State Champ Radio Royalties
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A year into SoundCloud’s fan-powered royalties, a departure from the traditional “pro rata” method of calculating streaming royalties, artists have a better understanding of their fan bases and a better chance to monetize their listeners, according to a new report by author, podcaster and economics professor Will Page.
Fan-powered royalties — known more broadly as user-centric royalties — is a method for calculating streaming payouts to independent artists based on individual fans’ listening on SoundCloud. The traditional, pro-rata model divvies up a large revenue pool based on a track’s total number of plays. In that scenario, an up-and-coming artist shares the same royalty pool as the biggest superstar.
User-centric royalties turn a big pool into smaller silos by splitting a listener’s subscription or advertising revenue based on only the tracks they streamed. If a listener streams only independent artists, most or all of the user’s subscription or advertising revenue will go to those artists. Since SoundCloud first announced fan-powered royalties in 2021, Warner Music Group and Merlin have agreed to use the calculation approach for their artists.
SoundCloud singles out an artist’s biggest fans and gives artists the tools to engage with those supporters through person-to-person messaging. With the help of tools that help artists engage directly with their fans on the SoundCloud platform, a small number of what SoundCloud calls “true fans” will provide an “outsize” share of an artist’s royalties. (Page did not define “true fan” or explain the threshold that separates them from less passionate ones.) The combination of the engagement tools and the fan-powered royalties “make this true fan game the most desirable to play,” wrote Page.
The promise of fan-powered royalties is a more sustainable business model for up-and-coming and working-class musicians. For SoundCloud, a well-known springboard for young musicians’ entry into the big leagues, a model that benefits independent artists over major-label superstars would help cement that platform’s credentials in the creator community.
So, Page offered three case studies that examined artists in different stages of their careers. In 2022, Rapper Lil Uzi Vert opted into fan-powered royalties and gave SoundCloud an exclusive on the track “Space Cadet” from his Red & White EP. As a result, according to Page, “more of Uzi’s listeners became true fans, and those true fans made up an even greater proportion of the overall revenue.” With fan-powered royalties and insights from the platform, true fans accounted for 6.5% of the rapper’s audience in July 2022, up from 5.2% in the previous month, as well as 71.8% of his revenue, up from 54.6%. The audience he gained was engaged: 6% of them were true fans, 69% were classified as engaged and only 9% were passive listeners.
To show that fan-powered royalties can help a mid-tier, independent artist, Page offers the example of Kelow LaTesha, a rapper with about 14,000 SoundCloud followers. LaTesha used fan-powered royalties to reach more listeners. True fans’ share of her revenue jumped to 45.7% in July 2022 from 32.2% in June 2022. The number of true fans increased, but because she gained a greater share of passive listeners, LaTesha’s true fans accounted for 1.4% of her listeners, down from 1.7%.
The do-it-yourself case study, focusing on EDM producer/DJ ShortRound, improved both his true fans and his revenue from those fans. From June to July 2022, true fans’ share of DJ ShortRound’s SoundCloud audience climbed from 3% to 4.4% and their share of his revenue jumped from 77.7% to 82%.
SoundCloud’s adoption of fan-powered royalties pre-dated a larger effort to make streaming more financially viable for labels and artists. Universal Music Group partnered with streaming service Deezer in 2023 to improve payouts to professional musicians while reducing payouts to background noise and other types of audio content that arguably provide less value to listeners. In Europe, politicians are calling for “fairer models of streaming revenue allocation” for artists.
SoundCloud’s approach might not be the best approach for all streaming platforms, but the handful of case studies is evidence that the approach works for SoundCloud. The combination of fan-powered royalties and creator tools “opens a new path to prosperity that the entire music industry should understand,” wrote Page.
Since unveiling Spatial Audio in June 2021, Apple Music has been pushing labels and artists to rework their music in the immersive format. Now, the platform is offering a financial incentive in the form of increased royalties.
In a letter sent out by Apple Music to its partners on Monday (Jan. 22) and obtained by Billboard, the streamer revealed that beginning with month-end royalty payments in January, music available in Spatial Audio — which is supported by Dolby Atmos — will receive a royalty rate up to 10% higher than content not available in the format.
“Pro-rata shares for Spatial Available plays will be calculated using a factor of 1.1 while Non-Spatial available plays will continue to use a factor of 1,” the letter reads. “This change is not only meant to reward higher quality content, but also to ensure that artists are being compensated for the time and investment they put into mixing in Spatial.”
