1. Digital media mechanicals (streaming and downloads) in the US are collected by the MLC from the online platforms delivering the music.
2. Physical media (CD / record / tape) mechanicals in the US are collected by the Harry Fox Agency from the record company that has the media manufactured and distributed for sale.
Note: There are different agencies in every country that collect mechanical royalties.
Whenever a musical composition is reproduced (copied) a mechanical royalty is due to the songwriters. Whenever a track is streamed, a track is downloaded, or a CD or Vinyl is pressed; a mechanical royalty is due. The rate itself varies... For physical sales, whenever a record label manufactures or sells a CD or Vinyl, they will generally pay a mechanical royalty to a mechanical collection society who in turn pays these royalties to the publishers and their songwriters. For digital sales, whenever a track is downloaded or streamed, the DSP (like Spotify or iTunes) will pay that mechanical royalty straight to the mechanical collection society. So, generally, this mechanical royalty payment is the obligation of the DSP and not the record label. [Ref.]
As a master rights holder (whether you are a record label or an independent artist), it is your responsibility to pay these mechanical royalties for all physical releases (CD, vinyl, etc), either through the local mechanical society, or, if the publisher is not affiliated with a mechanical society, directly with the publisher. [Ref.]
A mechanical royalty is also due when a digital release is downloaded (since the release is reproduced in a digital format such as mp3) or when a recording is streamed (since a copy of this recording is held in cache on the streamer’s device). For these digital sales, most commonly, the responsibility lies with the individual DSPs (Apple, Spotify, Deezer, etc) to ensure they have a blanket licence agreement in place with their local mechanical society for usage within their territory. The DSPs pay mechanical royalties to the mechanical societies, who then flow that money through to the publishers and songwriters based, in part, on usage and market share. In some territories, however, local legislation doesn’t mandate download platforms to have a mechanical licence agreement with the mechanical society. In this instance, the download platform passes on the mechanical liability to the record label. One such territory is the United States, and we have chosen to dedicate a separate chapter to this, entirely. [Ref.]
· "I am releasing my master recordings, I co-wrote all my songs and I own my own publishing. Do I need to pay mechanical royalties?"
- Yes. But ONLY for the shares that you did not write. So if a song share is split 50/50 between you and the other writer, you will only need a mechanical license (for physical copies or US downloads) for your co-writer’s share and have to pay 50% of the mechanical royalty rate for those songs. For your own shares, you may still need to obtain an exemption from your local mechanical society. [Ref.]
· "My record label is releasing an album. The label owns both the masters and the publishing for the artist (who is also a songwriter). Does the label need to pay mechanical royalties?"
- Yes. If you are a label who also owns the publishing rights, you still have a mechanical royalty liability (for physical copies and US downloads). However, as a label, instead of paying the mechanical society you may be able to report directly to your publishing arm. You may need to apply for an exemption from your local mechanical society, or in certain territories this exemption may by default apply. You also have to secure mechanical licenses and pay mechanical royalties to any other writers/publishers who are not the artist, also referred to as the non-controlled shares. [Ref.]
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[Ref.]
A record company needs to obtain a mechanical license. The record company has to register and pay mechanical royalties for every physical media manufactured. The record company might be able to ask the artist for a waiver to not pay these mechanical royalties, but should be researched IF desired. [Ref.]
A mechanical license to create a physical copy of a song is required by the record label, it is issued from the
music publisher. Same for permanent downloads.
For streaming the record label must get a license for first use.
The mechanical license is per song, based on the length of the song. The Copyright Royalty Board has info on calculating it.
It is paid to the publisher when an album is sold, by the record label, OR at the time the copies are produced
for independent labels. [Ref.]
You don’t need a mechanical license if you are recording and distributing a musical work you wrote yourself and to which you currently own the copyright. HFA
The label will need to report physical and US download mechanical royalties to the Harry Fox Agency, or directly to the publisher if they are not represented by the former. [Ref.]
The Harry Fox Agency and their cohort Music Reports represent the lion’s share of the US mechanical royalty market, on both buyer and seller sides. Most but not all independent music publishers use HFA to administer and collect their mechanicals. However, if an independent publisher doesn’t use HFA for mechanical royalty collections, then the record company will pay those directly to the music publisher. This can cut out anywhere from four to eight months of payment delays, in addition to the 11.5 percent HFA commission.[Ref.]
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Calculating mechanical royalties
Multiple factors impact mechanical royalty calculations. Rates vary based on aspects like:
- Ownership – Royalties get divided across all credited songwriters and publishers based on ownership share. A song with three writers would divide earnings.
- Type of usage – Interactive streaming, limited downloads, physical sales, and sync licensing have different calculation methods. Rates also vary by country.
- Popularity – Increased demand for a song receiving lots of airplay or streaming can translate into higher royalty rates for rights holders.
Read More
Important Reading
How To Collect All Your Digital Music Royalties
BIEM - Management of Mechanical Rights in the United States
Royalty Exchange: Mechanical Royalties Guide 2021
How will The MLC impact your royalty accounting process?
How Are Mechanical Royalties Calculated and Reported?
The Mechanical Liability of Record Labels
What are mechanical royalties (and how do I get mine)?
Mechanical Royalties: Everything You Need to Know
References:
Understanding How Digital & Physical Mechanical Royalties Work w/Serona Elton of MLC
HarryFox Agency FAQ
Copyright Royalty Board
BIEM - Representing Mechanical Right Societies Worldwide. To sustain Mechanical Rights royalties for Creators
Compensation for Mechanical Royalties: Paying and Collecting.