The following sets forth the way in which many of the record labels in the U.S. pay third parties with respect to each $0.99 download assuming that the recording agreement allocated the artist an “all in” royalty rate of 15% (i.e., which includes a producer royalty of 3%, leaving a “net artist” rate of 12%):
Artist iTunes Royalty (with wholesale markup)
$0.99 download single song price to the consumer
less $0.29 to Apple
left $0.70
x 130% (wholesale markup)
x 12% (net artist net rate) = $0.1092 cents per download
Producer iTunes Royalty (with wholesale markup)
$0.99 download single song price to the consumer
less $0.29 to Apple
left $0.70 x 130% (wholesale markup)
x 3% (producer rate) = $0.027cents per download.
Artist iTunes Royalty (without wholesale markup)
$0.99 download single song price to the consumer
less $0.29 to Apple
left $0.70 x 12% (net artist net rate) = $0.084 cents per download
Producer iTunes Royalty (without wholesale markup)
$0.99 download single song price to the consumer
less $0.29 to Apple
left $0.70 x 3% (producer rate) = $0.021cents per download.
Although not widely practiced, there are some labels that take this further by first deducting the mechanical royalty from the $0.70 cents prior to calculating the iTunes royalty which is then paid to the artist and the producer which results in a lower royalty rate as follows:
Artist iTunes Royalty (with wholesale markup)
$0.99 download single song price to the consumer
less $0.29 to Apple
left $0.70 less a digital mechanical royalty of $0.091 cents
left $0.609 x 130% ( wholesale markup)
x 12% (net artist net rate) = $0.095
Artist iTunes Royalty (without wholesale markup)
$0.99 download single song price to the consumer
less $0.29 to Apple
left $0.70 less a digital mechanical royalty of $0.091 cents
left $0.609 x 12% (net artist net rate) = $0.073
With respect to mechanical royalties paid for digital distributions of musical compositions, although this may change in the future, record companies in the U.S. have been using a notice of compulsory license when notifying music publishers of their intention to offer digital downloads of musical compositions. This ‘notice’ usually lists the record company, the recording artist, the name of the musical composition, the identity of the songwriters and music publishers, and the expected distribution date of the ‘digital phonograph delivery’ of the song. These compulsory licenses are typically referred to as “DPD Licenses” and they are paid at the maximum statutory rate which is currently .091 cents for songs under 5 minutes or 1.65 cents per minute if the song is over 5 minutes. For recordings produced pursuant to contracts entered after 1995, the law prohibits a controlled composition provision of the artists’ contract from discounting the compulsory DPD rate, so even if there is a controlled composition clause in the contract, the singer-songwriter should receive the entire .091 cents.