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Publishers should get ready to welcome a royalty windfall now that the Copyright Royalty Board has printed its Phonorecord III final determination in the Federal Register — the last step to make the new rate structure official, concluding a more-than-four-year royalty row between publishers and streaming services.
The question is, how much that bonus will be.
While various industry estimates are all over the place with some even reaching another $400 million, by Billboard estimates, the just announced determined rates — finalized eight months after the 2017-2022 term expired — could yield up to another $250 million in underpaid mechanical royalties flowing from digital services to publishers and songwriters.
Now, digital services like Spotify, Amazon Music, YouTube and Pandora have six months to review and adjust past payments made for U.S. mechanicals to the new rates. Doing that will take a complicated assessment of past payments and applying them under the new finalized structure.
The ruling increases U.S. mechanical royalties each year during the five-year period using a multi-pronged formula based on choosing between either the royalties calculated using a “headline rate” tied to a percentage of the streaming service’s total revenue; or another pool that is calculated by using the lesser of either a percentage of total content cost — i.e. what’s paid to labels — or 80 cents per subscriber. Under the new finalized determination — which for the percentage of service revenue prong, is the same as the initial determination for the 2018-2022 term — the headline rate increased from 11.4% of service revenue in 2018 to 12.3% in 2019 to 13.3% in 2020 to 14.2% in 2021 and to 15.1% in 2022.
From there, performance royalties that are negotiated with and paid out to rights organizations like ASCAP and BMI are subtracted from the all-in pool, leaving just the mechanicals behind. The mechanicals are then measured against a 50-cents-per-subscriber floor, and whichever is bigger becomes the final mechanical royalty pool paid out to publishers and songwriters.
Until an appeal of the initial CRB rate determination initiated by independent songwriter George Johnson and joined by most of the big digital services sent it back to the CRB in July 2020, most of the streamers had been paying royalties under the high escalating rates from the initial Phonorecords III determination. But with the remand, in the fall of 2020, most services reverted to paying music publishing royalties using Phonorecords II rates from 2013-2017 while the appeal was sorted out. As an example, looking at just 2020 rates, that meant digital services abandoned the royalty structure that paid 13.3% of service revenue or 24.1% of total content cost and switched back to using the prior headline rate of 10.5% of service revenue and 21% of total content cost.
(This article uses rates and math associated with what’s known as the stand-alone portable streaming model — i.e., a single paid subscription — because it’s the dominant model that produces the most revenue in the U.S. marketplace. The rate formula has different percentages and parameters for other models like bundled, ad-supported, family or student tiers.)
Under the CRB judges’ final determination published in the Federal Register, the Phonorecords III royalty calculation keeps the escalating rate structures for on-demand streaming for the percentage of revenue prong in the formula but abandons an escalating rate structure for the cost-of-content prong. So, in the case of a single paid subscriber, that prong will apply 21% of total content costs to build an all-in pool to cover both mechanical and performance royalties, instead of the previously used — from the initial 2018-2022 determination announced in 2019 — annual escalating rates that in 2022 would have culminated at 26.1% of total content costs. That means in months where the total content cost became the all-in prong, the streaming service most likely overpaid publishers under the new rate structure.
In addition to eliminating an escalating rate structure for that prong, the CRB judges reapplied a ceiling for the total content bucket limiting what digital services would have to pay publishers. The initial 2018-2022 determination took out the ceiling mechanism, which would have meant that every time labels negotiated a higher rate, the music publishers and songwriters would also automatically benefit by a higher rate. Now, services reviewing their previous payments will need to measure the total cost of content bucket against the 80-cents-per-subscriber ceiling. Whichever of those two buckets is lower is then measured against the headline bucket and, this time, whichever is larger is chosen as the all-in bucket.
Reinstating the ceiling and jettisoning the escalating rate structure for the total content all-in pool could mean publishers were actually overpaid tens of millions of dollars for the 2018-2020 years, Billboard estimates based on Mechanical Licensing Collective and Harry Fox Agency royalty calculations data obtained from publishing sources. That amount, however, will be more than offset by the hundreds of millions of dollars in additional payouts that digital services will have to make for 2021 and 2022.
Billboard doesn’t have all the data necessary to calculate mechanical revenue on a month-by-month basis for each digital service, but looking at overall payments and reports to the Mechanical Licensing Collective can provide a simplified ballpark estimate on how much is owed to publishers and songwriters over the Phonorecords III five-year period.
