Songwriters and music publishers will get a higher payout from on-demand subscription services like Spotify and Apple Music for the next five-year period (2018-2022), according to the National Music Publishers’ Association (NMPA). All the details for other rates from the Copyright Royalty Board (CRB), like the per song mechanical on CDs and downloads, have not yet been disclosed.
According to the NMPA announcement, it looks like at least two tiers of the three-tier formula used to determining music publishing royalties are still in effect. The NMPA revealed that rates will increase from 10.5 percent to 15.1 percent of revenue during the five-year term -- that’s a 43.81 percent increase over the term, although the NMPA didn’t specify what increased rates would come into effect at what intervals.
That 15.1 percent of revenue will be split between the mechanical and performance royalties to publishers and songwriters. The performance rights organization negotiate a a percentage of revenue royalty fee for public performance licensing to interactive services, and that fee is subtracted from the overall publishing royalty pool, with the remainder being paid out as mechanical royalties. In the past, the split has been close to a 50/50 percent, with the PROs collectively getting about 6 percent, but this determination may swing the rate more heavily toward mechanical.
“We are thrilled the [Copyright Royalty Board] raised rates for songwriters by 43.8 percent -- the biggest rate increase granted in CRB history,” NMPA president/CEO David Israelite said in a statement.
Paid subscription services payouts to labels and publishers are usually determined by three or four tier formulas, with each tier having a formula to determine a bucket of revenue payouts. Those buckets are then usually measured against one another to see which is greater, with the greater amount finally chosen to make the payout from.
In addition to the eventual 15.1 percent of revenue that this CRB determination promises by the end of the term, another tier that could determine the royalty payout is a percentage of what’s being paid to the master recording rights holders (i.e. the labels and artists).
“Crucially, the decision also allows songwriters to benefit from deals done by record labels in the free market,” Israelite added. “The ratio of what labels are paid by the services versus what publishers are paid has significantly improved, resulting in the most favorable balance in the history of the industry.”
According to the NMPA, that rate comes out to a $3.82 to $1, labels to publishers. That means that the publisher rate will be 26.2 percent of what the labels get paid. Previously, during the last five year term, that came out to a 21 percent rate, which means that publishers then got $1 for every $4.76 paid to labels.
So if this percentage of label payout formula yielded more money in a month, that this pool would be used to pay royalties; and the performance royalty would be subtracted from this revenue pool instead.
“While an effective ratio of 3.82 to 1 is still not a fair split that we might achieve in a free market, it is the best songwriters have ever had under the compulsory license,” Israelite said. "The court also decided in our favor regarding a late free, which will force digital music services to pay songwriters faster or be subject to a significant penalty. The bottom line is this is the best mechanical rate scenario for songwriters in U.S. history, which is critically important as interactive streaming continues to dominate the market."
It's unclear if the third tier from the prior five year period, the per subscriber tier, is still in play. Indications are that it is, but if there is still a three-tier formula, this amount, previously 50 cents per subscriber, so far hasn’t been revealed.
Overall, the three-tier formula for the years 2013-2017 has been yielding an effective rate of about 12.5 percent at paid on-demand audio services, publishing sources tell Billboard, which is above the 10.5 percent statutory rate, also called the headline rate, that one of the tiers would suggest. It remains to be seen if the new formula results in a payout higher than the eventual headline rate of 15.1 percent.
While the NMPA -- which was represented in the CRB hearings by Pryor Cashman LLP -- is happy with the percentages it is receiving from the CRB determination for 2018-2022, it didn’t get the process it wanted. The NMPA and the Nashville Songwriters Association International (NSAI) had been advocating for a two tier formula, whichever is greater, either a $1.06 per subscriber, or more than double the 50 cent rate currently employed -- or a $0.0015 per play minimum.
Also, the digital services appear to have prevailed in their ask for subscriber discounts. While the amounts aren’t clear, sources in the publishing industry are chalking the CRB determination on this aspect to be more in favor of the services. While what the CRB actually gave to the services is still unknown, for example, Spotify was asking for its family plan to counts as 1.5 subscriptions, even if there are four or five members in the family plan.
It’s also unclear is if the CRB has accepted the rate settlement struck between the labels and the publishers, which will see the mechanical rate for physical formats and downloads remain at 9.1 cents per song -- and ringtones at 24 cents per unit.
“As the leading music publisher, we believe that overall this is a very positive ruling by the CRB as it will deliver an unprecedented topline rate increase for songwriters and publishers over the next five years,” Sony/ATV Music Publishing chairman/CEO Martin Bandier said in a statement. “While we are disappointed not to get the per-stream rate that we wanted, the planned rate increases go a long way to fairly compensate our songwriters for the essential contribution they make to streaming's success story.”
Songwriter groups are also happy with the CRB rate determination. "Songwriters desperately need and deserve the rate increases resulting from the Copyright Royalty Board trial,” the NSAI said in a statement on the rates so far revealed. “The CRB was a long and difficult process but songwriters and music publishers together presented a powerful case for higher streaming royalty rates.”