Major Labels, Publishers Reach Deal at CRB to Increase Songwriter Mechanical Royalties
A new motion from the RIAA, NMPA and other trade groups is expected to increase the rate to 12 cents for every track sold.
Trade groups representing the major record labels, publishers and songwriters announced a settlement Thursday (May 5) to increase the mechanical rate for physical and download sales to 12 cents per song — up from the 9.1 cent rate that has been in place since 2006.
The settlement between the RIAA and its record labels — Universal Music Group, Sony Music Entertainment and Warner Music Group — with the National Music Publishers’ Association and the Nashville Songwriters International Association was filed as a motion to the Copyright Royalty Board on Thursday after the parties reached an agreement the day before. The CRB is currently in the midst of proceedings that will set mechanical rates for the 2023-2027 term.
A new rate settlement was needed after an outcry from songwriters — led by indie songwriter George Johnson — over the initial settlement that would have kept the subpart B mechanical royalty rates at 9.1 cents per song for the 2023-2027 term. That songwriter, joined by songwriter groups including the Songwriters Guild of America (SGA) and Music Creators of North America (MCNA), argued that the rate should at least be raised to 12 cents — a 32% increase which corresponds to the growth of the Consumer Price Index since 2006. While Johnson, a participant in the CRB proceedings filed an objection to the CRB over the settlement, the other songwriter complaints about freezing the mechanical with the 9.1 cent rate were made in response comments on the settlement requested by CRB Judges after they saw Johnson’s response to the settlement.
As part of the settlement, the CRB will also tie the 12-cent rate to the Consumer Price Index annually to calculate if any raises are required throughout the five-year term.
While music’s biggest players have all agreed upon the new settlement, it remains to be seen if Johnson and the songwriter groups who were critical of the earlier settlement will accept the new 12-cent deal. While those groups were asked for input on the new agreement and are initially indicating that they are pleased with the higher proposed rate, they also say other big issues still need to be addressed.
“After wide consultation with songwriters, publishers, and labels, we are glad to have reached a solution we believe addresses the core concerns of the CRB judges and the individuals and organizations who shared their views during this proceeding,” RIAA chairman and CEO Mitch Glazier said in a statement. “As a music community, we are strongest when we come together to forge lasting and sustainable win-win deals.”
Likewise, the NMPA said it is pleased that the industry could reach consensus on a higher mechanical rate for physical and downloaded music. “This new settlement gives songwriters a 32% raise on sales of vinyl, CDs and downloads – raising the rate from 9.1 cents to 12 cents – and critically also includes a yearly cost of living adjustment to address inflation,” NMPA president and CEO David Israelite said in a statement. “This extremely positive result is due in large part to the creators who made their voices heard in the CRB process. With this settlement filed, we clear the way to focus solely and tirelessly on raising streaming rates. As we battle the biggest companies in the world, who are pushing for the lowest royalty rates in history, songwriters and their advocates stand more united than ever.”
The 12-cent rate was likely an easy number for parties to agree on, rather than spending millions of dollars litigating the rate — a cost the music publishers and songwriters are likely to bear in the other component of the CRB rate proceedings: a rate trial against digital service providers to set streaming rates for the 2023-2027 term. Not only did songwriters and trade groups representing them argue in favor of it, based on the Consumer Price Index growth since 2006, but also the CRB seemed to endorse that rate in its rulings as well.
In a statement issued by the SGA, the MCNA and the Society of Composers & Lyricists (SCL), the groups said they are “pleased that the specific terms they have championed for the past year before the US Copyright Royalty Board to increase the mechanical rate in regard to physical product and downloads have apparently been adopted in principle by the major record labels and music publishing companies as their new joint proposal to the CRB.”
When the motion containing the new settlement is filed, the CRB will once again seek public comment. In the meantime, sources say Johnson, as a participant in the CRB proceedings, will be given the chance to look at the settlement before its filed to the CRB. Under the CRB’s structure, only participating parties can agree upon or reject settlements; other non-participating parties are offered a chance to comment in response to participants’ actions, which is when Johnson’s objection to the first settlement was magnified by the songwriter groups for the CRB judges.
The other songwriting groups — the SGA, the MCNS and the SCL — which are not parties to the settlement or the CRB proceedings, but will be impacted by them — say that they want other issues resolved as well, whether that be through the CRB proceedings or in legislation.
