How to deal with the “controlled compositions”

It looks like the statutory rate for songs on compact discs and vinyl is finally going to get a significant increase starting January 1, 2023 (assuming the Copyright Royalty Board approves the settlement proposed by the major labels and the publishers). We have to acknowledge that there are many independent record companies that have never had to deal with an increase in the mechanical rate–the old 9.1ยข rate has been in effect since 2006. If a label was founded any time after 2006 the issue just hasn’t come up before.

The new rate (which may well change every year of the 2003-2007 rate period due the cost-of-living indexing) will require labels to check their royalty accounting programs to make sure they change the rates as required. It will also become an audit point for artist audits by artist/songwriters or producer audits by producer/songwriters, and of course publisher audits as well.

But there’s also a question of how to address what I call the “controlled comp squeeze” caused by the collision of rate fixing 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’m getting at, I refer you to those posts.)

In addition to the controlled comp squeeze, the conversation should include what to do about the entire controlled compositions concept, a contract clause that only applies to the US and Canada and a concept that is anathema to ex-US and Canada songwriters and collecting societies. Because digital recordings are typically paid at the full statutory rate (or should be), controlled compositions clauses are really a feature of physical configurations.

There’s a feeling out there that the entire concept of controlled compositions should be abandoned. Since record companies have come to rely on certain economics when they decide to keep titles in print and not to cut them out, i.e., stop making them available to retailers, it is important to understand what effect that trying to force labels to pay every song at full rate will have on the music economy, especially for independent labels that sell a disproportionate number of vinyl units. Sudden increases in royalty costs could have dire consequences for the people who frequently are the main investors in certain genres of music and have the least ability to lobby for their interests, so we should tread prudent in rebalancing the songwriter economy.

One intermediate step might be to take a cue from a business practice in Canada called the “Mechanical License Agreement” that has worked very well for many years. The “MLA” offers protections from the worst terms of the controlled compositions clause and was a voluntary agreement between the labels and the CMRRA (Canada”s mechanical collecting society).

2011 Interview with David Basskin

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

The principal terms of the MLA cover the rate (which was no less than 3/4 rate but that dog won’t hunt anymore, plus after 1988 Canada did not have a statutory rate like the US does), free goods limited to 15%, no reduction for outside writers paid at full rate.

1. Full Rate: Songs should be paid at the full applicable rate and should be paid on standard sales plan LP free goods (a common give if the artist/writer is signed to a publisher affiliated with the record company);

2. Cap: Rather than a contract rate of 10 or 11, the MLA pegs the cap at 12;

3. No Rate Fixing Date: The rate not only is full, it also floats so there is no concept of a rate fixing date and should apply retroactively and prospectively; and

4. Floor: The application of the cap cannot result in any song being paid less than 50% of the full rate (which could happen on multiple disc or box sets).

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

While I understand that a record company would want to cap their mechanical royalty expense, any one of these terms would further that commercial goal. It is the application of all of the controlled comp terms that make the clause so onerous.

While the Copyright Royalty Board can set the rates, I doubt that they have the jurisdiction to address private contracts. Congress could pass legislation, but I think that would be a bitter struggle and I’m not so sure I want Congress to be micromanaging the music business any more than they already do with statutory rates and rate courts.

But there’s nothing stopping a voluntary agreement.

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