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Copyright Panel Rethinking Song Royalties Streamers Pay

Aug. 11, 2021, 9:02 AM

A historic rate increase that would help lift the incomes of songwriters is getting a fresh look from the Copyright Royalty Board after streaming services like Spotify USA Inc. that would be on the hook for the payments objected.

The board is redoing the rates after an appeals court rejected its first attempt, saying it made procedural errors. Now the board is in the final stages of its second go at setting rates for 2018-2022.

The money dispute pits songwriters against the streaming services that are an increasingly important source of revenue for them.

The board initially decided to boost royalties from 10.5% of streaming revenue to 15.1% over a five-year period. Spotify and other streaming services last year challenged the increase in the U.S. Court of Appeals for the District of Columbia and won.

For songwriters, the boost would be a long-awaited pay increase from streaming services.

Those services, including Pandora Media LLC and Google LLC, argue that songwriter royalties shouldn’t be tied to the high rates they pay record labels, saying that such a big increase would threaten their businesses. The services must pay for multiple licenses, distributing a significant portion of their revenue to performance rights organizations, music publishers, labels, and others.

A new judge on the board, the D.C. court’s ruling, and a proposal for royalty rates on discs and downloads may threaten the boost for songwriters, copyright attorneys said. Even if the rates are upheld, the CRB may make significant adjustments in anticipation of more potential legal challenges from the streaming services.

“You have a very close case in terms of who’s potentially deciding it,” said Matthew Schettenhelm, a Bloomberg Intelligence analyst, “and, potentially, the facts may cut more for the streaming services now than they did a couple years ago.”

Schettenhelm expects the board’s decision will come in the second half of the year, with hearings before then. The final briefings were submitted in July.

The board’s redo will determine how the royalties from streaming services are structured, but also could spark more legal challenges from streaming services if certain aspects of the rate increase are upheld, copyright attorneys said.

While the goal of the board’s 2018 decision was to give songwriters a larger share of revenue, the D.C. Circuit’s ruling hinted that it might have some issues with the way the board structured the increase, said music lawyer Christian L. Castle, an Austin, Texas-based attorney at Christian L. Castle, Attorneys.

The decision also could set a precedent for the next round of proceedings for the following five-year period, which has already started.

Low Rates

Most listeners now get their music through streaming services. Songwriters say the current royalty structure makes it difficult to make money off of those streams, unless they produce major hits.

Royalties from downloads and CDs haven’t increased since 2006, but still make up a significant portion of income for independent songwriters.

Songwriters are subject to a compulsory license under Section 115 of the Copyright Act, which determines the price paid for the reproduction and distribution of their songs. The rate to make and distribute a work as a CD or a permanent download has risen from 2 cents in 1909 to 9.1 cents today, well below what would be paid if the rate was adjusted for inflation.

But Section 115 doesn’t fix a rate for streaming services. Instead, they’re subject to a percentage-of-revenue formula that songwriters say yields meager payouts. Streaming services, meanwhile, say songwriters aren’t the only parties they have to pay.

It’s hard for many songwriters to make a living with low royalties from both streaming services and physical distribution, said Abby North, an independent music publisher in Los Angeles.

“If we don’t get to a place where these royalty rates provide a sustainable living then we’re going to lose a lot of songwriters who might have been contributing really great songs to the American songbook,” she said.

Multiple Licenses

The mechanical licenses streaming services buy to use songwriters’ works are just one of the necessary licenses they must obtain and one aspect of songwriter and publisher revenue, said Garrett Levin, the president and CEO of the Digital Media Association (DiMA), which represents streaming services.

“No CRB proceeding happens in a vacuum,” Levin said. “The goals and outcomes of all these proceedings should not be viewed in isolation, but rather as a larger reality of industry growth — across recorded music and publishing — driven by streaming and hundreds of millions of fans.”

Representatives from Spotify, Pandora, and Google didn’t immediately respond to requests for comment.

Different for Labels

Record labels own a second copyright for the sound recording and can negotiate their royalties with the streaming services based on the free market.

The CRB in 2018 found that meant labels receive more for their sound recordings than music publishers and songwriters get for the use of their musical works. It sought to make the royalty structure more balanced.

The judges said the amount paid to the record labels should be considered in the songwriter royalty payments, rejecting a cap that had limited how much of what the record labels receive can be considered and ensuring that songwriters benefit from the higher rates the record labels receive in the free market.

Rate Changes Possible

Streaming services argue that this pay structure could put them out of business and that the previous royalty rates aren’t too low.

Spotify, Pandora, Google, and Amazon Digital Services LLC wrote in their joint reply brief that they had to bear significant increases in mechanical royalties because the board uncapped the total content cost and record labels didn’t reduce their rates.

Castle said the NMPA and Nashville Songwriters Association International’s recent proposal to keep the royalties for discs and downloads at 9.1 cents could signal to streaming services that they shouldn’t have to pay a higher rate either, though the NMPA disagrees.

The proposal was disappointing, said Blake Morgan, a musician and songwriter who has advocated for fair pay for musicians.

“It’s not simply that Taylor Swift be able to afford an extra speedboat,” Morgan said. “It’s about all the other people connected with music who are simply trying to get by. We’re talking about pennies here.”

To contact the reporter on this story: Samantha Handler in Washington at shandler@bloombergindustry.com

To contact the editors responsible for this story: Renee Schoof at rschoof@bloombergindustry.com; Keith Perine at kperine@bloomberglaw.com

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