Mechanical Royalties On Track For First Raise in 17 Years

Members of several major trade groups have finally reached an agreement to raise the compulsory rate for physical releases, downloads, ringtones, and music bundles to 12 cents per track. The National Music Publishers Association (NMPA), Nashville Songwriters Association International (NSAI), and three key publishers (Sony Music Entertainment, Universal Music Group, and Warner Music Group) filed their motion with the Copyright Royalty Board yesterday, approving an immediate 32% increase for 2023 pending a final decision from the CRB.

“This extremely positive result is due in large part to the creators who made their voices heard in the CRB process,” David Israelite, the CEO of the National Music Publishers Association, said in a statement — one of many positive responses to the proposed settlement. “With this settlement filed, we clear the way to focus solely and tirelessly on raising streaming rates. As we battle the biggest companies in the world, who are pushing for the lowest royalty rates in history, songwriters and their advocates stand more united than ever.”

Yesterday’s announcement was the first slice of significant news songwriters have received on the mechanical front since 2006. That’s when physical discs and downloads received a compulsory rate of 9.1 cents per track. To put things into perspective, 2006 was the sixth straight year CD sales posted a significant decline, five years after the first iPod, and a real turning point for digital music’s dominance. (According to the International Federation of the Phonographic Industry’s annual report, digital sales nearly tripled — from $400 million to $1.1 billion — and single downloads increased more than 190 percent in 2005.) 

Contrast that with 2021, a year where digital downloads were the only major format that didn’t rise sales-wise. Aside from an expected jump in streaming numbers (24 percent, a.k.a. $12.4 billion and 83 percent of the entire industry), the RIAA’s annual report boasted about a significant increase in both vinyl and CD sales. While the former hit $1 billion for the first time since 1986 — the fruit of a 15-year rise — the latter saw a 21-percent spike and hit $584 million, making 2021 the first year-over-year increase in CD sales since 2004. 

“[Sixteen] years at a static rate [of 9.1 cents] is unreasonable,” Chief Copyright Royalty Judge Suzanne Barnett explained at the time, “if for no other reason than the continuous erosion of the value of the dollar by persistent inflation that recently has increased significantly.”

She continued, “In this regard, application of a Consumer Price Index cost of living increase, beginning in 2006, would yield a statutory Subpart B royalty rate for 2021 of approximately $0.12 per unit as compared with the $0.091 that prevails, which adjustment, as noted supra, represents a 31.9% increase.” The long and the short of all that legalese is that the music industry’s compulsory rate stopped mirroring inflation some time ago. 

Judge Barnett also addressed the ownership links between the major publishers and the major record companies as a complicating factor: “Conflicts are inherent if not inevitable in the composition of the negotiating parties. Vertical integration linking music publishers and record labels raises a warning flag.” That is, with the major labels and major publishers under the same ownership, issues involving publishers wanting more payment from labels come with a built-in conflict of interest.

However, as she clarified, “No party opposing the present settlement has evinced actual or implied evidence of misconduct, other than the corporate structure of the record labels on the one hand and the publishers on the other. While corporate relationships alone do not suffice as probative evidence of wrongdoing, they do provide smoke; the Judges must therefore assure themselves that there is no fire.” 

While this rise in physical and download mechanicals is moving forward, streaming royalties are still in limbo. The CRB has yet to make a final determination about Spotify and other DSPs’ appeal of their last rate decision - and now the industry has lapped itself, with the subsequent Phonorecords IV discussion over streaming rates in 2023-2027 starting before the previous CRB ruling, Phonorecords III, has been finalized.

While DSPs are responsible for paying out increased streaming royalties, the increase in physical and download mechanical royalties will be borne by record companies, who must acquire and pay on mechanical licenses for these formats.

“Remember that whole ‘Spotify is suing songwriters’ mess?” SONA wrote in a 2020 blog post. “That thing? You may have heard about the recent DC Appeals Court decision on the Copyright Royalty Board rate increase for songwriters and publishers. Many songwriters have been asking us what it means. The short answer is, we don’t know yet for sure, but it’s not good. It all has to be re-argued and the final decision is getting punted into later this year.”

And while SONA said “later this year” in 2020, they’re still waiting: “Let’s discuss the lack of a victory lap by the digital services who ‘sued,’” SONA continued. “They got what they wanted.  Why aren’t they celebrating? Is it because it is the zillionth time [that] companies like Spotify and Amazon have fought paying the people who create the thing they sell and maybe they finally understand that’s not the best look for them?” 

Indeed. To say this is all rather complicated, and only getting more so by the day, would be an understatement. Publishers, songwriters, and administrators like Songtrust will see if material changes to the rates they receive for streaming and other forms of music consumption will be made in the near future. Until then, the best strategy is to ensure your songs are registered with robust information, including ISRCs — and know that Songtrust will keep advocating for our clients and all rightsholders every step of the way.