Everything you need to know about “controlled compositions”

The music economy is constantly changing and there are some things you need to know as a musician and songwriter to keep up to date.

by chris castle music technology solutions

It looks like the legal rate for songs on CDs and vinyls will finally see a significant increase from January 1, 2023 (assuming the Copyright Royalty Board approves the settlement proposed by major labels and publishers). We have to recognize that there are many independent record labels that have never had to deal with a mechanical rate increase – the old rate of 9.1¢ has been in effect since 2006. If a label was founded anytime after 2006 the problem just didn’t I didn’t come before.

The new rate (which may well change each year of the 2003-2007 tariff period due to cost-of-living indexation) will require record labels to check their royalty accounting programs to ensure they are changing rates as needed. It will also become an audit point for artist audits by artists/songwriters or producer audits by producers/songwriters, and of course also publisher audits.

But there is also a question of how to deal with what I call “controlled compression” caused by the collision of rate setting dates with the new rate as applied to outside writers. (I’ve posted a bunch on these topics, so if you don’t immediately recognize what I mean, I refer you to those posts.)

In addition to controlled composition compression, the conversation should include what to do about the whole concept of controlled compositions, a contract clause that only applies in the United States and Canada, and a a concept that is anathema to former songwriters and collecting societies in the United States and Canada. Since digital recordings are usually paid for at full legal rate (or should be), controlled composition clauses are very much a feature of physical setups.

There is a feeling that the whole concept of controlled compositions should be dropped. Since record companies have come to rely on certain economic considerations when deciding whether to keep titles in print and not remove them, i.e. stop making them available retailers, it’s important to understand what effect trying to force labels to pay full price for each song will have on the music economy, especially for independent labels that sell a disproportionate number of units of vinyl. Sudden increases in royalties could have dire consequences for the people who are often the biggest investors in certain genres of music and have the least ability to lobby for their interests, so we need to be careful in rebalancing the economics of songwriters.

An intermediate step might be to emulate a business practice in Canada called a “mechanical licensing agreement” that has worked very well for many years. The “MLA” offers protections against the worst terms of the Controlled Compositions Clause and was a voluntary agreement between labels and CMRRA (Mechanical Collecting Society of Canada).

The MLA was born with David Basskin, the former head of CMRRA, and David negotiated the MLA with major independent labels in Canada. You can listen to my 2011 interview with David on SoundCloud.

The main terms of the MLA cover the rate (which was not less than 3/4 but this dog will not hunt again, and after 1988 Canada did not have a legal rate like the United States), free goods limited to 15%, no reduction for outside writers paid at the full rate.

1. Full rate: Songs must be paid for at the full applicable rate and must be paid for on the free products of the LP Standard Sales Plan (a common offer if the artist/writer is signed with a publisher affiliated with the record company);

2. Cap: Rather than a contractual rate of 10 or 11, the MP sets the ceiling at 12;

3. No rate fixing date: The rate is not only fixed, but also floating, so there is no concept of a rate fixing date and should apply retroactively and prospectively; and

4. Stage: The application of the cap cannot result in a song being paid for less than 50% of full price (which could occur across multiple discs or box sets).

There are other bells and whistles, but those are the main points.

While I understand a record company may want to cap their mechanical royalty fees, one of these terms would further that business objective. It is the application of all the terms of controlled competition that makes the clause so onerous.

Although the Copyright Royalties Board can set tariffs, I doubt that it has jurisdiction to deal with private contracts. Congress could pass legislation, but I think that would be an uphill battle and I’m not sure I want Congress to micromanage the music industry any more than it already does with statutory tariffs and the courts .

But nothing prevents a voluntary agreement.

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