By: Aaron Steinberg, Editor-In-Chief
On-demand streaming, is primarily licensed and paid for by the streaming services, such as Spotify and Apple Music. This framework makes on-demand streaming unique since consumers are not paying directly for the licensed works. These on-demand, or “interactive,” streams pay fractions of a penny per stream to the songwriters and music publishers for two different royalties: public performance royalties and mechanical royalties. The combination of the public performance and mechanical royalties are referred to as the “all-in” royalty.
The U.S. Copyright Royalty Board (CRB) meets every five years to set both the required mechanical and public performance royalty rate. This rate set by the CRB is referred to as the “statutory rate.” Furthermore, the CRB established the method in which Spotify must allocate revenues earned by Spotify to pay publishers and songwriters.
In 2018, the CRB increased the percentage of United States revenue that on-demand digital service providers (DSPs) are required to pay to songwriters and publishers. The royalty rate went from 10.5% to 15.1%. Despite this ruling, the legal battle continued as Spotify, Google, Amazon, and Pandora filed an appeal, disputing the raised rate. However, as of August 2022, the DSPs, National Music Publishers’ Association (NMPA), and National Songwriter’s Association International (NSAI) jointly proposed new mechanical streaming rates for 2023-2027, where the top royalty rate will increase to 15.35%.
When the rate increase reaches 15.35%, Spotify will be required to pay songwriters the higher of either: (1) 15.35% of Spotify’s gross monthly revenue; or (2) 26.2% (or an updated percentage based on CRB ruling) of the sound recording royalties generated from all the record labels that had sound recordings stream that month. Based on this calculation, Spotify then splits the funds between mechanical and performance royalties and accounts the funds to songwriters and Performance Rights Organizations (PROs). The funds are distributed in accordance with the number of times each specific recording has been streamed compared to the total number of streams on the platform that month. This is called the “pro-rata” model.
Now, we must wait and see whether the CRB accepts or rejects this mutual proposal from the DSPs, NSAI and the NMPA to raise the top royalty rate to 15.35%.