Songwriters are getting a streaming boost — finally.
The Copyright Royalty Board (CRB) on Friday (June 1) announced a long-awaited determination in the Phonorecords III remand proceeding, favoring songwriters and publishers by raising mechanical streaming rates from 10.5% to 15.1% over the years 2018-2022.
Overall, the rate determination is being described as a mixed decision, or a draw, with the digital services providers also getting some of the things they wanted from their successful appeal, which resulted in the remand back to the CRB judges. This includes the CRB’s decision to return the Total Content Cost (TCC) and bundle definitions to Phonorecords II levels.
As well, according to a press release from the National Music Publishers’ Association (NMPA), the other bucket for the all-in pool — which had been escalating from 22% to 26.1% of what services pay to labels during the five-year term ended 2022 — is now set back to the old levels. While the press release didn’t specify that amount, previously the other bucket for the all-in pool — which includes both performance and mechanical royalties — had been 21% of what’s paid to labels. And even more importantly, the new rate determination puts back in a cap on that bucket, according to sources.
The elimination of the cap in the original CRB determination for 2018-2022 was one of the main reasons the digital services appealed the determination, and the Appeals Court agreed with the services – another of the main reasons why the rates were remanded back to the CRB. The cap had acted as a ceiling on total content cost, and its re-installment prevents the publishers from automatically benefiting with higher payments when their label counterparts are able to negotiate higher rates for their master recordings.
In another move, the CRB decision appears to favor digital services by changing the definition of bundles, which could cut the revenue pool for bundled tiers.
According to sources, the bundles definition has reverted to the one used during the 2013-2017 term, which allows services to ascertain the value of the non-music components and then subtract that from the total subscriber price of the bundle to come up with value of the music prong. In the original 2018-2022 determination, the CRB had changed the bundle definition so that services had to value the music prong first; and then what was left was allocated to the non-music component of the bundle. That proved beneficial to publishers in bringing about bigger revenue pools.
But one thing that appears to be the result of the new rate determination is that those services, which, upon hearing of the remand chose to revert to the 2013-2017 formula of measuring a pool of 10.5% of revenue against a second pool created by a two-step process — the lesser of 80 cents per subscriber or 21% of total content cost — may have underpaid music publishers and songwriters for the latter part of 2021 and for all of 2022. If that’s the case, digital services will have six months — although they are asking the Copyright Office for a year — to come up with supplemental payments to offset any underpayments made to publishers and songwriters.
On the other hand, the possible reduction in revenue for bundled pools could impact payments made from 2018 to July 2020, which may have resulted in over payments during that period. It remains to be seen if the publishers will wind up being paid additional royalties for the later period, or if the earlier periods saw overpayments from services with bundled tiers that might offset their underpayments in the later period.
The 11.4% to 15.1% increase — from 10.5% in the prior 2013-2017 term — had originally been won by the NMPA and the Nashville Songwriters Association International (NSAI) in 2018, but the following year, Spotify, Amazon, Google and Pandora all appealed the ruling, hoping to win a reversal to the 10.5% of service revenue in the headline rate in the remand — and a rate that they are again pushing for in the 2023-2027 Phonorecords IV rate trial as well.
“Today the court reaffirmed the headline rate increase we earned four long years ago, confirming that songwriters need and deserve a significant raise from the digital streaming services who profit from their work,” said NMPA president & CEO David Israelite in a statement. “We will fight to increase the TCC, or percentage of label revenue, which amounts to an insurance policy for songwriters, in the next CRB and will also fight for stronger terms regarding bundles.
“This process was protracted and expensive and though we are relieved with the outcome, years of litigation to uphold a rate increase we spent years fighting for is a broken system. Now, songwriters and music publishers finally can be made whole and receive the rightful royalty rates from streaming services that they should’ve been paid years ago. We will work to ensure that the services quickly backpay copyright owners as they are required by law. We appreciate [law firm] Pryor Cashman’s relentless work to secure this result and the voices of all songwriters and publishers who supported this mission. As an industry, we move forward united as we press for even fairer rates in the next CRB starting this fall.”
The trial for CRB IV, which determines rates for 2023-2027, begins later this year, but the process has already begun. So far, the major labels and music publishers have reached an agreement to increase the per-song mechanical rate for physical and downloads, but that settlement is still in the interested-party comment phase and has yet to be approved by the CRB judges. The upcoming trial will determine the rates for on-demand audio streaming.
NSAI Executive Director Bart Herbison added, “This verdict represents mixed news. The good news is songwriters received the 15.1% headline rate we won four-and-a-half years ago. The bad news is that the definition of “bundled services” and of total content costs, one of the streaming rate tiers, were not what we wished. We will return our focus to the next CRB proceeding which is already underway. Along with the National Music Publisher’s Association (NMPA) we are asking for further increases going forward.
“More and more songwriters continue to leave the business,” Herbison continued. “Some may have been able to hold on had the streaming companies not appealed. We do not want to see anyone else leave because arrearage payments cannot get to them in time. A few thousand dollars might make that kind of difference to a writer. We thank the NMPA and the songwriters who testified during CRB III, NSAI Board Members Steve Bogard, Lee Miller and Liz Rose. Without them there may have been no increase in royalties.”
In its own statement, the Digital Media Association (DiMA) said of the ruling, “Today’s decision reflects a significant increase in the royalties that will be paid to publishers. The work to give effect to these new rates will soon begin in earnest. The streaming services are committed to working with the MLC and music publishing companies to facilitate the accurate distribution of royalties.
“This proceeding is also a reminder that rate settings do not – and cannot – take place in a vacuum. Today’s decision comes as the three major label groups – which operate the world’s three largest music publishers – continue to earn the lion’s share of the industry profits while reporting consistent double-digit revenue growth as a result of streaming.
“Looking ahead, streaming services believe it’s time for all stakeholders—labels, publishers, writers, artists and the services—to engage in comprehensive discussions to figure out the right royalty-sharing balance going forward.”
In the meantime, the July 1 and July 2 filings from the CRB mean that the Phonorecords III proceedings still have a way to go before the judges issue their final determination. For one, yesterday’s filing tips the judges’ hand, but it’s not even the initial determination. They are asking for input from the lawyers on both sides on the wording regarding regulations for that determination. Once they issue that determination, it will trigger a comment period, and after that the judges will issue the final determination for Phono III.
But even that may not end the process because either side can still appeal yet again that final determination. As it is, there are already two dissenting comments from two of the judges, according to the restricted filings that have been put up on the CRB website yesterday and today. Sources say that each of those dissents are on technical matters; are separate from one another; and that each applies to a small aspect of where the judges appear to be headed with their overall determination.
This story is developing.