RECORD LABELS AND PUBLISHERS INK MAJOR SETTLEMENT, MOVING FROM 9.1 CENTS TO 12 CENTS PER TRACK FOR US MECHANICAL ROYALTIES ON PHYSICAL SALES | MBW
Ashley JonesMay 6, 2022
Last month, MBW told you about an epic negotiation going on in the United States over certain types of mechanical royalty rates paid to songwriters for sales of physical music, as well as downloads.
Today (May 5), we learn that the groups representing songwriters, music publishers and record labels have now reached an agreement to settle that rate negotiation.
The important background information to this story is that since 2006, the mechanical rate paid to publishers/songwriters for music purchased on a physical disc (or a download) has been set at 9.1 cents per track.
Today’s settlement proposes a 32% increase to that current royalty rate, to 12 cents per track.
The settlement also provides that these songwriter royalties will increase automatically each year of the rate period in connection with the Consumer Price Index (i.e the rate of inflation).
The settlement will now be considered by the Copyright Royalty Board.
The CRB previously declined to approve an earlier agreement covering physical sales and downloads largely due to concerns over what it considered “static” rates. (We’ll come back to this in a minute).
Some wider, but crucial context to this story, is that in the US, mechanical royalties are paid on to publishers and songwriters by the record companies.
Which means that, if the CRB does decide to increase the mechanical rate by 32%, from 9 cents to 12 cents, for physical formats, then the record companies will have to pay this extra money out to songwriters.
This becomes a bit of a legal conundrum, when you consider that the three largest music publishers are owned by the same parent companies that own the three largest recorded music companies.
Some extra extra context: If the mechanical rate for streaming rises via a CRB ruling, streaming services, like Spotify, Amazon Music and others, have to pay this extra money to songwriters.
As MBW readers probably already know, the CRB is currently conducting proceedings to determine the mechanical royalty rate that music streaming services will pay songwriters for the five years between 2023 and 2027 (aka Phonorecords IV or CRB IV).
This is one of two legal battles that the NMPA (National Music Publishers Association) is currently fighting against Spotify and other streaming services.
The other one came four years ago, when the CRB ruled that streaming services should up the mechanical royalty rate paid to songwriters from 10.5% to 15.1% for the years 2018-2022 (aka CRB III or Phonorecords III).
The likes of Spotify appealed that ruling and a final post-appeal decision from the CRB is expected in the coming months.
As a separate part of the proceedings for 2023 and 2027 ( aka Phonorecords IV), the CRB is also deciding what mechanical royalty rate publishers and songwriters should receive from sales of physical music in the US, as well as downloads.
This does not involve the streaming companies, because, as explained above, mechanical royalties are paid to publishers and songwriters by the record companies. The CRB considers this physical/download rate under ‘Subpart B’ of its Phonorecords IV decision-making.
The National Music Publishers Association has chosen not to litigate in the ‘Subpart B’ proceedings, and is instead concentrating all of its resources on the (separate) streaming side of the CRB’s hearings.
Remember that we said above that the CRB previously declined to approve an earlier settlement agreement covering physical sales and downloads due to concerns over what it considered “static” rates.
That agreement – between the three major record companies and two key trade groups: The NMPA (representing its publisher members) and the NSAI (Nashville Songwriters Association International, representing its songwriter members) – was submitted to the CRB last year, and suggested that the US physical/download mechanical royalty rate should remain at 9.1 cents per track.
The CRB rejected that Settlement Agreement on March 30, after taking issue with the fact that it has remained “static” since 2006. The CRB’s Chief Copyright Royalty Judge, Suzanne Barnett, wrote: “[Sixteen] years at a static rate [9.1 cents] is unreasonable… if for no other reason than the continuous erosion of the value of the dollar by persistent inflation that recently has increased significantly.”
On April 5, the three major record companies jointly filed an EMERGENCY MOTION with the Copyright Royalty Board in the US.
The new motion filed today (May 5), which you can read in full here, states: “The new Settlement provides ‘a reasonable basis’ for statutory royalty rates and terms for Subpart B Configurations.
“First, it provides an immediate 32% increase to 12¢ per track for physical phonorecords and permanent downloads and provides for annual inflation-based adjustments for subsequent years of the term.
