Go to Top

A Record Label Surrenders Some Control

If a musician or her manager told you that their record label decided, unprompted, to pay them more than their contract requires, you might reply that the 1970s called to get their drugs back.

But to the pleased astonishment of many of us involved in the music industry, this actually happened. Last week, BMG – the music unit of Germany’s Bertelsmann media conglomerate – announced that it is abandoning a clause in its recording contracts known as “controlled composition.” Basically, this clause told performer-songwriters that they were going to get paid less for putting their own songs on their albums than any other songwriter would get. Why? Because we’re the record label, and we say so.

The practice is unfair. It’s also anachronistic, since the industry has moved so far toward streaming and live performances, and away from physical album sales. Laws in some jurisdictions, including the United States, have already made such provisions inapplicable to digital sales. Controlled composition applies mainly to the legacy business of CDs and the inexplicable (to me) niche revival of vinyl.

It did not come as such a shock that BMG would drop controlled composition from new contracts it offers artists. While BMG is not a small player, it is much smaller than the three major music groups operating under the Sony, Warner and Universal umbrellas. BMG seeks to distinguish itself as an artist-friendly label, and this change sends a strong message to that effect. Besides, everything in a music contract is negotiable.

Musicians, I am going to repeat that here: Everything is negotiable. But you have to read your contracts, understand your contracts, and be thoughtful about what sort of deal is in your best interest, in the long term as well as right now. Or if you are not prepared to do that, find someone trustworthy who will do it for you. I have rejected controlled composition language in contracts on clients’ behalf, and I am sure other managers or attorneys negotiating record deals have done so, too.

The stunner in BMG’s announcement was that the change won’t only apply to new contracts. BMG said it will no longer apply such provisions to royalties it pays under existing contracts, apparently after a transition during the next year. That’s like having your dog say to you, “I’m sure that steak is delicious, but I don’t want to take it off your plate. Enjoy it.” The talking dog is the least surprising part of that analogy.

“The move forms part of BMG’s ongoing program to rebalance the music industry in favor of artists and songwriters by abandoning longstanding practices designed to reduce the incomes of musicians,” BMG said in a statement reported by Variety. The label estimates controlled composition clauses cost songwriters $14 million collectively last year.

So what is a controlled composition clause, anyway? It is an agreement between the label and the recording artist to waive what is otherwise the statutory minimum rate for a “mechanical royalty” when the performer’s song is released by the label. That rate is 9.1 cents per copy for songs of up to 5 minutes. Usually, a controlled composition clause caps the rate at 75% of this level, or 6.825 cents, with a further limit of (typically) 10 songs on an album, even if the album has more than 10 songs.

Most modern popular music is the result of collaboration between multiple co-writers, most of whom are not part of the recording artist’s contract with the label. Controlled composition does not apply to them; they get the standard rate. But the artist’s share may very well be further reduced because of this. (Remember, everything is negotiable.)

Would I ever accept a controlled composition clause in a client’s contract? Sure. This is just one term among many components of a record deal. If a label puts enough money on the table or makes enough concessions in other areas – especially over control of the master recording itself – but wants to skimp on the publishing payment, I can live with that.

But I doubt I’ll have to. BMG’s concession will likely prod other labels to get rid of controlled composition, at least for artists who push back against it. It just isn’t that big of an issue in today’s music landscape. By continuing to demand it, however, labels send a message that they will be happy to eat as much of your steak as they can get away with.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s most recent book, The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book, Looking Ahead: Life, Family, Wealth and Business After 55.

The views expressed in this post are solely those of the author. We welcome additional perspectives in our comments section as long as they are on topic, civil in tone and signed with the writer's full name. All comments will be reviewed by our moderator prior to publication.

, , , , , , ,

Leave a Reply