NMPA, Nashville Songwriters Move to Exclude Sony Music From Royalty Rate Proceeding

David Israelite, President/CEO, National Music Publishers’ Association

NMPA chief David Israelite accuses Sony Music of siding with "giant digital services in an attempt to lower songwriter royalty rates."

The National Music Publishers' Association (NMPA) and the Nashville Songwriters Association International (NSAI) have submitted a joint motion to exclude Sony Music Entertainment from participating in the Copyright Royalty Board proceeding to determine mechanical royalty rates for a whole slate of music configurations, interactive streams, music bundles and locker services.

Most of the mechanical rates in question are of significant interest to digital services and not to record labels. As such, the motion makes the case that Sony the label shouldn't influence the rate setting process for configurations where it isn't the licensor or the licensee. For the digital configurations in question, music publishers are the licensor and digital services are the licensee.

In a statement issued to Billboard, NMPA CEO David Israelite said, "Songwriters are up against more obstacles than ever to make a living, and having a major label like Sony fight on the side of digital music companies to try to further reduce what little income they receive from on-demand streaming is shocking." 

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The process to set mechanical royalty rates for 2018 through 2022 was ignited by the Copyright Royalty Board on Jan. 5 this year. As part of those proceedings, the CRB will set mechanical rates for CDs, downloads and ringtones (subpart A in CRB parlance); for interactive streams and limited downloads, also known as tethered downloads (subpart B); and for music bundles, mixed bundles and locker services (subpart C).

Limited downloads and tethered downloads are ones that reside on a person's computer or other mobile devices, typically only as long as they are a subscriber to a service. As such, when they are played the rates applied to them often use a similar formula as the mechanical rates applied to interactive streams.

While record labels like Sony have a "significant interest" in the mechanical rates set for CDs and downloads — labels have to license and pay those rates to publishers — the NMPA/NSAI motion says Sony has no standing for participating in the proceedings to set mechanical rates for interactive streams and locker services.

Sony Music Entertainment, however, begs to differ. In a statement issued to Billboard, a company spokesman said, "Record labels have participated in every rate proceeding for copyright royalty rates.  We think it is important to be at the table since we work so closely with songwriters - many of whom are our artists.  We want the rates to be both fair and flexible so that all new models can thrive and create a healthy future for the overall music industry. That is why we have included in our rate proposal an increase to the headline rate."

When the CRB began those proceedings, it called for "parties with significant interest" to file a petition to participate. Sony Music Entertainment didn't file a petition to participate in determining rates but was listed as an interested party — as was Warner Music Group and the Universal Music Group — in the RIAA petition to participate.

But back in June, the NMPA and the NSAI announced that they had reached a settlement with two of the three majors (UMG and WMG) on mechanical licensing rates for CDs, downloads and ringtones. According to sources, that settlement kept the current rates of 9.1 cents per song and 24 cents for ringtones. Moreover, both majors as well as indies also agreed to sit out the rate setting process for streaming services and mixed bundles, or subparts B and C.

As a result of that settlement, the RIAA, WMG and UMG have withdrawn from the CRB proceedings, while Sony has stayed aboard as part of the RIAA petition.

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The NMPA/NSAI petition want Sony eliminated from the rates determinations for subparts B and C because the company is not a mechanical licensee or licensor and therefore does not have "significant interest," like the digital services offered by Spotify, Amazon, Apple and Google, which license and pay royalties for streaming and limited downloads.

The NMPA/NSAI motion requests that if Sony is allowed to participate, it do so under its own name and not as an interested party to the RIAA petition to participate.

Their motion posits the following question: Why does Sony want to participate in the subpart B and subpart C rate determinations?

"The answer appears to be that SME believes that the payment of royalties is a zero-sum game," the NMPA motion states. "The more that the Digital Services are required to pay to the Copyright Owners, the less they will be willing to pay SME for sound recording rights. There is no other logical justification for SME's attempt to insinuate itself into a rate determination in which it holds no interest and the Judges have ruled that a petitioner's interest in 'payment availability' is not a 'significant interest' justifying participation in a proceeding."

Without a significant interest, "it appears that SME is attempting to use its status as a subpart A licensee (for CDs and downloads) to bootstrap itself into a position to meddle in rates setting" for interactive streaming and limited downloads.

While the NMPA/NSAI motion has been supplied to Billboard, it is a redacted copy of the filing. As such if Sony's rate proposals are are less than what the publishers and songwriters are seeking for those digital configurations, Billboard cannot determine it from the publicly visible statements in the motion.

However, on July 15 the various parties had to make known to one another what rates they are seeking, so the NMPA is aware of whatever rates Sony is seeking.

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Interestingly enough, if the Sony label is seeking lower rates, it is also moving against the songwriters who are represented by Sony/ATV, the publisher. The latter is an interest party in the CRB rate proceedings through the NMPA petition to participate.

Yet, Sony’s statement says it is indeed proposing a higher rate for songwriters, although it doesn't specify what that rate is. Whatever rate it is, its apparently lower than what the NMPA/NSAI are seeking, the rate of which is also unknown at this point. As interactive streaming mechanical rates stand now, a three-tiered formula is used and whichever one produces the largest bucket of revenue is the one applied to the mechanical. While the formula is complex, the simplest way to describe is to use one tier of the formula, also known as the headline rate, which would create a bucket of funds for mechanical royalties by calculating 10.5 percent of a service's revenue, which is then divided up on a pro-rata share based on individual streams.So Sony's statement implies that it is seeking a higher rate than 10.5 percent of a service's revenue but apparently lower than what the NMPA/NSAI are seeking.

"It is disappointing that Sony record label has chosen to attack songwriters directly in the Copyright Royalty Board rate proceeding, while every other major and independent record label has made peace with songwriters and music publishers and are sitting out the battle over mechanical licenses," Israelite said in a statement. "Sony label has sided with the giant digital services in an attempt to lower songwriter royalty rates. In contrast, Universal and Warner labels, as well as the indie labels, have chosen to stand alongside songwriters in the fight to enlarge the music industry pie, instead of going to war over increasingly smaller slices of it."

Back when the settlement between the NMPA/NSAI and UMG/WMG was announced, Sony declined to comment on why it didn't take part in that settlement. At the time, some sources speculated that Sony didn't participate in the deal because its acquisition of the Michael Jackson estate is under review by regulators and didn't want to appear in lockstep with the other majors. Until Sony completes that acquisition, it doesn't fully own both the record label and publishing company like UMG and WMG, and so its interests aren't completely aligned with the other two majors, says a source. But other sources worried that Sony sat out the settlement because they planned to fight the publishers on pushing for higher mechanical rates for streaming services and other digital configurations.

"This is a time when all segments of the music industry -- songwriters, artists, music publishers and record labels -- should be coming together to fight for the value of music," Israelite said. "We should be joining together to try to increase the overall pie. Unfortunately, Sony record label is being driven by an outdated mindset that somehow if songwriters get less from digital music services there will be more for Sony record label.  That is a sad, misguided and counter-productive approach."

Editor's Note: This article has been updated with a statement from Sony Music Entertainment.