Music Streaming Services’ Procedural Victory in Songwriter Royalty Rate Legal Battle

Sam Ross- Since the downfall of CDs and digital downloads and the inception of music streaming, artists and songwriters alike have expressed concern about a lack of compensation from streaming services. The business model of music streaming is quite different from that of physical or digital sales, in that songwriters and artists receive much less streaming revenue over a much longer period of time as listeners continue to stream music. . As a result, songwriters are struggling to make a living from streaming revenue under the government-mandated compulsory mechanical royalty rate system.

Synchronization licensing fees, for example, which are paid when songs are used in visual formats like television shows or movies. These fees are typically split evenly between publishers (who pay songwriters), and record labels (who pay artists). However, the streaming regime results in a significant disparity between the two: Publishers are paid a percentage of streaming revenues equivalent to about one-fifth of the percentage paid to record labels, which is then further divided by market share. This disparity is largely due to the fact that mechanical royalty rates paid to songwriters from streaming revenue are controlled by the law, whereas licensing fees for music in other realms are subject to the free market.

In early 2018, however, songwriters began to feel hopeful for the future of income from music streaming services when the Copyright Royalty Board (“CRB”) made an announcement about an increase in mechanical royalty streaming rates for songwriters. This ruling, which applies to interactive music streaming services like Spotify and Apple Music, promised to increase the percentage of overall streaming subscription revenue owed to songwriters by 44% by 2022.

The increase was officially submitted in February, 2019, which was followed by a 30-day window for services to appeal. And, right on cue, Spotify and Amazon appealed one month later. By the time the appeal was formally filed, Spotify and Amazon were joined by Google and Pandora, arguing that there were issues with a number of technicalities in the revised compulsory license as well as the process with which the CRB used to make its revisions. The companies complain that they were not given an “opportunity to present or rebut evidence concerning the structure and rates selected.”

David Israelite, CEO and president of the National Music Publishers Association, expressed extreme frustration over the appeal, claiming that the companies essentially declared war on songwriters: “The CRB’s final determination gave songwriters their only second meaningful rate increase in 110 years. Instead of accepting the CRB’s decision which still values songs less than their fair market value, Spotify and Amazon have declared war on the songwriting community by appealing that decision.”

In response, Spotify issued a statement clarifying its position on the matter, emphasizing that it is not, in fact, suing songwriters, but that it believes songwriters deserve to be paid more and is supportive of increasing their rates. Spotify lists the issues it has with the CRB’s new rate structure in a concise, albeit vague, manner: “The CRB rate structure is complex and there were significant flaws in how it was set . . . However, we are willing to support an increase in songwriter royalties provided the license encompasses the right scope of publishing rights.”

Ultimately, in August, 2020, a three-judge panel on the U.S. Court of Appeals for the D.C. Circuit vacated a portion of the CRB’s ruling, calling on the CRB to reconsider the matter. The decision states that the CRB “failed to provide adequate notice of the rate structure it adopted, failed to explain its rejection of a past settlement agreement as a benchmark for rates going forward, and never identified the source of its asserted authority to substantively redefine a material term.”

The ruling does not, however, indicate any intention of lowering the new royalty rate structure, though this could still happen. It is a purely procedural ruling that questions the method with which the rates were determined rather than the rates themselves. Thus, we will have to wait for further CRB proceedings to see if songwriters will end up attaining a significant increase in streaming revenue any time soon.

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