The first two prongs of the formula would produce the mechanical revenue pool. The third would also produce a mechanical revenue pool, but after subtracting out royalties for song performance licenses.
Prong one: A key new ingredient is the NMPA/NSAI's introduction of a $0.0015 per stream minimum, or $0.15 for every 100 streams. Apple has proposed a much lower rate of $0.091 for every 100 streams. Whether by NMPA/NSAI or Apple, this specific type of proposal is viewed by industry executives as an attempt to kill the free ad-supported tier of Spotify or make it very expensive to keep that model running going forward, since that tier of the company's service would not be able to pay for itself at this suggested minimum rate.
Prong two: A fee of $1.06 per subscriber per month, more than double the $0.50 per subscriber that has been standard for mechanical royalties since their introduction in 2008 when the CRB enacted statutory rates for interactive services for the first time, in 2008. In fact, if the typical per month rate charged to subscribers is $9.99, the $1.06 per subscriber would work out to 10.6 percent of revenue, which could be viewed as another minimum rate for publishers, in addition to the $0.15 per 100 streams.
Prong three: This tier comes with two options -- whichever produces a greater bucket of revenue would then be measured against the two pools created by the first two prongs, and whichever of those has the greatest amount would be the pool use to pay out royalties for that month would then be the established rate.
Prong three, option one: 15 percent of revenue, minus the songwriter performance royalty. (Meaning that if ASCAP, BMI, SESAC and Global Music Rights combined receive 5.5 percent of revenue, then 9.5 percent is left for mechanicals.)
Prong three, option two: Measuring 33 percent of the revenue paid to labels for licensing their masters, and then subtract out the performance revenue royalty pool. Since 2008, that prong has been calculated by coming up with a pool equivalent to 21 percent of the revenue paid to the labels for their masters.
All the options for the various pools are important to the NMPA/NSAI proposal. That's because in the past those other buckets, the per subscriber pool and the 21 percent of revenue paid to record labels, often prove to be larger than the pool created by the headline rate -- the basic rate before other factors kick in -- of 10.5 percent. For example, Spotify's premium tier paid about 12.5 percent of revenue to publishing last year, sources say, representing two percentage points above the headline rate.
The NMPA/NSAI are petitioning the CRB to eliminate Sony Music's competing proposal from consideration, charging that the only reason Sony is participating in the rate-setting process is over fears that an increase to publishing rates would come at the expense of record label royalties -- typically about 60 percent of revenue -- for the master recordings the company controls. The NMPA/NSAI say Sony should step aside and let the publishers and songwriters attempt to grow the overall pie, instead of arguing over who gets a bigger slice.
Sony Music's headline publishing rate proposal calls for digital interactive services to pay 12 percent. While that's a bump from the 10.5 percent headline rate for publishing royalties that the industry has been operating under since 2008, it's less than what the big on-demand streaming services are paying already, as mentioned above, and certainly less than the 15 percent headline rate that the NMPA/NSAI is proposing.
The other part of Sony's proposal calls for the elimination of any per-subscriber rate, and that a late fee of 1.5 percent shouldn't be imposed on services in instances where the songwriters and publishers aren't known, according to sources.
“While the specific details are confidential, I can tell you that if a worker has a salary of $50,000, and also gets a bonus, healthcare, and 401K contributions from the company, and if the worker’s salary is bumped to $52,000 but the company eliminates paying the employee’s healthcare, its contribution to the 401K and the bonus, the company can try and deceive people by saying they gave the worker a raise, but the totality of the package is worse than before,” says NMPA president and CEO David Israelite.
Some say the NMPA's rate ask is too aggressive and may backfire. One source in the digital services camp characterized the overall NMPA proposal as "insane." Another industry source point out that, judging by how the CRB judges have operated throughout the webcasting rate-setting process, they don't seem particularly likely to increase rates by 50 percent.
A legal source also claims Sony's proposal would serve as the floor rate, and that the larger digital services would have to pay more than 12 percent regardless if they want to keep all the bells and whistles they offer customers, such as discounted family plans and free trial periods.
Sony declined to comment.
Participants in the CRB rate proceeding have exchanged their rate proposals with one another in preparation for Oct. 5, which is The deadline for submission to the CRB is Oct. 5