music royalties
Songwriters and publishers will see a royalty bump in the new year for physical sales (including vinyl, cassettes and CDs) and digital downloads. According to a new document, published in the Federal Registrar on Tuesday (Dec. 12), the Copyright Royalty Board (CRB) upped the U.S. statutory mechanical royalty rate from the current rate of 12 cents to 12.40 cents if the song has a run time of five minutes or less. (If over five minutes, the rate is 2.39 cents per minute.)
This rate change is based on the Consumer Price Index for All Urban Consumers (U.S. City Average, all times) that was published by the Secretary of Labor.
This form of publishing royalty is paid to songwriters and publishers by record labels, which license their compositions for sound recordings that are then made into digital downloads or physical copies. This system is unlike that for U.S. mechanical royalties for streaming, which are paid to publishers and songwriters by streaming platforms like Spotify, Apple Music and Amazon Music.
Consistent Cost of Living Adjustments (COLA) have been an important (but controversial) part of the conversation around U.S. mechanical royalty rates in recent years. Prior to January 2023, the minimum statutory mechanical rate in the United States had been stuck at 9.1 cents since 2006, losing value each year as inflation climbed. January 2023’s raise represented a 32% rate increase.
In May 2022, when the 2023 adjustment was announced, BMG made a statement criticizing the majors, saying in part, “The entire songwriter community owes a huge debt of thanks to those who fought for this increase in the face of the opposition of major record companies and indifference of music publishers. … Without their belief and commitment, the [Recording Industry Association of America] RIAA (representing record companies) and the [National Music Publishers’ Association] NMPA (representing music publishers) would not have been forced back to the negotiating table.” This is a sentiment also held by independent songwriter George Johnson, who has consistently led the fight for a COLA adjustment through his participation in the Copyright Royalty Board proceedings.
For years, the NMPA didn’t push for the rate to be raised beyond 9.1 cents, while all sides weighed how to first establish streaming models and what rates should be paid for the fast-growing income stream of the music publishing business. While dealing with those larger issues, the NMPA and the labels continued the cycle of a 9.1 cent settlement for every five-year term from 2008 through 2022, and they were ready to do so again for the 2023-2027 term, as indicated in their initial settlement.
When Johnson, followed by other songwriter advocates like the Songwriters Guild of America and Music Creators of North America, pushed against the initial settlement rate of 9.1 cents for that term, the NMPA noted that litigation is costly, running into the tens of millions of dollars — which is why the organization initially focused on adjudicating streaming rates rather than the penny rate for physical and downloads. To litigate for both streaming and the penny rate would be even more costly than the millions the NMPA was already spending.
Moreover, it was argued that spending money fighting for the rate change for digital downloads and physical sales could be a wash for publishers when weighing the legal costs against how much additional revenue a possible rate increase could achieve. While physical and downloads back in 2021 accounted for 15% of market share for labels, for publishers it was a 5% market share. Some in the publishing business were also afraid that if they pushed for a higher penny rate, they would lose the support of the major labels in their quest for better streaming rates.
The CRB judges ultimately tossed out the 9.1 cent settlement for 2023-2027, and then the publishers and major labels came together to put together a second settlement for that term featuring a 12 cent penny rate and a COLA adjustment.
In a Dec. 7 statement about the upcoming adjustment from 12 cents to 12.4 cents for 2024, NMPA president/CEO David Israelite, said: “We are pleased that the Copyright Office has approved a Consumer Price Index (CPI) increase for physical products like vinyl records and digital downloads. Last year NMPA, the Nashville Songwriters Association International (NSAI) and others worked to raise these mechanical royalties from 9.1 cents to 12 cents — a 32% increase with the added insurance of including a mandated Cost of Living Adjustment (COLA) lift each year. While these forms of consumption are not top revenue streams in the current market they still represent a meaningful piece of the music industry and it is important that they continue to grow.”
In September, “Dumb Dumb” — a song by mazie featured in the Netflix teen drama Do Revenge — caught a wave on TikTok, and listenership grew exponentially. Over the course of two weeks, “the record went from doing around 10,000 streams per day to around 1.4 million per day and has sustained since,” says Max Gredinger, who manages the 23-year-old artist. “We saw increases across the rest of her catalog as well, which showed new fans were sticking around to learn more about mazie and her music.”
Artists and executives compare success on TikTok to the lottery — it often seems just that random. But crucially, the payout on a winning ticket doesn’t come from TikTok itself. The financial rewards accrue outside the platform in the form of royalties from streaming surges or a label advance, with seven-figure deals routinely thrown at viral acts in recent years. TikTok, which has built a thriving business based largely on users syncing videos to music, pays “almost nothing,” according to one music distribution executive.
