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US music publishers to push for new streaming rate of 20%

By | Published on Friday 15 October 2021

Streaming services

While the current rates set by America’s Copyright Royalty Board for the mechanical royalties due when songs are streamed in the US are still subject to appeal, the debate is now already underway as to what the rates should be for 2023-2027. The music publishers are pushing for another increase, while bracing themselves for a new battle with the streaming services.

Under US copyright law, the mechanical copying of songs is covered by a compulsory licence with the rates set by a panel of judges, aka the Copyright Royalty Board. Because, with a stream, a song is both copied and then made available and/or communicated, the compulsory licence and the accompanying CRB rates are relevant to what songwriters and music publishers earn when songs are streamed.

The CRB sets a top level rate for what songs should earn from streaming. Any royalties paid to the US collecting societies for the making available element of the copyright are then deducted, and what is left is paid to the publishers (or sometimes directly to the songwriter) to cover the mechanical copying element. There are some extra complexities, but that’s basically how it works.

The CRB reviews the rates every five years. For the period 2018 to 2022, the CRB ruled that the top level rate should slowly increase during that time, from 10.5% to 15.1%.

Streaming is a revenue share based on consumption share business. A service allocates monies to each track based on what percentage of overall consumption it accounted for, and then shares that allocation with whoever controls the recording rights and the song rights in that track. Under the last CRB ruling, the share paid to the song rights would increase.

The increase to 15.1% actually brought the US statutory system in line with the rate that had been negotiated by some music publishers and collecting societies in countries where streaming deals are negotiated on the open market.

However, most of the streaming services – Apple being the notable exception – nevertheless appealed the CRB’s ruling for 2018 to 2022, and as a result the last decision on streaming rates is still being reviewed. Spotify insists it isn’t opposed to rate increases in theory, but has issues with other complexities in the compulsory licence.

But, while that appeal is still pending, 2023 is now looming on the horizon, meaning another CRB ruling is required for what the rates should be for the next five year period. The deadline for making submissions to the CRB on the 2023-2027 rates passed earlier this week.

According to Billboard, the publishers will push for another increase, so that the top level rate becomes 20% – or 40% of whatever is paid to the record labels for the recording rights, if that is higher.

Streaming deals also sometimes include some minimum guarantees linked to things like number of subscribers or number of plays, that can actually result in services paying a higher amount than that which is due under the revenue share arrangement. The publishers would reportedly like minimum guarantees linked to both number of subscribers and number of streams.

Of course, if the share of revenue paid to songwriters and music publishers increases, someone has to take a hit – which will either be the record companies and their artists, or the streaming services themselves. Over the years, the streaming revenue share enjoyed by the recording rights has slowly declined. Meanwhile, the streaming services have slowly increased their share.

The streaming services have always insisted that they need to keep at least 30% of their revenues to have a viable business. That said, in the early days – although in theory most services were on something like a 30% share – the minimum guarantees and the advances they paid to the music industry meant they rarely kept anywhere near that 30%.

Though, as the market has matured, the position of the streaming services has improved, and Spotify now tends to talk about it keeping approximately “a third” of the money under its licensing deals, ie slightly more than 30%.

If the streaming services still aimed to keep at least 30% of the money, and the publishers and songwriters were on 20%, that would push the labels and artists down to 50%. And, conveniently, 20% of the total pie is 40% of 50%. Isn’t maths fun!

As noted, the still-being-contested CRB ruling for 2018-2022 basically brought the US system in line with what some publishers and societies had negotiated on the open market in other countries. Though a switch up to 20% from 2023 would but the US system ahead of what most publishers and societies have secured through their deal-making.

Given that plenty of people on the songs side of the business all over the world feel the current 15% rate isn’t enough, they’ll be hoping that any uplift secured in the US through the CRB will result in a bigger share being negotiated elsewhere in the world.

Though, on the flip side, the services may well use what has been negotiated on the open market elsewhere in the world as a reason for the CRB judges to reject the music publishers’ latest price hike proposals.

The US publishers are expecting quite the battle with the streaming services as the CRB considers their proposals. And given the ongoing appeal on the 2018-2022 rates, the services have proven that they are willing to accept the PR damage which comes with fighting songwriters over royalties in the public domain.

Meanwhile, the US National Music Publishers Association will likely point to the proposals it is making to the CRB as proof that the major publishers are not restricted in their abilities to lobby for price increases by their sister record companies.

During the economics of streaming inquiry in the UK Parliament, it was argued that the fact the three majors are big players in both recordings and songs has negatively impacted on the share of streaming revenues enjoyed by songwriters.

After all, record deals generally favour the label, while publishing deals favour the writer. So if you are a major player in both recordings and songs, you’d prefer more money to flow through your label business. This is an argument that has also been repeatedly presented by Merck Mercuriadis of the Hipgnosis Songs Fund.

But NMPA boss David Israelite recently denied that was so. In an op-ed in Billboard he wrote: “Whether it is in the halls of Congress, in courtrooms across the country, or behind the scenes in board meetings that set the agenda for the industry, I can attest without equivocation that ‘major’ music publishers fight equally as hard to promote songwriters and the value of songs as their independent publisher colleagues”.

“In fact”, he added, “I have never experienced a single instance when the interests of a record label or parent corporation in any way inhibited that advocacy”.

Of course, when it comes to the mechanical royalties due on physical discs – where the labels are the direct customer – the NMPA is backing the label-friendly proposal currently before the CRB that there should be no increase. And with physical discs, it’s a fixed payment per copy not a percentage of revenue, so the current rates have not kept up with inflation.

But, with streaming, it seems the NMPA is ready to fight for higher royalties. And while – technically – that means going to battle with the streaming services rather than the record companies, if the song rates go up it will put pressure on the labels to accept another royalty cut.