By: Ava Roche
Earlier this year, musicians and media outlets alike were sent into a frenzy when the headline ‘Spotify is Suing Songwriters’ started making headlines. Spotify, which has a rocky relationship with musicians already, was under fire for planning to “sue songwriters” because of increased royalty rates. Technically, Spotify isn’t suing songwriters; they’re appealing the U.S. Copyright Royalty Board’s (CRB) decision to increase payout rates to songwriters by nearly 50%, and they’re not alone. Amazon, Pandora and Google all filed separate appeals against the decision– everyone except Apple Music.
Streaming Services Lawsuit
In March 2017, the National Music Publishers Association (NMPA) and the Nashville Songwriters Association International (NSAI) presented a case against Apple Music, Spotify, Amazon, Pandora and Google. The NMPA and the NSAI were arguing for an increase in the royalty rate for statutory mechanical licenses (the license needed to use the composition itself), which is separate from the license needed to use the recordingof a song. The organizations proposed that the CRB get rid of rate percentages entirely and create two separate pools of money from which streaming services would pay songwriters and publishers: a per-stream rate of $0.0015, or a ‘mechanical floor’ of $1.06 per subscriber. Songwriters and publishers would be paid from whichever of these two pools produced the most revenue.
Songwriters and publishers also requested that the rate formula no longer be ‘all-in,’ opting instead for the formula to only cover the mechanical royalty payment. Digital services pay two royalties: mechanical royalties and performance royalties, as well as payments to record labels. The ‘all-in’ rate formula helped determine the mechanical royalty rates, the percent of payments to labels, and the performance royalty rates. This left songwriters and publishers with smaller payouts, as the performance royalties were first taken from mechanical royalties.
While Spotify, Google, Pandora and Amazon argued against any increase, Apple Music offered a different model where songwriters and publishers would receive $0.0009 per stream. All of the services, including Apple, claimed that, in order for the per-stream revenue pool to be greater than the mechanical floor, there would need to be an average of 707 streams per user per month. According to the companies, that figure is much higher than the average streams per user per month. The services claimed that “the greater-of aspect of [the] copyright owners’ rate proposal would lead to absurd and inequitable results, well above the rates established under copyright owner’s per-play rate prong,” meaning that, when using the mechanical floor, the services would end up paying songwriters more than if they paid from per-stream revenue alone.
The Copyright Royalty Board (CRB) eventually ruled to increase statutory mechanical rates by 43.8% over the next four years– 10.5% to 15.1%. This will be the largest rate increase ever granted by the CRB, as explained by NMPA president and CEO David Israelite. The CRB also ruled to establish a mechanical floor of 50 cents per subscriber. The decision also increased the percentage that streaming services are required to pay publishers 26 percent of what they pay labels, rather than the 21 percent they have been paying. According to the NMPA, that results songwriters and publishers earning $1 of every $3.82 that labels are paid. Israelite stated that “while an effective ratio of 3.82 to 1 is still not a fair split that we might achieve in a free market, it is the best songwriters have ever had under the compulsory license… the bottom line is this is the best mechanical rate scenario for songwriters in U.S. history.” Martin Bandier, the chairman and CEO of Sony/ATV said, “while we are disappointed not to get the per-stream rate that we wanted, the planned rate increases go a long way to fairly compensate our songwriters for the essential contribution they make to streaming’s success story,” and NSAI Executive Director Bart Herbison said that “songwriters desperately need and deserve the rate increases resulting from the CRB trial.”
A year after the CRB decisions were finalized, the ‘window to appeal’ opened, and Spotify, Google, Amazon and Pandora quickly filed separate appeals. Spotify, Google and Pandora issued a joint statement explaining their reasons for the appeal: “The Copyright Royalty Board (CRB), in a split decision, recently issued the U.S. mechanical statutory rates in a manner that raises serious procedural and substantive concerns. If left to stand, the CRB’s decision harms both music licensees and copyright owners. Accordingly, we are asking the U.S. Court of Appeals for the D.C. Circuit to review the decision.” In a blog post about the appeal, Spotify explains its reasons for appealing, stating that “the CRB rate structure is complex and there were significant flaws in how it was set.” The appeal will target the mechanical floor, which would result in streaming services paying songwriters more than if payouts were only derived from per-stream revenue. If the appeal is successful, songwriters will be paid royalties from per-stream revenue alone, leading to a sharp decrease in their earnings.