The letter offers an update on the format’s adoption by artists and users, including a claim that more than 90% of Apple Music listeners have experienced the format and that “plays for music available in Spatial Audio have more than tripled in the last two years.” It additionally states that the number of songs available in the format has increased nearly 5,000% since launch and more than doubled over the last year alone. The company further claims that more than 80% of songs to have charted on the platform’s Global Daily Top 100 in the past year are available in Spatial Audio.
Seemingly to deter bad actors, the letter includes a mention of Apple Music’s “zero-tolerance policy against deceptive or manipulative content,” noting the service has a “quality control process that includes flagging content not delivered in accordance with Apple Music’s Spatial Audio specifications and standards of quality.”
Spatial Audio officially rolled out on June 7, 2021. The format, which provides a surround sound experience in users’ headphones, is offered at no additional cost for Apple Music users, seemingly to speed adoption. As part of this effort, Spatial Audio tracks also enjoy enhanced visibility on the app’s home page, sitting higher than even new music releases. Early adopters of the format included Taylor Swift, Katy Perry, The Weeknd, Billie Eilish, J. Cole and Post Malone.
In a June 2021 interview with Billboard, Eddy Cue, Apple’s senior vp of internet software and services, conceded that encouraging artists to mix their tracks for Spatial Audio would be a challenge given the time, work and financial investment required.
“This is not a simple ‘take-the-file that you have in stereo, processes through this software application and out comes Dolby Atmos,’” Cue said at the time. “This requires somebody who’s a sound engineer, and the artist to sit back and listen, and really make the right calls and what the right things to do are. It’s a process that takes time, but it’s worth it.”
At the SONA Warrior Awards in October, hitmaker Justin Tranter used his acceptance speech as an opportunity to warn the music business: “If we’re not careful,” he said. “We’re just not going to have any songwriters left.”
It used to be a lot easier to make a living as a songwriter. In the days of physical records, songwriters would get paid with each album sale, even if they had the least popular song on the album. Now, in the streaming era, songwriters say the only way to get a livable wage is to write the album’s breakout single. Getting a song on AM/FM radio is still a good way to make money, but radio hits are tough to come by. Plus, there’s the problem with artists demanding cuts of publishing income, even if they didn’t pen the song, and writing rooms have grown bigger than ever. For these reasons and more, songwriters like Tranter say the current business has led to the “decimation of the songwriter middle class.”
To try to alleviate some of the strain facing songwriters, three small independent labels – Tranter’s Facet Records, The Other Songs and Good Boy Records – have made a new pledge they hope will catch on: giving songwriters a percentage of master royalties— or “points” — on every single record.
“We didn’t feel like the industry was changing fast enough to fix this,” says Billy Webber, co-founder of London-based indie label The Other Songs, which has Ren, Navy and SUPER-Hi on its roster. His company, founded alongside brother Alastair Webber, started first as a series of events, offering songwriters the chance to perform their unused pitch songs in front of a crowd of publishers and advertisers. From the start, Webber says, they knew they wanted to not only take care of their artists, but also to look after the writers behind their records.
In 2020, The Other Songs started offering four points to songwriters on every recording, split between however many writers there are. (The policy excludes writers who are also the artist or producer, roles which already receive cuts of the master income.) They call it the “TOS Writer Royalty,” and it is taken from the label’s share of revenue — not the artist’s.
Tranter’s Facet Records — home to emerging talent like Jake Wesley Rogers, Shawn Wasabi and Shea Diamond — announced earlier this year that it would start a similar program, offering three points from the label’s share to songwriters, also split between however many non-performing writers were on the track.
Jaime Zeluck-Hindlin — founder of Nonstop Management which represents hitmakers JKash, Michael Pollack, and Ryan OG — says she has been calling for a standardized system for songwriter master points for years. She explains that her larger writers can sometimes get half a point or a point on a master when they have enough leverage to negotiate it, but it is still considered a luxury for anyone to receive. “It’s not the norm yet,” she explains. These days Zeluck-Hindlin asks for points for all her clients, not just the hitmakers, and has been making some headway, but she notes it’s a careful conversation that varies project-by-project. “More than ever,” she says, “it’s so hard for songwriters to make money, so I don’t feel as bad asking anymore.”