First, let’s look at the first three years when it’s likely that services overpaid publishers and songwriters because they used the since-abandoned initial determination’s escalating percentages for the total content pool when calculating royalties. With Spotify, for example, according to data obtained by Billboard for the streamer’s Premium Individual tier, the headline rate royalty bucket won out most of the time for two of those years — 2019 and 2020 — to become the all-in bucket. Since the headline bucket rates are the same before and after the remand, it’s likely there were relatively minimal overpayments during that period. In 2018, however, Spotify’s total cost of content bucket appears to have won out all year — and that was at a higher rate of 22%, not the remanded 21%, and without a ceiling. So, in that year alone, Spotify likely overpaid by as much as $10 million on that tier alone, Billboard estimates, and is due to receive that money back from publishers and songwriters.
Based on that, and not knowing what kind of label licensing deals all digital services have, Billboard calculates — and some industry financial sources agree — that as much as $50 million in over-payments might have been paid by the digital services to publishers and songwriters overall during the 2018 through October 2020 period.
For that period, any overpayments will mostly be sorted out directly between the digital services and the publishers because the Mechanical Licensing Collective — created following the Music Modernization Act was signed in 2018 — hadn’t begun operating yet. Though, the organization will need to be involved in in recalibrating royalty payments that came from unmatched and unpaid royalties, which digital services turned over for those years at the MLC’s inception.
For 2021 and 2022, however, once the MLC began operating, the organization will be responsible for managing any royalty adjustments, once the new data and additional funding is received from the digital services.
In 2021, U.S. digital services reported $9.76 billion in estimated service revenue to the MLC, while the all-in publishing revenue totaled $1.31 billion — or 13.38% of service revenue — according to Billboard estimates based on MLC data obtained by Billboard. Taking a simplified across-the-board approach applying that year’s 14.1% headline rate against the total revenue of $9.76 billion would deliver nearly $1.39 billion in mechanical royalties — a $80 million bonus to publishers and songwriters.
For 2022, the payouts will likely be even greater. That year, digital services reported $10.78 billion in service revenue to the MLC and paid out a total of $1.45 billion in mechanical and performance royalties — or 13.5% of total revenue. Applying the 15.1% headline rate for that year produces about $1.63 billion in all-in publishing revenue — making for an extra $175.1 million in mechanical royalties.
Combined, 2021 and 2022 could yield an additional $255 million in mechanical royalties, by Billboard‘s best estimates. Depending on how much services can claw back from overpayments made during 2018 through October 2020, Billboard estimates publishers and songwriters will receive a windfall of $200 million to $250 million.
Once those payments are settled, it will be up to publishers to figure out payments to their songwriters under the new rate structure.
Beyond the windfall expected due to adjustments for over payments in 2018-2020 and the much larger underpayments in 2021-2022, Billboard estimates that the MLC holds an additional $350 million or so in unmatched or unclaimed royalties. In March of this year, the MLC reported to Billboard that it had paid out over $200 million of the $427 million pool in mechanical royalties it was handed from the years prior to when it began operating on Jan. 1, 2021. Sources say that since then, the prior 2021 unclaimed and unmatched pool has been further reduced with a total of almost $300 million now paid out. That leaves around $130 million in unclaimed royalties.
But what about 2021 and 2022? Since the MLC began, it has been matching about 90% of royalties from recordings to songs. In addition to the remaining 10% of songs that are not yet matched to recordings, there are songs building up the unpaid royalties pool because their credit claims do not add up to 100%. If a portion of a song’s credits are not claimed, that portion of the song’s royalties goes into the unclaimed and unmatched pool. Consequently, the overall payout rate the MLC is making nowadays comes out to about 84% of mechanical royalties received from digital services, according to sources, which is a considerable improvement compared to the 68–72% digital services matched and paid prior to the MLC’s launch.
In 2021, digital services paid the MLC about $675 million in mechanical royalties, Billboard estimates, and in 2022, they paid about $740 million. If 16% of the royalties for those two years are unmatched or unclaimed, that would make for another $225 million. And when 2018-2020 is added in, the MLC has a little more than $355 million in unmatched or unclaimed royalties still to be doled out to publishers and songwriters.
In addition to the publishing royalties still held by the MLC, Billboard estimates the finalized CRB rate determination will result in $50 million in overpayments to publishers for the 2018-2020 period and about $250 million in underpayments for 2021-2022. Within those totals, some of those adjustments will impact the $350 million or so unmatched and unclaimed royalties still held by the MLC.
