Mechanical licenses are the rights granted by the copyright owner or publisher to reproduce songs for public distribution. Money paid by record companies to manufacture and sell records is called mechanical royalties.  Mechanical royalties are paid to the publisher who pays the songwriter accordingly. Mechanical royalties are typically determined by multiplying the mechanical rate by the number of tracks on each record or CD that is sold.

Mechanical royalty payments are typically not reliant on the record label recouping their expenses from recording, producing or marketing the record like royalties from sales.

Compulsory Mechanical Licenses were introduced as part of the Copyright Act of 1909 and allow anyone to reproduce a previously recorded work as long the copyright holder is notified, provided monthly royalty statements and paid the royalty rate set by law, called a statutory rate or stat rate. What this means is that you can record a cover version of a song without explicit permission of the copyright holder as long as the song has already been recorded and distributed, you don’t substantially change the song’s lyrics or music, and you comply with the licensing and reporting requirements. As of January 1, 2006 the statutory rate is 9.10 cents for a composition five minutes or less in length, or 1.75 cents per minute, rounded up, for songs over 5 minutes, per copy.

Record companies often negotiate down mechanical royalties from the statutory rate, for example, 75% of statutory rate. See recording contracts for more information.

A record with 12 tracks on it and a negotiated mechanical rate of 75% of stat ($.0.06825) that sells 50,000 copies would generate $ 40,950 in mechanical royalties (12 tracks X $.06825 X 50,000 sold copies) that the record company would pay to the publisher.

The Harry Fox Agency is the primary mechanical rights administration organization in the United States that issues mechanical licenses, collect royalties, and provide reporting for almost 35,000 music publishers. They are paid a percentage of gross royalties collected for their services.