In a big win for the publishing and songwriting community, the Copyright Royalty Board reaffirmed the 15.1% headline rate increase in royalties paid by streaming services to publishers for the 2018-22 period.
The rate was decided in 2018, but streaming services Spotify, Amazon Music, YouTube/Google and Pandora appealed the following year, arguing that the increase will make their business models untenable in light of the billions of dollars that they already pay in royalties. (Apple Music, the world’s second-largest music-streaming service, is not involved in these proceedings.)
While the decision was not immediately released publicly, sources and National Music Publishers Assn. president/CEO David Israelite shared that the headline rate will increase to 15.1% from 11.4% for that period, as previously decided. The decision comes ahead of a similar decision for the 2023-27 period, for which the NMPA has argued for a 20% headline rate.
However, in a minor win for the streaming services, the TCC rate, or percentage of label revenue, has been capped, and the definition of bundling — the “family plans” and other discount packages — has reverted to an earlier definition more favorable to the services. The details were not immediately made public.
A streaming source called the decision “between a loss and a draw for streaming services.”
In a signal that the streaming services did not expect their appeal to be successful, last month they asked the Copyright Office for more time to pay that potential increase, and were soundly criticized by five U.S. senators in a letter obtained by Variety, who stated “serious concern about any requests that would delay important and necessary royalty payments to copyright owners and [oppose] any granting by the Copyright Office of an extension.”
Despite the arcane nature of the terms and numbers involved in this decision, these royalties are at the center of the music-streaming economy. Streaming, and Spotify in particular, reversed a disastrous 15-year downturn that saw the music industry’s total revenue cut in half as illegal downloading ran rampant and CD sales plummetted. Now that it is profitable again, the streaming services and music companies have squared off in a protracted, ongoing battle over those rates that has racked up millions in legal fees.
Streaming royalties are divided approximately 75/25 between recorded music — i.e. record labels — and publishers, although the labels’ royalty rate is determined not by the CRB but by free negotiation. The streaming services have long argued that because of the vast amount of money they already pay out in royalties, any increase in publishing should come out of the labels’ share, because the world’s three largest publishers are also owned by the three largest label groups, Sony, Universal and Warner.
Needless to say, the majors are not interested in voluntarily taking millions of dollars from one business unit and moving it to another instead of collecting more — an unlikely premise that has been called a “heroic assumption” in hearings and documents. (While labels technically are not directly involved in CRB negotiations, some majors have involved executives working for both their publishing and label divisions.)
The two sides have long been gearing up the the next phase of the battle — 2023-27 rates — with an initial decision expected from the CRB shortly after Labor Day.
In a statement, Garrett Levin, president/CEO of the Digital Media Association, which represents streaming services, said: “Today’s decision reflects a significant increase in the royalties that will be paid to publishers. The work to give effect to these new rates will soon begin in earnest. The streaming services are committed to working with the [Mechanical Licensing Collective] and music publishing companies to facilitate the accurate distribution of royalties. This proceeding is also a reminder that rate settings do not – and cannot – take place in a vacuum. Today’s decision comes as the three major label groups – which operate the world’s three largest music publishers – continue to earn the lion’s share of the industry profits while reporting consistent double-digit revenue growth as a result of streaming.
“Looking ahead, streaming services believe it’s time for all stakeholders—labels, publishers, writers, artists and the services—to engage in comprehensive discussions to figure out the right royalty-sharing balance going forward.”
In a statement issued by the NMPA, Israelite said: “Today the court reaffirmed the headline rate increase we earned four long years ago, confirming that songwriters need and deserve a significant raise from the digital streaming services who profit from their work. We will fight to increase the TCC, or percentage of label revenue, which amounts to an insurance policy for songwriters, in the next CRB and will also fight for stronger terms regarding bundles.”
Bart Herbison, executive director of the songwriters trade group the Nashville Songwriters Assn. International, said: “This verdict represents mixed news. The good news is songwriters received the 15.1% headline rate we won four-and-a-half years ago. The bad news is that the definition of “bundled services” and of total content costs, one of the streaming rate tiers, were not what we wished. We will return our focus to the next CRB proceeding which is already underway. Along with the National Music Publisher’s Association, we are asking for further increases going forward.”
Recording Academy CEO Harvey Mason Jr., himself a songwriter, applauded the decision: “Today’s decision was an impactful victory for songwriters, as the Copyright Royalty Board reaffirmed the 15.1% headline rate increase in royalties paid by streaming services to publishers and songwriters for the 2018-22 time period. We applaud the judges for upholding this decision, and the NMPA for their tireless work fighting the appeal. The Recording Academy will continue to champion the songwriters and other music people in our community and fight to ensure they are fairly compensated for their contributions to the musical process.”