While the Radio Music Licensing Committee awaits an appeals court decision in its so-far unsuccessful attempt to combine rate court proceedings with ASCAP and BMI under a single judge, the trade group has filed federal petitions to begin the processes separately in the Southern District of New York.
Usually, such rate proceedings petitions are initiated after negotiations between the performance rights organizations and the RMLC prove fruitless. Under these petitions, the PROs will each make the case for what rate it thinks their songwriters and publishers are entitled to receive when their songs are played on the radio. This time out, for the period of 2022-2026, the RMLC is seeking to maintain the same rates it had under the prior agreement which covered 2017-2021.
In July 2022, the RMLC tried to get ASCAP and BMI combined into a single rate proceeding, thus showing its hand that it felt rate negotiations had failed. For decades, each PRO had its own separate rate proceeding, but about seven or eight years ago, the RMLC began a new rate court strategy of trying to assign market share to the four U.S. PROs — ASCAP, BMI, SESAC and Global Music Rights — in attempt to keep the rates in parity with market share, irrespective of each PRO’s song catalog. In filing its petition to consolidate the rate proceedings to the Southern District of New York, which oversees both rate proceedings and the ASCAP and BMI consent decrees, the RMLC said the act was justified by the Music Modernization Act of 2018 that changed how the the Southern District assigns the rate court proceeding.
The step to combine the rate proceedings into one was seen by some music industry executives as a further attempt to pursue that rate strategy. Having a single judge, instead of bifurcated rate court proceedings, could benefit the RMLC because it would likely pit BMI and ASCAP against each other, vying for a higher rate than the other with both PROs arguing over market share.
But in May this year, Southern District Court Judge Stanton ruled against the RMLC’s consolidation petition so the radio trade group subsequently appealed that decision. The Second District Appeals Court has yet to issue a ruling on the RMLC motion, but in the meantime, the RMLC is getting the ball rolling with the rate court by filing amended petitions on BMI on Aug. 10 and on ASCAP on Tuesday.
Despite filing petitions for the two rate court proceedings, the RMLC petition for the ASCAP rate court proceeding says that if the Second Circuit Appeals Court ultimately agrees with the RMLC position to combine the two rate court proceedings into one, “it reserves all rights at the appropriate time” to pursue a unitary action against ASCAP and BMI.
The ASCAP rate proceeding covers the current five-year term which began on Jan. 1, 2022. In the prior term (2017-2021), RMLC said it paid a combined 3.51% of net revenue as a royalty pool for the two PROs, with ASCAP getting 1.73% of that based on market share claims it made at the time — which the RMLC now says was “a representation that turned out to be false.” Meanwhile, BMI received 1.78% of radio stations’ net revenue.
Nevertheless, in May 2022, according to the petition, the RMLC asked ASCAP and BMI if they would be willing to roll forward the combined 3.51% of net revenue royalty pool, provided that ASCAP and BMI would agree on a mechanism for assessing each of their market shares.
Although the rate level would be the same, the RMLC implies it is actually an increase because the combined ASCAP and BMI share of total performances on RMLC stations likely has diminished since when the prior agreements began, the RMLC argues in its petition.
Meanwhile, it looks like BMI is requesting a rate increase from 1.78% to 2.95%, according to what the RMLC states in the BMI petition; while the RMLC ASCAP petition doesn’t disclose the rate ASCAP is seeking.
The RMLC didn’t immediately respond to a request for comment.
“The RMLC would rather continue to waste time and money on expensive litigation than simply paying songwriters a fair royalty for the use of their music,” ASCAP CEO Elizabeth Matthews said in a statement. “It’s not that complicated. Simply treat music creators who support your successful and profitable businesses with dignity and respect and everyone wins.”
While the PROs and the RMLC wait for the rate court proceedings to make a determination, all parties have agreed to an interim rate that allows radio to continue to play music without copyright infringement.
The Copyright Royalty Board’s final determination for royalty rates for making and distributing phonorecords for the 2018-2022 term (aka Phonorecords III) were published by the Federal Register late last week, following a legal review — and close check for typos — by the office of Register of Copyrights Shira Perlmutter.
The majority of the rates determination is no surprise. Since the official remand by an Appeals Court in October 2020 — which followed a March 2019 appeal by digital services of the CRB’s February 2019 rates determination for the 2018-2022 term — the CRB judges had been wrestling with different aspects of the complicated mechanical rate formula cited by the appeal courts, with various aspects of the rates determination coming out in dribs and drabs over the last eight months.