According to Billboard, “this marks the first time that the Section 115 rate determinations for music publishing rates has been appealed.” This appeal outraged songwriters and publishers, leading a group of successful songwriters to pen a letter addressed to Daniel Ek on April 9th. The letter criticizes Spotify’s decision to appeal the CRB’s decision: “we’re hurt and disappointed. You created a songwriter relations team and ingratiated Spotify into our community… Now, we can see the real reason for your songwriter outreach. You have used us and tried to divide us but we stand together.” The signatories, including songwriters such as Nile Rodgers, Babyface, and Bibi Bourelly, signed the letter as “Not So Secret Geniuses,” referencing Spotify’s Secret Genius Awards. The Secret Genius Awards honored songwriters and producers, many of whom penned the letter to Spotify.
Other industry professionals have been vocal as well. Legendary entertainment attorney Dina LaPolt, who recently visited Berklee, wrote “Spotify you cheap pieces of sh*t – F**k you and your secret bullsh*t genius awards.” Regarding the decision to appeal, David Israelite stated that “when the Music Modernization Act became law, there was hope it signaled a new day of improved relations between digital music services and songwriters… That hope was snuffed out today when Spotify and Amazon decided to sue songwriters in a shameful attempt to cut their payments by nearly one-third.” In the same statement, Israelite commended Apple Music, the only major streaming service that did not also appeal the CRB’s decision, for “continuing to be a friend to songwriters.”
Israelite’s statement about the services ‘suing songwriters’ caught fire and spread throughout the music industry. Spotify’s recent blog post clarifies that it isn’t suing songwriters, stating that “an appeal is the only avenue for anyone to clarify elements of the CRB ruling.” The same blog post stated that Spotify thinks that songwriters deserve to be paid more, and that “the question is how best to achieve that goal.” Whether or not Spotify is technically suing songwriters, the decision to appeal has sent shockwaves through the industry, and may result in the two years of work on the CRB case being reversed.
In March, Spotify filed an antitrust complaint with European regulators accusing Apple of using anticompetitive practices in the app store to favor Apple Music above competitors like Spotify. There is some truth to that: when searching ‘music’ in the App Store, nearly a dozen Apple applications are shown before Spotify. Spotify also argues against the ‘30% tax,’ claiming that Apple takes 30% of the revenue share from purchases made through the App Store. In actuality, that 30% revenue share drops to 15% after one year.
In a statement published on Spotify’s website, Daniel Ek, the CEO of Spotify, stated that “apps should be able to compete fairly on the merits, and not based on who owns the App Store. We should all be subject to the same fair set of rules and restrictions.” Apple responded to Spotify and Daniel Ek in a recent press release which outlined the payment process between the App Store and applications. Essentially, Apple requires a revenue share from purchases made in-app. Free, ad-supported apps, like Spotify’s free version, don’t have to pay Apple at all.
In the press release, Apple delved into the effects that Spotify has had on the music industry. The tech giant drew parallels between Spotify’s anger towards paying Apple, and Spotify notoriously underpaying artists and songwriters – an issue highlighted by the company’s recent appeal against the CRB royalty rate decision. On two occasions in the press release, Apple claims that Spotify “sued music creators after a decision by the US Copyright Royalty Board required Spotify to increase its royalty payments.”
Whether the claim ‘Spotify is suing songwriters’ seized headlines because of David Israelite, Apple Music, or something else entirely, the claim originated from Spotify’s decision to appeal the CRB’s ruling to increase royalty rates. As songwriters stated in the open letter to Daniel Ek, “we know that you are not the only DSP (digital service provider) appealing the CRB rate determination. You are, however, the only provider that made us feel we were working to build a modern industry together.” Musicians, producers and business people have lauded Apple Music for standing with artists – and standing alone. The idea that ‘Spotify is suing songwriters’ shocked the industry and may lead to more meaningful change in the future. For now, artists await the results of Spotify, Amazon, Pandora, and Google’s appeal of the CRB decision. As the songwriters stated, “our fight is for all songwriters: those struggling to build their career, those in the middle class and those few who have reached your Secret Genius level… WE all create the ONE thing you sell… songs.”
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