Business

BMG Eliminates 'Unacceptable' Royalty Deduction, Other Labels Urged to Follow

Hartwig Masuch
Courtesy of BMG

Hartwig Masuch

As part of its ongoing review of historic artist and songwriter contracts for anomalies or inequities, BMG says it will eliminate the application of the controlled composition clause which reduces royalty payments for artists that write their own songs, for all releases going forward, regardless of what each artist’s contract says.

The control composition clause is often employed by record labels to insure that when they sign artists that write their own songs, that the labels also can license the publishing for records it plans to issue. But its also has been used to reduce songwriting royalty payments, allowing labels to pay such artists/songwriters only 75% of the statutory mechanical rate, currently 9.1 cents per song; and to limit royalty payments to 10 songs, even if an album has 14 songs.

For example, if an album has 14 tracks on it, applying the statutory royalty rate would come out to $1.274. But the controlled composition clause would only pay for ten songs, which normally would be 91 cents, at a 3/4 rate, or 68.25 cents in mechanical royalties. So, what happens if two of those songs on the album were cover songs or authored by outside songwriters? Songs by outside songwriters would have to be paid at the full statutory rate of 9.1 cents per song, which would further reduce the artist/songwriter overall mechanical royalty for the entire album to 50.05 cents. In this example with the artist writing 12 of the 14 songs on the album, that works out to 4.17 cents in mechanical royalties per song, or less than half the statutory rate.

However, both of those tactics were eliminated with regards to downloads and streaming by the Digital Millennium Copyright Right Act. Consequently, the control composition clause only applies to physical formats, and mainly only to those that occur in the U.S., and not in other countries.

But with vinyl on the rise and the CD still holding on, Billboard estimates the control composition clause potentially short-changed songwriters by $15 million in the U.S. last year.

“It is unacceptable for the record industry to continue to apply deal terms which are solely designed to reduce the incomes of musicians,” BMG CEO Hartwig Masuch said in a statement on his company's stance. “We have heard a lot during the coronavirus crisis of initiatives by music companies to support artists. The best way to support artists is not to subject them to unfair terms in the first place.”

In a statement supplied to Billboard by BMG, Nashville Songwriters Assn. International executive director Bart Herbison applauded the move and then challenged “every record label to follow their lead and fully eliminate controlled composition immediately.”

Likewise, Songwriters Of North America co-founder and music lawyer Dina LaPolt applauded the move saying, “This clause is an antiquated and restrictive provision,” and also urged other record companies to follow BMG’s lead.

Meanwhile, in another statement supplied as part of the announcement, Crispin Hunt, the chair of the Ivors Academy which celebrates songwriting through its awards presentation, labeled the control composition clause one of “many other tricks of the trade,” and added. “BMG’s abandonment of this regressive practice is a huge step on music’s journey to dignity.  Music can’t change its past but we can change its future.”

BMG announced in June that it is scouring contracts to suss out other “tricks of the trade,” as Hunt put it, and it has set up a task force, headed by the company’s chief operating officer Ben Katovsky, with the goal of improving fairness in music contracts, including reviewing historic acquired record contracts for signs of racial bias.

Since BMG was re-launched in 2008, the company started from “scratch and [designed] out many of the worst aspects of the old business” for new deals, Katovsky said in a statement. “But the company still “sometimes finds examples of historic bad practice lurking in some of the catalogues we have acquired."

So with its latest move in that direction, this means that even with acquired catalogues that come with contracts that allow BMG to employ the controlled composition clause, going forward, it will not use that provision to reduce songwriter royalties.

Songwriters and publishers have long railed against the controlled composition clause, and when the Digital Millennium Copyright Act was coming into being back in 1998, the National Music Publishers’ Assn. led the charge to ensure that the clause's use to reduce songwriter royalties “would be illegal for digital products,” NMPA president and CEO David Israelite said in a statement supplied by BMG. “BMG deserves enormous credit for eliminating this poisonous practice," Israelite said. "Controlled composition clauses in recording contracts have been one of the most harmful things to ever happen to songwriters....This is a wonderful pro-songwriter move by BMG.”

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BMG’s Masuch indicates that the company will continue its work on this front. “The controlled composition deduction is just one of a whole series of ways in which record labels have historically maximized their own profits at the expense of musicians,” Masuch said. “Eliminating this unfair practice is just the latest in a series of measures BMG is taking to make the music industry fairer to artists and songwriters.”