As is already known, the CRB judges stayed with the escalating rate structure for the all-in percentage of revenue prong, which covers both mechanical and performance royalties, for on-demand streaming for the 2018-2022 period.
(The 21% of total content cost is for performance royalties are determined by a separate process but whatever was agreed to be paid to ASCAP, BMI and the other performance royalty organization is subtracted from the all-in bucket in one step of the process to determine one of the mechanical rates bucket.)
That rate structure escalated from 10.5% in the prior five-year term of 2013-2017 to 11.2% in 2018, 12.3% in 2019, 13.4% in 2020; 14.2% in 2021, and 15.1% in 2022. But in moving to the other all-in prong — the total cost of content prong, i.e. what the services pay the record labels — the CRB judges re-installed the ceiling, which prevents publishers and songwriters from automatically being rewarded when labels and artists negotiations higher rates from the services; and the judges abandoned the earlier escalating rate structure from its initial 2019 determination for the total cost of content prong, which similarly rose in annual increments from 21% of what’s paid to labels to 26.1% over the five year term. Instead, the judges stuck with 21% of total content cost for the full five-year term — the same percentage it had been in the previous five years.
(This article mainly uses the percentages from what’s known as the stand-alone portable streaming model, i.e. the main on-demand streaming vehicle, which at Spotify is known as the paid subscriber tier. The ad-supported rate is 22% of what’s paid to labels.)
In other moves, the CRB stuck with 9.1 cents per song for physical and downloads and 24 cents per ringtone for Phonorecord III. In Phonorecords IV, for 2023-2027, the royalty rate for ringtones would remain the same but the per song rate will earn 12 cents per track or 2.31 cents per minute of playing time or fraction thereof, whichever amount is larger for physical products and permanent downloads. Also, that rate will be subject to an annual cost-of-living adjustment.
Before an Appeals Court remanded a significant part of the CRB rate determination for 2018-2022 back to the CRB, digital streaming services were adhering to the structure of the initial determination which means that for some 33 months the formula applied the higher rates for the total cost of content prong without a ceiling. As such, industry sources speculate that some digital services overpaid during that period — and Billboard estimates that they might have over paid by $50 million.
But after the remand most services reverted back to the 2013-2017 rates of which used the headline rate of 10.5% of revenue, and consequently most industry financial sources suggest that the service underpaid from October 2020 through December 2022. Consequently, Billboard estimates that digital services collectively might owe $200 million to $250 million for the latter period. Looking at the two period, with the earlier one 2018-2020 partially offsetting the later period of 2021-2022, that could mean a $200 million windfall for publishers and songwriters.
Now that this has all been settled, the Mechanical Licensing Collective—working with required updated information from the digital services—has six months from the Aug. 10 date to make adjustments in what has been paid and what may still be owed from 2021 and 2022, the two years the MLC has been in operation. It will also have to rectify any under or over payments for unclaimed and unpaid royalties from the earlier periods before it began operations— a responsibility it was handed as part of the Music Modernization Act.
But besides the unpaid royalties, any needed adjustments to the rest of the payments made to publishers and songwriters during the 2018-2020 period will be handled by the digital services, likely with the help of their third party vendors, i.e. Music Reports Inc and the Harry Fox Agency.
The Phonorecords IV rate determination for 2023-2027 preceded the final determination for Phonorecords III, as it was published in the Federal Register on Dec. 16, 2022.
Reps. Ted W. Lieu (D-CA) and Ben Cline (R-VA) have joined together to re-launch and co-chair the bipartisan Congressional Songwriters Caucus to focus on advancing policies that support independent songwriters and strengthen copyright protections.
The new caucus has support from the Recording Academy, Nashville Songwriters Association International, BMI, ASCAP and the National Music Publishers’ Association (NMPA), according to a press release. No specific names of independent songwriters were included in the release, and a representative for Lieu has not responded to Billboard’s requests for more information.
The caucus was originally formed in 2003 by Sen. Marsha Blackburn (R-TN) when she served as a House representative for Tennessee. According to her website, part of her focus at the time was cracking down on China’s intellectual property theft and how that affected songwriters and other creatives.
