Okay... the first thing I'll get out of the way is that you always need to pay a mechanical license, even if you are not selling your cover of the song.
First things first... we need to know what a music publisher is, because to record someone else's song, you get permission from the publisher... not the artist.
In the old days, the publisher of a composition was the person or group who actually printed the sheet music for distribution. Sheet music? Half of us have never even seen sheet music up close. In more modern, practical terms, a music publisher is the person or group who works on behalf of the composer in an effort to maximize their profits through the use of those songs.
Most of us artists are also our own publishers. Why? Because we don't have anyone else acting on our behalf to do this job. As a result, when there is a royalty paid to both the publisher and the composer, we get the whole shootin' match. Of course, for most mortals, this amounts to keeping the entire bite-sized pie.
When you sign a record deal or the like, a 'typical' contract assigns *half* of the publishing to the record company. That means they get half of the royalties payable to the publisher. You, the artist, get all the royalties payable to the writer, and the other half of the royalties payable to the publisher. You also allow an outside third-party (ie. the record label) to have an equal say as you as to how the material will be used. Because their job, as the publisher of the music, is to maximize the profits of the use of those songs. But remember... they give you half. Though you relinquish solitary control of your own work, you get a 50% share in what could potentially be a great big mother of a pie.
So, what does this have to do with covering someone else's song? Remember the bit about not getting permission from the artist, but getting permission from the publisher? Ah, yes. As the publisher, they are the ones in charge of maximizing profits for the artist for their compositions. That means, if you are offering them money to use their composition, they will grant it on behalf of the artist.
Many music publishers enter in to agreements with licensing agencies in their territory. In Canada, it is the CMRRA ( Canadian Musical Reproduction Rights Agency). In the United States, it is The Harry Fox agency, and in the UK, it is the Mechanical Copyright Protection Society. (MCPS) These are the main ones, but there may be others in those regions, and there certainly are others worldwide. These agencies standardize and centralize the process of granting rights to reproduce the work of other artists.
If you want to reproduce the work of another artist, you can usually go through one of these agencies. They have agreements with the publishers and facilitate the process of gaining the mechanical license you need in order to do this.
What is a mechanical license? “Mechanical” refers to the reproduction of copyrighted music in a “contrivance” for the “mechanical reproduction of music.” This language comes from the days when music was reproduced for music boxes. Still today, though, “mechanical license” is the customary industry term for such permission.
Note that a mechanical license allows you to 'cover' the song. It does NOT allow you to reproduce the original sound recording. To do that, you would need permission of and pay royalties to the person/group who own the master recording. This might be the record company or the recording studio, and for artists not tied to a record company who pay to record their own material with their own money... it would be the artist themselves. This point will be significant later when we talk about sampling and 'clearing samples.'
The rate for a mechanical license is negotiated within the industry and varies from territory to territory. In Canada, it is 8.1 cents for the first five minutes, and 1.62 cents for each minute thereafter. This is calculated per song, so if you do three songs, you will do this calculation three times - once for each song.
IMPORTANT - This is payable prior to manufacturing your copies of the cover, and is payable for every copy made. In other words, if you make 1000 copies and give them away... you still pay for all 1000 copies.
Watch out for this too... you can't just pay 8 cents to make one copy of your cover tune. Here is a quote from the CMRRA mechanical royalty application:
"The minimum number of copies for which a mechanical license will be issued is 500, whether or not you are pressing or importing a smaller number of copies. Licenses for this quantity are issued at the price of $40.50 per song (assuming that the running time of the recording in question is five minutes or less; the rate for each additional minute or partial minute of running time in this case is $8.10). A pressing order is not necessary for less than 200 copies but it does not exempt you from paying mechanicals."
There is another way of doing it, by entering into a Standard Mechanical Licensing agreement, but this process is generally reserved for larger projects.
So, you contact your mechanical licensing agency and fill out the appropriate paperwork and submit the required fees based on how many copies you're going to make, etc. If the publishers are listed in their database (typically searchable online), you're good to go. If they're not, you have to find out who the publisher is. That could involve contacting the artist directly, or their record company. Another simple, easy resource is the liner notes of the CD if you have them. Also worth noting is that some publishers opt not to participate in these licensing organizations because they may want a mechanical rate greater than the standard negotiated rate.
One final thing... if you intend to attach your cover of the song in a film, TV production, etc., you must apply for a synchronization license.