Writers and their teams are in a difficult position when asking for master points: They don’t want to push too hard and threaten getting cut out of sessions for being labeled “too demanding,” and if an A-list artist wants to cut a song, their name and image alone could propel it to success.
Songwriters historically have not received payment for the master recording, because they are not part of that formal recording process like producers and artists. But now, citing economic hardship for writers — even with a song that is a streaming “success” — it has become more common. “I’ve noticed people are way more open to the conversation than they were before,” says Zeluck-Hindlin.
It might seem like giving a songwriter master income is a band-aid for a larger issue, but those who are fighting for it feel it is the best option available, given the current system. Streaming rates on the publishing side have always been considerably lower than on the master side, and in the U.S., publishing income is regulated by the government, making it much more difficult to make changes.
Good Boy Records, a label started by producer Elie Rizk and entrepreneur and manager John Zamora that represents Mazie, Judith and Georgee, is also working on their own system for master points. “We want to give out one point per songwriter,” says Rizk. The team at Good Boy started to work on finding a way to cut in songwriters since Mazie hit it big with her song “dumb dumb,” which helped Good Boy recoup its distribution deal with Virgin and see “real money” for the first time earlier this year.
By May, the team paid every songwriter who had ever worked with the emerging label a small non-recoupable fee as a thank you. “Since then, we have gotten savvier with our system,” says Zamora. “We treat songwriters like we treat producers – with fees and points every time, but we are still evolving as we go.”
Some producers are also hoping to address the economic problems facing songwriters. Producer, Tre Jean Marie, posted to Instagram this summer that he would be giving £500 of his production fee to non-performing songwriters on every major label release he has. “I believe that the record labels, turning over billions of pounds in revenue every year, should shoulder the responsibility of ensuring songwriters are compensated for their time and work, but until that happens, I want to help,” he wrote. Rizk says he has also shared a portion of his producer fee and points with songwriters on the recent single “Heartbroken” by Diplo, Jessie Murph, and Polo G to makes the payments more equitable.
The heads of the three indie labels say that they hope that by being public about their new offerings for songwriters it will encourage other labels, especially larger ones with much greater financial impact, to follow suit. Tranter says they are already talking with one “pretty large company” to discuss how to implement a similar system at that company and is hopeful for more to follow suit.
But he is not confident the majors will accommodate songwriters anytime soon, especially those that are publicly traded. He thinks there are still other changes that can be made within any label to make it more songwriter-friendly, like offering per-diems, free lunch or free transportation to sessions.
“If we can do it [as a new label], then pretty much any record label that’s really taking itself seriously can do it as well,” Webber says. “Songwriters are basically the beating heart of our industry. Without them, we’re not going to have any masters anyway.”
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.”
True to its title, Brenda Lee‘s “Rockin’ Around the Christmas Tree” — which just notched its second straight week at No. 1 on the Billboard Hot 100 — brings in some serious green over the holiday season.
Billboard estimates that in 2022, the enduring holiday hit racked up $2.7 million in master recording revenue for Lee and her label, Universal Music Group, and $1.274 million in publishing revenue, totaling nearly $4 million, on the strength of 464 million on-demand streams and 25,000 track downloads.
So far this year, Billboard estimates the master recording has garnered $1.6 million in revenue and about $700,000 in publishing revenue, or $2.3 million total, on the strength of 301 million on-demand global streams and 16,000 track downloads.
In the United States last year, “Rockin’ Around The Christmas Tree” generated nearly 1.75 million song consumption units (track downloads and on-demand streaming), while it has so far accumulated 967,000 song consumption units (and, within that, 301 million on-demand streams) in 2023.
But there’s still plenty of holiday season left — and when you compare the 49-week period that has elapsed so far this year with the same period in 2022, it’s clear that “Rockin’” is on track to surpass last year’s total. The song’s 967,000 song consumption units to date in 2023 is far ahead of last year’s 807,000 song consumption units (and 195 million streams) at the same point. (Luminate doesn’t compile global song consumption units).
“Rockin’ Around the Christmas Tree” was solely written by the late Johnny Marks, whose publishing company, St. Nicholas Music, would get the publishing revenue. Marks wrote a number of other holiday favorites including “Rudolph the Red-Nosed Reindeer,” “A Holly Jolly Christmas,” “Silver and Gold” and “I Heard the Bells on Christmas Day.”
