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Music Publishing Reserves

How Much Can Your Record Label Hold in Publishing Reserves?


If you're a songwriter, record labels who release albums featuring your compositions have to pay you mechanical royalties. These royalties are part of your "publishing" and are calculated based on how many units of an album featuring your track are created by the label and distributed. The label has to pay out this music publishing income quarterly to the songwriter.

For record labels, paying anything out when product has shipped but not necessarily sold presents a big problem. Why? Because when physical product is shipped out by a distributor to a record store, the store has the right to return the product to the label within a set amount of time. Until that window passes, labels have no idea if the stores will REALLY sell all of the product they ordered, or if the record label will be stuck with the dreaded stack of returns. If they label pays out before they know exactly what sales are, then they could be paying artists - and in this case, songwriters - more money than they really owe them. Getting that money back is hard - you can't simply ask for a check to pay it back.

Difficult though it may be, labels are often contractually obligated to pay out to artists and writers during the period when returns may still come in. Labels try to protect themselves from these kinds of overpayments by holding reserves. Reserves are a percentage of income due to an artist/songwriter that the label holds back until the returns period has passed. After a pre-determined amount of time has passed, reserves are paid out based on what the actual sales for that period ended up to be - if every copy shipped was sold, the artist or songwriter gets the full reserve in repayment. If there were returns, the artist/songwriter gets the reserves less those units.

That is pretty standard stuff, and both record royalty and mechanical royalty reserves function in much the same way. The difference between these two royalties comes in when we're talking about that reserve percentage. While a record royalty reserve may hover in the 30% range, music publishing reserves are much larger. It is common for labels to hold publishing reserves of up to 75%, and most withhold at least 50%.

The problem isn't that labels dislike mechanicals more than record royalties (though to be fair, they may). The issue is the recoupment of any overpayment of mechanical royalties. Think of it this way. Let's say you have a multi-album deal with a record label. They ship your first record, pay you record royalties on those sales, and then returns start pouring in. It's not a good deal for that label, but they have ways of getting that money back from you because they can (and will) withhold royalties on your future albums with them to make up the difference. Record royalties don't have to be recouped from the album associated with the overshipment/overpayment. They can be recouped by the label from any record you release with them.

Publishing deals are different. Mechanical royalty payments are strictly tied to a specific composition. If your record label overpays you on mechanical royalties, they can't recoup that overpayment from a different composition by you. They can only make back that money on income generated by that particular comp, which is hard for them to do considering units are already being returned to them. Likewise, labels can't charge overpayments back to a publishing company on their overall payments. If you have a publishing deal, and they give your label a mechanical license to release your work and the label overpays the royalty, the label is stuck, even if the publishing company has issued them several licenses for several different artists and is getting a big check to distribute to all of those artists. The label can't simply withhold a portion of that check if they've overpaid, because then they would be charging your overpayment to all of the songwriters represented by the publishing company instead of your specific composition.

Music publishing reserves should be spelled out very clearly in your record contract, including the percentage of reserves, when reserves will be released, and how the label must account to you.

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