Supporting Kiwi music:

By Mike Chunn, head of APRA new Zealand

Mechanical royalties are the royalties paid to songwriters and their publishers from the sale of records. That's it. So what is the process? How DO music writers get paid? Who is responsible? Let us begin by looking at the various scenarios.

   Firstly what is the process for getting permission to record someone's song in the first place? In the old copyright act of 1962, there was the "compulsory licence" provision. This meant that once a song had been made available commercially anybody could then cover that song without permission of the songwriter.

    The copyright act of 1994 removed that provision. Hence the law stated that it was an infringement of copyright to make a mechanical copy of a musical work without permission of the copyright owner. Full stop.

   Many artists in New Zealand record and release their own records. From Pacific Island church groups in South Auckland to hardcore bands in Hamilton to folk artists in Westland. It's happening all the time. Let's work through the various scenarios.

An artist records a song written by a NZ songwriter who is not signed to a music publisher. In this situation the artist must get permission from the songwriter. And that permission process will establish the rate that the artist pays. The norm is for the artist to pay the songwriter the "industry rate" (more on that later) which is 5.6% of the recommended retail price (r.r.p.) less GST. However, please note - the songwriter can, in essence, establish whatever royalty rate they like. It is up to the artist to agree to that rate or not.

   As well, the songwriter might insist that the royalty is paid up front - i.e. if the artist wants to make 300 CDs and sell them for $20 each then the mechanical royalty can be calculated and the songwriter can invoice the artist before the CDs are manufactured. The benefit to the songwriter is - they won't have the potential credit problems of ensuring royalties are paid
once sales are made.  Let's look at a test case.

Say an artist - INDIGO - wants to record two of her own songs and two songs by other songwriter friends of hers. She would request permission from them to record their individual songs and establish a royalty rate. One friend - Madge - might want the "industry rate" of 5.6% of r.r.p. But her close friend Iris is happy with 2.5% of r.r.p.

INDIGO then records the four songs and presses 300 CDs. Over a series of live shows she sells 260 of them for an average of $10 each. (She is not GST registered). The royalties are then paid out as follows.

As there are four songs on the CD; each song receives a quarter share of the
appropriate royalty base.
Madge receives 1/4 x 5.6% x 260 x $10 = $36.40 per song
Iris receives       1/4 x 2.5% x 260 x $10 = $16.25 per song

An artist records a song where the songwriter is signed to a music publisher. In this situation, the artist must complete a Manufacture Licence through the APRA office. The APRA mechanical rights division processes these licences. The rate for recording a published is the same for all songs and is the "industry rate" of 5.6% of the r.r.p. less GST. Let's look at a test case.

   Indigo, flushed with the success of her CD decides to record a CD of her mother's favourite tunes. There are only two - Sugar Sugar and Yummy Yummy Yummy that are covers. The third track is one her mother wrote herself called A Mother As Lovely As Me. Her mother says she can have the tune free-of-charge. (In return for singing it at her funeral).

Indigo records the tunes and intends to press 300 copies and sell them for $10 each. She
applies to APRA for a manufacture licence. From the completed Manufacture Licence, APRA identifies those songs that are from their Publisher member's repertoire. In this case, Yummy Yummy Yummy and Sugar Sugar will be identified as published by APRA publishers.

The third track A Mother As Lovely As Me will not show up in the APRA search as it is unpublished (not signed to a music publisher).  APRA then charge Indigo for the three hundred CDs she is about to manufacture. APRA charges for Manufacture Licences are made prior to manufacture. As two songs out of the three are APRA publisher repertoire, APRA will charge 2/3 (often called a pro rata charge) of the industry rate.

APRA receives:  2/3  x 300 x 5.6% x $10  =  $112.  ($56 to each of the relevant publishers).

A songwriter (not signed to a music publisher) has a song recorded and released by a record company.

   If you have a song recorded by an artist and released by a record company and you are not signed to a music publisher, then you will need to arrange with that record company for you to receive regular mechanical royalty payments directly from them. The record companies and music publishers have established an "industry standard rate" - 5.6% of the recommended retail price (r.r.p.) for songwriting royalties.