The above estimates don’t include whatever royalties come in from licensing the song to Christmas compilation albums; while the publishing total doesn’t include whatever revenue is generated from cover versions.
The Mechanical Licensing Collective (The MLC) has announced its new Supplemental Matching Network, which consists of five companies that specialize in data matching. This is aimed to help The MLC continue to up its match rate, which is currently at 90%. (According to The MLC, the match rate is defined as the percentage of total royalties processed that were able to match to a registered work in its database.)
The first five companies included in the Supplemental Matching Network are Blokur, Jaxsta, Pex, Salt and SX Works (a SoundExchange company). The list of companies that are part of the network may grow in the future to continue to bolster The MLC’s matching process. The MLC conducted qualitative evaluations of these vendors before choosing to partner with them, including testing the products through pilot programs as well as a “Request for Information.” This is the same process that The MLC has used for other strategic vendors.
While these five vendors will all provide key data to The MLC, the companies do not specifically address the most difficult songs to match: those created by DIY, unsigned songwriters, many of whom are still unaware of The MLC.
“We conducted an extensive due diligence process to select the initial set of vendors for our Supplemental Matching Network,” says Andrew Mitchell, head of analytics & automation at The MLC. “These vendors bring complementary technologies and capabilities that can be effectively leveraged to serve our members. This network reflects our ongoing commitment to evolve in innovative ways to best achieve The MLC’s mission.”
The MLC is a non-profit organization based in Nashville. It was formed as part of the Music Modernization Act (MMA), a landmark law that created a new blanket license for musical work mechanical royalties that greatly simplified the music licensing process for digital services like Spotify, Apple Music and more. It passed in 2018.
Previously, the industry operated on a piecemeal licensing system that was complicated for the services and also the music business, leading to a pool of over $400 million in unallocated streaming royalties because the compositions’ owners couldn’t be found. (This is colloquially known in the business as “black box” money, although The MLC uses the term “historical unmatched royalties.”) The MLC was tasked to implement and administer this new blanket license and distribute the money in this stagnant royalty pool. It officially opened its doors on Jan. 1, 2021.
Learn more about the five new vendors below:
Blokur
A music data and licensing platform that works with music rights owners and online platforms to connect music and companies providing online experiences. It is built on data matching and rights identification technology to ensure accurate payment.
Jaxsta
Jaxsta is a database for music credits, sourced from the official owners of that data. This includes record labels, distributors, publishers and industry associations. It provides recording matching services for PROs, MROs, CMOs and publishers, helping identify recordings to their underlying musical works. They assist in collecting payment for mechanical, performance and synch royalties.
Pex
Pex specializes in content identification and UGC data powering copyright compliance. Pex’s music recognition technology (MRT) is designed to identify works at scale, including modified audio, live versions and cover versions, so rightsholders can capitalize on all of the content they own.
Salt
Salt is a digital royalty collection platform that helps music societies streamline their disjointed music rights and royalty systems into one global network. Salt processes usage, matches ownership and calculates distributions, providing societies with matching and royalty–processing infrastructure
SX Works Global Publisher Services
SX Works Global Publisher Services, a SoundExchange company, provides administration solutions to music publishers, self-published songwriters and organizations who own, represent and/or engage with music to manage their repertoire across the music ecosystem. SX Works’ team and technology provides partners with access to metadata designed to ensure that musical works can be accurately licensed, identified and paid for their usage.
In 2023, Taylor Swift has towered above her musical peers on multiple fronts. And earlier this week, she racked up another major achievement when she was named Spotify‘s top-streamed artist of 2023.
As part of its annual year-end Wrapped rundown on Wednesday (Nov. 29), Spotify announced that Swift had racked up 26.1 billion streams globally on the service since Jan. 1, topping the likes of three-time champ Bad Bunny as well as The Weeknd, Drake and Peso Pluma. This didn’t exactly come as a surprise considering the ongoing success of her late-2022 album, Midnights, as well as two chart-topping re-recordings: Speak Now (Taylor’s Version) and 1989 (Taylor’s Version), the latter of which racked up a whopping 375.49 million on-demand official streams in its first week.
