CRB Formally Approves Phonorecords IV Settlement — Songwriters Respond to ‘Complete Debacle’ With Demands For Rate-Setting Reforms

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Washington, D.C.’s James Madison Memorial Building, which houses the U.S. Copyright Office.

The Copyright Royalty Board (CRB) has officially approved the proposed Phonorecords IV settlement, and songwriter organizations are responding by calling for far-reaching reforms in the rate-setting process.

The three-judge CRB today published its final decision on Phonorecords IV, which will slightly raise songwriter and publisher royalty rates from on-demand streaming services between 2023 and 2027. For background, the National Music Publishers’ Association (NMPA) and the Nashville Songwriters Association International (NSAI) unveiled their underlying agreement with leading streaming services (repped by the Digital Media Association) in late August.

Rather quickly negotiated by the involved parties, Phonorecords IV encompasses (in part) a 15.35 percent headline rate for songwriters and publishers on streaming services, phased in over the covered half-decade period. This figure marks a modest increase from the 15.1 percent headline rate delivered by Phonorecords III, which itself brought a major hike and elicited considerable pushback from Spotify, Google, and others.

Lastly, in terms of the multifaceted subject’s pertinent background details, the CRB in March rejected a proposed mechanical-rate freeze for physical formats and downloads, describing the “vertical integration linking music publishers and record labels” as “a warning flag.” Meanwhile, the CRB this month announced a 2023 cost-of-living adjustment for webcasting royalty rates.

Back to the controversy surrounding Phonorecords IV, however, organizations including Music Creators North America (MCNA) and the Songwriters Guild of America (SGA), besides individuals such as songwriter George Johnson, promptly criticized the underlying negotiations’ perceived lack of transparency (as well as the actual settlement terms) earlier in 2022.

In response to these calls, an unredacted version of the agreement was released to the public in October, at which point several of the same parties demanded the public disclosure of any relevant “side” deals between streaming services and leading publishers.

And on the heels of another order – the CRB called on the appropriate entities to, among other things, “file (not ‘lodge’) any supplemental written agreements” – a representative from each of the settling parties provided “certification.” Said certification indicated “that there are no other agreements, written or oral, responsive to Order 64 [the order to identify side deals] beyond the agreements provided” previously, the CRB’s newly published decision recaps.

“Having considered these submissions in their entirety,” the just-released CRB analysis reads, “the Judges find no persuasive legal or economic arguments that convince the Judges to reject the proposed settlement reached voluntarily between the Settling Parties.

“Only one participant in this proceeding, GEO [George Johnson], objected to the Settlement. As shown by the foregoing synopsis, however, GEO’s objections did not come to the Judges in a vacuum,” the CRB’s conclusion drives home.

Diving into commenters’ calls for alterations to the Phonorecords IV settlement – some requested the inclusion of a cost-of-living/inflation adjustment like that mentioned above, albeit in relation to webcasting – the CRB indicated that it’s “not empowered” to modify the agreement.

“The Judges recognize that several commenters proposed alternative rates that they prefer, including alternative methods for inserting inflation adjustments,” the relevant portion of the text explains. “However, while the Judges may decline to adopt a settlement, the Judges are not empowered to modify the Settlement, such as by adding requested adjustments. The Settlement is what is before the Judges for consideration, not alternative rates or proposals for alternative procedures.”

In any event, “the structure and increases are a reasonable approach to providing an organic cost of living adjustment,” the CRB claimed, maintaining also that there’s “no persuasive reason to determine that the absence of yearly inflation adjustments is unreasonable or should otherwise justify a rejection.”

Moreover, with regard to any potential confusion surrounding “the royalties or statements of account” and the purported need for simplification, the CRB relayed that “when the market itself is complex, it is unsurprising that the regulatory provisions would resemble the complex terms in a commercial agreement negotiated in such a setting.”

“For the Judges to demand simplicity in this context would be to sacrifice the specificity that an effectively competitive market requires,” the document states.

Lastly, in terms of the analysis and conclusions published by the Copyright Royalty Board, the entity found that an “issue of potential conflicts of interest remains to some degree” between the major labels, their respective publishing units (which are represented by the NMPA), and the streaming services in which the majors have or previously had stakes.

“The issue of potential conflicts of interest remains to some degree, as some publishers represented by NMPA have cross ownership relationships with record labels, some of which have or had equity interests with music services,” the CRB judges penned.

“However, as the Judges have repeatedly observed, conflicts are inherent if not inevitable in the existing composition of certain negotiating parties. No party opposing the Settlement has presented persuasive evidence of misconduct or conduct that would sufficiently indicate that rates or terms are inconsistent with those that would be set in an effectively competitive market,” the judges finished.

In response to the Phonorecords IV settlement’s approval, the Society of Composers and Lyricists (SCL) as well as the aforementioned Songwriters Guild of America and Music Creators North America today penned a letter to the House and Senate Judiciary Committees, requesting a prompt “consideration of reforms” for the rate-setting process.

Across seven detail-oriented pages, the organizations expressed their “deep concerns” with the process behind the Phonorecords IV approval (on top of other rate determinations) and the “many hundreds of millions of dollars in songwriter” royalties that will be forfeited as a result.

“In closing, last evening we received word that the CRB has approved a last-minute, even more deeply flawed Phonorecords IV settlement agreement regarding royalty rates for the delivery of music via electronic streaming,” reads the letter penned by the SCL, SGA, and MCNA. “This decision will dwarf the negative effects described above regarding physical and download mechanical royalty rates, as it is likely to cause the forfeiture of many hundreds of millions of dollars in songwriter and composer streaming royalties.”

Finally, in a firmly worded release sent to DMN, George Johnson criticized the “complete debacle” of a ruling and made clear his belief “that it is now time to permanently abolish the cruel and inhumane 1909 compulsory license on all American songwriters and music publishers who have no recourse but to leave the music industry” altogether.

“In short, it’s time to abolish the compulsory license on all American songwriters which would make the Copyright Royalty Board rate-setting process moot and finally give us what we all deserve — a free market in music,” penned Johnson.

“If Congress refuses to act, it’s time for real attorneys to step up and use the Courts to abolish the Copyright Royalty Board and stop this price-fixing of American songwriters at zero cents per-song once and for all,” he continued.