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BMG to eliminate ‘controlled composition’ deductions in all record contracts

By and | Published on Friday 9 October 2020


BMG has announced that it is eliminating the so-called ‘controlled composition clause’ from its record deals in America. The decision will affect both new deals and those relating to catalogue, a lot of which BMG acquired from other record companies.

This standard US record industry practice forces artists who are also songwriters to accept a reduced mechanical royalty on physical releases. The mechanical royalty relates to the song copyright, of course, which the label itself is not usually involved in. In the US the mechanical copying of songs is subject to a compulsory licence and therefore mechanical royalty rates are set in law.

However, because of the ‘controlled composition clause’ in record contracts, labels get a discount on that statutory rate, often 25%. That means the artist earns less from their song copyrights whenever discs are sold. Though the impact of the clause often goes further than that.

Where the artist co-writes with other songwriters, obviously those other writers are not part of the artist’s record deal and need to be paid 100% of the statutory rate.

However, the label may seek to keep its discount (and a concurrent cap on the total mechanical royalties due on an album) in place. It would do this by taking the additional payments due to the other writer or writers (sometimes called ‘overage’) from the artist’s own mechanical royalties or, if necessary, their recording royalties.

“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 yesterday while confirming his firm’s new policy on controlled composition clauses. “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”.

Needless to say, the move has been welcomed by the music publishing and songwriter communities.

Commenting on the move, CEO of the US National Music Publishers’ Association, David Israelite, says: “BMG deserves enormous credit for eliminating this poisonous practice. Controlled composition clauses in recording contracts have been one of the most harmful things to ever happen to songwriters. While their impact has been minimised thanks to NMPA’s efforts to make them illegal for digital products, there is still enough of a physical product market for controlled composition clauses to continue to plague the songwriting community. This is a wonderful pro-songwriter move by BMG”.

Meanwhile, Chair of UK songwriter organisation The Ivors Academy, Crispin Hunt, adds: “I welcome BMG’s determination to cease industry-sanctioned practices which uphold inequality for creators. The controlled composition clause has disadvantaged songwriters across music’s history. It belongs in a museum along with many other ‘tricks of the trade’. 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”.

Of course, the more cynical among you might say that removing deductions on mechanical royalties for physical product at a time when such products account for a small part of overall record industry revenues – particularly in the US – is not so grand a gesture. Though, by crunching RIAA data, BMG reckons that the controlled composition clause still cost songwriters around $14 million across the US industry last year. And, of course, for some specific artists, CD sales are still more significant.

Other cynics might note that BMG is bigger in music publishing than it is in recordings, and therefore will also benefit if this move causes more industry-wide change. Although such industry-wide change is by no means assured. And even if ultimately BMG itself does benefit from other labels following its lead, for songwriters any industry-wide shift on this issue would still be a major result.

There are plenty of other standard clauses in record contracts that are routinely criticised by artists and their managers and lawyers, many of which impact on digital as well as physical income. And those problematic clauses often impact more on heritage artists stuck in old deals.

There has been some legal action on some of those problematic clauses. For example, Sony Music recently settled a class action lawsuit brought against it by the estate of 1950s pop star Ricky Nelson over deductions on international streaming royalties. Though, even with successful class actions – which should benefit large numbers of artists – managers and lawyers commonly complain that changes to problematic clauses in old contracts are too often nominal and narrow.

Having certain players in the market position themselves as champions of fairer artist deals could be more effective in bringing about wider change if doing so secures those players competitive advantage in the talent market place. Obviously artists stuck in long-term legacy contracts can’t just take their music to the fair deal champions – but other record companies might be embarrassed into doing the right thing if the artist community goes out of its way to celebrate fair deal labels.

BMG does seem to be actively trying to position itself as a particularly ethical music company in general, going beyond the removal of the controlled composition clause. For example, earlier this year, in the wake of the Black Out Tuesday initiative, it announced plans to weed out racial bias in older record contracts – particularly those that it has acquired from other companies.

And it has also launched a taskforce with the specific aim of improving fairness in music contracts. That is being led by COO Ben Katovsky, who says: “If you know your music industry history, it’s hard to dispute the fact that music companies have had a problem with treating artists fairly”.

“As the youngest of the big international companies, we were able to start from scratch and design out many of the worst aspects of the old business from our new deals. But inevitably we sometimes find examples of historic bad practice lurking in some of the catalogues we have acquired”.

“We have to be realistic”, he adds. “We cannot right all the wrongs of the past – but we’re going to try our damnedest. We are delighted to finally get rid of the controlled composition deduction. It is an anachronism which has no place in the new music business”.