How much do artists get paid from mechanical royalties?

Well, it depends on how their music was used. And there have been many different uses (and rates) over the years.

Mechanical royalties come in many different “flavors” that differ based on the format of the music. Mechanical royalties for streaming music are different than mechanical royalties for downloads.

First, a quick refresher… mechanical royalties are generated each time a musical composition is reproduced and distributed to the public for profit, generally through sound recordings. They are paid to the songwriter for the “mechanical reproduction” of their music.

For a full primer, read our complete guide here.

Now the means of “mechanical reproduction” of music has changed over the years. The royalty rate was first created to cover the fees due for turning musical compositions into player piano rolls. Fast forward to today, it’s mostly digital streaming.

Here’s how mechanical royalty rates have changed over the years, as the formats and laws have evolved over time.

It all starts at the turn of the 20th Century...

Pre-1978 Mechanical Royalties

Format: Player Piano Rolls

• Time Period: Early 1900’s
• Rate: 2¢ per copy

The term “mechanical” derives from the early 1900’s. At that time, songwriters earned the right to collect money when their songs were “mechanically” reproduced on piano rolls and they called this “mechanical income,” in order to distinguish it from their typical source of income - sheet music.

Before the 1909 Copyright Act, music publishers (the copyright owners to the songs) would price gouge the manufacturers of piano rolls, and were in fact very close to monopolizing the entire music business at the time. So the federal government enacted the 1909 Copyright Act. This Act began heavy government regulation and oversight over the mechanical royalty, which still exists today. In 1909, the mechanical royalty rate was set by the government at 2 cents per copy.

Format: Phonorecords

• Time Period: 1909 - 1978
• Original Rate: 2¢ per copy
• Current Rate: 9.1¢ per copy

Thanks to Thomas Edison’s “phonograph” invention, gramophones and lateral record discs were beginning to gain traction in the entertainment market. By the 1920’s, the sound quality and manufacturing ability to mass produce sound recordings for public consumption had increased significantly. According to the 1909 Act, these “phonorecords” were also “mechanically pressed”, and categorized into the mechanical reproduction of songs.

Vinyl has seen a major revival and is currently licensed at 9.1 cents per copy.

Format: Tapes (cassettes and 8-track)

• Time Period: Early 1960’s - 1978
• Original Rate: 2¢ per copy
• Current Rate: 9.1¢ per copy

In the early 1960’s, the Phillips company first introduced the cassette tape and in 1965, Ford Motor Company first introduced the 8-Track cartridge player as an accessory in all 1966 models. These popular new formats were also considered to be “mechanical reproductions” and therefore required a mechanical royalty payment. Cassettes dominated the 80’s and early 90’s and became a nearly extinct format.

However, it is notable that in the present day, certain genres (primarily underground electronica, hip-hop, or “hipster” folk music) are able to market cassette tapes and sell them to their audience. When reproduced today, the cassettes are licensed at 9.1 cents per copy.  

Post-1978 Mechanical Royalties

From 1909 - 1978, the mechanical royalty remained static at $0.02 per copy, regardless of new listening formats. It wasn’t until the 1978 Copyright Act that Congress gave songwriters and music publishers a raise. After 1978, in an effort to tie the mechanical royalty rates to the rise of inflation, a system for royalty rate hearings was established.

This system established periodic trials to determine how much the mechanical royalty would increase, if at all. From 1978 through 2007, this occurred every 2 years.

From 2007 to the present day, the rate hearings now occur every 5 years. Today, the rate stands at 9.1 cents for all physical and permanent download reproductions. The following timetable shows how the mechanical royalty rate has gradually increased since 1978, for songs of 5 minutes or less.

According to The Harry Fox Agency and US Copyright Office:

• January 1, 1978 to June 30, 1981: 2.75 cents
• July 1, 1981 to December 31, 1982: 4 cents
• January 1, 1983 to June 30, 1984: 4.25 cents
• July 1, 1984 to December 31, 1985: 4.5 cents
• January 1, 1986 to December 31, 1987: 5 cents
• January 1, 1988 to December 31, 1989: 5.25 cents
• January 1, 1990 to December 31, 1991: 5.7 cents
• January 1, 1992 to December 31, 1993: 6.25 cents
• January 1, 1994 to December 31, 1995: 6.6 cents
• January 1, 1996 to December 31, 1997: 6.95 cents
• January 1, 1998 to December 31, 1999: 7.1 cents
• January 1, 2000 to December 31, 2001: 7.55 cents
• January 1, 2002 to December 31, 2003: 8 cents
• January 1, 2004 to December 31, 2005: 8.5 cents
• January 1, 2006 to the present: 9.1 cents

Format: Compact Disc

• Time Period: 1982 - Present Day
• Current Rate: 9.1¢ per copy

In 1982, the first full length album to hit the market in compact disc format was Billy Joel’s “52nd Street.” At the time, the mechanical royalty was 4 cents per copy. All physical formats—including vinyl, cassette, 8 track and compact disc—were licensed at the mechanical royalty rates determined by the rate timetable above. Most music business professionals agree that the CD has since become an antiquated format.

