What Goes Into BAND Royalty’s Mechanical Royalties Pool

An overview into one of our three royalty pools

One of the least understood types of royalties are the Mechanical, especially as how muddied it has become now with Streaming royalties, resulting in less and less physical copies of music being sold.

BAND Royalty will start off with three potential royalty pools: Publishing, Synch, and Mechanical/Performance royalties. There is an overlap in how Mechanical and Streaming payments are assessed, and it’s worthwhile knowing that both sides of the Mechanical royalties’ conversation are each their own beast.

How are Royalties Created?

First, let’s break down what music royalties are: They are payments due to owners of a particular intellectual property; in this instance it is a song or musical composition, when the same is being used by the license holders.

A license is a conditional permission to use a particular intellectual property given by the owner of the right to another party in exchange for compensation. Apart from this, rights’ holders also receive royalties every time such property is used. These payments are often small and are paid on every use.

From the music perspective, royalties can be paid to songwriters, composers, recording artists, and their respective representatives depending upon the part of recorded music being used.

In a recorded song, the harmony, lyrics, and melody are known as its composition and are owned by the music publishers. When this composition is performed and recorded by the singer or musician, it becomes a sound recording or a master, which is owned by the recording artist and the record labels.

So What are Mechanical Royalties?

There are several types of royalties that are paid to different people involved in the recording process. One of them is the Mechanical royalties, paid to the music publishers by the record company every time the music composition is reproduced in the form of CDs, cassette tapes, and other physically manufactured formats.

In simple terms, every time a user purchases a physical reproduction of a sound recording, the publishers receive a payment in the form of a Mechanical royalty which is then passed on to the songwriters.

Downloading the song also pays a Mechanical royalty; with the decline in the usage of physical copies of music and the rise of music streaming platforms, an evolved kind of Mechanical royalty has emerged, known as Streaming Mechanical royalties.

The way Mechanical royalties are dealt with differs from country to country, and depends upon various agreements among the publishers regarding royalty rates and the mode of payment, including royalties paid on copies sold versus copies of albums pressed.

Streaming Mechanical Royalties

This newly-emerged type of Mechanical royalties are paid to the songwriters every time the song is played or streamed on an interactive service. Interactive service platforms -such as Spotify- are those where the users can select which specific song they want to listen to.

Non-interactive service platforms are radio stations, where the user cannot choose a specific song. Streaming Mechanical royalties are only due in the case of interactive services in the United States. Various other countries worldwide will pay out rights if a song is broadcast over the radio.

The royalty varies depending upon the streaming platform. On average, every Mechanical Streaming royalty is supposed to pay around $0.0008 dollars to the songwriter; some will pay more.

How are Mechanical Royalties Collected?

Mechanical Collection Societies (MSCs) are responsible for collecting Mechanical royalties. Most countries have at least one Mechanical Collection Society. Mechanical royalties are collected when the songs are:

Reproduced and sold as physical — such CDs or cassettes
Reproduced and sold as ringtones
Streamed on interactive services -such as Spotify
Sold as digital downloads on platforms -such as iTunes

These MSCs have made it difficult for independent songwriters who do not have a publisher to collect the Mechanical royalties for them. A songwriter needs to affiliate themselves as such with every Mechanical Collection Agency in the territories where they are getting higher downloads and streams to receive the maximum amount of Mechanical royalties they deserve.

This whole process may get tedious and that is why having a publisher helps -where the workload gets divided.

Mechanical Royalties Rate

Mechanical royalties are paid on a per-unit basis, which means that a certain amount of royalties are owned every time an individual copy is physically sold or downloaded. Currently, for every copy or download, $9.1 cents per song are owed to the songwriter. For tracks that are longer than 5 minutes, $1.75 USD per minute are owed.

In the case of streaming services, Mechanical royalties go along with Public Performance royalties in something called an “All-In Royalty Pool”. In the USA, the royalty pool is currently set at 11.8% of the total revenue of the streaming platform. This rate is planned to be increased to 15.1% by 2022.

The Public Performance royalties are then deducted from the “All-In Royalty Pool”. The share of the Public Performance royalty is subject to negotiations and contracts between the performance rights organization and the streaming service. What remains are the Mechanical royalties that are then distributed among the songwriters on a per-rata basis.

Mechanical royalties help artists make their fair share out of the reproduction of their music -especially with the emergence of streaming services.

With this breakdown overview, we at BANDroyalty.com wish we had brought you greater insights into the royalties field, taking your understanding of the music industry to the next level.