Their other recommendations for the CRB proceedings include:
- Establishing a floor to set a minimum for subpart B mechanical royalty rates, in case the Consumer Price Index should decline.
- The elimination from the CRB rate-setting process of corporate side deals and private memos of understandings, the latter of which was a flash point of the first settlement.
- They want the elimination of contractually frozen royalty rates, locked in pursuant to controlled compositions clauses (some at a level of two cents).
For physical music only, the higher rates would only apply to new music that comes out during the 5-year term. Usually, when mechanical rates are set for physical music that came out prior to the new rate remain frozen at the lower rate, unless artist who are also songwriters have the clout to individually negotiate the higher rate with their labels. So an album that came out in 1969 would carry a rate of 2 cents per track, which was the rate then, although those very same tracks could carry a higher rate when placed on greatest hits albums and other repackaged compilations.
So the SGA, MCNS and SCL are in effect asking that physical music be treated the same way as digital downloads, where the controlled composition clause is not allowed to be applied; and the mechanical rates can rise for downloads each time a new rate is set.
In response to another CRB objection that led to the Judges’ rejection of the earlier settlement, the new motion points out that the so-called controversial memorandum of understanding (MOU) about late fees and waivers, described by some critics as shady secretive side deals, between some of the record labels and the NMPA are in fact available and have been available online at NMPALateFeeSettlement.com.
Moreover, the motion claims that the new settlement was negotiated independently of the MOU. They argue that MOU was executed a year ago, prior to the Parties’ entering into renewed negotiations regarding Subpart B Configuration Rates and Terms—and so was not consideration for any of the terms set forth in this new settlement.
As part of the motion filed with the CRB Thursday the settlement parties are asking the CRB Judges to not move forward with litigation of statutory royalty rates and terms for Subpart B Configurations while the Settlement is under consideration. (Subpart B configurations include CDs, vinyl, other physical formats, and downloads). If the settlement is accepted by the CRB, the major labels participation in the mechanical rate proceedings for 2023-2027 term would come to an end at this juncture.
In addition, the songwriter groups SGA, MCNS and SCL also want the CRB and the U.S. Copyright Office to recommend U.S. Copyright Act reforms that will engender greater music creator inclusion, participation and diversity in CRB rate-setting proceedings; and want the CRB and Copyright Office to sponsor industry round table discussions by U.S. government agencies to further address these issues.
The SGA, SCL and MCNS say that they plan on meeting “with the U.S. Copyright Office, various members of Congress, and Biden Administration officials in the coming days to further discuss how to help level the music industry playing field for individual music creators, who form the bedrock of the music industry and who are profoundly impacted by these processes.”
“We have jointly expressed our thanks to the CRB for rejecting the unfair ‘frozen’ rate deal as first proposed by the major labels and publishers, and for citing in its ruling our detailed objections as well as those of other individual, independent music creators and publishers including participant George Johnson,” the SGA, SCL and MCNA said in a joint statement. “We will now independently evaluate the new proposal based on our own past submissions, and likewise comment on any additional outstanding issues of fairness and inclusivity that we believe fall within the purview of the CRB and the US Copyright Office to review and address.”
But with a multitude of parties endorsing the settlement, conspicuous by their absence from the endorsement list, it will be interesting to see how independent labels react to the higher fees because their business models are often more dependent on physical product than major labels. That means indie labels will likely face a greater financial burden as a result of the settlement.
For one, physical is often quoted as 15% of sales across the industry, but for some indie labels, physical can be 40% of revenue and even higher. Meanwhile, the wholesale prices of the sale formats have either steadily dropped, in the case of CDs; or remained about the same since 2006, in the case of downloads. As for vinyl, which has steadily seen prices rise, costs have outpaced increases in vinyl wholesale prices, which means that the labels aren’t making any more profit — and may be making even less profit — on vinyl than they were at lower price points. All of this means that the increase to the 12-cent rate, if approved by the CRB, likely will hit some independent labels hard.
While a motion filed last month by the RIAA was widely denounced by the songwriter community for questioning the validity of the CRB’s rejecting the earlier settlement — that move did achieve one of its objectives — buying the major labels time so that a settlement could be reached. Otherwise, the CRB had only given the parties until April 22 to respond to its rejection.