Swift’s year on Spotify tops any artist ever on the platform, which — now 15 years since launching — keeps expanding its user base annually. For comparison, when Bad Bunny was announced as the top Wrapped artist in the prior three years, he had 18.5 billion streams in 2022, 9.1 billion in 2021 and 8.3 billion streams in 2020.
According to Billboard‘s royalty calculator, Swift’s 26.1 billion streams amount to about $97 million in recorded music royalties. And the year’s not even done yet. When estimating her total streams through December, that number would swell to 27.2 billion, amounting to recorded music royalties of $101 million through the end of the year from Spotify alone. Add in publishing revenue, and Swift’s music will have earned about $131 million on Spotify by the end of the year.
Of course, that only accounts for Swift’s performance on Spotify, which remains the streaming market leader. When tallying on-demand streams across all platforms — including such heavy-hitters as Apple Music, YouTube Music and Amazon Music — Billboard estimates that her catalog racked up a total of 38.3 billion streams through the end of the year, amounting to a total of about $160 million in recorded royalties, by Billboard’s estimates. With publishing, Swift’s total on-demand streaming revenue gets close to $200 million.
It’s worth noting that Swift likely takes the lion’s share of this money. In her contract with Universal Music Group and Republic Records, signed in 2018, she retained master rights to all of her music going forward. That includes all four of her re-recorded Taylor’s Version albums so far: Fearless, Red, Speak Now and 1989. That re-recording project — which she famously embarked upon after her previous label, Big Machine Records, was acquired by Scooter’s Braun‘s Ithaca Holdings in 2019, much to Swift’s chagrin — has performed beyond likely even Swift’s wildest dreams. And it’s proven a lucrative gambit for the superstar, whose Taylor’s Versions have consistently outperformed the originals on streaming since their respective releases.
Not bad for someone who famously pulled her catalog from Spotify less than a decade ago, calling it a “grand experiment.”
Additional reporting from Glenn Peoples.
A coalition of artist and label groups is calling on legislators to urgently address a 2020 court ruling that risks seeing European musicians lose out on millions of euros in royalties each year to U.S. acts.
For decades, American musicians have been denied royalties for the use of their music on broadcast radio or when it’s played in cafes, shops and bars in many overseas countries due to the lack of equivalent terrestrial radio performance and public performance rights in the United States. This practice is based on a principle known as material reciprocity, which means that broadcast and performance revenues are only paid out to countries that apply the same rights.
The longstanding practice of reciprocal treatment was, however, suspended in the European Union (EU) by a 2020 ruling from the European Court of Justice (ECJ). In that decision, the ECJ decreed that all recording artists are entitled to an equal share of the royalties generated when their music is played on radio or in public premises in the EU, regardless of their nationality — or the absence of radio and performance rights in an artist’s home country.
Brussels-based independent labels trade body IMPALA says the ECJ ruling will result in European artists and labels losing out on around 125 million euros ($137 million) in royalty income each year, with the equivalent sum instead going to U.S. musicians. Previously, these broadcast and performance royalties were mostly divided up between local labels according to their market share.
European countries that currently withhold public performance and broadcast royalty payments to U.S. artists and labels include the United Kingdom, France, Belgium, Denmark and Ireland. (Outside of Europe, three countries —Japan, Argentina and Australia — also deny royalties to U.S. musicians because of a lack of reciprocal rights).
In 2019, prior to the court ruling, SoundExchange, which issues licenses to online and satellite radio services, estimated that recording artists and rights holders in the United States lost out on an estimated $350 million in royalty payments due to what it called the “unfair treatment of music creators.”
So far, the Netherlands is the only EU country to change its legislation in line with the ECJ ruling, which has become widely known as the “RAAP” case in reference to Irish collection society Recorded Artists Actors Performers (RAAP), which initiated the reforms by taking legal action against Phonographic Performance Ireland (PPI) in 2020. In that case, RAAP challenged PPI in the Irish High Court after it reduced royalty payments to performers from a 50-50 split with labels to around 20%. The case was then referred up to the ECJ, which made the now-controversial ruling in September of that year.
U.S. repertoire represents around 40% of all public performance and broadcast income collected annually in the Netherlands, according to Dutch collecting society SENA. Until recently, this income was neither collected nor distributed. Since the change in practice, SENA has increased its tariffs on public performance royalties from 12.5% to 26%.
