What are Mechanical Royalties? Who Pays Mechanical Royalties & Who Collects Them? 

Mechanical royalties are the oft-overlooked cousin of public performance royalties. Just like performance royalties, they’re owed to songwriters and copyright owners for the use of musical compositions. However, they’re generated in very different circumstances.

While public performance royalties are tied to the exclusive right to perform the musical work publically, mechanical royalties are designed as compensation to songwriters for the reproduction of their compositions. Sometimes, those two types of royalties can go hand in hand — that is the case of music streaming, for example. Whenever a Spotify user chooses a song to stream, they trigger both types of royalties. Firstly, since the listener doesn’t actually own the track, the stream qualifies as a public performance. Then, since to play the track, the streaming service has to reproduce the underlying composition, the mechanical royalties are due. The listener’s choice is a significant distinction when it comes to mechanical royalties. Non-interactive streaming services like Pandora, for instance, don’t have to pay mechanical royalties, since (technically) they broadcast a composition, rather than reproducing it. 

But let’s not get ahead of ourselves. As you can see, the landscape of composition royalties is quite complex — so let’s start with the basics and break down exactly how mechanical royalties work, when they are generated, how they are collected, and exactly how much do they worth. 

What are mechanical royalties?

Mechanical royalties are royalties that are generated each time a musical composition is reproduced, whether physically or digitally via on-demand streaming or download-to-own services. A nice way to wrap your head around mechanics is to trace them back to their origins. Back in the day, whenever a label wanted to put out some music for sale, it had to mechanically reproduce the composition by printing it on a blank vinyl disc. Here is where the royalty got its name — whenever the label wanted to print new physical mediums, it had to compensate the songwriter for the use of the composition. 

Then, as the music industry has entered the 21st century, music sales have shifted to the digital platforms — first, iTunes, and then streaming services spearheaded by Spotify. However, mechanical royalties didn’t go anywhere — though the processes of their calculation and distribution have become much more complicated. 

Who gets paid mechanical royalties? Songwriters, Musicians, or Labels?

So, as you probably know already, there are two sets of copyrights behind every single song: the musical composition (harmony, melody, lyrics, and so forth), which belongs to songwriters, and the master recording, which is a particular audio expression of that underlying composition. In case you’re still vague on the details when it comes to music copyright law — check out our recent blog post here.

The important thing is that when it comes to mechanical royalties, it’s the composition owners (i.e., songwriters and their publishers) that get paid. In fact, mechanical royalties will often flow from the owners of master copyright (i.e., record label) to songwriters. That is the case whenever the label wants to produce physical copies of the song — and even whenever the music is sold on download-to-own platforms like iTunes.   

On the songwriter’s side, the exact profit split for mechanical royalties will depend on the deal that the publishing deal in place. Some deals give the songwriter as much as 90% of the profits — but the writer is guaranteed a minimum of 50% of the mechanical royalties (which is known as a writer’s share). Additionally, if the writer is self-published, meaning they serve as their own publisher, they can receive up to 100% of the mechanical royalties. 

Payment responsibilities for mechanical royalties

The exact process of how mechanical royalties are paid out will depend on the context of use. As we’ve mentioned before, for physical and digital sales, it’s the record label who will allocate the royalties due to according songwriters (usually through their publisher). However, in the modern world, a small fraction of royalties are actually paid out this way. Today, the likes of Spotify generate the major share of the mechanical royalties pie — and when it comes to streaming, the platforms themselves take centre stage. 

Who pays?

So, whenever the composition is reproduced as the user presses play on the song on the streaming service, the streaming service will have to compensate the composition owners in mechanical royalties. However, it’s not as simple as writing a check to songwriters and publishers. Before the money actually gets to the copyright owners, they go through the system of intermediaries. 

Who collects?

You may have thought that, like performance royalties, mechanicals are collected by PROs (BMI, ASCAP, and SESAC), but, when it comes to digital streams, mechanical royalties are collected by different entities: mechanical royalty collection agencies -- in the US, primarily by the Harry Fox Agency, who represents all of the major music publishers. However, that’s not always the case — in some countries, like the UK, France, and Germany, there’s a single body responsible for the collection of both public performance and mechanical royalties. 

Current mechanical royalty rates

Think that songwriters are earning gangbusters on mechanical royalties? Think again: mechanical royalty rates are low enough that only the most prolific and successful songwriters can earn hefty income from them. 

Physical/digital copies

Mechanical royalties are generated on a per-unit basis, meaning that a certain amount of royalty is owed upon each individual physical reproduction or download. For each copy or download, the songwriter is owed 9.1 cents per song. For the tracks over 5 minutes long, a mechanical rate of 1,75 cents per minute applies.

Streaming

For streaming services, mechanical royalties go side by side with the public performance royalties, making what is known as an “All-In Royalty Pool”. In the US, all in royalty pool is currently set at 11,8% of the streaming platform’s total revenue — with a plan in place to increase that percentage to 15,1% by 2022.

Then, the public performance royalties are deducted from the “All-In Royalty Pool”. The share of Public Performance royalties is a subject of negotiation between streaming services and performance rights organizations and is around 6-7% of the services revenue. What is left is the mechanical royalties — distributed between the songwriters on the per-rata basis, same as payouts the master copyright owners. 

Conclusion 

Mechanical royalties have grown in importance with the rise of streaming services, but they’re still going to be a relatively small portion of a songwriter’s income. One thing you can do to maximize earnings from mechanical royalties is to make sure that you either have a publisher (with whom you’ve agreed to a profit split) or are self-published. Check out our Guide to Music Publishing here for a more detailed breakdown of how this profit splits work and the common types of deals.