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Music industry welcomes US mechanical royalty ruling

By | Published on Monday 29 January 2018

US Congress

The US music publishing sector this weekend welcomed the news that the country’s Copyright Royalty Board is increasing the rate that must be paid whenever the mechanical rights in songs are exploited by streaming services in America. The top line mechanical royalty revenue share rate goes up from 10.5% to 15.1%, which is the largest increase since the CRB was set up.

Mechanical royalties are due whenever someone makes a copy of a song. Traditionally that meant whenever records were pressed, though it also applies to downloads and on-demand streams too. In the US there is a compulsory licence covering mechanicals, meaning that publishers and songwriters are obliged to license anyone making such copies of their songs at rates set by the Copyright Royalty Board.

The music industry has long reckoned that whenever the CRB sets royalty rates for compulsory licences in the US – or the rate courts intervene on royalty rates charged by American performing rights organisations BMI and ASCAP – music makers always end up being short changed.

That’s partly because of the criteria the CRB and rate courts employ. Which is why the recently proposed Music Modernization Act in Congress seeks to alter those criteria, a move that it’s hoped will push rates up in the future. Though, after a lot of lobbying and legal wrangling, the US music publishers got a pretty good deal for 2018-2022 under the current system.

In the US, record companies pay the mechanical royalties on CDs and downloads, while the streaming services pay mechanicals directly to songwriters and publishers. Which means that when the mechanical royalty rate is under review these days, both labels and digital services sit across the table from the publishers. Though a deal was reached with the former, so it was the streaming rates that everyone was waiting for the CRB to rule on.

The National Music Publishers Association outlined the specifics of the CRB’s new ruling on mechanicals on Saturday. It stated: “The court’s decision includes a significant increase in the overall percentage of revenue paid to songwriters from 10.5% to 15.1% over the next five years – the largest rate increase in CRB history”.

It added: “Additionally, the CRB removed the ‘total content cost cap’, giving publishers the benefit of a true percentage of what labels are able to negotiate in the free market resulting in significantly higher royalties for songwriters. In addition, the CRB granted a late fee which will dramatically alter the licensing practices of digital music companies”.

Welcoming the ruling, NMPA boss David Israelite said: “We are THRILLED the CRB raised rates for songwriters by 43.8% – the biggest rate increase granted in CRB history. Crucially, the decision also allows songwriters to benefit from deals done by record labels in the free market. The ratio of what labels are paid by the services versus what publishers are paid has significantly improved, resulting in the most favourable balance in the history of the industry”.

He went on: “While an effective ratio of 3.82 to 1 is still not a fair split that we might achieve in a free market, it is the best songwriters have ever had under the compulsory licence. The court also decided in our favour regarding a late fee which will force digital music services to pay songwriters faster or be subject to a significant penalty. The bottom line is this is the best mechanical rate scenario for songwriters in US history which is critically important as interactive streaming continues to dominate the market”.

The one extra thing that the music publishers had been hoping for was a per-stream rate as well as the revenue share rate. This isn’t part of the CRB’s ruling. Which was something noted by the boss of the biggest music publisher, Sony/ATV’s Marty Bandier, though even he was optimistic overall.

He told reporters yesterday: “As the leading music publisher, we believe that overall this is a very positive ruling by the CRB as it will deliver an unprecedented topline rate increase for songwriters and publishers over the next five years. While we are disappointed not to get the per-stream rate that we wanted, the planned rate increases go a long way to fairly compensate our songwriters for the essential contribution they make to streaming’s success story”.

Also talking up the ruling was Bart Herbison of Nashville Songwriters Association International, who said: “Songwriters desperately need and deserve the rate increases resulting from the Copyright Royalty Board trial. The CRB was a long and difficult process but songwriters and music publishers together presented a powerful case for higher streaming royalty rates”.

The Association Of Independent Music Publishers was happy too, saying in a statement: “The AIMP is THRILLED with today’s announcement of the 44% increase in interactive streaming mechanical rates over the next five years – the biggest increase in the history of the CRB and the compulsory license. The additional benefits obtained from the late fee granted in the decision plus the removal of the total content cost cap are sorely needed elements in our path towards equitable compensation for the use of our music in the ever-growing digital economy”.

It went on: “This is an incredible victory and a testament to the great work of David Israelite and the NMPA board and staff, Bart Herbison and the NSAI board and staff, and their collective legal team. Songwriters, composers and publishers all owe them a debt of gratitude for their tireless efforts on our behalf, and the AIMP leadership and our 1000 members nationwide salute and thank them”.