A Royal(ty) Pain: Setting Streaming Pay Rates For Songwriters Is No Easy Task

In the not-too-distant past, countless talented songwriters earned comfortable livings without ever selling a record or performing a note in public. All they had to do was get those songs to someone else who might turn them into hits, thereby assuring a steady flow of “mailbox money.”

It’s no secret that the digital era swatted away that status quo like it was a bothersome fly. And the rise of on-demand, subscription-based streaming services such as Apple and Spotify has put a deep dent in royalties paid to songwriters.

The National Music Publishers Association and Nashville Songwriters Association International, two organizations involved in the Copyright Royalty Board’s rate-setting review process, are trying to fix that dent. But they’ve been facing resistance from a formidable force: Sony Music Entertainment.

Unlike Universal Music Group and Warner Music Group, which have stepped away from negotiations to set 2018-to-2022 rates for mechanical, or non-performance, royalties for on-demand song streams, Sony has stayed involved — and has been pushing for a rate the two advocacy groups claim is even less than the current one. NMPA and NSAI say Sony should not even be in these negotiations, that only streaming services and songwriters — the parties affected — belong at the table.

The Sony umbrella includes Columbia, RCA, Epic, Arista Nashville and other labels representing some of the biggest artists of every genre, from Beyoncé, Barbra Streisand, Bob Dylan and Bruce Springsteen to Willie Nelson, Dolly Parton and newer acts like First Aid Kit and Maren Morris. NSAI executive director Bart Herbison surmises that the only reason Sony had not dropped out by press time is because it may be planning to establish a competing streaming service. Sony and Universal recently launched NOW Music+, a low-cost streaming service playing hits from the Now That’s What I Call Music! compilation album series, but for now, it serves only the United Kingdom.

The situation is complicated by the fact that Sony now wholly owns Sony/ATV Publishing, which means it could be negotiating against the interests of its own songwriters.

Under Pressure

Herbison and David Israelite, president and CEO of the Washington, D.C.-based NMPA, have taken their arguments public, via letters to Sony CEO Doug Morris and Sony artists, as well as coverage in music industry publications. Sony turned down interview requests, instead emailing the following statement:

“Record labels have participated in every rate proceeding for copyright royalty rates. We think it is important to be at the table since compositions form the foundation of our recordings and some of the world’s greatest songwriters are signed with Sony Music as recording artists. Today’s music marketplace requires that rates be both fair and sufficiently flexible so that all new models can thrive and create a healthy future for the overall music community and fans of music everywhere. That is why we proposed roughly a 15-percent increase in the statutory rate for on-demand streaming.”

Herbison refuted this claim. “Sony says that they are offering us a pay raise for different things they call the headline rate, or the statutory rate. And it may look like a pay raise over the minimum, but we’re getting more than the minimum from the biggest services. So it would be a pay decrease,” he noted.

Israelite also responded to interview requests with an emailed statement: “We were surprised to see [the] Sony label challenge songwriters in the CRB; however, we are hopeful that through productive conversations they will do as all of the other majors and indies have done and settle with us. Withdrawing from the proceeding would put an end to the discord within the music community over this incredibly important issue and greatly benefit the songwriters they rely on.”

If Sony fails to step back, Herbison said, the corporation will be sued.

By early October, the sides were talking. But Herbison said he could not predict when, or if, a lawsuit-averting agreement might occur.

Meanwhile, as tensions continued to mount in September, one of the industry’s most powerful players, producer T Bone Burnett, delivered the keynote speech at the Americana Music Association’s conference in Nashville. “We live in a time in which artists are being stampeded from one bad deal to another worse deal,” he said. “… Our work is being commoditized — the price of music is being driven down to zero.”

The Numbers Game

To understand what’s in play, one has to understand the labyrinthine world of royalty rates. Every five years, a three-judge panel sets mechanical royalty rates for songwriters. Subpart A of this payment structure deals with sales royalties on CDs, vinyl, downloads and ringtones.

The rate has been 9.1 cents for 12 to 15 years, Herbison said, adding, “We would like more; the record labels would like to pay us less. But at the end of the day, it wasn’t worth fighting over and spending millions of dollars, so we all agreed to keep it at 9.1 cents. And that includes Sony. The digital services are not involved in that. That is money the record labels pay the songwriters.

“There’s Subpart C, the futuristic stuff, like cloud lockers and some ways that songwriters could possibly be paid, but they’re not currently. So there’s nothing there, no issue.

“At issue is Subpart B: subscription services, where the customer pays X amount of dollars per month, and this is called interactive streaming. Pandora is not interactive streaming. You don’t get to listen to the songs you want to listen to as many times as you want to listen to them. Interactive is Apple, Spotify, Rhapsody, etc. In those, there is both a performance royalty for songwriters and a mechanical portion.

“Currently, songwriters receive the greater of three formulas: they either get a 50-cent minimum per customer, per month, divided by the number of times your song spins, or 10.5 percent of revenue — the subscription money from monthly fees and any ads that are run, or 21 percent of total content costs. What that means is what Apple or Spotify would pay for their content. That is something that ties us — if the record labels get an increase, then the songwriters get an increase, because it’s the total content cost. It keeps the disparity on the mechanicals, on the sales side, down, which is why we differ on the streaming side. That’s what’s at issue.”

He also referenced an industry-wide operating agreement called the one music principle. “If we pay each other directly, we’re supposed to argue over that, because it’s business,” Herbison explained. “As in Subpart A, the record labels pay us directly. They’re supposed to ask us to take less. We’re supposed to ask for more. That is business. It’s American commerce, and everybody understands that. When a third party pays us, like in Subpart B, we stay out of each other’s business. The record labels don’t pay us this money; it’s the services and subscribers. This is the first time … since that principle evolved, that a record label has decided to insert themselves in Subpart B.

“They want to pay songwriters less so their streaming service can make more. And my comment would be, ‘Really? With what the songwriters are already suffering? While the profession is essentially decimated? While we’ve lost 90 percent of the working songwriters who were making a living at this? Really? Sony, that’s getting a reported $25 million a month in streaming royalties? Really?’”

The Recording Industry Association of America reports streaming subscription revenue for the first half of 2016 topped $1 billion for the first time, climbing 112 percent to $1.01 billion. By the end of June, streaming accounted for 47 percent of total U.S. recorded music revenue — by far the biggest chunk — according to the RIAA.

Herbison is quick to exempt Sony’s Nashville executives from criticism, but added, “Look, you don’t pile on somebody when they’re down, and that’s what they did. Sony stirred up the entire ecosystem, worldwide, of the music industry at a time when we need to be singing ‘Kumbaya.’”