Image by Thomas Galvez (CC by 2.0)
A new ruling from the US Government requires that streaming music services raise their royalty rates for songwriters and music publishers. Here are the details.
The United States Copyright Board (CRB) held hearings from March to June of 2017 to determine if it should raise, lower or do nothing to the royalty rates in regards to mechanical royalties. On Saturday, January 28th, it issued its long awaited decision, and the news was good.
The Current Rates for Streaming Mechanicals.
Currently, under US law, a streaming music service is required to set aside about 10.5% of its monthly Gross revenue to pay for the use of a “composition” (the lyric and melody of the song). Then, it divides the 10.5% of it Gross revenue by the number of streams to come up with how much is earned for each rate.
For example, $10 in gross revenue divided by 20 streams equals $0.50 for each stream (and so on).
Then, that per stream royalty is split roughly in-half between two rights: the right of Public Performance (paid to the Performing Rights Organizatiosn (i.e. ASCAP, BMI) who are then supposed to pay it to its members) and “Mechanical Royalties” (either paid to a publishing administrator or paid to a Reproduction Rights Collection agency like my company, Audiam, who then pays its members).
As an example, if one stream generates $0.50, about $0.25 is for the right of public performance and $0.25 is for “mechanical royalties’.
The actual per stream rates are much much lower than $0.50 per stream.
So low, its hard to call the rates money. For example, one stream on Spotify’s Ad Supported free service generates $0.00017 per stream for “Mechanical Royalties”. That’s about 1/100 of a penny. This means that for every 100,000 streams of one song played, Spotify pays just $17 in royalties.
You can view all the monthly per stream rates and use a rate calculator specific to Spotify here.
The Copyright Royalty Board’s Ruling
Some of the highlights of the Copyright Board’s ruling are as follows:
1) For the next five years (from 2018 – 2022) the per-stream royalty rate for mechanical royalties will increase incrementally from the current 10.5% of Gross revenue to 15.1% of Gross revenue.
For example, in the current model, if a music service made $100 in Gross Revenue, then 10.5% of $100 is the pot of money being paid for all the compositions, an amount of $10.50. If there are 100 streams in that one month, the service divides $10.50 by 100 streams to get a per stream rate of $0.105 per stream
Under the new model, by 2022, the 10.5% will increase to 15.1%. Doing the same calculation means each stream is now worth $0.151 per stream, an increase of about 40%.
2) If the music services pay the royalties late, they will be charged a late fee.
3) If a record label negotiates a higher rate with Spotify for the recording (as there is no government regulation or rate for recordings), then the royalty rate for the composition can also increase, but with a limit.
For example, if a record label gets 70% of Gross Revenue, then the amount being paid for the composition could theoretically increase to above 15.1%.
My company was involved in the rate increase. Here’s some data and other facts that we supplied to help inform this decision.
With this detailed data, the CRB was able to reach a measured decision and raise royalty rates for music rights holders.
One of the biggest takeaways from our data was this: as the top gross revenue for music services has increased, the per stream rate paid to publishers has decreased. Today’s ruling helps to offset this shift.
In addition, even at their peak, the per stream rates were incredibly low compared to the financial value songwriters and artists brought to the music services. As one example: 200,000 people using a music service to stream a song 1,000,000 times generates $160 in royalties for the songwriter but has a value of millions of dollars for the music service.
Accordingly, it’s exciting to see the true value of music realized as it is used to drive record setting value, customers and revenue for technology companies. Today’s ruling helps share the full financial value of music back with the creators whose music was used to acquire customers, increase market share and stock prices.
In addition, the CRB mandated 15.1% rate, phasing in over the next five years, is one of the highest rates in the world and is now a rate that must be met under the law.
The CRB ruling legitimizes and secures higher rates while also allowing for the possible removal of a contested provision in the controversial Music Modernization Act. The provision, called “Willing Buyer Willing Seller,” required the government to remove mandated rates and allow the publishers and music services to negotiate their own rates. The hope — but not guarantee — is for publishers to be able to increase the rates. This CRB ruling allows all music publishers and songwriters to experience a guaranteed higher rate while also potentially making it easier to pass the bill as the need for an increased rate is no longer an issue.
Jeff Price is the founder and CEO of Audiam, a digital reproduction rights management company.
