Streaming Music Services Ordered to Increase Royalties by 43.8 Percent

Payments will increase from 10.5 percent to 15.1 percent of revenue for the next five years.

Subscription News: Streaming Music Services Ordered to Increase Royalties by 43.8 Percent

Source: NMPA

Just as streaming music services like Pandora are struggling to become profitable, they received another blow, this time by the Copyright Royalty Board. This weekend the CRB of the U.S. Library of Congress decided that streaming music services like Spotify, Apple, Pandora, Tidal and Amazon must increase their royalty payments to songwriters and music publishers for the next five years, reports Reuters.

Currently paying 10.5 percent, streaming music services must now give 15.1 percent of their revenue to songwriters and music publishers, according to the National Music Publishers Association, a trade association representing all American music publishers and their songwriting partners. The 15.1 percent of revenue will be split between the mechanical and performance royalties to publishers and songwriters, says Billboard. This increase is the largest rate increase in CRB history.  

CRB's decision comes as a result of a trial held last year with NMPA and the Nashville Songwriters Association. Part of the case included an open letter signed by more than 4,000 songwriters to technology companies and streaming music platforms.

‘As songwriters, we count on you to deliver our music to the fans who love it. We appreciate the innovative platforms you have developed to do this. However, we must voice our outrage at the way you are devaluing our work in the process. Currently, you are fighting to pay us as little as possible in the Copyright Royalty Board proceedings. This is alarming not only because it threatens our livelihoods and ability to continue our craft, but also because it tells us that instead of being our business partners, you choose to be our adversaries,' said the letter.

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Subscription News: Streaming Music Services Ordered to Increase Royalties by 43.8 Percent

Source: Bigstock Photo

In addition, the CRB removed the Total Content Cap, giving publishers the opportunity to negotiate higher royalties for songwriters, and it imposed a late fee which will require streaming music services to pay songwriters faster than they have in the past, the NMPA said in a statement.

NMPA President and CEO David Israelite commented on the decision in a statement:

‘We are thrilled the CRB raised rates for songwriters by 43.8 percent – 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. While an effective ratio of 3.82 to 1 is still not a fair split that we might achieve in a free market, it is the best songwriters have ever had under the compulsory license,' said Israelite.

‘The court also decided in our favor regarding a late fee which will force digital music services to pay songwriters faster or be subject to a significant penalty. The bottom line is this is the best mechanical rate scenario for songwriters in U.S. history which is critically important as interactive streaming continues to dominate the market,' Israelite added.

‘The decision represents two years of advocacy regarding how unfairly songwriters are treated under current law and how crucial their contributions are to streaming services. We thank the songwriters who shared their stories with the court and helped illustrate how badly these rate increases are needed. While the court did not grant songwriters a per-stream rate, the increases in overall rates and favorable terms are a huge win for music creators,' said Israelite.

Bart Herbison, executive director for the National Songwriters Association International, also commented on this weekend's decision.

‘Songwriters desperately need and deserve the rate increases resulting from the Copyright Royalty Board trial.  The CRB was a long and difficult process but songwriters and music publishers together presented a powerful case for higher streaming royalty rates,' Herbison said.

Sony/ATV Music publishing also issued a statement about the ruling.

Subscription News: Streaming Music Services Ordered to Increase Royalties by 43.8 Percent

Source: Bigstock Photo

‘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,' said Chairman and CEO Martin Bandier.


Insider Take:

This is a huge win for music publishing companies, the artists they represent and songwriters who have been fighting for more equitable royalty payments for years. As the streaming music industry has grown in popularity among subscribers, it has struggled to come up with a viable business model which, in many cases, has led to low royalty payments and to public battles with artists like Taylor Swift. For a time, Swift pulled her music from Spotify because she said they don't pay artists fairly.

This deal, while positive for music publishers and songwriters now, is short-lived. In five years, the CRB will have to review the payment schedule again to see what is deemed to be fair and equitable at that time. Given the fast pace of technology, a lot can change in the music industry between now and then.