matter whether rates increase over the term of the agreement.

        2. The basis for calculating the mechanical royalties is generally on the same basis as the accounting to the artist for sales of records are calculated.  This means that there will be deductions for free goods, deductions for a reduced royalty rate such as being paid on 85% or 90% of all records sold, deductions for sales to clubs, deductions for returns and reserves against returns and other such provisions. However, under the compulsory license provisions of section 115 of the United States Copyright Act, the party resorting to the compulsory (not negotiated) license has to pay on all records “made and distributed.”  So the controlled composition provisions allow the record company to pay on a much more favorable basis.

        3. Under the same statutory provisions, any controlled composition clause cannot reduce the royalties payable for digitally distributed copies, at least as to agreements made after June 22, 1995.

        4. Of further significance is that most of the clauses include compositions “written or composed or owned or controlled” by the artist.  Owned and controlled is one thing but often the artist has previously entered into an agreement with a third party publisher and it is the third party publisher that “owns and controls” the compositions and thus issues mechanical licenses.  Many times, the said third party publishing agreement will provide that the writer represents and warrants that he or she has not entered into and will not enter into any agreement providing for reduced rate payments to record companies.  So if the clause covers “written or composed,” the writer is likely to be in breach of its agreement with the third party publisher.

            a. Further, if the third party publisher refuses to agree to the controlled composition rates, the record company has the right to reduce the royalties to the artist if the total mechanical rates exceed the amounts set forth in the clause (see more below as well for albums).

        5. The label does not pay on arrangements of public domain compositions.  This is potentially negotiable by getting paid on the same basis as ASCAP or BMI pays for these arrangements.

        6. The label’s total mechanical royalty obligation is limited to 10 times the minimum statutory rate whether or not as to Controlled Compositions.  Therefore, since other compositions that the artist records may not be Controlled Compositions, the artist’s recording royalties potentially get reduced even if there is just 1 Controlled Composition if the total mechanical royalty obligations exceed the amount in the clause.

            a. Furthermore, many CDs contain more tracks than just 10 (this is an historical issue since these clauses go back to the time of vinyl records where there was a limit on the number of “cuts” that could be contained on a vinyl record).

            b. Further still, if you have a multiple disc album and the clause still limits the label’s obligation to 10, the artist is going to lose a lot of money so the clause should allow for a higher total obligation for multiple albums.

        7. The clause grants the record company a free license to use the Controlled Compositions in any and all media, formats etc.   This means that if a video is produced including a streaming video on the Internet, the artist has licensed the Controlled Composition for use in that video or streaming video without fee.

        As indicated, these are just some of the issues presented by these provisions.  You should always be represented by an attorney with experience in the recording and music industries.

        Although many aspects of this clause were developed during the vinyl record days, they remain embedded, if not in stone then in some equally immutable material, in current record agreements.  They are negotiable but, like other clauses whose origins are lost in record business history, these clauses have become part of the economics of the record industry even if they no longer make any logical sense.
 

Copyright © 2010 Ivan Hoffman.  All Rights Reserved.