The Copyright Royalty Board has ruled to increase songwriter rates for interactive streaming by nearly 40% over the next five years. This happened during a ruling issued early Saturday. Equally important, the Copyright Royalty Board simplified and strengthened the methods used to pay mechanical royalties to songwriters. To accomplish this, they modified the terms in a way that offers a foothold in the free-market.
About the Copyright Royalty Board
The Copyright Royalty Board consists of three copyright royalty judges appointed by the Librarian of Congress. They determine rates and terms for statutory copyright licenses. They make determinations on the required license royalties collected by the United States Copyright Office. Under the Copyright Royalty and Distribution Reform Act of 2004, the board was created. When the Copyright Arbitration Royalty Panel system was phased out in May 2005, the board became effective. 
Copyright Royalty Board Ruling
The ruling favored the National Music Publishers’ Association and the Nashville Songwriters’ Association International. It amounts to one of the most significant rate increases granted in Copyright Royalty Board history. As a result, companies including Amazon, Apple, Google, Pandora, and Spotify will have to pay more to use music.
Music writers were looking for a per-stream rate, which they did not get. However, the digital services were fighting to reduce prices, therefore this ruling overall is a significant victory for writers. Streamlined rate terms will replace previous calculations with a simplified formula based on the “greater of” concept. Previously, conditions may have involved dozens of computations involving different offerings. Now, the only conditions are two variables with a floor.
The new rate
A writer or publisher will receive $1.00 for every $3.82 that a label earns. The fee structure starts out reasonably close to the way things are now. Each year, it will bring a nearly 5% cut increase across the board up to 2022. By this time, it will lead to a jump of about a 40% over the current fee structure.
The new rate will be based on a percentage of revenue or total content costs. The licensee will have to pay the songwriter whichever one of those is greater. Content costs are payments to labels, negotiated without legal constraints. Currently, songwriters get a cut of 10.5% in royalty fees. That’s going to increase to the greater of either 11.4% of revenue or 22% of the total content cost, once the new fee schedule takes effect. From there, the revenue percentage that will be songwriter royalty goes up by 0.9% or 1% every year until 2022, when it will finally reach 15.1% of revenue or 26.2% of the total content cost.
Late Fees
The Copyright Royalty Board also decided to enstate late fees for digital music streaming companies. Digital music streaming corporations will have to pay artists quicker. Otherwise, the companies will face severe penalties.
About the National Music Publisher’s Association
Founded in 1917, the National Music Publishers’ Association is the trade association representing music publishers and their songwriting partners. Its mission is to protect, promote, and advance the interests of music’s creators. The NMPA is a leading advocate for publishers and their songwriters in the nation’s capital and in every area where publishers do business. The goal of NMPA is to protect its members’ property rights. It does this through lobbying, and litigation. In this manner, the group represents its members in negotiations to shape the future of the music industry. It works to foster a business environment that furthers both the creative and financial success of its members.
David Israelite, president, and CEO of the NMPA made the following statement regarding the ruling:
We are thrilled the CRB raised rates for songwriters by 43.8% – the biggest rate increase granted in CRB history. Crucially, the decision also allows songwriters to benefit from deals done by record labels in the free market. The ratio of what labels are paid by the services versus what publishers are paid has significantly improved, resulting in the most favorable balance in the history of the industry.
According to Israelite, the 3.82:1 split payout ratio is not fair. However, he conceded that the terms are the best songwriters have ever had under the compulsory license. This is critically important because interactive streaming continues to dominate the market.
The previous royalty system
Initially, songwriters had asked the Copyright Royalty Board and the NMPA to grant the greater of 15 cents per 100 streams or $1.06 per user per month. Although they were not successful in this goal as of yet, they did gain ground. Previously, over the past 10 years, writer royalties had been strictly based on a percentage of each streaming service’s revenue. That put content creators at the mercy of subjective corporate decision-making.
The songwriter’s made their case by calling the existing system outdated. Many of the rules and regulations were formed when streaming industry was new and upcoming. This is no longer the case. The songwriters claimed that the system outlived its usefulness and was now becoming a conflict of interest. In effect, the industry had become big box streaming services using music as a loss leader to boost market share. The purpose of it was to sell other products.
Reasons for the hearing
The NMPA and the Nashville Songwriters’ Association International initiated the hearing. Negotiations began in November 2016 but eventually broke down. A permanent panel of three royalty judges appointed by the Librarian of Congress settled the dispute. They oversee terms and rates of writer royalty payments for sound recordings. The ruling is the result of a March Copyright Royalty Board rate hearing.
Music Distribution
The ruling affects only the mechanical license. This is a term that references the rolls mechanically cranked through player pianos. Player pianos were the first method for the mass distribution of media via recorded music. Albums, CDs, and downloads also fall under the mechanical license. The idea is that like piano rolls; these are physical copies.
The idea is that a digital stream is a physical copy. This is because servers or buffers store data at various points. However, this is somewhat misleading. For example, analog broadcast signals also collect data at multiple points. Furthermore, digital radio and television use a stream to distribute data.
Broadcasts, digital or analog, are considered to be a public performance. Also, they garner a higher performance license rate. Songwriter Rodney Jerkins illustrated the discrepancy in September at the Recording Academy’s District Advocacy Day in Los Angeles. He shared an accounting statement for “As Long As You Love Me,” a top 10 hit for Justin Bieber in 2012. By 2013, Jerkins’ stake in the song generated $146,000 in performance royalties. Meanwhile, streaming revenue from the same period garnered $278 for 38 million Pandora plays and $218 for 34 million YouTube streams. “If I owned 100% of the song I would have made $1,100 from YouTube,” Jerkins said, proclaiming, “Those numbers are criminal.”
Effects
The change will likely be insignificant to the bottom lines of major companies like Apple, Amazon, and Google. However, smaller companies like Spotify and Pandora may feel a pinch. Interestingly, while Amazon, Google, Pandora, and Spotify argued to maintain the status quo, Apple broke ranks. Apple conceded that the current royalty rate structure was complex and therefore economically unsound. As a result, they advocated for a single per-play rate across all services. While that did not come about, however, the Cupertino tech firm signaled that artistic sympathy could play out in interesting ways going forward.
Statements
Nashville Songwriters Association International, Executive Director, Bart Herbison, made the following statement:
The Copyright Royalty Board was a long and difficult process but songwriters and music publishers together presented a powerful case for higher streaming royalty rates. Songwriters desperately need and deserve [these] rate increases.
Sony/ATV chairman/CEO, Martin Bandier, also made a statement:
As the leading music publisher, we believe that overall this is a very positive ruling by the CRB as it will deliver an unprecedented topline rate increase for songwriters and publishers over the next five years. While we are disappointed not to get the per-stream rate that we wanted, the planned rate increases go a long way to fairly compensate our songwriters for the essential contribution they make to streaming’s success story.
Representatives for Amazon, Apple, Google, Pandora, and Spotify did not respond to requests for comment. Copyright Royalty Board decisions can be challenged at United States Court of Appeals. However, this ruling seems to be an unlikely candidate.
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