Publishers and songwriters will soon receive what the National Music Publishers Association is calling the “highest royalty rate in the history of streaming anywhere” after its settlement with the Digital Media Association (DiMA) in the Phonorecords IV rate proceeding.
Exactly how the translates into dollars and cents isn’t straightforward. But in simplified terms, under the new settlement, songwriters and publishers’ headline royalty rate will increase 1.7% between this year and 2027.
That raise will not, however, come immediately. The same headline royalty rate of 15.1% that is currently in play in 2022, the final year of the Phonorecords III, will also run through 2023, the first year of Phonorecords IV. Then, the headline royalty rate will increase slightly over the following four years to 15.2% in 2024, 15.25% in 2025, 15.3% in 2026 and 15.35% in 2027.
While the formula for determining the mechanical rate is complex, for simplicity’s sake, let’s assume that the digital service revenue formula produced the bigger all-in music publishing pool, i.e. for both performance and mechanical royalties. (For more details on how the rates are calculated, see Billboard’s explainer on the Phonorecords IV settlement.)
Based on the settlement’s annual rate increases, and using a blended, per-stream rate paid to major labels, Billboard estimates that a song with 1 million U.S. on-demand streams will generate about $1,380 in publishing royalties — both performance and mechanical royalties — using a 2023 headline rate of 15.1% of revenues. That amount is the total publishing royalties paid to publishers, songwriters and performing rights organization.
Through the rest of the term, the royalties for 1 million streams would increase to $1,389 in 2024, $1,393.53 in 2025, $1,398 in 2026 and $1,403 in 2027. That works out to a $23 increase for 1 million audio on-demand streams for songwriters and publishers from 2022 through 2027.
Publishers will end up getting more from streaming services in the coming years, though. On top of small improvements in the headline rate, U.S. streaming services are likely to bring in more revenue per subscriber. Since record labels and publishers are paid based on digital service providers’ (DSP) revenues — if that part of the mechanical formula generates the bigger all-in publishing pool — a higher average subscription fee results in more royalties paid to rights holders and creators. Publishers will also earn more royalties as DSPs acquire more subscribers and overall streaming increases — although that will not influence the per-stream royalty rate.
Exactly what royalty ends up in a songwriter’s pocket depends on the particular publishing agreement and composition. A standard songwriting contract splits royalties evenly between the publisher and songwriter (after recoupments). Co-publishing and administration deals give a greater share of publishing royalties to songwriters. Additionally, the number of co-writers on a composition has a major effect on royalty payouts. In January, Billboard found that only 5% of the No. 1 tracks on the Hot 100 in the previous decade had a lone songwriting credit. Today, a pop song is likely to have six, seven or eight co-writers.
And there are other factors to weigh in determining exactly how royalties are paid. Publishers could be paid mechanical royalties based on a fixed amount of 60 cents per-subscriber if that amount is greater than the pool created by subtracting out the performance royalties. In addition, the settlement includes “favorable” language for DSPs regarding free trials and subscription bundles (with smartphones, for example), a source tells Billboard.
Publishers and songwriters received a bigger pay raise percentage-wise from the previous rate proceeding, Phonorecords III, that covers 2018 to 2022. With Phonorecords III, the headline royalty rate jumped from 10.5% in 2017 to 15.1% in 2022. While Phonorecords IV provides a smaller rate hike, it ensures publishers and songwriters will get incrementally better payouts for the next five years.
Additional reporting by Ed Christman.