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Thursday, April 12, 2012

Making Your Own Music-Maximun Rate Per Album

Making Your Own Music-Maximum Rate Per Album
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     Standard clause. All controlled composition clauses impose a limit on the total mechanicals for each album when making your own music. This is what is called a cap. It's usually ten times 75% of the statutory rate (or ten times the full rate if your per-song rate isn't reduced). This is known as a ten times rate, meaning you get ten times the single song rate. Note that this is in addition to, an independent of, the per-song limit. In other words, you must deliver each song at the specified single song rate, no matter what the total album limit, but you can't exceed the total album limit no matter delivering, for example, fourteen songs at 75% rate, which totals more than the company is willing to pay, even though you haven't exceeded your per-song limit. All of these limits are based on a multiple on the minimum statutory rate (the rate for songs five minutes and under). Nowadays, it's common for CDs to have anywhere from eleven to fourteen songs. So you should always try for more then a ten-times limit. New artists, get use to ten times. With clout, you can edge up to eleven or twelve times, and occasionally a little more. Wherever you end up, you can see that it's pretty easy to slide right over the limit. Let me show you what happens when you do. This is not a good sight. Just for consistency in the examples, I'm going to assume that you have a maximum album rate of ten times 75% of statutory, or 68.2 cents. The same principles apply even if it's a different limit eleven times 75%, or ten times full statutory, but let's use the ten times 75%.

No Limit on Non-Controlled Songs. As your bargaining power goes up, you may be able to get a clause with no limit on outside compositions (other that statutory rate), even if you have a 75% statutory limit on controlled compositions. The catch is that you can't exceed the overall limit for the album (which in our example is ten times 75% of the statutory rate). This sounds a bit odd at first, but it's much better for you than a flat 75% of statutory limit on each composition. The advantage is that you can now pay the outside publishers full statutory without reducing your royalties, because you're not limited on outside songs as long as you stay under the album limit. Here are some numbers:

     4 outside songs at statutory (4 times 9.1 cents)     36.40 cents
     4 controlled compositions (4 times 75% of 9.1 cents)     27.28

     total mechanicals payable     63.68cents
     maximum allowed (10 times 75% of 9.1 cents)     68.25 cents

Note the amount payable (63.68 cents) is less than the maximum allowed for the album (68.25 cents), which is ten times 75% of 9.1 cents. So you get the full 27.28 cents for your songs, which is 75% of statutory. This contrasts with the result under the clause where you got less at (18.16 cents) for the exact same album. And by the way, the extra 9.1 cents can add up to a hefty sum if you sell millions of albums. On the other hand, if the mechanical royalties total more than the ten times 75% of statutory under this clause, the excess comes out of your royalties. So if you pay outsiders at the statutory rate, you either have to put fewer than ten songs on your album. or else take a reduced rate on your songs. For example, if there were five outside songs and five controlled compositions, you would get less than 75% of the statutory for the controlled songs under the same clause. This is because the maximum per-album rate applies to all of the compositions under the restriction, even when there is none under maximum-rate-per-song provisions. Here are the numbers:

     5 outside songs at statutory (5 times 9.1 cents)     43.50 cents
     5 controlled compositions (5 times 75% of 9.1 )     34.12 cents

     total     79.62 cents

     maximum allowed (10 times 75% of 9.1 cents)     68.25 cents
     less: amounts due outside songs (5 times 9.1 cents)     45.50 cents

     total     22.75 cents

So, for each of your songs, you don't get 75% statutory (6.82 cents), but rather only 4.55 cents (22.75 cents divided among five songs).

No Penalty for a Limited Number of Outside Songs. The next step up is to say that you can pay statutory rate for the outside songs, and that you're allowed to exceed the overall album limit on order to pay this to the outsiders. If you can get this, it's usually limited to one or two songs per album. This concept is easier to understand. Assume your overall album limit is ten times 75% of statutory  (68.25 cents). If you have ten songs on your album, and two are outside songs licensed at statutory, you exceed the maximum by the difference between the 75% limit and the full statutory amount (100%) that has to be paid for each of the two outside songs. (the difference is the 100% paid less the 75% maximum, or 25% of statutory, for each of the two songs).

     8 controlled compositions (8 times 75% of 9.1 cents)     54. 60 cents
     2 outside songs at statutory (2 times 9.1 cents)     18.20 cents

     total     72.80 cents
maximum allowed (10 times 75% of 9.1 cents)     68.20 cents

excess     4.60 cents

No Penalty for Any Outside Songs. With still more clout, you can get a clause that allows you an overall album limit of ten times the full statutory rate, even though controlled songs are limited to 75%. This  means you're not penalized at all for outside songs (unless you exceed ten songs on the album, or unless you have outside songs over five minutes in long). Here is an example:

     5 outside songs at statutory (5 times 9.1 cents)     45.50 cents
     5 controlled compositions (5 times 75% of 9.1 cents)     34.12 cents

     total mechanicals payable     79.62 cents
     maximum allowed (10 times 9.1 cents)     91 cents

Since the maximum allowed (91 cents) is now more than the amounts payable for both outside and controlled songs, you get the full 34, 12 cents (five times 75% of statutory) for your songs. To wrap this all up, the only limit is ten, eleven or twelve if you get it. However, you still have to live with the minimum statutory rate. Next, I will discuss multiple albums.