The final ruling from the US Copyright Royalty Board (CRB) to set mechanical streaming royalties for the period of 2018-2022 – ‘Phonorecords III’ as it was known – dropped on Friday night. After a drawn-out appeals process triggered by streaming services Amazon, Google, Pandora and Spotify, the ultimate outcome was… well, a mixed bag frankly.
The headline is good news for songwriters: an increase in mechanical streaming rates from 10.5% of the DSPs’ revenues to 15.1% over the course of that five-year period. In theory, the streaming services have six months to calculate and pay any royalties owed (over what they paid while the appeal was going on, which was the lower percentage) as a result of the increase.
They have already asked for an extension to that deadline due to the technical work needed to calculate those payments – needless to say, publishers were not happy with that request – but a final decision has not yet been made on whether they’ll get it.
Mixed bag, though? Yes, the CRB determination did not give publishers and songwriters everything they wanted. It adopted a definition of streaming ‘bundles’ – when music and non-music services are bundled together – that the DSPs are happier with than publishers, and it also added back in a ‘total content cost’ (TCC) cap to the rates formula that, again, is more to the streaming services’ liking.
(The TCC part of the rates requires DSPs to pay publishers a minimum percentage of whatever they pay labels. The original Phonorecords III ruling removed the cap on this, which publishers liked as what NMPA boss David Israelite describes as “an insurance policy for songwriters” if labels secured higher rates in their deals with Spotify. DSPs wanted a cap on the TCC to avoid what they saw as ‘uncontrolled’ growth in publishing royalties if labels flexed their muscles when licensing.)
Anyway, a long and rancorous rate-setting process is now finished, which means all parties concerned can… focus properly on the NEXT long and rancorous rate-setting process: Phonorecords IV, covering 2023-2027, which fires up in earnest this year.
Phonorecords III will have an impact on that process, of course: Israelite has already promised that the NMPA will “fight to increase the TCC… and will fight for stronger terms regarding bundles” while also pressing for “even fairer streaming rates” – and keeping the heat on streaming services to pay any money owed from the last five-year period “quickly”.
If you want the real juice for what happens next, though, we’d direct you to the response from the Digital Media Association (DiMA), which represents the streaming services. While promising that the DSPs will work hard to calculate and distribute those payments, president and CEO Garrett Levin also had a message for labels.
“This proceeding is also a reminder that ratesettings 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,” said Levin.
“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.”
Arguments about the value of songs (compositions) versus recordings in the streaming economy have been gradually heating up over the past couple of years.
We’ve seen activist groups for musicians calling for songs (and thus publishers and songwriters) to get a bigger piece of the streaming pie, and we’ve also seen tensions emerge with accusations that the major publishers have been hampered in advocating for this because their parent companies (the major labels) get a bigger share of recordings royalties than they do of publishing royalties.
Bodies like the NMPA have always argued that they DO advocate hard for songwriters to receive higher royalties. It’s just that in the US, this advocacy has by necessity tended to focus on the kind of rate-setting processes where those wins for songwriters would come out of the DSPs’ share of the streaming pie, rather than the labels’.
It’s throwing up some interesting questions. Are the streaming services going to talk more confidently in public – and negotiate more aggressively in private – around the (non-statutory) splits between songs and recordings? What clout do they have to force changes?
Are we seeing the makings of an unexpected coalition between the streaming services, the activist groups, and whichever publishers and catalogue owners are banging the drum for a bigger share for songs? And if so, how will the major publishers and the major labels respond?
We don’t have answers for those yet, naturally. But this is our takeaway from Friday’s ruling and the early responses. It’s not just that one rate-setting process has finally concluded, cueing up some of the key arguments for the next one.
It’s that it may also signify a new phase of the wider industry discussion around the slice of the streaming pie taken by songs versus recordings. And, indeed, a grown-up, realistic debate about what share streaming services really need, to ensure they can keep that pie growing healthily.
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