Will Maas, chair of the Netherlands’ musicians’ union, said in a statement that the rise in rates is not enough to make up for the additional U.S. repertoire now being collected, resulting in a “clear and substantial drop” in revenue going to Dutch and European performers. “This is what awaits other countries if nothing is done to address this,” he added.
In response, IMPALA executive chair Helen Smith wants the European courts to reverse its 2020 ruling and restore the principle of material reciprocity.
“It is the EU’s responsibility to prevent European artists and producers losing millions every year to the USA, which has chosen not to protect these rights,” said Smith in a statement. She added that the lack of terrestrial radio performance rights and public performance rights in the United States costs the world music economy “hundreds of millions, if not billions a year.”
IMPALA also supports a flexible solution that would enable EU countries to pay U.S. artists if they already did so before the ECJ judgment.
Other music groups and CMOs backing IMPALA’s call for action include Adami in France, the Swedish Musicians’ Union, Belgium’s PlayRight and the German Federation of Musicians. They argue that reciprocal treatment forces countries to raise their own levels of protection for musicians by not allowing nations to benefit from other countries’ rules unless they follow the same standards.
Not everyone in the music business is against the ECJ ruling and the push for so-called national treatment — whereby foreign recording artists and labels receive the same types of royalties as the nationals of a given country — to be standardized across the global music business. Executives who back national treatment say that any fall in label income would likely be offset by the increased set of rights and royalty collections elsewhere in Europe resulting from the ECJ decision.
That, however, is not a view shared by IMPALA or its members.
“Hundreds of thousands of artists count on the EU to do the right thing,” said Dutch musician Matthijs van Duijvenbode in a statement, “and to do it fast.”
Universal Music Group (UMG) has won the dismissal of a closely-watched class action that challenged the fairness of its 2008 purchase of shares in Spotify — a case that accused the company of taking lower-than-market royalty rates in return for a chunk of equity that’s now worth hundreds of millions.
The lawsuit, filed last year by the members of the ’90s hip-hop duo Black Sheep, claimed that UMG had secured its now-lucrative stake in the then-nascent streamer by signing an “undisclosed, sweetheart deal” that left artists underpaid to the tune of $750 million. UMG has called the claims “patently false.”
In a decision Monday (Nov. 20), U.S. District Judge Jennifer L. Rochon ruled that even if UMG had taken below-market royalty rates from Spotify in return for equity, doing so would not have breached its contracts with artists — which give the music giant “unfettered discretion” to license its recordings as it sees fit.
“Plaintiffs argue that UMG exceeded the bounds of its discretion under the contract by making an undisclosed licensing deal in exchange for Spotify stock, for which UMG is withholding artists’ rightful share … of the proceeds UMG reaped,” the judge wrote. “But they do not square that conclusion with UMG’s unlimited right to license their work.”
Black Sheep members Andres “Dres” Titus and William “Mista Lawnge” McLean sued in January, claiming Universal acted in “bad faith” when it secretly acquired a 5% stake in the “fledgling streaming service” in 2008 for just a few thousand dollars. The real payment to Spotify, the lawsuit claimed, had been UMG’s willingness to accept “substantially lower royalty payments” — an arrangement that benefited UMG and Spotify but “shortchanged artists” and “deprived” them of fair royalties.
“Universal concealed from artists that it acquired Spotify stock and that royalty payments were depressed as a result,” lawyers for the duo wrote in their complaint. “Over time, the value of the Spotify stock that Universal improperly withheld from artists has ballooned to hundreds of millions of dollars.”
When the case was filed, Universal called the claims “patently false and absurd.” In later court filings, the company flatly denied the core allegation: “UMG disputes that the equity stock acquired in 2008 was part of the consideration that Spotify provided for a license to UMG’s music catalog.”
Reps for both UMG and Black Sheep did not return requests for comment on Tuesday.
The major music companies all acquired equity in Spotify during the streamer’s early days. According to a 2018 report by Music Business Worldwide, the then-Big Four music companies (Universal, Warner, Sony and EMI) plus Merlin paid just €8,804 total for a combined 18% of the streamer divvied up between them. The role that royalty rates played in that deal, and whether artists would eventually see some of the profit, was hotly debated for years.
After Spotify went public in 2018, it started to become clear just how valuable those stakes had become. Sony Music sold 50% of its shares for $768 million in April 2018, followed by Warner selling its entire stake for $504 million in August 2018. Both later made good on previous pledges to disburse some of the proceeds to artists, although reportedly with differing stipulations.