“This substantial increase and provision for annual adjustments responds to the Judges’ concerns regarding ‘static’ rates.
“Second, it represents the consensus of stakeholders representing the vast majority of the market for “mechanical” rights for Subpart B Configurations, including many of the songwriter groups and representatives who did not support the prior proposed settlement.”
“AS A MUSIC COMMUNITY, WE ARE STRONGEST WHEN WE COME TOGETHER TO FORGE LASTING AND SUSTAINABLE WIN-WIN DEALS.”MITCH GLAZIER, RIAA
Mitch Glazier, RIAA Chairman and CEO, said: “After wide consultation with songwriters, publishers, and labels, we are glad to have reached a solution we believe addresses the core concerns of the CRB judges and the individuals and organizations who shared their views during this proceeding.
“As a music community, we are strongest when we come together to forge lasting and sustainable win-win deals.”
“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.”
NMPA President & CEO David Israelite, said: “This new settlement gives songwriters a 32% raise on sales of vinyl, CDs and downloads – raising the rate from 9.1 cents to 12 cents – and critically also includes a yearly cost of living adjustment to address inflation.
“This extremely positive result is due in large part to the creators who made their voices heard in the CRB process. 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.”
“WE WANT TO THANK THE CRB FOR SIGNALING AN OPPORTUNITY FOR AN INCREASE ON PHYSICAL RATES.”
BART HERBISON, NSAI
Bart Herbison, Executive Director, Nashville Songwriters Association International (NSAI), said: “We want to thank the CRB for signaling an opportunity for an increase on physical rates.
“The 32% increase on CDs, Vinyl and downloads is welcome and the fact that the cost of living adjustment is built in helps us maintain increases in the future.”
“THIS IS A LONG OVERDUE STEP IN CORRECTING THE LOW RATES HISTORICALLY PAID TO SONGWRITERS AND IT’S ABOUT TIME A SONG’S INHERENT VALUE IS PROPERLY RECOGNIZED.”
MICHELLE LEWIS, SONA
Michelle Lewis – Executive Director, Songwriters of North America, said: “SONA enthusiastically supports the proposed phonorecords IV Subpart B settlement, which controls how much songwriters and publishers are paid for Digital Permanent Downloads, Vinyl & CD sales.
“Big or small, all songwriters should always have a voice in the decisions that govern and affect our livelihood. We are grateful that our collective voice has been heard.
“This is a long overdue step in correcting the low rates historically paid to songwriters and it’s about time a song’s inherent value is properly recognized.”
Association of Independent Music Publishers, said: “The AIMP fully endorses the proposed CRB Subpart B settlement, which would increase the mechanical rate for physical sales and digital downloads from 9.1 cents to 12 cents. This is a step in the right direction and will be a significant boon for the independent music publishing community.
“Moving forward, nearly all independent publishers will tell you that the future of the music business is in streaming, and we applaud the continued efforts of the NMPA to fight for better streaming rates for all independent music publishers and songwriters.”
Harvey Mason jr., CEO of the Recording Academy, added: “I want to applaud the NMPA and RIAA for working together to act in the best interest of songwriters. This settlement demonstrates that when the music community acts collaboratively, we can achieve meaningful progress for music creators.”
Evan Bogart, Chair of the Recording Academy’s Songwriters & Composers Wing, said: “This settlement provides a necessary and long overdue raise for songwriters that will make a real difference in their lives and livelihoods. Importantly, it will also ensure that songwriters continue to be paid fairly over the next five years as this increase is indexed for inflation.” –
Graham Davies, Chief Executive, Ivors Academy, said: “The Ivors Academy of UK songwriters and composers welcomes the news that the value of songwriting and publishing rights are beginning to be better recognised. This is an important settlement and indicates the necessary direction of travel.”
Brittain Ashford, Executive Director, Music Publishers Association of the United States, said: “This unprecedented rate increase for vinyl, CDs and downloads will have a significant impact on our industry and hopefully points to potentially higher rates for streaming from the CRB. We appreciate the efforts to come to this agreement and thank NMPA for working on behalf of songwriters and publishers.”
