The American Copyright Royalty Board has upheld its previous decision regarding the top-line streaming royalty rate for songs, which increased the percentage of streaming service revenue allocated to the song rights in the US from 10.5% to 15.1%. Most of the streaming services – with Apple Music the notable exception – previously appealed that decision.
In the US there is a compulsory licence covering the mechanical copying of songs, meaning that the rate paid by the streaming services to music publishers and songwriters is set by the panel of judges known as the CRB.
Every five years reps for the publishing and songwriting community on the one side, and the streaming services on the other side, present their arguments for what should be paid, and then the judges set a rate.
For the period 2018 to 2022 the CRB ruled that the rate should increase each year so that it would end up at 15.1%, which is what some publishers and collecting societies had already negotiated in other parts of the world where there is no compulsory licence and so each licensing entity negotiates its own deal.
Despite that decision basically bringing the US in line with other markets, most of the streaming services appealed the rate increase. Unsurprisingly, that move proved controversial within the songwriter and publisher community, with Spotify in particular coming in for plenty of criticism.
At various points Spotify argued that it didn’t oppose the rate increase in principle, but said it had issues with some of the technicalities of the compulsory licence. However, plenty of publishers and writers countered that Spotify had outright opposed the rate increase earlier in the proceedings. And, when the CRB started considering the rates for 2023-2028, Spotify again proposed a 10.5% top-line rate.
The appeal by the services was initially successful, in that in 2020 an appeals court in Washington told the CRB it had to reconsider its ruling regarding the 2018 to 2022 period. But, after doing some reconsideration, the board has basically kept the rate increases in place.
Welcoming that decision, the boss of the US National Music Publishers Association, David Israelite, said on Friday: “Today the court reaffirmed the headline rate increase we earned four long years ago, confirming that songwriters need and deserve a significant raise from the digital streaming services who profit from their work”.
“This process was protracted and expensive”, he added, “and though we are relieved with the outcome, years of litigation to uphold a rate increase we spent years fighting for is a broken system. Now, songwriters and music publishers finally can be made whole and receive the rightful royalty rates from streaming services that they should’ve been paid years ago”.
Although the big old rate increase was reconfirmed by the CRB, some amendments were made regarding some of the technicalities in the compulsory licence that Spotify et al had objected to.
In particular that affects rules regarding ‘total content cost’, which guarantees publishers a minimum percentage of the total amount a service pays over to the music industry, and ‘bundling’, which impacts on things like family plans and mobile bundles. Both those rules have been amended in a way that is more favourable to the services.
With that in mind, Israelite said that those rules would become a focus for the NMPA as the CRB considers the rates for 2023 to 2028. “We will fight to increase the TCC, or percentage of label revenue, which amounts to an insurance policy for songwriters, in the next CRB”, he added, “and will also fight for stronger terms regarding bundles”.
The NMPA is also pushing for another increase in the top-line rate for the next period, hoping to get that up to 20%. There was a sense that it was with that in mind that some of the services – Amazon as well as Spotify – proposed a 10.5% rate for the next five years, ie hoping that if they entered the proceedings with a proposal around 10% and the publishers at 20%, the CRB would end up opting for something around 15%.
However, with 15.1% now confirmed as the closing rate for this period, the NMPA will be hoping that it can persuade the CRB judges to further increase it in the next period.
For the streaming services, the primary aim is to keep their financial commitment to the music industry at large under 70% of their revenues, which means if more is allocated to the song rights then less can go to the recording rights.
In most markets, as the publishers and collecting societies have slowly increased their revenue share as deals come up for renewal, the services have been able to negotiate the rate paid to record labels and music distributors down a little.
So much so, outside the US, when the slicing of the digital pie is debated, the focus is often mainly on whether or not there should be a reallocation of some of the money that currently goes to the recordings to the songs.
However, when it comes to the CRB proceedings in the US, the labels are not involved, so the whole thing very much becomes a battle between the songwriter and publisher community and the streaming services. That was something noted by the Digital Media Association on Friday, which reckons that all the various stakeholders – artist, labels, songwriters, publishers and services – should be involved in any digital pie debate.
The boss of the trade group for the streaming sector, Garrett Levin, said: “The streaming services thank the judges for their efforts. Today’s decision reflects a significant increase in the royalties that will be paid to publishers. The work to give effect to these new rates will soon begin in earnest. The streaming services are committed to working with [collecting society] the MLC and music publishing companies to facilitate the accurate distribution of royalties”.
“This proceeding is also a reminder that rate-settings do not – and cannot – take place in a vacuum”, he added. “Today’s decision comes as the three major label groups – which operate the world’s three largest music publishers – continue to earn the lion’s share of the industry profits while reporting consistent double-digit revenue growth as a result of streaming”.
“Looking ahead”, he concluded, “streaming services believe it’s time for all stakeholders – labels, publishers, writers, artists and the services – to engage in comprehensive discussions to figure out the right royalty-sharing balance going forward”.