Nevertheless, the public still buys CDs, especially in certain genres such as country and classical. Today, CDs are licensed at 9.1 cents per copy, unless a lower rate is otherwise negotiated between the record company and music publisher. It’s notable that the record companies do have a successful track record for lowering their mechanical royalty costs from negotiating with songwriters and music publishers.

Format: Digital Downloads

• Time Period: Present Day
  
• Current Rate: 9.1¢ per copy

Once 1998 rolled around, the music business was almost in all-out chaos trying to understand and contain the new digital formats forming on the Internet. This initiated the Digital Millennium Copyright Act of 1998 (DMCA). The DMCA set new regulations for how mechanical royalties would be processed for permanent digital downloads.

The DMCA rules state that each time a track is downloaded from a point of purchase, such as iTunes or Amazon, it is considered a “digital phonorecord delivery” or DPD mechanical royalty. Though it may not technically be a “mechanical” reproduction (like piano rolls) but a “digital” reproduction (downloaded copy); the digital download format still makes a copy of the song on a listener’s device.

To understand the economics of this, Apple keeps about 29 cents from a 99 cent download. Apple then pays the difference to the record company. According to DMCA rules, the record company is then responsible for splicing off the 9.1 cents and paying this royalty to the appropriate music publisher(s). The record labels may pay the DPD mechanical to a publisher directly or through the primary collection agency for physical and download mechanical royalties, The Harry Fox Agency (HFA).

Unfortunately, permanent downloads are another aging format statistic in the era of streaming. The correlation is clear: When download sales are low, DPD mechanical royalty income is down.

According to RIAA figures, downloads are dropping significantly. Revenues from downloaded tracks and albums declined for the sixth consecutive year to $1.04 billion. Permanent downloads fell 25% in 2018 and individual track sales were down 28%. Downloads accounted for 11% of revenues for 2018, down from 42% in 2013.

Format: Streaming, Limited Downloads, and Ringtones

• Time Period: 2008 to Present Day
• Current Rate:
• Streaming: Minimum of 10.5% of total streaming revenue, less public performance fees
• Ringtones: 24¢ per ringtone sold

On October 2, 2008, the first ever statutory mechanical royalties for on-demand (interactive) streams, limited downloads and ringtones were established. Yes, you heard me right - ringtones. Ringtones are by no means a lucrative flavor of mechanicals, so this section will focus on limited downloads and on-demand streaming.

These first-ever rates were ruled by the Copyright Royalty Board (CRB) after much haggling and arguing in trail. The cases were made by the National Music Publishers Association (NMPA) and Nashville Songwriters Association International (NSAI) in one corner, and the Digital Media Association (DiMA) and the Record Industry Association of America (RIAA) in the other corner.

On-demand streams and limited downloads are the reason why subscribers pay for their monthly subscription to services like Spotify. One perk of these services is that a listener can choose whatever songs they want to hear, in any order, at any time (that’s the “on-demand” and “interactive” part). Another is the ability to listen to songs and playlists “offline” (that’s the “limited download” part). These perks are only possible because a digital copy of the song is made in order to provide this service to the subscriber. It’s unlikely many people would pay for on-demand subscription streaming without the limited download option.

These on-demand royalty rates are by far the most complex and difficult to understand. Streaming mechanical royalty rates are only required for on-demand/limited download streams. Non-interactive streaming (like SiriusXM) only requires public performance licensing from ASCAP, BMI, SESAC and GMR. These performance payments are also included in on-demand streams and deducted before the mechanical streaming royalty is paid out.

For on-demand streaming/limited downloads, there are actually three buckets of royalty formulas in play at all times. To quote Billboard on the issue:

“Essentially, the rate formula is calculated by the greater of three distinct buckets of money as mandated by the CRB: percent of total revenue; percent of payments made to labels; and the mechanical floor determined by subscriber count. But it’s a little more complicated than just that.”

What all that complexity boils down to is a ballpark streaming mechanical royalty of about 75¢ to $1.25 per 1,000 on-demand streams. This figure is based on Spotify’s published royalty payout range of $0.006 to $0.0084, paid to all copyright owners (musical composition and sound recording).

In January of 2018, the CRB published their ruling for an increase in mechanical streaming royalty rates to songwriters and publishers. The ruling established a minimum royalty floor of 15.1% of total streaming revenue.

However, Spotify and Amazon have recently appealed this ruling. Pending the appeal, the streaming mechanical royalty rate is supposed to rise every year until it hits 15.1% in 2022.

Regardless of Spotify and Amazon’s appeal, RIAA figures show we are in a streaming boom. Revenues from streaming music platforms have been growing by 30% each year and contributed to 75% of total 2018 revenue. As with the downloads, the correlation with streaming is clear for mechanical royalties: If streaming is up and record company income is up, then streaming mechanical royalty income will increase with it.