Phonorecords III: Streaming Services vs. Publishers

Some important legislation for songwriters and publishers happened this week! The Copyright Royalty Board (CRB) made a ground-breaking determination in the case 'Phonorecords III', granting a whopping (up to) 44% raise for U.S. songwriters and publishers' headline rate for mechanical royalties. This ruling concerns the time period between 2018 and 2022. The case began in 2018. The full court document is restricted from public view, but an appendix to the ruling was released on Wednesday, May 24, 2023. 

This important ruling increases royalties each year during the five-year period — from 11.4% to 15.1% of service revenue by 2022 — but also affirmed key requests from streaming services during their lengthy appeal, limiting royalties based on total content cost (TCC) and reinstating a rate ceiling step in the formula. Insiders consider the newest court ruling to be a bit of a mixed bag, with some points favoring the streaming services, and others favoring the publishers. Concerning the gravitas and power behind both industry players, it's no surprise that this case has been quite drawn out in court. The President & CEO of the National Music Publishers' Association (NMPA), David Israelite, had a few comments on the topic. Israelite states: 

We are pleased the court finally has confirmed the result of Phono 3, a case which was decided in 2018. This initial remand decision upholds the 15.1 percent headline rate increase we fought for. However, the length of time we have waited for this decision proves the Copyright Royalty Board system is woefully flawed. Now songwriters have some certainty about their rates, and we will ensure they receive the hundreds of millions of dollars that digital streaming companies owe them during this adjustment period.

Luckily, the newest updates from the case should put into effect within the next eight months and one thing is for sure: this decision marks the last stages of finalizing the rules for Phono III after a lengthy appeal by digital services in 2019. 

For some back story, the proceedings to decide how to pay U.S. mechanicals over 2018-2022 began over five years ago. In a previous CRB determination, the headline rate skyrocketed from 10.5% to 15.1% and increased the subscriber count calculations for discounted family and student plans. The removal of the publishing rate ceiling mechanism was seen as controversial and favored the music industry, igniting tension between streamers, Spotify, Pandora, Google and Amazon, and the CRB.

This battle is ongoing, and 'Phonorecords VI' already exists in court and concerns the time period between 2023-2027. We will keep you updated on what happens! One thing is for sure: true to form in the music publishing sector, nothing is happening quickly and no decisions will be reached overnight. 

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