Mechanical royalties aren't mechanical at all. Instead, these are royalties that are earned when a copyrighted piece (like a song) is reproduced digitally (on a platform like Pandora) or physically (on a record or CD).
Mechanical royalties are crucial for people inside the music business. They depend on these payments, just like you rely on your paycheck.
As a business owner, you're not responsible for paying these royalties directly, but it’s important for you to work with an entity that handles these details for you. Working with a bootlegger could mean depriving artists of the revenue they need to survive.
Mechanical Royalties: The Nitty Gritty of Payments
The very first mechanical royalties covered songs on player pianos. Composers wanted a piece of the action each time a company reproduced their songs for this format, and the mechanical royalty was born.
Music has changed a lot since then, as have the devices we use to hear reproductions of favorite songs. But mechanical royalties remain. Here's how they work today.
Who Makes the Payment?
Musical compositions and their recordings are protected by copyright law. When something has a copyright, payment is due when it's used.
Mechanical royalties are the payment, and they’re typically paid by a third party, such as a streaming service.
Who Collects the Payment?
Mechanical royalties often head directly to a song’s publisher. It’s the easiest and most common arrangement, but some artists and musicians use agencies to collect their payments.
Before someone reproduces music, research is required. It’s important to know who should get the payments (and get permission) before production.
Who Gets Paid?
Publishers, agents, and their clients have contracts that specify payments, fees, and schedules. Each contract is different (and most details are tightly kept secrets). Typically, publishers pass on mechanical royalties to their clients per their agreements.
How Much Do Artists Make in Mechanical Royalties?
Mechanical royalty rates are set by the federal government, but how they're distributed (and how much a rep or agency can take as fees) can vary dramatically.
In May 2022, the mechanical royalty rate was set at 12 cents per track shared on a physical disk (like a record or CD) or a download. Those fees will increase annually, tied to inflation.
Some artists believe this fee is too low, and they want to get paid more when their works are reproduced. But this increase was the first seen in years, and for many artists, it represents a big jump in how much they might get paid.
Imagine that you've written and performed an amazing tune that caught fire and became wildly popular. That song could be downloaded from a service literally thousands of times in a few days. You should get paid each time.
Mechanical royalties don't give anyone permission to reproduce music. The copyright holder must authorize reproduction. Without it, the person transmitting the song could face a fee of $150,000 per work. Those fees add up quickly.
With the proper permissions and arrangements in place, someone could include a copyrighted song on a CD or streaming service, and the artist could get mechanical royalties.
Per federal law, the artists must get paid quickly, meaning most get paid a lot in one calendar year (not spread out throughout their careers). The tax implications could be crippling if artists don’t plan ahead.
Mechanical Royalties & Streaming Services
Years ago, managing mechanical royalties was easy. Production companies could count how many CDs or cassette tapes they wanted to make, and they’d pay fees accordingly. They knew at the outset how many units of music they wanted to create. Streaming changed everything.
Streaming services like Spotify and Pandora put music in a central location, playable by anyone with a login. When songs are uploaded, the companies rarely have any idea how popular (and therefore expensive) something might be.
Because demand is unpredictable, streaming services negotiate terms with their artist partners. How royalties are calculated isn’t easy to determine. Companies use non-disclosure agreements and lawyers to keep the data hidden and secure. Some artists claim this process makes negotiating the best rates very difficult.
Experts say mechanical royalties represent a huge expense for streaming services. They have other royalties to pay, including those involving the performance of the work. But mechanical royalties represent a major expense.
Do I Need to Be Concerned as a Business Owner?
If your business involves making CDs, pressing records, or popping music online, you must be concerned with everything that involves copyright law.
Break the rules, and you'll face fines that could cripple your business and your future. If your company doesn't reproduce music, you may not pay these royalties, but you must ensure that your partner understands the law.
It's relatively easy for anyone to burn a CD, make a playlist, or upload a song. Someone working behind the scenes like this could create a simple-seeming product you could use to share music at your business. But if you use this product, you could be breaking the law.
Ignorance isn't bliss when it comes to the law. You could get sued for damages and get hit with fines if you're using a product that doesn't respect copyright law.
Business streaming services like Cloud Cover Media take care of the legal issues and copyright payments. We understand how the law works, and we protect our clients by paying the right fees at the right time. Work with us and know you're protecting your business and respecting the artists who make the music you love.
The Brief History of Mechanical Royalties and Music in the U.S. (January 2021). The Jacobson Firm.
Understanding Mechanical Royalties. (March 2005). BMI.
Mechanical Royalties to Rise by 32% for Songwriters in the U.S. (May 2022). RouteNote.
How Songwriters Get Paid. Nashville Songwriters Association.
Who Gets Paid for a Stream? (February 2022). Billboard.