The interests of musicians is also represented in Congress with the Recording Arts and Sciences Congressional Caucus, which was established in 2005 and continues today, helmed by Speaker of the House Kevin McCarthy (R-CA) and new Democratic Leader Hakeem Jeffries (D-NY).
Hailing from Southern California, Rep. Lieu says he understands first hand how “talented songwriters… contribute to so much of our culture and society. I’m thrilled to join Congressman Cline in co-chairing the new bipartisan Congressional Songwriter’s Caucus, which will work to support America’s brilliant songwriters by ensuring they can protect their work and make a living doing what they love. Music contributes so much to our way of life, and we must ensure those creating it are compensated fairly. I’m grateful to the numerous songwriter advocacy organizations who’ve partnered with us on the creation of this caucus and look forward to working together to support our artists.”
“Making art, specifically music, is a powerful way to leave a mark on the world,” says Rep. Cline. “It’s a part of our everyday lives, from what we listen to on our commutes in the morning, to the music we select for our most important life events, such as birthdays, weddings, and funerals. But today’s modern music landscape can make it more difficult for certain artists, especially independent songwriters, to make a living. That is why I’m proud to co-chair the Congressional Songwriters Caucus, which will play an important role in promoting the songwriting community by working to ensure the creative rights of songwriters are protected.”
“It All Begins With A Song,” says Bart Herbison, executive director of NSAI. “the entire music ecosystem. Since the Songwriters Caucus was initially launched 20 years ago, technology has completely changed the way music is delivered. American songwriters still face challenges in the digital era and we are very grateful to Congressmen Cline and Lieu for their bipartisan support.”
“On behalf of our over one million affiliates, I’d like to thank Representatives Cline and Lieu for co-chairing the Congressional Songwriters Caucus. Both have always been champions for creators, and we are in excellent hands with them leading the charge for songwriters and composers on the Hill. We stand ready to work with them to ensure creators are supported by strong copyright law and that they are fairly compensated for their work,” adds Mike O’Neill, president and CEO of BMI.
“Songwriters are the foundation of America’s vibrant music industry, and we appreciate Representatives Cline and Lieu recognizing the importance of ensuring we have champions in Congress. As technology transforms the music landscape, ASCAP looks forward to engaging with members of the Congressional Songwriters’ Caucus to protect the rights of American music creators and defend the value of their hard work and creativity,” says Paul Williams, president of ASCAP.
“We applaud Representatives Cline and Lieu for leading the Congressional Songwriters Caucus and we are excited about today’s launch. NMPA is the leading advocate for music publishers and their songwriter partners and we greatly look forward to working with the Caucus to advance policy interests that will protect creators and ensure that songwriters thrive,” says NMPA president and CEO David Israelite.
“The Recording Academy is proud to support the re-launch of the Congressional Songwriters Caucus which helps connect songwriters and composers with lawmakers to ensure that their unique interests are heard and understood. We are grateful to the new Caucus Co-Chairs, Representatives Ben Cline and Ted Lieu, for their support and leadership and we look forward to working with stakeholders across the songwriter community to advance the Caucus forward,” says Recording Academy CEO Harvey Mason Jr.
Tim Rice will be the 2023 recipient of the Johnny Mercer Award at the 52nd annual Songwriters Hall of Fame Induction and Awards Dinner, which is slated for Thursday, June 15, at the Marriott Marquis Hotel in New York City.
Rice, who teamed with Andrew Lloyd Webber to write such classics as Jesus Christ Superstar and Evita, is the first songwriter primarily known for his work in theater to receive this award since Stephen Sondheim in 1999.
Rice is the second EGOT recipient to receive the Johnny Mercer Award – following Alan Menken. The two songwriters shared an Oscar and three Grammys for their work on Aladdin.
He’s the fifth songwriter or songwriting team from the U.K. to receive the honor, following Jule Styne (1993), Phil Collins (2010), Elton John & Bernie Taupin (2013) and Van Morrison (2015).
The Mercer Award, the SHOF’s highest honor, is reserved for a songwriter or songwriting team who has already been inducted in a prior year and whose body of work upholds the standards set by Johnny Mercer, a four-time Oscar-winner.
“I am truly honoured to be chosen to receive the Johnny Mercer Award,” Rice said in a statement. “My induction into the SHOF in 1999 was itself a highlight of my writing career and I never expected to receive any further recognition from the most distinguished gathering of songwriters in the world. So, I am bowled over (a cricketing metaphor) with gratitude. I have attended quite a few SHOF events in the past 25 years and they have always been among the most enjoyable of entertainment world extravaganzas – unpretentious, unpredictable, and spectacular. So, June 15, 2023, is a golden booking in my electronic diary.”
