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Legal: Determining Songwriters’ Future Revenue

By Aaron Tyler on March 31, 2017

#LEGAL

Streaming Revenue. Determining Songwriters’ Future

The Copyright Royalty Board is setting hearings to determine a new mechanical royalty rate. The current statutory mechanical royalty rate for physical recordings (such as CDs) and permanent digital downloads is 9.1¢ for recordings of a song 5 minutes or less, and 1.75¢ per minute or fraction thereof for those over 5 minutes.

There are songwriters who write hit songs and the music publishers that represent those songwriters are earning a mere $10 per 1 million streams on any one carrier. Our research leads us to believe that the record labels are controlling the streaming music business model, if there is one.

The information we’ve gleamed suggests companies like Spotify pay 70% (of the gross or net – we can’t say — because Spotify is not keen on discussing its balance sheet) to the Record Labels for royalty fees. The terms of the music licensing agreements are unknown, so it is unclear what they are paying for; different types of subscribers, or the costs for streaming format compared to downloads.

Spotify doesn’t just agree to give a flat rate of 70% away for content royalties. This is a flat cost to Spotify – it increases with the amount of music they can offer, but it’s not a percentage of their revenue. If Spotify’s subscriptions increase (and thereby revenues) then the 70% percentage of revenue dedicated to royalties would go down. However, licensing is incredibly complicated, especially in the music industry.

Erin Jacobson, Forbes Contributor and music industry attorney breaks it down like this:

Here’s how the structure works. A songwriter writes a composition, which is usually owned or co-owned by a music publisher, a company that handles the management, exploitation and royalty collection for that composition. The music publisher and songwriter split the income from that composition. The main royalties paid for a composition are mechanical royalties for the reproduction of that composition on CDs and via digital means on iTunes and streaming services, and performance royalties paid when a composition is performed in public. Synchronization fees come into play when a composition is used in television or film, but that is a negotiated contract fee separate from a royalty.

Mechanical rates are set by the United States government, specifically by a panel of judges called the Copyright Royalty Board (CRB). The CRB determines the royalty rates paid to songwriters and music publishers for every sale of a composition via CD or digital service like iTunes, as well as every time that composition is streamed on services like Spotify, Pandora, etc. The current mechanical rates are 9.1¢ for a sale (split by the music publisher and the songwriter), and streaming mechanicals are fractions of a cent per play.

This month, the CRB has opened hearings to set new mechanical royalty rates, which will be in effect from 2018 through 2022. The CRB will hear testimony from both music creators and music users and will make its decision in December 2017.

The music industry will continue to wither without fair compensation to its creators and those that represent them. Creators of music are not all rich superstars. They are regular people with amazing talents to create music that impacts lives around the world. They are people with families and mortgages and bills to pay. They may not work a 9-5 office job, but that doesn’t make them different than the average American earning a paycheck. Why shouldn’t songwriters and their representatives also earn a living from their skills?

Who’s In Charge?

The labels are making the decisions for the streaming services and are in charge of the artists. They don’t appear ready to relinquish control. If this is truth, then the labels take most of the heat which is not a shocker. Record labels have traditionally screwed over the artists they represent. Elvis got screwed by the Colonel, and Phil Spector screwed everyone. It should be no surprise when a modern corporate entity shows little regard for art, or the artists creating it, and decides to make profit its priority.

Pandora and Spotify will be dealing with cutthroat competition from YouTube and Apple. Google announced its YouTube Music Key which will be priced at $7.99 per month and Ian Rogers, CEO @ Beats Music, is trying to integrate Beats and iTunes Radio into a single value proposition. I’m willing to bet, however; that the record labels are still going to collect their 70% — regardless of whose logo leads the pack.

A petition is circulating urging the digital giant companies to work with songwriters and music publishers instead of fighting against them. The petition has already received over 7,800 signatures. If you are interested in signing, please click HERE.