Streaming services fail to pay modern royalty rates: What will it take?

By Lauren Degen, 2L Member

Despite the best efforts of lobbyists and music advocacy organizations, music streaming services like Spotify and Amazon are still refusing to pay updated royalty rates to songwriters and publishers for music use on digital streaming platforms. Even the new law set forth in the Music Modernization Act mandating an increased royalty rate determined by the Copyright Royalty Board has not been enough to make music streaming sites pay their fair share of royalties to the songwriters whose creations fuel such platforms. Continued litigation on the matter has many industry professionals asking themselves, “what will it take to get streaming services to pay?” In order to understand the issue, it is necessary to recognize the complexity of the Music Modernization Act and why streaming services continue to actively dispute increased royalty rates.

Passage of the Music Modernization Act (“Act”) has changed the landscape of the music industry in four primary ways. The Act spawned creation of the Mechanical Licensing Collective (“MLC”), changed the legal standard the Copyright Royalty Board (“CRB”) may consider when establishing mechanical royalties for internet streaming, expanded copyright protection to the creators of pre-1972 sound recordings, and led to passage of The Allocation for Music Producers Act. The Act, which became law on Oct. 11, 2018, in part changed the way Copyright Royalty Board judges decide statutory royalty rates, including those for digital streaming.

The history of the Copyright Royalty Board began in 2004 with passage of the Copyright Royalty and Distribution Reform Act (“CRDRA”). The CRDRA established a panel of three judges – the Copyright Royalty Judges – to oversee statutory licensing of copyrighted works. The goal of this newly established panel was to encourage more frequent review of royalty rates pertaining to statutory licensing of music. The law requires one of the three judges to have extensive knowledge in copyright law, one to have a background in economics, and one to have a minimum of five years of judicial or quasi-judicial experience. Collectively, the group has the power to determine royalty rates for usage of copyrighted works in the United States.

Prior to the passage of the Act, Section 115 of the Copyright Act allowed any person seeking a compulsory license to reproduce a song to pay a statutory mechanical license in exchange for the use. The Copyright Royalty Board established this statutory rate by applying a legal standard that does not consider market value of the work. This approach led to extremely low rates being paid out to songwriters and music publishers once streaming took over the music industry. However, the Act changed the legal standard used by the Copyright Royalty Board to determine royalty rates by allowing the judges to consider free-market conditions. This change helped even the playing field for songwriters’ compensation through establishing rates by consideration of the entire music industry ecosystem rather than by historical legal standards.

Despite the positive changes which resulted from the new legal standard used by the Copyright Royalty Board to determine royalty rates, implementation of the initiative has been more difficult. Per the terms of the Act, the updated standards to be used by the Copyright Royalty Board to determine royalty rates first went into effect for the 2018-2022 time period. (84 FR 1918) This new royalty rate, which was set to increase pre-2018 royalty rates from 10.5 percent to 15.1 percent, was determined by the Copyright Royalty Board on Jan. 27, 2018. Four years later, Spotify and other major streaming services are still battling songwriters, the National Music Publishers Association, and other creative advocates in court to dispute this increase. As a result, the streaming services have yet to pay the increased royalty rates to songwriters for the use of their works on such platforms. This is a hotly contested issue in the music industry. Songwriters and artists depend on streaming services for exposure, listener growth, and to reach new audiences, yet they are not being fairly compensated for the creations which streaming services need to fuel their platforms.

In the meantime, the Copyright Royalty Board is beginning to establish the royalty rate for the next five-year period – 2023 to 2027 – despite the fact previously established rates are not yet being paid out. Additionally, Spotify, Apple, Amazon, Google, and Pandora filed documents last October with the CRB proposing significantly lower royalty rates for interactive streaming platforms than the 2018 CRB decision sets forth. (Johnson v. Copyright Royalty Bd. (D.C. Cir. 2020)) Enactment of this proposal would set back much of the progress that songwriter advocates have made in recent years. The National Music Publishers Association is proposing that songwriters effectively earn 20 percent of all revenue generated by streaming services. Spotify and Pandora proposed decreasing the rate back to the pre-2018 10.5 percent of total service revenue rate and Amazon proposed a 10.54 percent rate, while Apple and Google proposed no change from the final 2018-2022 rates. The Copyright Royalty Board ultimately holds tremendous power in protecting the future of songwriters in the United States. As advocates wait for the CRB to make its final decision on the appealed 2018-2022 rates, they also optimistically hope for even more favorable streaming rates for the 2023-2027 period.

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