Inductees at this year’s Songwriters Hall of Fame Induction and Awards Dinner are Sade Adu, Glen Ballard, Snoop Dogg, Gloria Estefan, Jeff Lynne, Teddy Riley and Liz Rose. The recipient of a second honorary award, the Hal David Starlight Award, will be announced at a later date.
SHOF Chairman Nile Rodgers said, “Tim Rice is an artisan. He has crafted some of the greatest lyrics and stories in musical history with Jesus Christ Superstar, and his incredible work with Andrew Lloyd Webber being amongst my favorites.”
Rice has won an Emmy, five Grammys, three Oscars and three Tonys. He won an Oscar and three Grammys for his work on Aladdin; two Tonys, a Grammy and an Oscar for Evita and its film adaptation; a Tony and a Grammy for Aida; an Oscar for The Lion King and an Emmy for Jesus Christ Superstar: Live in Concert.
Rice has worked in music, theatre, and films since 1965. In addition to his work with Webber, Rice has worked with such other top composers as Elton John (The Lion King, Aida), Menken (Aladdin, King David, Beauty and the Beast) and Bjorn Ulvaeus and Benny Andersson (Chess). He has also written with Freddie Mercury, Burt Bacharach and Rick Wakeman, among others.
Rice’s recent musical From Here to Eternity returned to London in November 2022. A new Broadway presentation of Chess is set to open in the fall of 2023. In early 2024, a new production of Aida will make its U.K/West End début. Rice is currently writing and presenting a podcast, Get Onto My Cloud, in which he reminisces about his years in music, theater and film.
Arriving just before New Years’ Eve, on Friday (Dec. 30), the Copyright Royalty Board judges issued their ruling on streaming royalty rates for songwriters for the period of January 2023 to December 2027, upholding a settlement proposed by the National Music Publishers’ Association (NMPA), Digital Media Association (DiMA), and Nashville Songwriters’ Association International (NSAI) in late August. This ruling sets the rates for Subpart C and D of the five year period known as Phonorecords IV (or “Phono IV” for short), and it represents a compromise between the music industry and the streaming services, creating certainty around the royalties owed to songwriters for U.S. mechanicals.
According to the settlement, which the NMPA touts as the “highest rates in the history of digital streaming,” the headline rate will increase from 15.1% of revenue in 2023 to 15.2% in 2024 and then up a half a percentage point in each of the remaining three years, peaking at 15.35% in 2027, the final year of the term.
For stand-alone portable subscription offerings — like Spotify — the total content cost (TCC) component of the rate formula will be set at 26.2% of what’s paid to labels for the entire term, or $1.10 per subscriber, whichever is lower. Previously, those numbers were 21% of revenue and 80 cents per subscriber.
This means that the resultant TCC pool is measured against the total service revenue. Whichever is larger is designated the “all-in” pool, including both performance and mechanical royalties. After this is established, performance royalties are subtracted out, leaving behind solely the mechanical royalties.
Finally, the resultant mechanicals are compared against a pool, calculated by multiplying a streaming service’s total subscribers by 60 cents per person. Whichever of these two totals is bigger becomes the final mechanical royalty pool paid out to publishers and songwriters. Previously, the multiplier for the last 10 years had been set at 50 cents per subscriber.
This final ruling, reached two days before its rates are set to take effect, is a striking contrast from the lengthy proceedings to set streaming rates for Phonorecords III (2018-2022). Though that five year period is nearly over, its rates are still not finalized. In 2018, the music industry initially won the increase of the headline rate from 11.4% to 15.1% over the five year period, but the following year, Spotify, Amazon, Google and Pandora appealed, hoping to secure a lesser rate. This resulted in a legal back-and-forth that continues today, and although it is nearing its completion, it has created uncertainty surrounding what songwriters are owed for their work.
In hopes of streamlining the process and avoiding lengthy proceedings, the three settling parties worked together to propose a settlement for approval or denial by the CRB. Though other participants and interested parties outside of those who took part in the settlement were given the opportunity to explain their point-of-view during the month-long “comment period,” which ran from Nov. 7 to Dec. 7, the board explained in its ruling that its role is to either adopt or decline the settlement’s terms as presented, not to “modify” or add “requested adjustments.”
