“in most cases” the artist collects 100%; however, there’s an exception which is to be applied in some instances, which will happen within some terms.
Some producers require a share or percentage of the mechanical royalties in their exclusive agreements. It may range anywhere from 1%-10%.
This is known as ‘points’ or ‘producer royalties’.
In this scenario, the price paid for the exclusive rights is considered an “advance against mechanical royalties,” and will be paid based on a formula that takes into account the Net Profit of a song. This formula deducts all costs (and can include costs of publishing, recording, and manufacturing) may be deducted first before the producer gets his cut.
The following example illustrates what might happen in a real-life situation:
∙A company or artist pay $1,000 USD in advance against royalties to a producer. The producers mechanical royalty rate is set to 3%.
∙The artist's profits:
$1,000 - Exclusive Rights
$ 500 - Studio time
+ 500 - Mixing & mastering song(s)
$2,000 = Total Expenses
∙$10,000 in mechanical royalties can be generated after a year!
∙Net Profit: $10,000 – $2,000 expenses = $8,000 💵
∙The Producer's Cut: 3% of $8,000 = $240 💵
As an independent musician, $8,000 is a decent amount of money to gain as mechanical royalties. $240 is to be paid to the producer(s).
