Publishing

Publishers Ask Royalty Board for 32% Rate Increase From Streaming Services

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Following a deadline to file proposed rates for on-demand audio streams to the Copyright Royalty Board on Wednesday (Oct. 13), word is beginning to leak from publishers and songwriters that the National Music Publishers’ Association (NMPA) are seeking a 32.4% increase in the headline rate to 20% of a digital service’s revenue for the full five-year term for Phonorecords IV, covering 2023 through 2027.

That compares to the year-by-year escalating headline rate from Phonorecords III, which covered the term of 2018-2022, which culminated in 15.1% of a service’s revenue in the final year. However, the CRB rates for that earlier term are still up in the air due to an appeals court remanding that sent the rate determination back to the CRB judges, who have yet to issue a response on how it is dealing with the appeals court’s objections and directions. Consequently, since the rate is still up in the air some services like Spotify have been using the last year of the lower 2013-2017 rates in paying music publishers and songwriters since the remand.

According to music publishing and songwriter sources, the NMPA is seeking a rate determined by the greater amount of a four-tier formula. That blueprint is comprised of the greater of 20% of a service’s revenue — referred to as the headline rate; or 40% of what is paid to record labels or other master recording owners; or $1.50 per subscriber; or $0.0015 per play. This formula would be applied each month during the year so the actual amounts paid out would change depending on usage and subscriber count in any given month. The NMPA has confirmed the basic structure and rates contained in its proposal to Billboard.

“The Copyright Royalty Board (CRB) trial has momentous consequences for songwriters and music publishers,” NMPA president and CEO David Israelite in a statement. “We will be fighting to raise significantly what streaming services pay songwriters."

The CRB will weigh the NMPA ask against what the digital services individually propose and then will set the rate for the 2023-2027 terms. While the filings suggesting new rates by digital services including Spotify, Apple, Google and Amazon were due yesterday to the CRB, those filings likely won’t be posted to the CRB website until redacted copies showing the rate requests -- but not proprietary data each filer uses to back up their arguments -- are prepared. Consequently, the filings might not appear on the CRB website for a week or two, sources suggest.

However, as a participant in the proceedings, Israelite has seen the digital services' proposals, and he e-mailed a comment to Bilboard in response.

“We now know definitively what the digital streaming services think of the songwriters that make their businesses possible,” he says in the email. “Amazon, Spotify, Apple, Pandora and Google have proposed the lowest royalty rates in history. Not only do they propose rolling back rates and terms to erase all gains over the last 15 years, but they actually are proposing a structure worse than at any point in the history of interactive streaming. It is disappointing, but not surprising, given how they have treated songwriters over the years, including their continued assault on the rate victory that was achieved in 2018 which they are still appealing four years later. The next time you see a billboard, paid ad, or token act from a streaming service claiming to value songwriters, remember that their actions speak louder than any hollow gestures. This fight has just begun."

Comparing what sources say are the proposed NMPA rates to the remanded CRB set 2018-2022 rates, the earlier escalating headline rate began at 11.4% of service revenue in 2018, rising year-by-year to 12.3%, then 13.3%, 14.2% and finally to 15.1%. So the increase from 15.1% to the NMPA-proposed 20% of revenue reflects the 32.4% increase.

For the other rate bucket, the percentage of payments to record labels and other recorded master owners, the NMPA is requesting a publishing pool calculated by 40% of label payments, with that rate holding steady all five years of the term. In contrast, in the prior CRB determination, that rate began at 22% of recorded music content payments in 2018 and rose year-by-year to 23.1%, then 24.1% then 25.2% culminating in 26.2% in the final 2022 year. So the NMPA ask to increase the rate from 26.2% of label content payments to 40% translates to a nearly 53% increase.

Whichever of the two buckets of revenue — the percentage of a service’s revenue versus the percentage paid by the service for label content — produces the larger dollar pool, in the prior rate determination, that was measured against a third bucket calculated by 50 cents a subscriber. The NMPA rate proposal for the 2023-2027 term increase the subscription component ask to $1.50 per subscriber.

Finally, the NMPA is also asking for a new tier, or a new revenue bucket, to be introduced into the rate formula. According to sources, that new bucket would be determined by applying a $0.0015 per stream rate against total streams during the month. It’s unclear where this pool would be applied — if it will be used as a third pool on the front end measuring against the percentages of revenue and of content to see which is the biggest pool; or if it would be used on the backend as a third component against whatever revenue amount emerged from the front-end of the formula against the per-subscriber amount.

Apparently absent from the NMPA rate proposal is a step that was present during the 2013-2017 period but eliminated in the 2018-2022 period. In the earlier period, the formula was based on 10.5% of service revenue against the lesser of 21% of content payments to labels, or 80 cents per subscriber; whichever bucket of revenue that produced was then measured against a pool calculated by applying 15 cents per subscriber. The greater resulting pool would be the pool to pay publishing royalties. The elimination of the step that produced a lesser pool in the CRB rate determination for 2018-2022 was a key factor in the appeals court remand of that rate determination.

The elimination of that step, in effect, took out a ceiling on publishing rates and meant that the publishers, whose rates are regulated by the CRB, would also enjoy any increases negotiated by the labels, whose rates are not subjected to government regulations and can be negotiated on the open market with services.

On the other hand, the Music Modernization Act did enhance the publisher’s stance concerning how the CRB makes its rate determination in one regard. Previously, the CRB had to consider some “reasonable standards,” but now that process also includes considering a “willing buyer/willing seller" while setting rates. “Thankfully, this time around, the CRB judges will be able to utilize the new and improved rate standard created by the Music Modernization Act which will give us a better footing when arguing for what songwriters would receive in a free market,” Israelite said in a statement.

So while the CRB looks at the new proposals, it’s still wrestling with the remand. When that remand occurs and if it meets the appeals court’s approval, it could mean either additional payments to publishers and songwriters; or the possible clawing back of payments from publishers and songwriters, depending on what formula from which year each service was applying to payments since the remand.

“It is extremely disappointing that we will be fighting for higher rates in this trial, while also simultaneously beating back the appeal of the last raise we won for music creators in CRB III,” Israelite added in a statement. “There are many fronts to the war for higher and fairer rates, but we hope that the entire music industry will unite in supporting our efforts in these pivotal cases as they will dictate the future of the streaming economy.”

Garrett Levin, president and CEO of the The Digital Media Association -- of which the streaming services are members but is not representing them in the rate trial because the services have chosen to participate individually -- weighed in on the news as well.

“The headlines each and every day demonstrate how much streaming and streaming services continue to drive ever-growing revenues for publishers and performing rights organizations, massive investments in publishing catalogs, and innovative tools and features that connect songwriters to fans in ways never possible before," he said in a statement. "This CRB proceeding, like any other, does not happen in a vacuum. ‘Mechanical’ licensing is just one of the multiple, necessary licenses for streaming services within a single segment of publisher and songwriter revenue streams. And that itself is one segment of the complete digital music economy. The current proceeding comes at a time of sky-high valuations for all forms of music rights, more creators delivering more music to fans at the push of a button, and an increasingly vocal conversation throughout the world about the most equitable allocation of streaming royalties between recordings and songs. That is the broader lens through which this proceeding – and the interconnected nature of today’s music industry -- should be considered."