The ruling makes note of concerns provided by the 20 total commenters who weighed in on the settlement during the period, including that to some independent songwriters “the proposed rates might seem inadequate” and that several commenters prefer “alternative methods for inserting inflation adjustments.” “However,” the board states in the ruling, “the settlement is what is before the judges for consideration, not alternative rates or proposals for alternative procedures.”
In a statement Friday, NMPA president and CEO, David Israelite, celebrated the news. “Starting January 1, songwriters will enjoy the highest rates in the world and the highest rates in the history of digital streaming,” he said. “Thanks to the many songwriter advocates who worked hard to make this happen. There are still many challenges ahead to ensure that songs receive their proper value, but the future is bright.”
DiMA president and CEO, Garrett Levin, added, “We appreciate the Copyright Royalty Board for recognizing the benefits of this landmark agreement and the certainty it provides for streaming services, publishers, and songwriters alike. Thanks to the agreement, we can kick off 2023 focused on fans and continuing to grow streaming for the benefit of all stakeholders.”
Additional Reporting by Ed Christman
Songwriters have something to celebrate this holiday season. Though it seemed rulings on royalty rates for the period of 2018-2022 (Phonorecords III) and 2023-2027 (Phonorecords IV) would not receive final judgement by the Copyright Royalty Board in time for Christmas, there is finally clarity about at least one type of royalty. The board on Friday (Dec. 16) accepted a proposed settlement to hike the royalty rate for U.S. mechanicals for physical products (like vinyl records, CDs, cassettes), permanent downloads, ringtones and music bundles.
Taking effect on Jan. 1, 2023, as part of Phonorecords IV, songwriters will earn 12 cents per track or 2.31 cents per minute of playing time or fraction thereof, whichever amount is larger for physical products and permanent downloads. This will also include inflation-based adjustments for subsequent years of the rate period, a major change for composers who have historically been locked into stagnant penny rates for sales, despite the increasing cost of living. Ringtones will remain at the same rate as they were previously, and the money earned for each element of a music bundle will be decided according to the rates for that element.
The new ruling today approves what is known as “Settlement 2,” which was formed by the National Music Publishers’ Association (NMPA), Nashville Songwriters Association International (NSAI), as well as the major music companies: Universal Music Group, Sony Music Entertainment and Warner Music Group earlier this year.
As the name of the settlement implies, there was one that preceded it. In 2021, the same parties proposed “Settlement 1” which would have upheld the long-standing 9.1 cent penny rate for physical goods and permanent downloads. That proposed settlement was sent to the Copyright Royalty Board judges for approval last year, but it triggered backlash among some in the independent writer community.
The 9.1 cent rate has been in effect since 2006 and has not risen with inflation. George Johnson, an independent songwriter who often pushes back against settlements at the Copyright Royalty Board in favor of higher rates, and other interested parties objected to continuing this 9.1 cent rate for another five year period. They also noted other issues with Settlement 1, like the lack of adjustments for inflation, and questioned a memorandum of understanding (MOU) between the major labels and the NMPA, which could have provided waivers on late fees the U.S. Copyright law allows when payment deadlines are missed.
In response to concerns, The CRB judges concluded the proposed settlement did not provide a reasonable basis for setting statutory rates and terms as stated in proposed settlement 1.
For many years, the CRB rate proceedings have primarily focused on achieving fair compensation for streaming rates. In 2021, audio digital services paid out about $1.3 billion to publishers and songwriters, according to data from the Mechanical Licensing Collective.
While sales formats comprise roughly 15% of the recorded music market, the NMPA estimates those formats produce just 5% of U.S. publishing royalties. If streaming continues to grow at its current pace, some say that within three years these sales formats that are covered by the subpart B configurations might only account for 1% of publishing royalties.
The NMPA has also pointed out in the past that rate litigation is expensive — often in the tens of millions of dollars — as a reason why they have focused on fighting for high streaming rates rather than what formats are covered by subpart B, noting that the cost of litigation could end up equaling or outweighing whatever additional money a higher subpart B hike could achieve.
In Friday’s ruling, however, the court notes that the royalties generated by vinyl, CDs, downloads and other formats covered in subpart B “should not be treated as de minimis, or as a ‘throw away’ negotiating chip to encourage better terms for streaming configurations.” They also noted the improvements to Settlement 2 as “distinguishable” from the first proposed settlement.
The event marks the biggest rate increase for songwriters for physical goods and permanent downloads in almost two decades.
