Following a deadline to file proposed rates for on-demand audio streams to the Copyright Royalty Board on Wednesday (Oct. 13), word is beginning to leak from publishers and songwriters that the National Music Publishers’ Association (NMPA) are seeking a 32.4% increase in the headline rate to 20% of a digital service’s revenue for the full five-year term for Phonorecords IV, covering 2023 through 2027.
That compares to the year-by-year escalating headline rate from Phonorecords III, which covered the term of 2018-2022, which culminated in 15.1% of a service’s revenue in the final year. However, the CRB rates for that earlier term are still up in the air due to an appeals court remanding that sent the rate determination back to the CRB judges, who have yet to issue a response on how it is dealing with the appeals court’s objections and directions. Consequently, since the rate is still up in the air some services like Spotify have been using the last year of the lower 2014-2018 rates in paying music publishers and songwriters since the remand.
According to music publishing and songwriter sources, the NMPA is seeking a rate determined by the greater amount of a four-tier formula. That blueprint is comprised of the greater of 20% of a service’s revenue — referred to as the headline rate; or 40% of what is paid to record labels or other master recording owners; or $1.50 per subscriber; or $0.0015 per play. This formula would be applied each month during the year so the actual amounts paid out would change depending on usage and subscriber count in any giving month.
The CRB will weigh the NMPA ask against what the digital services individually propose and then will set the rate for the 2023-2027 terms. While the filings suggesting new rates by the digital services like Spotify, Apple, Google, and Amazon were due yesterday to the CRB, those filings likely won’t be posted to the CRB website until redacted copies are prepared that show the rate requests being asked but don’t show proprietary data each filer uses to back-up their arguments. Consequently, the filings might not appear on the CRB website for a week or two, sources suggest.
Comparing what sources say are the proposed NMPA rates to the remanded CRB set 2018-2022 rates, the earlier escalating headline rate began at 11.4% of service revenue in 2018, rising year-by-year to 12.3%, then 13.3%, 14.2% and finally to 15.1%.
For the other rate bucket, the percentage of payments to record labels and other recorded master owners, sources say the NMPA is requesting a publishing pool calculated by 40% of label payments, with that rate holding steady all five years of the term. In contrast, in the prior CRB determination, that rate began at 22% of recorded music content payments in 2018 and rose year-by-year to 23.1%, then 24.1% then 25.2% culminating in 26.2% in the final 2022 year. So the NMPA ask to increase the rate from 26.2% of label content payments to 40% translates to a nearly 53% increase.
Whichever of the two buckets of revenue — the percentage of a service’s revenue versus the percentage paid by the service for label content — produces the larger dollar pool, in the prior rate determination, that was measured against a third bucket calculated by 50 cents a subscriber. The NMPA rate proposal for the 2023-2027 term increase the subscription component ask to $1.50 per subscriber.
Finally, the NMPA is also asking for a new tier, or a new revenue bucket, to be introduced into the rate formula. According to sources, that new bucket would be determined by applying a $0.0015 per stream rate against total streams during the month. It’s unclear where this pool would be applied — if it will be used as a third pool on the front end measuring against the percentages of revenue and of content to see which is the biggest pool; or if it would be used on the backend as a third component against whatever revenue amount emerged from the front-end of the formula against the per-subscriber amount.
Apparently absent from the NMPA rate proposal is a step that was present during the 2013-2017 period but eliminated in the 2018-2022 period. In the earlier period, some services like Spotify had been applying the old rate determination from 2013-2017 to pay music publishing.
The formula then was based on a 10.5% of service revenue against the lesser of 21% of content payments to labels, or 80 cents per subscriber; whichever bucket of revenue that produced was then measured against a pool calculated by applying 15 cents per subscriber, and whichever pool was larger would be the pool to pay publishing royalties. The elimination of the step that produced a lesser pool in the CRB rate determination for 2018-2022 was a key factor in the appeals court remand of that rate determination.
The elimination of that step, in effect, took out a ceiling on publishing rates and meant that the publishers, whose rates are regulated by the CRB, would also enjoy any increases negotiated by the labels, whose rates are not subjected to government regulations and can be negotiated on the open market with services.
So while the CRB looks at the new proposals, it’s still wrestling with the remand. When that remand occurs and if it meets the appeals court’s approval, it could mean either additional payments to publishers and songwriters; or the possible clawing back of payments from publishers and songwriters, depending on what formula from which year each service was applying to payments since the remand.
Calls to the NMPA for confirmation of its rate proposal were not immediately returned.