money on sheet music depicting new copyright rates

Mechanical royalty rates are going up… Or are they?

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The Copyright Royalty Board announced plans to increase the mechanical royalty rates for product sales, which is great for songwriters. But will streaming rates do the same?

This month, the Copyright Royalty Board (CRB) — the organization that sets mechanical royalty rates in the US — announced an agreement between the major labels, music publishers, and songwriters to raise the mechanical royalty rate for product sales from 9.1 cents per copy to 12 cents per copy. That’s a juicy 32 percent increase.

This is good news! That means that if someone wants to record a cover version of one of your compositions, you’ll get paid 12 cents for each copy made instead of just over 9 cents. On the other side of this, it means that if you want to record someone else’s cover song for your album, it’ll cost you 12 cents per copy instead of 9 cents.

A new wrinkle to the formula

If the CRB approves this agreement, this is great news for songwriters, who stand to earn more in royalties for each CD, each vinyl record, or each download that is sold.

The existing rate of 9.1 cents was established way back in 2006. The new rate would go into effect in 2023 and it’ll run through 2027.

In another piece of good news, the royalty rate would automatically index to the consumer price index. In other words, the rate will increase each year at the same rate as inflation. This never happened in the past. When a rate was set for a period, it remained static for that period. So, cool, right?

Now here’s the bad news

Over the past few years, royalty rate battles have mostly revolved around mechanical royalties for streaming. Why? Because in today’s world, the streaming dollars in the aggregate are significantly larger than the royalties paid from physical and download sales, which is one reason why physical mechanical rates have been flat for the past 12 years — labels, composers, and publishers just didn’t pay that much attention to it.

Vinyl Guide bannerBut now, physical media is actually becoming a bigger part of the overall mix again with the popularity of vinyl booming and CD sales starting to increase. So, along with assessing the rate for mechanical royalties on physical and download sales, the Copyright Royalty Board is conducting proceedings to determine the streaming mechanical royalty for 2023–2027. This is necessary, because the current 2018-2022 period is coming to an end.

But here’s the kicker: The current rate covering 2018–2022 that the CRB proposed never went into effect. The CRB announced that it wanted mechanical royalties — again, these are the royalties to songwriters and publishers for other people using their compositions — to go up. They wanted those royalty rates to go up from 10.5 percent to 15.1 percent of streaming royalties. Basically, instead of publishers and songwriters getting 10 and a half cents out of every dollar of streaming royalties paid, they were supposed to start getting 15 cents.

Best-laid plans

For a number of reasons that are too detailed for me to get into here, that didn’t sit well with some of the streaming companies, and the rate proposal has been tied up in appeals from Spotify, Google, Amazon, and Pandora.

Effectively, the streaming companies have prevented the rate hike from happening just by tying it up in court. And they recently submitted their proposals for the 2023-2027 period. And guess what? They’re asking for the same 10.5 percent rate to be extended.

So, is the glass half full or half empty? It’s clearly a good thing that mechanical rates for physical and download sales are likely to go up over 30 percent. However, with physical media making up just about 30 percent of global music revenues, the real money for songwriters is in mechanical royalties from streaming. At least, if you’re writing songs for the big music stars who are streaming a ton of tracks.

What’s next?

What’s likely to happen? My guess is that the three-judge CRB panel will advocate for a rate increase and hopefully now, with an agreement on a rate increase for product sales, there is more pressure on the streaming platforms to agree to a rate hike as well, which would be great news for songwriters.

If you’re a songwriter, you’ll want to stay in the loop on this matter, and one of the best ways I can advise you to do that is to subscribe to the Music Business Worldwide newsletter, which has insightful news and commentary about the music industry.

Hope you found this helpful. We’ll circle back when there’s more to report.

Watch more great videos on the Disc Makers YouTube channel.

Tony van Veen is the CEO of DIY Media Group, the parent company of Disc Makers and BookBaby. As a college student, he played in indie bands, created his own LPs, cassettes, and t-shirts, and sold them at shows. Today, he collects CDs, vinyl LPs, and concert t-shirts to support the artists he loves.

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