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24th August 2017

What Are Mechanical Royalties?

What Are Mechanical Royalties?

Back To: WTF Is Music Publishing?

Now onto mechanical royalties which in the UK are collected and administered by the Mechanical Copyright Protection Society (MCPS).

Essentially, an MCPS royalty is generated every time your music is reproduced and that’s across all formats, including downloads and streaming.

For example, if a record label wanted to release your record and pressed a thousand CDs and a hundred vinyl, they’d need to pay a license fee for each generated in order to do so, which would go to the songwriters (and their publishers) of the respective songs on said LP.

As an emerging artist, your mechanical income will be notably less than your performance income at the start of your career, but when you start shifting units it’ll become a very noteworthy source of income indeed so it’s best to ensure you’re on top of it from the beginning and have your copyrights registered with the MCPS (which is yet another thing we do for you at Sentric – we’re a busy bunch).

Let’s take a look at the income flow for a mechanical royalty generated from a physical CD sale:

Currently, the MCPS rate in this country is 8.5% of the ‘dealer price’. The ‘dealer price’ is the cost per unit the record label sells the CD to the retailer for, not the cost the consumer pays for it at the till.

  • Simon Records sells 100 CDs of Pursehouse’s GrimeTime LP to a local record shop at £5 per unit which generates £500 of revenue
  • 8.5% of that £500 is £42.50 and that’s the mechanical royalty from that transaction
  • If there are ten tracks on the LP all running at four minutes each then that is divided between them so each track gets £4.25 each.
  • Say track seven on that album was written by two people, that £4.25 is then split between the two songwriters and their respective -publishers receiving £2.12 (and a half) each.
  • That £2.12 is then split between the publisher and the writer on whatever terms they’ve agreed on (the Sentric service is an 80/20 split, so the songwriter would get £1.70 and Sentric would get 42p for the registration, administration, collection and distribution of the royalties)

You’ll also be glad to hear that mechanical royalties are generated when your music is streamed. Basically, if you’re getting decent streaming numbers across any of the big platforms (Spotify, Apple Music, YouTube, Amazon Prime etc) then being on top of your digital publishing income is key, because if you don’t collect it efficiently and properly then you could be missing out on rather good money.

So…when a stream happens it generates a royalty for your master rights and a royalty for your publishing rights.

For the ease of understanding, let’s assume that 1,000,000 streams on Spotify generates a total of £5,000 in royalties, which is approximately right (taken as an average of the years of distributions we’ve had at Sentric). There are obviously loads of ‘what ifs and maybes’ here including the territory it was streamed in, if the streams came from free or premium accounts and other voodoo and witchcraft that’s forever to be kept hidden thanks to NDAs.

You would generally expect around 80% of the income generated to go to the master rights owner to be distributed to you by your record label or digital distributor. I’m not going to go into the reason why the master rights gets so much more than the publishing rights here as it’s a bit of a minefield, but it’s essentially a hangover from the music industry’s previous practices.

Now, the remaining 20% which is the publishing income is then split again into a performance royalty and a mechanical royalty. Usually this is split 50/50 so it’d look like this for 1,000,000 streams:

  • £4,000 – Master Rights Income
  • £500 – Publishing Digital Performance Income
  • £500 – Publishing Digital Mechanical Income

I say ‘usually’ because of another wonderful quirk of the music publishing industry. Depending on the territory those streams happened and the local PRO, they might be split 65/35 rather than 50/50. BUT, as this is all about simplifying things let’s stick with the 50/50 split because that’s what PROs in the UK, US and Canada do.

So, let’s say those million streams happened in ten different European countries, miraculously as a dead even split (so therefore 100k streams per country). That means each country’s publishing income breakdown would be:

  • 10 x £50 – Publishing Digital Performance Income
  • 10 x £50 – Publishing Digital Mechanical Income

So now we’re essentially talking about a micropayment (a stream) broken down into a further micropayment (20% for the publishing income) which is then split in half (one for performance, one for mechanical) and then that’s split into ten further micropayments (as it’s spread across ten different territories).

That sentence alone should hopefully show you just how many gaps there are for this income to get lost in. Mind bending at times, isn’t it?

Several years ago at Sentric we realised that the distribution of these royalties from PROs around the world were, frankly, not great and we identified that our songwriters were missing out on income they deserved for their hard work. Therefore we decided to take away the rights from the local PROs to collect the digital mechanical income on our behalf, and instead put them with a rather forward thinking company called AMRA.

AMRA directly licenses our songwriters’ digital mechanical rights, (and in some territories, the performance rights as well), to all the major online stores in well over 100 territories worldwide (excluding the US where Sentric collects directly via the local societies including ASCAP, BMI, SESAC and Harry Fox). Therefore that means Sentric now collects that income like so:

  • 10 x £50 – Publishing Digital Performance Income from each individual PRO that Sentric are members of and have directly registered your copyrights with.
  • 1 x £500 – Publishing Digital Mechanical Income via AMRA.

Now, the great thing here is that the income we receive from the PROs and from AMRA should match up with it being a 50/50 split. So say if from AMRA we receive £50 in digital mechanical royalties from your music being streamed in the UK, but we only receive £36 in digital performance royalties from the PRS, it allows us to go to the PRS and say; “Oi, now then, you clearly have underpaid our songwriter £14 and we have the data to prove it”.

Simply put, since we started collecting digital royalties via this model, we’ve seen over a 400% increase in digital publishing royalties paid out to our artists in just three years.

In the example above, if you weren’t using Sentric and, say, were just a member of your local PRO (ergo the PRS if you’re reading this in the UK), then you’d be relying on nine other PROs around Europe (who your copyrights aren’t registered with) figuring out who you are and with what PRO you are affiliated with. Then all of them would have to pay the PRS your performance income share (after taking a cut) who would then distribute it to you (after taking a cut themselves too). A process that *can* happen, in theory, and if it did, could take years for the money to find its way into your bank account. And also, if you’re not a member of the MCPS then you can essentially kiss goodbye to that mechanical income share.

See. I told you it was confusing.

NEXT: Publishing Royalties From Streaming