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Streaming services and music publishers reach deal on song royalty rates in the US

By | Published on Thursday 1 September 2022

Music streaming services

The streaming services and the US music publishers have reached a deal over the royalty rate paid by the former to the latter, which means neither side will have to go through the time and expense of a messy and contentious hearing before the US Copyright Royalty Board. This is good news for the services, publishers and songwriters. Less so for those of us who enjoy writing about messy and contentious CRB hearings!

But what is the deal? Well, first the quickest of recaps. Promise. In the US, the mechanical copying of songs is covered by a compulsory licence, meaning publishers are obliged to allow streaming services to reproduce their songs at rates set by a panel of judges, that being the CRB. Those rates are reviewed every five years, with the CRB judges confirming what revenue share should be allocated by the services to the song rights (as opposed to the recording rights).

Streams also exploit the so called performing rights of the song, and the services license that side via the US collecting societies like BMI and ASCAP. However, what is paid to the societies for the performing right is basically deducted from the mechanical rate – so the CRB is deciding the total share of streaming income to be allocated to the songs. And in the mid-2010s that was 10.5%.

But elsewhere in the world, where rates are negotiated on the open market, some publishers and societies had pushed up the share of revenue allocated to the songs closer to 15%. So when the CRB started considering what the US rate should be for the period 2018-2022, the publishers lobbied for an increase too, and they got it, with the judges announcing annual increases over that five year period until the rate reached 15.1%.

However, some of the streaming services appealed that increase. And then, when the CRB started considering what the rate should be for 2023-2027, some of the services pushed for something more like the 2017 rate.

Both the appeal and the proposals for 2023-2027 were very controversial indeed within the US music publishing sector and songwriting community, with the services on the receiving end of a lot of public outrage – Spotify in particular, partly because its main rival in the US, Apple Music, did not participate in the appeal.

That big appeal was mainly unsuccessful, with the CRB upholding the increase to 15.1%. Although some of the technicalities of the compulsory licence that Spotify et al objected too were amended in a way that pleased the services, for example rules regarding ‘total content cost’, which guarantees publishers a minimum percentage of the total amount a service pays over to the music industry, and ‘bundling’, which impacts on things like family plans and mobile bundles.

With the rates for 2018-2022 finally confirmed – you know, in July 2022 – the focus fell on the hearing to decide rates for 2023-2027, with the publishers pushing for another sizeable increase towards something like 20%, while some of the services – as noted – were proposing something closer to 10%. Though you sensed that the opening proposals of both sides were ultimately aiming to ensure that the CRB judges ended up opting for something around the current 15%.

Which brings us to the deal that has now been done between the services and the publishers. Which is something around the current 15%. There will be a slight increase over the next five years, from 15.1% to 15.35%, though that’s obviously a much more modest rise than occurred between 2018 and 2022. Though in this deal some of the aforementioned technicalities will also be amended to the advantage of publishers and writers.

A statement from the services and publishers last night explained: “The deal also includes a number of changes to other components of the rate, including increases to the per-subscriber minimums and the ‘total content cost’ calculations which reflect the rates that services pay to record labels”.

“As streaming services continue to innovate to deliver songwriters’ works to growing numbers of paying fans”, it added, “the agreement also modernises the treatment of ‘bundles’ of products or services that include music streaming and updates how services can offer incentives to attract new subscribers into the music ecosystem”.

On the services side, the deal was announced by the Digital Media Association and is backed by its members, including Amazon, Apple, Google, Pandora and Spotify. On the publishing side, the deal is endorsed by the National Music Publishers Association and Nashville Songwriters Association International.

These rates only apply in the US, of course. Though, had there been a bold increase to 20% – like the publishers originally proposed – it would likely have motivated some publishers and especially songwriters elsewhere in the world to push for a bigger slice of the digital pie.

That could still happen – given that the US was originally behind Europe – but a higher rate Stateside would have emboldened those publishers and writers who reckon songs are currently undervalued in streaming.

That said, the US deal might still motivate those publishers and societies not yet at 15% elsewhere in the world to push up to and then slightly beyond that rate.

And it’s also worth noting that in the US the services pay for the running of the collecting society that administers the mechanical royalties – the MLC – whereas in Europe most of the admin costs fall to the publishers and societies. So, once that is taken into account as well, US publishers and songwriters are already slightly ahead.

I mean, there are still admin costs occurred on the performing rights side Stateside which is administrated separately for reasons of history and stupidity, but nevertheless, the songs business is now slightly better off in the US than Europe – and, thanks to this deal, without any messy and contentious CRB battling to get there.

Confirming the deal, Digital Media Association CEO Garrett Levin said: “This agreement represents the commitment of the streaming services to bringing the best music experiences to fans and growing the streaming ecosystem to the benefit of all stakeholders, including the creative foundation of songwriting”.

“For streaming services”, he went on, “this moment presents an opportunity to pursue new collaborations with publishers and songwriters in the context of economic certainty that will support continued innovation. Perhaps more than anything, this agreement demonstrates the potential for industry progress when parties come to the table for good faith discussions”.

NMPA boss David Israelite added: “This historic settlement is the result of songwriters making their voices heard. Instead of going to trial and continuing years of conflict, we instead move forward in collaboration with the highest rates ever, guaranteed. We thank the digital services for coming to the table and treating creators as business partners. Critically, since this is a percentage rate, we know that as streaming continues to grow exponentially, we will see unprecedented value of songs”.

And NSAI Executive Director Bart Herbison chipped in: “This collaborative process will lead to increased songwriter compensation from digital streaming companies and locks in our historic 43.8% increase from the previous CRB proceeding. Along with the upward rate momentum there are also new structures to help ensure minimum payments”.

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