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US Copyright Royalty Board rejects proposal to keep mechanical royalty on discs and downloads unchanged

By | Published on Wednesday 30 March 2022


The US Copyright Royalty Board has published a statement on its review of what royalty rate should be paid to songwriters and music publishers when discs and downloads are sold Stateside, concluding that a proposed settlement put forward by the major record companies and the National Music Publishers Association – which would have kept the current rate in force – is not a “reasonable basis” on which to set the rate for 2023 to 2027.

These royalty rates being considered by the Copyright Royalty Board relate to the compulsory licence that exists for the mechanical copying of songs in the US. Because of that compulsory licence, the CRB ultimately decides what royalty rate American labels pay publishers when they press physical records or sell downloads, as well as setting the rate paid by streaming services when songs are streamed by American users.

The rates regularly come up for review, allowing all parties to argue before the CRB for why those rates should be increased, decreased or kept the same. With the streaming rates, the NMPA has been very proactive in seeking to increase what royalties the streaming services pay.

As a result the CRB set in motion a staggered increase of the streaming rate between 2018 and 2022, so that it would increase from 10.5% to 15.1% of the revenue allocated to any one track, basically bringing the statutory right under the US compulsory licence more or less in line with the rate that had been negotiated on the open market elsewhere in the world.

Though, of course, most of the streaming services have been controversially appealing that decision. That appeal is still ongoing even though the CRB is now also considering what the rates should be for 2023 to 2027. This time round the NMPA is pushing for an additional increase to 20%. Most of the streaming services are pushing for 10.5%, possibly in the hope that they end up with something closer to 15%.

However, when it comes to the rate on discs and downloads, the NMPA didn’t opt to battle for an increase. Supporters of that decision argue that discs and downloads are now such a small part of the US record industry – 15% of recorded music revenues combined in 2021 and just 5% of music publishing income in 2020 – that it’s not a good use of resource for the publishers to get their lawyers and lobbyists fighting that particular battle, when they are already busy battling the big digital platforms over the streaming rate.

But there has been plenty of criticism of the NMPA’s position within the songwriting community, with critics pointing out that the vinyl revival continues apace, physical sales actually went up in the US last year, and the NFT fad could even result in a resurgence in downloads.

Many of those critics have also pointed out that – unlike with the streaming royalties – the record labels are the main customers of mechanical rights licences when it comes to discs and downloads. And the NMPA’s three biggest members are the major publishers who, obviously, are directly connected to the major record companies.

Despite that criticism, the NMPA nevertheless reached a settlement with the record companies – which was also backed by the Nashville Songwriters Association International – that would have kept the current mechanical royalty rate on discs and downloads in place. Crucially, that rate is a fixed fee per copy – set at 9.1 cents – not a percentage of revenue, which means the real world value of the royalty has actually decreased due to inflation since it was first set in 2006.

With all the in mind, that proposal – once made – started to become increasingly controversial in the songwriting community. Songwriter George Johnson led the charge, with various organisations representing songwriters in America and beyond – in particular the Songwriters Guild Of America, the Society Of Composers & Lyricists and Music Creators North America – also subsequently making submissions to the CRB urging it to reject the proposed settlement.

After the CRB pushed back the deadline for such submissions at various points last year, the judges on the board had plenty of material to consider. And, having done their considering, in a document published yesterday they stated: “The judges find that the proposed settlement does not provide a reasonable basis for setting statutory rates and terms”.

As a result, the various participants in this review now need to come up with an alternative proposed settlement in private, or the whole thing will end up properly before the CRB with all parties arguing their cases, as is happening with the streaming rates.

Despite the CRB basically ruling against the settlement it negotiated and supported, the NMPA nevertheless welcomed this development, telling Billboard: “We are encouraged that the Copyright Royalty Board is open to higher digital download and physical product rates for songwriters and music publishers”.

“While we continue to focus on fighting the largest tech companies in the world in the trial for higher digital streaming rates which make up the growing majority of songwriter income”, the trade group’s statement added, “NMPA and its members always support higher royalties that reflect the important contributions of songwriters”.

They then concluded: “We appreciate the grassroots efforts of songwriter advocates across the country and we stand with those who are pushing for more equitable songwriter payments”.