Universal has yet to sell its shares in Spotify, but it made a similar pledge in March 2018. Later that year, when Taylor Swift signed with the company, she reportedly required that UMG further promise to distribute the money to artists regardless of unrecouped balances — meaning artists will be paid regardless of whether they still owe the label money.
But in their lawsuit, Black Sheep argued that such promises were not good enough. They said Universal had already wronged many of its artists in one of two ways — simply by taking lower rates and thus reducing their royalty payments, or by failing to disburse the profits of their equity stakes as royalties.
In Monday’s ruling dismissing the case, Judge Rochon said she did not even need to decide whether or not those allegations were true. Instead, she simply ruled that even if they were true, Universal would still not have violated its record deal with Black Sheep.
“The contract’s plain language does not support plaintiffs’ theories,” the judge wrote about the allegedly reduced rates, noting that the deal gave UMG the “sole, exclusive and unlimited right” to license the recordings. “Given this wide discretion, there is no basis upon which to find that UMG breached the contract by accepting a lower royalty from Spotify.”
Judge Rochon also rejected the argument that UMG should have accounted for the equity profits when paying artists, saying the contract only requires payment for revenue that is “solely attributable” to their specific songs.
“Plaintiffs cannot directly trace UMG’s alleged acquisition of Spotify stock to the use or exploitation of their work alone,” the judge wrote. “UMG did not breach the contract by failing to account for its value when paying Plaintiffs their royalties.”
Even beyond the merits of the lawsuit, the judge also said she would have dismissed most of it for a far simpler reason: That it had been filed far past the statute of limitations. If the case had moved forward, Rochon said it only would have applied to royalty payments made after January 2021, not those reaching back all the way to 2008.
Functional content — think rain noises, whale sounds, recordings of wind rustling the leaves and the like — will be significantly devalued under Spotify‘s new royalty system: Plays of this audio will generate one fifth of the royalties generated by a play of a musical track, according to a source with knowledge of the streaming service’s new policy.
In response to a request for comment, a Spotify spokesperson pointed Billboard to the streaming service’s blog post from Tuesday (Nov. 21). The blog notes that, “over the coming months,” Spotify will “work with licensors to value noise streams at a fraction of the value of music streams.” The blog does not say what the fractional amount will be.
Spotify’s decision to count functional content at 20% of the rate for music tracks is the culmination of nearly a year’s worth of bad press for rain sounds and the like. While this type of audio is often used for the seemingly innocuous purpose of relaxing after a long and stressful day, Spotify wrote on its blog that the space is “sometimes exploited by bad actors who cut their tracks artificially short — with no artistic merit — in order to maximize royalty-bearing streams.”
This initiative, says Spotify’s blog post, is intended to free up “extra money to go back into the royalty pool for honest, hard working artists.”
As a result, some of the most powerful executives in music have launched a sustained assault on rain and its various non-musical cousins over the course of 2023. “It can’t be that an Ed Sheeran stream is worth exactly the same as a stream of rain falling on the roof,” Warner Music Group CEO Robert Kyncl told analysts in May.
Two months later, Universal Music Group CEO Lucian Grainge told analysts that streaming services must ensure that “real artists don’t have their royalties diluted by noise and other content that has no meaningful engagement from music fans.” He later amped up the rhetoric by describing companies that upload this content as “merchants of garbage” that were “flooding the platform with content that has absolutely no engagement with fans, doesn’t help churn, doesn’t merchandise great music and professional artists.”
When UMG rolled out a new royalty system with Deezer in September, the streaming service said it would replace “non-artist noise content” with its own functional music, while also excluding this audio from the royalty pool. “The sound of rain or a washing machine is not as valuable as a song from your favorite artist streamed in HiFi,” Deezer CEO Jeronimo Folgueira said. Deezer said plays of rain, washing machines and other non-music noise content counts for roughly 2% of all streams.
Spotify did not provide a comparable number in its blog post. It is taking one other step to limit the impact of functional content on the royalty pool: To generate royalties, a functional audio track must be longer than two minutes.
“These policies will right-size the revenue opportunity for noise uploaders,” Spotify wrote. “Currently, the opportunity is so large that uploaders flood streaming services with undifferentiated noise recordings, hoping to attract enough search traffic to generate royalties.”
