Songwriters Win Victory on Streaming Royalty Increase, But How?

 American songwriters scored a victory Friday when a board of judges handed down a rate increase for royalties related to downloads of musical works for the next five years.

AP Photo / Jenny Kane – Streaming Services
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After more than a year of filings and hearings, the three-member Copyright Royalty Board, a panel appointed by the Library of Congress that determines a handful of royalty rates, raised the statutory rates music publishers and songwriters will receive from paid music subscription services.

Performing rights organizations will receive a share of publishers’ take as they have in the past. In addition, the CRB weighed in on royalty rate for digital downloads purchased from services such as iTunes. The judges approved the industry settlement on statutory mechanical rates that keeps rates unchanged at 9.1 cents per song for physical products (with a different calculation for songs over 5 minutes) and downloads and 24 cent rate for ringtones.

Frank Scibilia, partner at Pryor Cashman LLP representing the National Music Publishers Association (NMPA) and the Nashville Songwriters Association International (NSAI), said of the ruling: ““At trial, we had a dual focus.  First, we wanted to begin correcting the unfairly low share of royalties being paid to the songwriters who create the musical works that are the very foundation of music streaming services, and second, to protect our clients against business strategies employed by the interactive streaming services that have had the effect of reducing the reportable revenues on which our clients’ royalties have been based.  We are pleased that the majority of Judges agreed on both counts.” 

One way to measure publishers’ streaming royalties is using a straight percent of revenue. In 2018 publishers will receive the greater of 11.4 percent of revenue, an 8.6-percent increase from 2017.

In 2022 the percent-of-revenue rate grows to 15.1 percent, giving publishers a 43.8 percent raise from the 2017 level. Royalties usually grow in small increments—or not at all. As a point of comparison, satellite radio royalties stay flat from 2018 through 2022 but grew 0.5 percentage points in each of the five previous years.

The CRB also added “greater than” comparison that gives publishers the higher of 11.4 percent of revenue or 22 percent of label’s content costs. In 2018, this “greater than” comparison creates a floor below which publishers’ royalties will not fall. Publishers may get more than 14 percent of revenue but will never get less. As services pay a lower amount of revenue to labels—a decrease could come from exceeding subscription thresholds—publishers’ will fall only to a point. In 2018, publishers’ floor is 52 percent of label revenue (assuming an average per-head revenue of $9.99 per month).

In 2012, publishers’ floor will be 52 percent of revenue (at $9.99 per month). For users of on-demand, premium subscription services on a portable device, a third floor is set at 50 cents per subscriber per month. Publishers have desired for years the ability to negotiate royalties in a free market. But Copyright Act determines the royalty rates for copies of musical works in downloads and streaming services.

The new CRB decision more closely resembles what would be negotiated in an open market, though David Israelite, president and CEO of the National Music Publishers Association, in a statement called the royalty “still not a fair split [of revenue with record labels].” He still conceded enthusiastically that it’s “the most favorable balance in the history of the industry.”

What’s more, the CRB eliminated the cap placed on the total amount of royalties—for both sound recordings and musical works—paid by services. The higher royalties rate will initially put additional stress on the economics of paid music streaming services. But over time, as services and subscribers continue to scale, labels may be willing to trade a lower royalty rate for more subscribers.