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Songwriters’ Royalty Hike for CDs, Vinyl Approved for First Time in Over a Decade

todayDecember 16, 2022 1

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Songwriters have something to celebrate this holiday season. Though it seemed rulings on royalty rates for the period of 2018-2022 (Phonorecords III) and 2023-2027 (Phonorecords IV) would not receive final judgement by the Copyright Royalty Board in time for Christmas, there is finally clarity about at least one type of royalty. The board on Friday (Dec. 16) accepted a proposed settlement to hike the royalty rate for U.S. mechanicals for physical products (like vinyl records, CDs, cassettes), permanent downloads, ringtones and music bundles.

Taking effect on Jan. 1, 2023, as part of Phonorecords IV, songwriters will earn 12 cents per track or 2.31 cents per minute of playing time or fraction thereof, whichever amount is larger for physical products and permanent downloads. This will also include inflation-based adjustments for subsequent years of the rate period, a major change for composers who have historically been locked into stagnant penny rates for sales, despite the increasing cost of living. Ringtones will remain at the same rate as they were previously, and the money earned for each element of a music bundle will be decided according to the rates for that element.

The new ruling today approves what is known as “Settlement 2,” which was formed by the National Music Publishers’ Association (NMPA), Nashville Songwriters Association International (NSAI), as well as the major music companies: Universal Music Group, Sony Music Entertainment and Warner Music Group earlier this year.

As the name of the settlement implies, there was one that preceded it. In 2021, the same parties proposed “Settlement 1” which would have upheld the long-standing 9.1 cent penny rate for physical goods and permanent downloads. That proposed settlement was sent to the Copyright Royalty Board judges for approval last year, but it triggered backlash among some in the independent writer community.

The 9.1 cent rate has been in effect since 2006 and has not risen with inflation. George Johnson, an independent songwriter who often pushes back against settlements at the Copyright Royalty Board in favor of higher rates, and other interested parties objected to continuing this 9.1 cent rate for another five year period. They also noted other issues with Settlement 1, like the lack of adjustments for inflation, and questioned a memorandum of understanding (MOU) between the major labels and the NMPA, which could have provided waivers on late fees the U.S. Copyright law allows when payment deadlines are missed.

In response to concerns, The CRB judges concluded the proposed settlement did not provide a reasonable basis for setting statutory rates and terms as stated in proposed settlement 1.

For many years, the CRB rate proceedings have primarily focused on achieving fair compensation for streaming rates. In 2021, audio digital services paid out about $1.3 billion to publishers and songwriters, according to data from the Mechanical Licensing Collective.

While sales formats comprise roughly 15% of the recorded music market, the NMPA estimates those formats produce just 5% of U.S. publishing royalties. If streaming continues to grow at its current pace, some say that within three years these sales formats that are covered by the subpart B configurations might only account for 1% of publishing royalties.

The NMPA has also pointed out in the past that rate litigation is expensive — often in the tens of millions of dollars — as a reason why they have focused on fighting for high streaming rates rather than what formats are covered by subpart B, noting that the cost of litigation could end up equaling or outweighing whatever additional money a higher subpart B hike could achieve.

In Friday’s ruling, however, the court notes that the royalties generated by vinyl, CDs, downloads and other formats covered in subpart B “should not be treated as de minimis, or as a ‘throw away’ negotiating chip to encourage better terms for streaming configurations.” They also noted the improvements to Settlement 2 as “distinguishable” from the first proposed settlement.

The event marks the biggest rate increase for songwriters for physical goods and permanent downloads in almost two decades.

Now, just one final step remains: the register of copyrights has to check and make sure this is compliant with the copyright statute, and if approved — which is typical — this will go into effect at the top of the year. However, participating parties also have 30 days to file an appeal to the CRB’s determination.

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