The Disappearing Mechanicals
4 June 2018
The word “mechanical” stems from the early days of the music industry when compositions were physically, or mechanically, manufactured and reproduced onto physical products for public consumption. Mechanical royalties are earned per-unit when a song is sold on a “mechanically reproduced” physical medium (i.e. vinyl or physical CDs). Nowadays, this includes digital downloads and internet streaming as well. The word “Mechanical” can sound confusing in the digital age and up until now, mechanical royalties have been collected by local mechanical collection societies in each major world territory.
Mechanical royalties are earned when your song is:
Manufactured and sold on physical CDs or vinyl products
Reproduced and sold as ringtones
Streamed through interactive streaming services (Spotify, Amazon Prime, Apple Music, etc.)
Sold in digital retailers for digital downloads (iTunes, eMusic, 7Digital, etc.) outside of the USA
Before the internet, record labels around the world manufactured vinyl or CD disks and licensed and paid mechanical royalties directly to the copyright owner/publisher or to their agents like The Harry Fox Agency, GEMA, MCPS, CMRRA, etc. in each local territory. Now with streaming, downloads and file sharing, the old business model has been disrupted. In Canada and in many other world territories, the law still requires that iTunes, Spotify, etc. still pay the licensing agencies.
In the USA, however, the law is different. The mechanical royalty share goes straight from iTunes to the record label, and the label is responsible for licensing and paying the publisher/copyright owner. The major mechanical licensing agency since the early days of the music business has been The Harry fox Agency, founded by NMPA but recently sold to SESAC. In Canada, CMRRA, founded by CMPA in the early ’70s has been recently sold to Sound Exchange in the US. Similarly, in the United Kingdom, MCPS merged with PRS. GEMA has always had an integrated performance and mechanical licensing system. This retrenchment underlines the falling physical sales without a similar royalty rate for digital and streaming sales.
Mechanical royalty structure is dictated based on the location of the digital download sale or digital stream. In order to understand your mechanical royalty payments and how to earn them, you have to understand an essential component of international copyright law.
In the USA, the mechanical royalty portion, precisely 9.1 cents, is lumped into the total sum delivered from the retailer (iTunes, 7digital, etc.) to your distributor, record label, etc. But in territories outside of the USA, the mechanical royalty is instead allocated from the retailer (iTunes, etc.) to mechanical royalty collection agencies in each territory (GEMA, MCPS, etc.).
Therefore, if you are having high digital download sales or interactive streams in any territory outside of the USA, you have had a chunk of your mechanical royalties sitting in mechanical collection societies in your top-selling territories. If you’re not registered as a Publisher with the societies, they haven’t gone to you for you to claim because the societies don’t know who you are, and they don’t have your catalogue registrations on hand. Even if you’re registered with a PRO like ASCAP or BMI, it doesn’t matter – PROs only collect performance royalties, NOT mechanical royalties. Writers and Publishers in Europe and other countries, see it differently. To them, retaining as much money for local writers and publishers is only fair in a world where US music dominates.
And what do those societies do with your royalties you haven’t claimed? After a certain amount of time passes (this time period differs according to the laws of each society), the organization reserves the right to do with the money unclaimed (sometimes called ‘the Black Box’) as it sees fit and it is usually distributed pro-rata to local organization member publishers.
The solution historically has been to appoint and assign a sub-publisher in each territory. A good sub-publisher will monitor activity, will be a member of the relevant collection societies and be able to communicate in the language of the territory. New web-based collection platforms are now emerging to collect mechanicals and other rights on a world-wide basis.
Wired Magazine’s Kevin Gray: “Since launching the company, Kobalt’s founder and CEO, Willard Ahdritz has been Viking-like in his assault on the big music labels, publishers and collection societies whose job — after each taking its cut, of course — is to gather and distribute royalties. He cheerfully tells songwriters how these entities have been ripping them off for decades. “The music industry is historically opaque. And it still is. There is a lot of fear among artists that they’re not getting paid. I tell them, ‘You are right. You’re getting screwed.'”
Here’s why: songwriters signed to big music publishers often wait up to two years to get their money after it’s been collected. They end up paying out half their gross royalties to the middle men – collection societies. And if they ask to see the books, they’re handed computer printouts that list a bulk number and little else. It’s not the kind of thing that can easily be understood — or even audited. “They are told, ‘Don’t worry about it,'” says Ahdritz. “‘You keep making music. We’ll handle this.'”
Ahdritz says all this is not because the labels and publishers are devious — it’s because they are inept. Since its heyday in the early 2000s, when the music industry enjoyed $45 billion in sales, profits have plunged to a third of that. Initially, Napster took its huge, pirate bite. Then iTunes cannibalised the CD by selling individual tracks. Now, who needs to buy anything when it’s free on Spotify?”