Mechanical royalties are paid to a songwriter every time a song they have written is copied. In the physical world, when a record label presses an album, then they owe a mechanical royalty to the songwriter. In the on-line digital world, the way these royalties are collected differs depending on store and location (different countries, different rules).
For example, in the UK under a blanket agreement with the MCPS, mechanicals generated from sales from the UK iTunes store are deducted at source from iTunes own share of the revenue. In the USA, no such agreement exists with iTunes, therefore the mechanicals are paid through to the label for it to distribute accordingly. Some other UK based stores do not have blanket agreements. Always check your AWAL statement to see where they have been deducted or passed through.
If you're a small label, there are cases where an artist agrees to waive the mechanical royalties for their album, thus contributing to promotion and marketing. This deal is ineffective. Mechanical royalties can be collected from labels despite the artist's objection. It is a legal obligation.
It is always the responsibilty of the label to ensure that all mechanicals have been paid in accordance with local practices in every territory.