There isn’t a fixed rate for music on TikTok; labels and distributors negotiate licenses individually. But one thing appears constant: “The numbers are horrifying,” says one manager who has had several songs take off on the app and shared his royalty statements with Billboard. A marketer who oversaw the campaign for a single that was used in roughly half a million TikTok videos reports that his artist took home less than $5,000 from the platform, despite the views numbering in the billions. TikTok’s parent company, ByteDance, “doesn’t view music as a value add,” says another senior executive. “They just view music as a cost center they have to limit as much as possible.”
So far, ByteDance has been very successful in doing just that. One indie-label head shared several months of royalty information indicating that 1 million views on TikTok leads to about $8 — actually a better rate than the one exhibited on three other indie labels’ most recent statements that were shared with Billboard. In contrast, managers say that while payouts from YouTube vary, 1 million views will usually earn somewhere between $500 and $2,000.
It’s surely not a coincidence that music industry complaints about the money flowing from TikTok are gaining traction as the major labels are negotiating licenses with ByteDance, which is planning to expand its streaming service, Resso, beyond test markets in Brazil, India and Indonesia. Speaking at a recent industry conference in Singapore, Universal Music Group (UMG) CEO Lucian Grainge warned the music business of a value gap “forming fast in the new iterations of short-form video.”
Adding to that sense of a value gap: As TikTok’s business expands — gaining more users and selling billions of dollars in advertisements — labels and distributors do not participate in that growth.
In a statement, TikTok global head of music Ole Obermann said: “We’re proud of the partnerships we are building with the industry and artists, and we are confident that we are enhancing musical engagement.” He added, “That translates directly to more financial and creative opportunities for music creators.”
Part of the debate over how much artists should earn from TikTok stems from a debate about the nature of the platform itself. TikTok is video-based, and Obermann has pointedly said that it is “not a streaming platform.” He reiterated this in his statement to Billboard: “Our community comes to TikTok to watch videos, not to listen to full-length tracks.”
But the app is already threatening established streaming platforms, which must battle for ear time with TikTok’s additive clips. And some in the music industry dispute Obermann’s claim — they already see a generational shift where “some people have a TikTok playlist and just use it as their music service,” as one indie-label head puts it. “Much of the [music] ‘discovery’ that happens on TikTok is consumption,” Mark Mulligan, managing director for music consultancy MIDiA Research, wrote in a recent blog post.
Sources say that individual labels and distributors have different deals with ByteDance, which negotiates lump-sum upfront payments to use their recordings on TikTok for a set period of time. (Since users can upload their own videos — with the music of their choice — to TikTok, ByteDance has added leverage in these negotiations. If a label doesn’t come to an agreement with the company, it will have to devote a good deal of time and resources to issuing takedowns.) In addition, each label and distributor can make its own decision about how to parcel out those payments to artists.
Many of the sources who spoke for this story are paid by their labels or distributors according to the amount of individual videos uploaded that incorporate their songs. Reports from one indie-label executive showed that acts on his roster earned around $150 from TikTok for roughly 100,000 videos made with their music. A manager who works with several artists who have had successful TikTok songs shared reports for individual tracks: One single brought in around $100 after being used in about 60,000 clips, while another earned $350 from over 80,000 videos.
Other sources say they see only TikTok views, rather than video creations, on the royalty reports they receive from their label or distributor — or make the decision to rely on views to calculate TikTok payouts internally. “If you’re paying based on creations, that’s saying it doesn’t matter if a song is heard one time or 1 billion times, and that would really devalue music,” says the indie-label head.
When executives examine TikTok payouts compared with views on platform, the money made seems even more minuscule. “TikTok doesn’t pay out nearly what any other view pays,” says a head of a record company that is distributed by a major. “It’s astronomically lower.”
Some in the industry who value TikTok as a marketing tool note that money flowing to the music industry has improved over time. And several sources compared the current situation to the music industry’s combative early relationship with YouTube.
In Singapore, Grainge warned of “repeating past mistakes,” citing both MTV and YouTube. “We were given a lot of reasons why our artists shouldn’t get paid,” Grainge told attendees. “People said, ‘It’s great promotion,’ ‘Or you can use it as a platform for discovering new artists’ … technology platforms were built on the backs of the artists’ hard work.”
Grainge called on key players to protect music’s “cultural and commercial value.” And the senior executive who believes that ByteDance sees music as a “cost center” expressed a similar sentiment. ByteDance “needs to move to a more rational model that equates more value with what is driving their business,” he says. “Only pressure is going to get them there.”
This story originally appeared in the Nov. 5, 2022, issue of Billboard.
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