The Controlled Composition Clause addresses how much money a record company will pay its recording artist (in his capacity as a composer) for those of his songs which he records. Thus, every musician who records for, or licenses or sells his or her self produced master to, a record company should analyze the Controlled Composition Clause carefully. Recently, the Controlled Composition Clause has become vastly more onerous, especially as used by the major record companies and thus should be carefully reviewed. However, even in its more benign form this clause needs to be evaluated. 

Typically the Controlled Composition Clause, in its more benign form, provides for the recording artist to grant his record company a mechanical license for the recording artist’s own compositions at a reduced mechanical royalty rate then what currently is in effect. 

A hypothetical example of this latter type of Controlled Composition Clause reads as follows: 

“… Record Company is hereby granted a mechanical license for all Controlled Compositions, as defined below, embodied in the Masters at fifty (50%) percent of the minimum statutory mechanical copyright royalty rate in effect on the date of first release of Records containing such Controlled Compositions (the “Controlled Rate”). The term “Controlled Composition” means a Composition embodied in any Master delivered hereunder which is written or composed by Owner, alone or in collaboration with others, or is owned or controlled, in whole or in part, directly or indirectly, by Owner, or by any person, corporation, partnership, firm, or other entity in which Owner has a direct or indirect interest…” 

Basically, in this type of Controlled Composition Clause, the recording artist is effected in two ways. First, and foremost, the recording artist would only receive one-half (fifty (50%) percent) of the statutory mechanical royalty rate in effect. While seventy-five (75%) of the statutory mechanical royalty rate is more typical in this type of clause, fifty percent is not unheard of. Nevertheless, try and obtain as high a percentage as possible 

Secondly, the recording artist is also harmed in a less obvious manner. Because the mechanical royalty rate is pegged to the statutory mechanical royalty rate in effect at the time of “first release of Records” the artist will be harmed if the Record is sold many years after the contract is signed because the statutory mechanical royalty rate typically would be higher at that time. The statutory mechanical royalty rate is adjusted upwards every few years. Thus even if the recording artist cannot cause the record company to delete this type of “Controlled Composition Clause” the recording artist should, in any case, seek to have the mechanical royalty rate pegged to the rate in effect at the date of manufacture of Records rather than at the date of first release of Records. 

The more onerous type of Controlled Composition Clause places a monetary restriction, a cap, on the amount of mechanical royalties it will pay to the recording artist. And, should the record company be forced to pay more than its prescribed limit, the clause allows the record company to deduct such excess from the artist royalties (as opposed to mechanical royalties) it pays the recording artist. As mentioned above, this type of Controlled Composition Clause is being used by the major record labels more frequently today. 

A hypothetical example of this type of “capped” Controlled Composition Clause reads as follows: 

“… Recording Artist hereby grants and will cause all applicable publishers to grant to Record Company mechanical licenses in the USA at the rates set forth herein (”Controlled Composition Rate”) with respect to musical compositions written, owned or controlled in whole or in part by any member of Recording Artist or a producer or by a company affiliated with any member of Recording Artist or Producer (”Controlled Compositions”) and embodied on records distributed hereunder. In respect of Full Price records, the Controlled Composition Rate for all musical compositions regardless of length shall be seventy-five percent (75%) of the minimum USA statutory rate for selections whose timing is five (5) minutes or less; and with such Controlled Composition Rate being determined at the time of first release of records embodying the composition concerned, subject to the following configurational ceilings for all musical compositions, whether or not Controlled: Nine (9) times the Controlled Composition Rate on Compact Disc Albums. In the event the actual aggregate mechanical copyright royalty rate paid by Record Company exceeds the maximum configurational ceiling for any record hereunder, Record Company shall deduct from any monies payable to Recording Artist hereunder (whether in respect of Controlled Compositions or otherwise) an amount equal to such additional payments. …”