Songwriters and publishers earn increased royalties from streaming platforms

American songwriters and publishers won a hard-fought mechanical royalty rate increase from streaming music platforms in a last-minute decision Friday, July 1. But not all concessions have been granted, and Spotify, Google, Amazon and Pandora are battling to delay retroactive payments.

Earlier this week, Digital Music News first reported rumors of a royalty rate hike for music streaming platforms. Now it’s official: according to details released by the Copyright Royalty Board (CRB) late Friday, July 1, streaming music platforms like Spotify, Apple Music, YouTube Music and Amazon Music Unlimited will be forced to pay significantly more to music publishers and songwriters in the United States. Specifically, the determination covers the period 2018-2022 – covered by the “Phonorecords III” procedure – and involves a 43.8% increase in mechanical royalty rate requirements before 2018.

The decision raises the mechanical royalty rate owed by streaming music services to 15.1%, up from 10.5% previously for the four-year period (and theoretically beyond, although rates after 2023 do the same). subject to separate negotiations and decisions). The 2018-2022 ruling was first issued in 2018 by the Copyright Royalty Board. However, streaming giants Spotify, Amazon Music, YouTube (via Google) and Pandora (owned by Sirius XM Holdings) fought to maintain the 10.5% rate (Apple notably did not protest the increase) .

The decision means streaming platforms will be forced to increase their mechanical royalty payments going forward, while retroactively paying increased royalty amounts from 2018.

This represents a significant slice of cash and explains why streaming services are fighting to have these payment obligations delayed.

It’s unclear whether those claims have been accepted or are being considered, though National Music Publishers’ Association (NMPA) President David Israelite noted that the arrears would be pursued immediately.

“This process has been long and costly, and while we are relieved at the outcome, years of litigation to maintain a tariff increase that we have spent years fighting for is a broken system,” Israelite told Digital. MusicNews. “Now songwriters and music publishers can finally be cured and receive the legitimate royalty rates from streaming services that they should have received years ago. We will ensure that the Services promptly reimburse copyright owners as required by law. »

Nashville Songwriters Association International (NSAI) President Bart Herbison noted that due dates for retroactive payments remain uncertain. “The retroactive raise for US songwriters is supposed to be paid within six months of the verdict being finalized, but the streaming giants have asked for that deadline to be extended, which we strongly oppose,” Herbison relayed. .

“Until the U.S. Copyright Office makes this decision, it remains unclear when songwriters will receive their payments. this when they realized four and a half years ago that they should.

Regardless of how the late payment is determined, the increase is a blow to music streaming platforms, a group that donates a high percentage of its revenue to rightsholders.

That includes publishers and songwriters, though record labels get the lion’s share of streaming royalties. The reasons for the imbalance are complex and largely rooted in heavy government regulation of publishing royalties.

Just recently, Israelite revealed that labels took 58.6% of streaming royalty revenue in 2021. This figure leaves a small chunk for the underlying compositions (i.e. the release of intellectual property ).

“We now have, for the first time, a treasure trove of information that has never before been made public,” Israelite told attendees at an NMPA annual meeting in New York in June. “There are 47 different music services operating 151 different models that pay mechanical royalties to songwriters. We now know that in 2021, these combined services generated nearly $9.8 billion in revenue, which is just one of the significant factors by which songwriters get paid.

“The vast majority of these royalties, over 96%, come from the same five companies that are fighting to lower songwriter rates through the CRB process: Amazon, Spotify, Apple, Google and Pandora. We also now know that these services paid record labels $5.7 billion in 2021, 58.6% of the revenue pool — significantly more than the 52% often reported,” Israelite said.

It’s unclear why Israelite said Apple is fighting to reduce mechanical royalty rates. This may have been a mistake – Apple did not challenge the 2018 CRB ruling.

Update, July 5: David Israelite later clarified that his statement regarding Apple Music was not made in error. Although Apple did not join Phonorecords III’s appeal, Israelite noted that Apple was still benefiting from the actions of callers Spotify, Amazon and others – and had not voluntarily created direct payments above the requirements of the CRB. “Apple has not joined the appeal, although they will get the same benefit as those who appealed since Apple no longer does direct transactions above the legal rate and will therefore pay the same legal rate as all others,” Israelite told Digital Music. New.

Israelite further reaffirmed that Apple is “fighting” music publishers by pointing to the current Photorecords IV procedure. “The comment that they’re trying to cut the rate refers to Apple’s proposal in CRB 4 where they’re asking for big cuts in the rate today,” the NMPA chief continued. “To be fair, Apple’s proposal in CRB 4 isn’t as bad as Spotify’s and Amazon’s proposals. But they’re still asking for cuts.

Adding to the complexity is an ownership structure in which vast publishing rights are controlled by large conglomerates of music labels (primarily Warner Music Group, Sony Music Entertainment and Universal Music Group).

Universal Music Group, for example, is not only a recording label, but also the umbrella organization of Universal Music Publishing Group, which controls huge amounts of songwriting rights.

This point has not been lost on streaming music platforms. Immediately after the decision, the Digital Media Association, DiMA, which represents streaming music platforms, raised the issue of major label payment imbalances.

“Today’s decision comes as the three major label groups – which operate the world’s three largest music publishers – continue to carve out the lion’s share of industry profits while recording steady growth. double-digit revenue from streaming,” said DiMA President and CEO Garrett. Levin relayed in a statement.

“Looking forward, streaming services believe it’s time for all stakeholders – labels, publishers, writers, artists and services – to engage in in-depth discussions to determine the right balance of royalty sharing to the future.”

Music streaming platforms haven’t lost out on all counts, however.

In addition to the mechanical rate increase, the Copyright Royalties Board reverted the specific definitions of bundled tiers to pre-2018 determinations. Specifically, “Total Cost of Content (TCC)” and certain bundle definitions have maintained under the conditions described in the Phonorecords II agreements prior to 2018.

In light of this defeat, Herbison called the wider procedure of Phonorecords III “mixed”. “This verdict represents mixed news,” Herbison said. “The good news is that songwriters have received the 15.1% rate we won four and a half years ago. The bad news is that the definition of ‘bundled services’ and total content costs, one of the streaming rate tiers, was not what we intended. We will return our attention to the next CRB proceeding which is already underway. Together with the National Music Publisher’s Association (NMPA), we are requesting further increases in the future.

Herbison was also optimistic about the broader impact of a rate battle that has spanned more than four years.

“More and more songwriters keep leaving the company,” Herbison said. “Some might have held on if the streaming companies hadn’t appealed.

“We don’t want to see anyone else leave because the arrears payments cannot reach them in time. A few thousand dollars could make that kind of difference for a writer.