Apple Proposes Simplified Statutory Licensing Scheme to D.C.

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Apple CEO Tim Cook speaks at an Apple event at the Worldwide Developer's Conference on June 13, 2016 in San Francisco.

Streaming companies that offer free listening might not be too happy about it, however.

This afternoon, Apple submitted a preliminary proposal to the U.S. Copyright Royalty Board to simplify the way music-streaming companies pay songwriters and publishers -- in a way that could make it more expensive for rivals like Spotify and YouTube to keep offering free streaming.

Right now, streaming companies pay songwriters and publishers between 10.5 percent and 12 percent of their overall revenue, according to a complicated formula. (Labels and other owners of recording copyrights negotiate their own terms.) The money is divided into public performance and mechanical royalties, then paid to collecting societies and publishers.

Apple, which has always had a gift for creative simplicity, wants to make this process easier and more transparent, according to a copy of the filing obtained by Billboard. The company’s proposal to the Copyright Royalty Board suggests a simple, “all-in” statutory rate that would be “fair, simple and transparent, unlike the incredibly complicated structure that currently exists.” It suggests a rate of $0.00091 per interactive stream, or 9.1 cents per hundred plays. The songwriting royalties for 100 streams would equal those for one download, which has an appealing simplicity.

Apple’s suggested royalty structure would make accounting simpler and more transparent, but it would also make it more costly to run a free service, since streaming companies would have to pay a minimum rate, rather than a percentage of revenue. The current system arguably benefits Spotify and YouTube, since their free tiers don’t generate much revenue compared to paid services. At the same time, such a rate could reduce the royalties paid to songwriters and publishers from services like Rhapsody.

Right now, Apple and most other companies don’t pay royalties to major publishers at the statutory rate set by the Copyright Royalty Board, since they negotiate their own deals. But they pay that rate to publishers with which they can’t make direct deals. Perhaps more importantly, the judges’ decisions shape private negotiations between publishers and streaming services.

Under Apple’s proposal, publishers would collect mechanical royalties and collecting societies would collect public performance royalties, just as they do now.

Any decision to curtail free streaming could encourage consumers to sign up for paid services, including Apple’s. The company’s proposal could also help songwriters and publishers, although they have argued that they deserve a higher percentage of streaming revenue. This idea would presumably be cheered by the major labels, which have expressed an interest in limiting free streaming.

Apple’s idea won’t become policy anytime soon, though, if it ever does. The Copyright Royalty Board, a panel of three judges that sets the terms and rates for statutory licenses, is still in the early stages of determining the statutory rates that will be paid to songwriters and publishers for downloads, streams, and other uses of songs from 2018 to 2022. In the same filing, Apple declined to propose changes to mechanical royalties paid on downloads, and it proposed a royalty of $0.17 per month per subscriber for paid locker services and a rate of zero for locker services that hold purchased content.

“Simple can be harder than complex,” former Apple CEO Steve Jobs famously said. “But it’s worth it in the end because once you get there, you can move mountains.” In this case, the mountains moved might just be Apple’s rivals.