It is imperative that you contact the record company and set up this structure beforehand. If the record is being released on an independent label and distributed by a major record
company, it is usual for the distributor to take responsibility for the mechanical royalties payable to you. However, you should sort this out in the first instance as, while distributing companies usually handle the payment of mechanical royalties, the independent label is AS LIABLE for the payment as is the distributor. Hence the need to clarify who is responsible
at the outset.

Frequently Asked Question
Here is a not uncommon scenario. An unsigned artist records a combination of their own and other unpublished NZ material. He records the songs at a local studio who then, as a service, supervises and pays for the manufacture of CDs (then adding that charge to the artists studio bill).

The CDs are sold by the studio to a few local record stores for $15 and keep a $5 fee per CD
for doing so. The artist takes a few boxes of the CDs to sell at live shows.
   Who is responsible for what? Let's do a case study.

    Fabian has come to live in NZ. He's got four songs he's written ("Foxton Muscle Beach Party" et al) and three songwriters in Palmerston North have offered him songs that he wants to record: two songs each. Ten songs in all.

He goes to The Liver Recording Studios in Palmerston North and records them.
The studio offers a CD manufacture service so Fabian gets them to arrange the manufacture of 1,000 CDs. They duly arrive in Palmerston North and are stored at The Liver. The cost of pressing - $2,500 - is paid by the Studio but on-charged to Fabian along with the studio bill which is $1500.

   The Liver have contacts at some of the local record stores in the Manawatu and sell the CDs to them at $15 each keeping $2.50 for each CD as a commission. They sell a total of 180 and the store sells them at $25. (Let's keep GST out of this). The balance ($12.50) is paid to Fabian. Fabian also helps himself to his CDs as and when he has live shows coming up. In the short space of two months, he sells 600 of them on the door for an average
price of $20 each.

   Everyone is fairly happy with this progress except the three songwriters who have two songs each on the record. So far they have nothing. They get together and ask the question - how do we get our royalties? Fabian thinks the studio should be responsible and the studio thinks Fabian should be responsible. The fact is - they are both responsible as they both
"authorised" the mechanical copying of the recordings (onto CDs).

   This situation has no parameters. There are no standard royalty rates, there is no paperwork outlining payment schedules, permission processes or anything. This points to a classic situation which should have been set up at the start.

   In essence, as he paid for the recording sessions, paid for the manufacture of the CDs and received the profit from the sale of CDs to the record stores (the Liver was on a commission basis) then Fabian should take responsibility for paying the three songwriters.

   It is usual for this to be set at the "industry rate" of 5.6% of r.r.p. and this is how it would have panned out. As each writer has 2 songs out of the total of 10, then they would receive 2/10ths of the royalty rate.

Writer 1:         Rec Store Sales    2/10  x  5.6%  x  180  x  $25 = $50.40
            Live Venue Sales  2/10  x  5.6% x  600  x  $20  = $134.40
Total mechanical royalties to Writer 1 are $184.40.
This same royalty is owing to the other two writers.

NB - The royalty rate is based on a recommended retail price. Hence we work on the retail price at the store. Not wholesale price. And the studio commission is irrelevant.

If the studio paid for the recording sessions, paid for the musicians and paid for the CD manufacture then the studio would pay the mechanical royalties. If the studio paid some bills and Fabian others, the amount owing to the writers would remain unchanged. It would be down to Fabian and the studio however to negotiate and share responsibility as to who should pay what towards those mechanical royalty payments.

   Any confusion as to responsibilities could have been avoided at the outset if royalties were paid up-front. The three songwriters could have agreed to Fabian recording their songs on an "up-front" royalty payment basis. Fabian and the recording studio would then agree as to who wasresponsible. In this instance (assuming Fabian takes responsibility) an
appropriate "retail price" would be agreed upon by the writers and Fabian.
This would then form the basis for a mechanical royalty payment up-front on
the manufacture of the 1,000 CDs. Say the "retail price" agreed between the
writers and Fabian was $20. Each writer would receive:
2/10  x  5.6%  x  1,000  x  $20    =   $224
   This is paid by Fabian at the time the CDs are manufactured.