Next year the US Copyright Royalty Board will decide what music streaming services should pay to songwriters and music publishers within the American market between 2028 and 2032. Needless to say, this is of significant interest to writers, publishers and streaming services, and we now know the opening demands of each group via submissions they made to the CRB earlier this month.
We also know who - as far as the music industry is concerned - is the “worst offender” when it comes to streaming services short-changing music creators. And if you had money on Spotify being enemy number one during the latest CRB rate review, you’re out of luck. Because Amazon has taken over that prestigious spot.
When it comes to a top line royalty rate for the use of songs on their platforms from 2028 to 2032, most of the streaming services are pushing for the status quo, so that a revenue share rate of 15.35% - which will kick in from next year - would be retained throughout that period.
The music publishers are arguing that this rate should increase to 20% with an additional per-stream minimum, while some songwriter groups are arguing that the revenue share model should be abandoned entirely, to be replaced by a simpler per-stream rate.
But Amazon’s CRB submission stands out because it is proposing a rate cut to 13.4% of revenue. Which has prompted David Israelite, CEO of the US National Music Publishers Association, to officially hand Amazon the “worst offender” title.
In an Instagram post, Israelite also notes the irony of a company with a market cap of $2.8 trillion and annual revenues of $717 billion - “which makes Amazon 100 times the size of the total US publishing and songwriting industry” - being the one that “wants to squeeze songwriters the most”.
Alongside the top line rate, another controversial issue in this CRB review is the bundling discount streaming services can utilise when they bundle music with other content like audiobooks, allowing them to pay less to writers and publishers.
Spotify’s use of this discount has attracted widespread criticism from writers and publishers in the last couple of years, but Amazon has also made use of it to reduce its payments into the music industry. And that fact is likely to get more public criticism now Amazon has its “worst offender” status.
Israelite brings it up in his Instagram post, stressing that Amazon is looking to lower the top line rate it pays writers and publishers while also “continuing its forced bundling scheme”, which it “modelled” on Spotify’s sneaky bundling strategy, even though those bundling tricks have cost writers and publishers “more than a billion dollars”.
Under US copyright law, streaming services can take advantage of a compulsory licence when it comes to exploiting the so called ‘mechanical rights’ in songs. That compulsory licence means writers and publishers must allow digital platforms to stream their music at rates set by the CRB.
Streaming also exploits the separate ‘performing rights’ in songs. These are not covered by the compulsory licence, meaning services need to get separate licences from collecting societies like BMI and ASCAP.
However, the royalties they pay under those licences are deducted from what is due under the compulsory licence - which means whatever rate the CRB sets for mechanical rights is basically the total rate the writer and publisher receives.
The CRB reviews the rates paid under the compulsory licence every five years. The last review - referred to as Phonorecords IV - set the rates for 2023 to 2027, with small annual increases to the top line rate which will peak at 15.35% next year. The current review, which will set rates for 2028 to 2032, is Phonorecords V.
When deciding what the rates should be, the judges that sit on the CRB are meant to consider what would happen if a “willing buyer” and a “willing seller” sat down to negotiate in private - which is what actually happens with the recording rights controlled by record labels and music distributors - and, in most other markets around the world, with the song rights too.
In arguing for the status quo, Spotify says in its CRB submission that “the best evidence of what willing buyers and willing sellers would agree to is what they actually did agree to, just four years ago”, ie as part of the negotiations that actually resulted in a pretty speedy settlement between the streaming services and the music publishers with Phonorecords IV.
However, the publishers are always keen to stress, the existence of the compulsory licence puts the music publishing industry at a disadvantage, not least because streaming services can still try to negotiate direct deals with publishers if they want to, but knowing they can always fall back on the compulsory licence if necessary.
Although the top line revenue share rate gets the most attention, there are other complexities in the compulsory licence. In addition to the bundling discounts, there are additional rules that link the payment made to the song to the separate payment streaming services make on the recordings side, plus a rule that says the payment on the songs side can’t fall below $1.10 per premium subscriber. The publishers are looking for increases across the board and stricter rules around bundling.
For the streaming services, the current flexible bundling rules are key. They stress that the bundling discounts agreed as part of the Phonorecords IV review were a crucial part of the deal done between the services and the publishers. And with that in mind, those terms should stay in place through to 2032.
“The bundle terms and economics in particular were a known, core term of the Phonorecords IV settlement”, Spotify writes in its submission, adding that “in publicly celebrating the settlement, both sides recognised the bundle terms and economics as a central component of the deal”.
And yet, it adds, Spotify has been widely criticised for utilising the bundling discount, and the publishers now want to make it harder to utilise the bundling provisions.
A submission to the CRB by a coalition of organisations representing artists and songwriters - including Songwriters Guild Of America, the Society Of Composers & Lyricists, Music Creators North America and the Music Artists Coalition - is also very interesting.
In an accompanying statement, they explain that “at the heart” of their submission “is a proposal to replace the industry’s existing, multi-step royalty formula with a direct, flat pay-per-stream model”. Their top line proposal is “a fixed $0.0030 per play for interactive streams” which would “apply uniformly across all service tiers - including free, ad-supported tiers - and would adjust annually for inflation through 2032".
Generally speaking the music industry’s deals with the streaming services are built around revenue share and consumption share arrangements, albeit often with rules that ensure some minimum payments to creators and rightsholders, which can be locked to streams, subscribers or time periods.
However, in the main, the streaming services are likely to be hostile to top line per-play payments, especially on free tiers which generate much less revenue per user, meaning per-play payments increase their risks. But it’s still interesting to see a more radical overhaul of the system being proposed.
The CRB is set to formally consider all these proposals next March and April, which could result in some lively hearings, unless the services and the music industry can reach an agreement earlier in 2027.