American songwriters and publishers won a hard-fought mechanical royalty rate increase from streaming music platforms in a last-minute decision Friday, July 1. But not all concessions have been granted.
Earlier this week, Digital Music News first reported rumors of the impending raise. Now it’s official: according to details released by the Copyright Royalty Board (CRB) late Friday, July 1, streaming music platforms like Spotify, Apple Music, YouTube Music and Amazon Music Unlimited will be forced to pay significantly more to music publishers and songwriters in the United States. Specifically, the determination covers the period 2018-2022 — covered by the “Phonorecords III” procedure — and implies a 43.8% increase in mechanical royalty rate requirements before 2018.
Specifically, the decision increases the mechanical royalty rate owed by streaming music services to 15.1%, from 10.5% previously for the four-year period from 2018 to 2022. The decision itself has was first returned in 2018 by the Copyright Royalty Board, although streaming giants Spotify, Amazon Music and YouTube (via Google), among others, have fought to maintain the 10.5% rate (Apple does not notably did not protest against the increase). The decision means that streaming platforms will be forced not only to increase their mechanical royalty payments, but also to retroactively pay increased royalty amounts from 2018.
This represents a sizable chunk of cash and explains why streaming services had previously requested that payment obligations be delayed. It’s unclear whether those requests have been granted or are being considered, though National Music Publishers’ Association president David Israelite noted that the arrears would be pursued immediately.
“This process has been long and costly and while we are relieved at the outcome, years of litigation to maintain a rate increase that we have spent years fighting for is a broken system,” Israelite told Digital Music. News. “Now songwriters and music publishers can finally be cured and receive the legitimate royalty rates from streaming services that they should have received years ago. We will ensure that the Services promptly reimburse copyright owners as required by law. »
The increase is a blow to music streaming platforms, a group that donates a very high percentage of its revenue to rightsholders. That includes publishers and songwriters, though record labels get the lion’s share of streaming royalties. The reasons for the imbalance are complex and rooted in heavy government regulation of publishing royalties.
Just recently, Israelite revealed that labels took 58.6% of streaming royalty revenue in 2021. This figure leaves a small chunk for the underlying compositions (i.e. the release of intellectual property ).
“We now have, for the first time, a treasure trove of information that has never before been made public,” Israelite told attendees at an NMPA annual meeting in New York in June. “There are 47 different music services operating 151 different models that pay mechanical royalties to songwriters. We now know that in 2021, these combined services generated almost $9.8 billion in revenue, which is just one of the significant factors by which songwriters get paid.
“The vast majority of these royalties, over 96%, come from the same five companies that are fighting to lower songwriter rates through the CRB process: Amazon, Spotify, Apple, Google and Pandora. We also now know that these services paid record labels $5.7 billion in 2021, 58.6% of the revenue pool — significantly more than the 52% often reported,” Israelite said.
It’s unclear why Israelite said Apple is fighting to reduce mechanical royalty rates. This may have been a mistake – Apple did not challenge the 2018 CRB ruling.
Adding to the complexity is an ownership structure that often results in publishing rights being controlled by large conglomerates of music labels (primarily Warner Music Group, Sony Music Entertainment and Universal Music Group). The main label owns vast portions of the publishing rights: Universal Music Group, for example, is not only a recording label, but also the umbrella organization of Universal Music Publishing Group, which controls huge amounts composition rights.
This point has not been lost on streaming music platforms. Immediately after the decision, the Digital Media Association, DiMA, which represents streaming music platforms, raised the issue of major label payment imbalances.
“Today’s decision comes as the three major label groups – which operate the world’s three largest music publishers – continue to carve out the lion’s share of industry profits while recording steady growth. double-digit revenue from streaming,” said DiMA President and CEO Garrett. Levin relayed in a statement.
“Looking forward, streaming services believe it’s time for all stakeholders – labels, publishers, writers, artists and services – to engage in in-depth discussions to determine the right balance of royalty sharing to the future.”