Money in Music Copyright - Part 2: Mechanical Royalty

The second "money" or royalty in music copyright is the mechanical royalty. Every music composer must familiarize themselves with mechanical royalty.

Mr. A-Producer will most likely produce an album of several songs, which can be as few as 5 songs, or as many as 16 songs. The next thing Mr. A-Producer does is to reproduce copies of the music CD and distribute these copies to the music stores.

For every CD sold, the composers are entitled to between 7.5% to 10% share of the wholesale price. If the CD is sold at a wholesale price of P100 (people buy it on retail at P200 or more), Paul and the other composer get between P7.50 to P10.  This is the mechanical royalty, or sometimes called "mechanical reproduction license fee"; But let's stick to "mechanical royalty" in this blog.

At this point I am no longer sure what percentage for mechanical royalty is being followed in the Philippines. Most likely, it's 10%. This blog may not be able to give you the actual industry figures that is applicable to you. But I encourage you to find out what the existing figures are, and then for you to negotiate what's best for you.

If Mr. A-Producer happens to produce the music album with 10 tracks, then Paul will get 1/10th of every P10.00 that the composers earn per sale. That would mean that for every 10,000 copies sold, Paul gets a mechanical royalty of P10,000.

Not bad, eh?

What's the actual practice in the Philippines?

It is shocking to me that the industry is in the habit of charging a non-refundable "advance mechanical royalties" from music users. I have seen it from both ends of the deal. To me this practice is not fair to the music users. In the long run, it is also not fair to the composers.

The mechanical royalty, in spirit, is the royalty for every copy produced AND sold in the country. Why does the industry charge "advance" mechanical royalty? Furthermore, why is it non-refundable?

If Paul, for instance, receives an "advance mechanical royalty" of P5,000, then he practically gets an advance for 5,000 copies (say P1 per copy). But when the actual sale is only 3,000 copies (this can happen), shouldn't Paul refund the other P2,000?

On the other hand, if the actual sale is 10,000 copies, shouldn't Paul actually get paid another P5,000 in mechanical royalty? From my sources, this isn't happening because Paul does not get a report that there has been a sale of 10,000 copies in the first place. Mr. A-Producer thinks, "Paul is insistent on his P5,000 advance mechanical royalty, then that's all that Paul shall ever get."

In retrospect, the issue boils down to trust. Almost every music composer I talked to think that producers are not reporting the correct sales figures. This is why they rather get an "advance mechanical royalty" and forget about the rest of the deal. This may sound fair to Paul, but it also creates an additional risk to the producers and music users!

The companies seriously hit by this practice are the videoke companies. Why? All you have to do is multiply the figure above by the number of songs they put in each videoke machine, which are in several thousands. That's several millions in mechanical royalty (on top of the one-time synchronization fee), and they haven't even sold a single unit yet!

To me that's ridiculous. We want to change the music industry for the better? Let's change the practice on this area.

Many music users now think that music composers and publishers in the Philippines are both unfair and greedy. Then, we actually wonder why music pirates are prevalent?

Non-observance of rules creates a dysfunctional culture in the Philippine music industry that every stakeholder must seriously reassess in the light of existing and forthcoming technologies that affect the music industry.

If there is distrust, there's no dialogue. If there's no dialogue, there's no consensus. If there's no consensus, there's no concerted effort in the face of challenges. If there's no concerted effort, then ...

My advice? Drive along EDSA and take lessons from there. When you're a big rectangular bus, move slowly but deliberately. When you're the small sedan, keep your distance from big ones and don't get mad. Talo ang pikon. The same goes true in the music industry today.

That's not a very encouraging advice, is it? Live with it. Things will get better in time.

We're Filipinos. We cross one bridge at a time.