In a year historically high inflation has wreaked havoc on the costs of both touring and producing music, musicians and record labels received a bit of reprieve — thanks to high inflation.
The Copyright Royalty Board, which sets royalty rates for some streams in the United States, announced on Dec. 2 that per-stream rates for noninteractive webcasters’ streams will take a big jump in 2023: commercial webcasters will pay 0.3 cents per stream for subscription performances, up 7.1% from 0.28 cents in 2022, and 0.24 cents per stream for ad-supported performances, up 9.1% from 0.22 cents. Non-commercial webcasters’ per-stream royalty rate for 2023 is 0.24 cents for all digital audio transmissions in excess of 159,140 aggregate tuning hours in a month on a channel or station.
The CRB’s calculated the adjustment by multiplying the base rate by the percentage change in the CPI-U published by the Bureau of Labor Statistics before Dec. 1, 2022 (298.012), and the CPI-U for Nov. 2020 (260.229). In 2015, the CRB decided to add an annual cost-of-living adjustment to royalty rates paid for plays of programmed streams for 2016 to 2020. The rates for the current period, 2021 2025, are also adjusted annually. Previously, the CRB established a slate of increasing rates for a five-year period and did not revisit the rates annually.
Artists are ensured to feel the bump in royalty rates because webcasting royalties are paid by streaming services to SoundExchange, which distributes payments directly to performing artists from noninteractive webcasters such as Pandora. In contrast, on-demand services cannot operate under a statutory license and must secure licensing agreements from record labels. So, royalties from on-demand services such as as Spotify and Apple Music are paid directly to labels, which in turn pay artists according to the terms of the recording contract (or don’t pay artists if expenses have not been recouped).
A raise from noninteractive webcasters affects only a minority of an artist’s digital revenues, however. SoundExchange distributions – which also include royalties for performances by satellite radio and cable broadcasters — in the first half of 2022 declined 4.5% year over year to $464.9 million, according to the RIAA. That was about 7.2% of total streaming royalties, down from 34.4% in 2016. Today, most streaming royalties come from paid subscription services, which accounted for $4.5 billion of revenue in the first half of the year and are growing at nearly at double-digit rate.
Still, noninteractive streaming royalties have risen considerably over the years thanks to the cost-of-living adjustments. In 2016, a webcaster such as Pandora paid out 0.22 cents per stream for subscription plays and 0.17 cents for ad-supported plays. Low inflation meant the rates increased only once over the next five years. A new slate of rates for 2021 to 2025 brought the rates to 0.24 cents for subscription plays and 0.21 cents for ad-supported plays in 2021. The cost-of-living adjustments for 2022 took the rates to 0.28 cents and 0.22, respectively.
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