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Streaming services push for pre-2018 song royalty rate in US Copyright Royalty Board proceedings

By | Published on Friday 22 October 2021

Music streaming services

The US Copyright Royalty Board has published what the streaming services think should be the song royalty rates they pay under America’s compulsory licence from 2023 to 2027. The lengthy and partly redacted documents confirm that there is quite a battle brewing. Spotify and Amazon are basically pushing for a top level rate of around 10.5%, which is just over half what the music publishers are proposing. And also basically the pre-2018 rate.

US copyright law provides a compulsory licence for the mechanical copying of songs, with the rates paid by those entities making such copies set by a panel of judges called the Copyright Royalty Board. A stream actually exploits both the mechanical rights of the song – subject to the compulsory licence – and the performing rights – licensed in the US by the collecting societies like BMI and ASCAP. However, the CRB nevertheless sets a top level rate for the song, from which any performing rights royalties paid through the societies is then deducted.

Prior to 2018, that top level rate was 10.5% of each service’s revenues. That meant that the song royalty rate in the US was lagging behind the rate paid in many other markets where there are no compulsory licences covering streams, and where some societies and publishers had got the rate up as high as 15%. However, when setting the rates for 2018-2022, the CRB ordered increases each year during that five year period, so that by 2022 the US compulsory rate would also be up to 15%.

Most of the streaming services – Apple being the notable exception – appealed that decision, and last summer an appeals court in Washington sent the whole thing back to the CRB for more consideration. Which is presumably why – now that submissions are being made for the 2023-2027 period – Spotify and Amazon’s starting point is the pre-2018 rates not the 2018-2022 rates. Because you can’t really reject the 2018-2022 rates and then use them as your starting point here.

The submissions are complicated because the compulsory licence is complicated. For starters, in addition to the top level percentage of revenue rate, there is another percentage based on what rate is being paid to the labels on the recordings side, and there is a minimum rate per subscriber. Usually the rate paid is whichever of those is the highest. And on top of that, there are some variables for all the different kinds of specific subscription packages a streaming company could be providing.

However – while both Spotify and Amazon are also proposing some changes to the way royalties are calculated – the standout proposal in both their submissions is that the top level rate should stay more or less around the 10.5% figure that they paid pre-2018. Apple, meanwhile, can continue to present itself as the more songwriter-friendly service in the US, as it’s pushing for an albeit simplified version of what the CRB originally decided on for 2018-2022. Although even that proposal will put Apple in conflict with the music publishers in this latest CRB review.

Because – not only have the music publishers been consistently scathing of Spotify et al’s appeal of the 2018-2022 rates – but, for 2023-2027, they are pushing for a further increase, so that the top level rate would be more like 20%. Unsurprisingly, the US National Music Publishers Association was speaking out strongly against all the streaming services’ proposals even before their submissions were made public by the CRB.

Recognising that the publishers – and the songwriters they work with – will make sure that this CRB review is much more in the pubic spotlight than with past proceedings, the Digital Media Association (DiMA, for short), which reps the streaming platforms, has already gathered together all of its arguments for why its members’ proposals are fair into one handy document.

They are all arguments the publishers and songwriters have heard – and rejected – before, but DiMA is hoping that they might influence the media, the political community, the CRB judges and the good old general public.

Those arguments include that it was streaming that took the record industry back into growth after fifteen years of decline, and sparked the recent flurry of big-bucks deals in which investment types are buying up music rights, both of which are true.

Also, DiMA stresses, the real dispute here is actually between the record labels and the music publishers over how streaming monies should be shared out between the recording rights and the song rights, which is also true. And finally, DiMA reckons, songwriters are mainly struggling today because of the increase in competition, the increase in consumer choice, and the increase in the number of collaborators per song. Which is partly true.

Summarising all that, DiMA boss Garrett Levin says: “The current proceeding comes at a time of sky-high valuations for all forms of music rights, more creators delivering more music to fans at the push of a button, and an increasingly vocal conversation throughout the world about the most equitable allocation of streaming royalties between recordings and songs. That is the broader lens through which this proceeding – and the interconnected nature of today’s music industry – should be considered”.

None of that is going to help positively spin a 10.5% top level rate though. Nor will any talk of “growing the pie” and “promotional value” – probably the most contentious of the commonly used excuses from a songwriter perspective – both of which are mentioned in Spotify’s submission.

Meanwhile, within the CRB proceedings themselves, there’s the fact that all the services talk in their submissions about the obligation under the 2018 Music Modernization Act for the CRB judges to consider what rates would likely stem from hypothetical ‘willing seller, willing buyer’ negotiations on the open market.

Except, of course, that standard doesn’t have to be hypothetical, given such open market negotiations are happening all the time in other countries. And the outcome of those negotiations was a slow increase in the song royalty rate to 15%.

Which, of course, possibly suggests that all parties ultimately expect the outcome of the 2023-2027 proceedings to be in the 15% ballpark, and that the way to achieve that is for the services to go in low and the publishers to go in high.

We will see I guess. But expect lots of contentious debates along the way.