US Copyright Royalty Board Raises Some Music Streaming Royalty Rates For 2018
In what is expected to be the first of several new rate determinations, the United States Copyright Royalty Board has issued a cost of living adjustment for the rates paid to copyright holders by online webcasters.
The US Copyright Royalty Board has announced a cost of living adjustment to the rates paid to master recording copyright holders for 2018,. The rates increased to $0.0018 for commercial ad-supported non-interactive music streaming services, and $0.0023 per performance for paid services. That’s up slightly from $0.0017 and $0.0022, respectively. Non-commercial webcasters rates were up to $0.0018 per performance in excess of 159,140 ATH (aggregate tuning hours,) per month, up from $0.0017 last year. Additional rate announcements from the CRB are expected in the coming days.
This raises music streaming royalties for songwriters and music publishers by more than 40 percent to narrow the financial divide separating them from recording labels. Equally important, the CRB simplified and strengthened the manner in which songwriters are paid mechanical royalties, modifying terms in a way that offers a foothold in the free-market.
The decision stems from a dispute pitting songwriters against steadily growing music streaming services. The ruling, in favor of the National Music Publishers’ Association and the Nashville Songwriters’ Association International, amounts to the biggest rate increase granted in CRB history, with Amazon, Apple, Google, Pandora and Spotify compelled to pay more for the use of music.
The Copyright Royalty Board’s decision will require those services to pay 15.1 percent of their revenue to the songwriters and publishers, up from 10.5 percent. Recording labels will still be receiving $3.82 for every $1 paid to songwriters and publishers. Even so, that still represents the most favorable balance in the history of the industry.
The popularity of music streaming services has soared in the past few years as more consumers have embraced paying a monthly or annual subscription fee for unlimited access to tens of millions of songs instead of incrementally buying a more limited amount of music on CDs or in a digital download. Those changing habits have pushed artists, songwriters and publishers to step up their efforts to get a larger cut of the royalties generated from music streaming — a format that didn’t even exist when some performers signed their last record deals years ago.
The Copyright Royalty Board drew up the new rates for songwriters and publishers after hearing evidence during a trial last year.
Although the writers were looking for a per-stream rate, which they did not get, the digital services were fighting to reduce rates, so overall it’s a significant victory for writers. Streamlined rate terms replace byzantine calculations with a simplified formula based on the “greater of” concept. What under previous conditions may have involved dozens of computations involving different offerings has been reduced to two variables with a floor.
The new rate will be based on the greater of either 1) a percentage of revenue or 2) total content costs. Content costs are payments to labels, which are negotiated without legal constraints, so the deal effectively affords writers – who are largely shackled to statutory rules – some free-market frisson. Additionally, caps and limitations to which the writer rates had been subject are now eliminated. “It’s a very simple computation with the free-market label deals providing downside protection, or potential upside benefit,” said one observer.
The decision also allows songwriters to benefit from deals done by record labels in the free market. The ratio of what labels are paid by the services versus what publishers are paid has significantly improved.
The court also decided in favor or the composers regarding a late free which will force digital music services to pay songwriters faster or be subject to a significant penalty. The bottom line is this is the best mechanical rate scenario for songwriters in U.S. history, which is critically important as interactive streaming continues to dominate the market.
Songwriters had asked the CRB to grant the greater of 15 cents per 100 streams or $1.06 per user per month, though they did gain ground. For the past 10 years – since the dawn of streaming – writer royalties had been strictly based on a percentage of each streaming service’s revenue, putting them at the mercy of subjective corporate decision-making.
The songwriters made the case that the existing system was crafted to help boost a then-nascent industry but had outlived its usefulness to the point of becoming a conflict of interest. What in effect had largely become big box streaming services were using music as a loss leader to boost market share and sell other products.
While the change will be insignificant to the bottom lines of behemoths Apple, Amazon and Google, the smaller Spotify and Pandora may feel the pinch. Interestingly, while Amazon, Google, Pandora and Spotify argued to maintain the status quo, Apple broke ranks, conceding that the current royalty rate structure was “too complex” and “economically unsound” and advocating for “a single per-play rate that is the same for all services.” That last did not come about, but the Cupertino tech firm signaled artistic sympathy that could play out in interesting ways going forward.
The ruling is the result of a March CRB rate hearing initiated by the NMPA and the NSAI after a breakdown in negotiations that began in November 2016. Such disputes are settled by a permanent panel of three royalty judges appointed by the Librarian of Congress to oversee terms and rates of writer royalty payments for sound recordings.
The ruling effects only the mechanical license, a term that literally references the rolls mechanically cranked through player pianos – arguably the first mass distribution media for recorded music. Albums, CDs and downloads also fall under the mechanical license (the thought being that like piano rolls, these are “physical copies,” although the idea that a digital stream is concrete by virtue of being stored at various points (on a server, in a buffer) is somewhat specious; analog broadcast signals also collect at various points, and digital radio and TV in practical terms is distributed in the manner of a stream.
But broadcasts – digital or analog – are considered a public performance, and garner what is currently a higher “performance license” rate. Songwriter Rodney Jerkins illustrated the discrepancy in September at the Recording Academy’s District Advocacy Day in Los Angeles by sharing an accounting statement for “As Long As You Love Me,” a top 10 hit for Justin Bieber in 2012. By 2013, Jerkins’ stake in the song generated $146,000 in performance royalties, while streaming revenue from the same period garnered $278 for 38 million Pandora plays and $218 for 34 million YouTube streams. “If I owned 100% of the song I would have made $1,100 from YouTube,” Jerkins said, proclaiming, “Those numbers are criminal.”
Songwriters and music publishers will get a higher payout from on-demand subscription services like Spotify and Apple Music for the next five-year period (2018-2022), according to the National Music Publishers’ Association (NMPA). All the details for other rates from the Copyright Royalty Board (CRB), like the per song mechanical on CDs and downloads, have not yet been disclosed.
According to the NMPA announcement, it looks like at least two tiers of the three-tier formula used to determining music publishing royalties are still in effect. The NMPA revealed that rates will increase from 10.5 percent to 15.1 percent of revenue during the five-year term — that’s a 43.81 percent increase over the term, although the NMPA didn’t specify what increased rates would come into effect at what intervals.
That 15.1 percent of revenue will be split between the mechanical and performance royalties to publishers and songwriters. The performance rights organization negotiate a a percentage of revenue royalty fee for public performance licensing to interactive services, and that fee is subtracted from the overall publishing royalty pool, with the remainder being paid out as mechanical royalties. In the past, the split has been close to a 50/50 percent, with the PROs collectively getting about 6 percent, but this determination may swing the rate more heavily toward mechanical.