Now, just one final step remains: the register of copyrights has to check and make sure this is compliant with the copyright statute, and if approved — which is typical — this will go into effect at the top of the year. However, participating parties also have 30 days to file an appeal to the CRB’s determination.
Music business lawyers, songwriters, and other professionals gathered at the University of Georgia in Athens for the Artist Rights’ Symposium on Nov. 15. Hosted by senior lecturer, songwriter and member of band Cracker, Dr. David Lowery, the day-long conference discussed ways for the music industry to better champion songwriters, to address the problem of metadata inaccuracies, and to explain the differences in rate setting across different countries.
The series of panels was bisected by a lunch and fireside chat with Hipgnosis CEO and founder Merck Mercuriadis, moderated by attorney Chris Castle, who explained why he feels the industry is in the “age of the songwriter.” “There has been a massive paradigm shift,” he said. “Forty years ago, the power was in the artist brand,” but now, most songs that top the Billboard charts are written by a larger number of songwriters than ever, meaning the demand has never been higher for good hitmakers. “But songwriters have to have a place at the negotiating table now,” he said, citing that in the United States, rates for mechanicals are set by the government’s Copyright Royalty Board, barring “free market” negotiations. “Let’s face it, [the government controlling rates] is insulting to songwriters.”
Mercuriadis said he’s a supporter of the recent Phonorecords IV settlement, which set the U.S. mechanical streaming rates for 2023-2027, and was formed by the National Music Publishers’ Association (NMPA), the Digital Media Rights (DiMA) and Nashville Songwriters Association International (NSAI) banding together earlier this fall for “one main reason:” he believes it will provide the industry with stability for the next five year period. This would contrast the current five-year period (2018-2022), Phonorecords III, in which publishers, rights holders and songwriters have not had a clear idea of what rate they would be paid due to a lengthy appeals process that has tied up royalties.
He detailed an ambitious hope for the future, to “get out of the CRB in the next five years and into the free market.” Mercuriadis’ vision, he said, was inspired by the screenwriters guild — The Writers Guild of America — which has been able to secure fair compensation for those who create the scripts the industry is reliant on through advocation, unionization and bargaining with its titans of industry. Mercuriadis has certainly espoused his vision for a coalition of songwriters in the past and stood by that vision during his chat at the symposium, but he did not reveal many new details of his plans to build it.
“I have tremendous faith,” he said of it happening, despite the challenges and legal roadblocks he faces to achieve this scenario, adding that artists could be a major potential ally to songwriters getting what he thinks of as fair opportunities. As a leader in the catalog acquisition business, Hipgnosis has financial interests that overlap with songwriters regarding compensation rates.
Some panelists who flew in from Europe and South America for the event broadened the discussion beyond the U.S. borders. Crispin Hunt, the former chair of the U.K.’s Ivors Academy, explained how whatever rates are set in the U.S. often act as a benchmark for other countries during their respective negotiations with the same services. Also during the panel, Hunt added that he felt this was “an incredibly critical moment for songwriters,” as traditional offline broadcast income continues to fall and is replaced more with each coming year by digital.
Samantha Schilling of Songtradr brought her perspective from working in Brazil and with a mostly Latin American music business. She pointed out the differing standards that separate her business with that of the U.S. and how the two regions might learn from each other. For example, she said, while commonplace in the U.S., some Latin American countries prohibit work for hire agreements for songs written for TV/film. She said this helps songwriters maintain ownership and secure royalties on the backend. “That was put in place to protect songwriters,” Schilling noted. “Netflix tried to change it… but we were able to fight for songwriters to get that backend income.” In the U.S., some streaming video on demand (SVOD) companies are rumored to be asking songwriters to give up their backend royalties, a crucial component of income for those working at the intersection of music and visual media.
The day ended off with a discussion of the importance of metadata — which is often incomplete or incorrect, causing misallocation of songwriters’ royalties — and registering properly with the Mechanical Licensing Collective (MLC) to collect due compensation. Led by Abby North (North Music Group), Erin McAnally (Artists Rights Alliance), Helienne Lindvall (European Composer and Songwriter Alliance, Ivors Academy) and Melanie Santa Rosa (Word Collections, The MLC), the conversation harkened back to Hunt’s earlier point about the growing importance of digital income streams, which according to CISAC’s 2021 annual report, comprises of $3.62 billion to the worldwide music business, and how the industry can clean up its rocky start to collecting from these sources.