Copyright authorities in the United States have voted to raise the royalties that music streaming firms such as Apple Music and Spotify pay to music publishers and songwriters. Copyright Royalty Board issued a decision which made an alteration to the formula that is used to determine how revenue is to be shared out between songwriters and music streaming firms.
According to the National Music Publishers Association, music streaming firms will be required to offer 15.1% of the revenues they collect to music publishers and songwriters. Previously the music streaming firms gave out 10.5% of their revenues.
Last year the board conducted a trial pitting it against streaming firms that include Amazon, Pandora Media, Alphabet, Apple and Spotify. Per the new rule, streaming services will also be required to pay a certain fee, referred to as the ‘mechanical license’, each time a music track is listened to.
Typically music publishing firms such as Sony/ATV Music Publishing collect these fees on behalf of musicians. The music publishing firms then get a commission from the artists. Per the law in the United States it is the work of the Copyright Royalty Board to determine the mechanical licenses’ rates as publishers are not allow to negotiate the rates with the music streaming firms.
While the ruling will be seen as a victory for songwriters, it will be a blow to the music streaming services. Spotify for instance has been on a cost-cutting effort as it prepares to list on the New York Stock Exchange. Compared to other streaming services such as those offered by Amazon, Apple and Google, Spotify is more vulnerable.
In 2016 revenues of the company increased by 50% to reach a figure of 2.9 billion euros but the net loss also more than doubled due to the increase in the royalty payouts. Last year Spotify successfully negotiated lower royalty rates with Warner Music, Sony Music and Universal Music
In the United States music streaming has become the biggest source of music sales. In 2016 revenues from music streaming rose by 60% and this led to music sales recording a 5.9% growth. According to DiMA – Digital Media Assn, revenues from streaming increased to $3.4 billion in 2017.
“Digital streaming has saved the record industry, with ad-supported and subscription music services driving a third consecutive year of increasing revenue … the continued increase in digital music revenue is a clear sign that smart policies encouraging innovation and investment benefit everyone,” DiMA said.