Jeff.. with the Copyright Modernization ACT working in conjunction with the CRB has meNt increases to writers shares and publishers… what happens with revenues that are not split in the fashion you describe. ?
I’m not with a PRO because the Copyright Board Of Canada is playing a dangerous game , I’m certain you are aware. Along with CIPO, CMRRA and SOCAN the CRB (Giles McDougall) made it so Licensing of our music can occur without a). Proof of Copyright Ownership and b). Without proof of location. As a creator of music for 30 years, I inform my community that the PRO’s are absorbing our Royalties. We don’t want this to be the case. You know very well, the PRO is and has become redundant in collections of Royalties, and in fact does not even disclose the amount absorbed in the 3 year rule, nor does it declare the amounts on its yearly Financial Reports. My question is.. if we are independent, hoe do we stop our money from going to a thieving PRO… ?
We want all our money.. and in fact, the Royalty rates for Audiam can be drastically reduced as well.. since its digital matching .. its computer base.. and can be a collective wiener by the musicians of Canada.. not some Not for Profit thieving PRO or a company owner of private agendaFair compensation and the name #SOCAN are not synonymous at all. My name is Dean Hajas. The PRO (Performing Rights Organization), along with the Copyright Board of Canada, wrote into the Modernization of Copyright ACT, that they don’t require proof of Copyright ownership, nor your location. SOCAN and the CMRRA will be licensing music from the 3 main publishing houses of the world, who’s publishing and performance dividends will go to mostly, while independent publishers, songwriters Royalties we be absorbed in a 3 year rule by none other than SOCAN. I brought this to the attentions of Diane Petrucci at SOCAN who at first didn’t believe me. An investigation was launched known as the @Whistelblower.. then 3 months later.. my house suddenly burned down. These are our modern day thugs.. who steal from the efforts of creative beings. If anyone would like proof of these facts, please ask here openly, or PM me for additional details. Ask yourselves this, with all the digital tracking available to the music industry, why then the need for a redundant thieving body of CEO’s who manipulate the music industry to keep themselves alive?? Eric Baptiste sits on several boards, and in a grotesque display of conflict of interest has poisoned the rivers of Creativity, and the protection of Canadian music and it’s creators..
Let songwriters withhold their work and negotiate fair rates without the Gubment…
They can. Any time they want.
All of this B.S. about being “forced” to accept a government rate only applies to for mechanical REPRODUCTIONS.
It completely bypasses the clear and unambiguous right, that EVERY songwriter HAS, RIGHT NOW, to negotiate WHATEVER rate they want to demand, in a COMPLETELY FREE MARKET.
It is the right of “first use.”
NO ONE can make subsequent copies under the much-discussed copyright statutory scheme, unless and until and only AFTER, the songwriter agrees – without ANY PRICE CONTROLS or other regulations, WHATSOEVER – to the legal publication of their song.
Now, if you understand that, it leads you to ask yourself: “Gee, why doesn’t ANY songwriter (or publisher) demand whatever they want, for the first use? Why don’t Ryan Tedder or Mattman & Robin or thier publishers, demand $5,000,000 for the use of their songs?”
Thanks, Jeff for all you do and have done for artists.
I began to understand your incredible tenacity when I was part of the TuneCouncil years ago.
Jeff Price writing for DMN?
Thanks for this. One thing I’m still trying to get my head around is whether the increased rate only affects the mechanical side or if it also concerns the performance rights?
If we assume that the current 10.5% is split 50/50 then performance rights and mechanical rights currently each have a 5.25% rate. Am I right in thinking that after 2022, performance rights still have a 5.25% rate while mechanicals will have been bumped up to 9.85% (5.25%+9.85%=15.1%)?
Only mechanicals.
Performance royalties – for ASCAP and BMI, the tow biggest PROs – set by Federal Judges in New York. Others, like SESAC and GMR are free market (but SESAC tends to follow ASCAP and BMI’s rates and terms relatively closely, largely most understand, because they don’t want to end up in rate court, themselves).
Thanks Irst Fuse!
So basically if performance rates are not affected, then we will see mechanical rates going from 5,25 (still assuming a 50/50 split between performance rights and mechanicals in the current 10,5% rate) to 9,85% which would mean an increase of almost 90% on the mechanicals side?