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Low royalty rates are something that concerns every artist, label, songwriter and publisher. The good news is that they’re gradually rising, and since there are more paying subscribers to streaming services every year, the revenue pie is also getting larger. This may take an even better turn if the proposed new rate increase that SoundExchange wants from SiriusXM comes to pass.
To be clear, SoundExchange is a government body that collects revenue for artists from non-interactive (meaning they play like a radio) services like Pandora, satellite radio, cable TV’s Music Choice, and Muzak background music that you hear in retail stores everywhere. Every 5 years the Copyright Royalty Board (CRB) sets a new rate that these platforms must pay content owners and creators for streams on their ad-supported tiers.
Last year, the CRB increased the royalty rate for Pandora a slight bit from $.0014 per stream on its free ad-supported tier, to $.0017. SoundExchange asked for $.0025, but part of that may have been a strategy of bidding high to get a better rate in the end.
For SiriusXM, SoundExchange has proposed a rate starting in 2018 that is the greater of either 23% of the platform’s total revenue or a per subscriber rate starting at $ 2.48 per subscriber per month in 2018, with small annual increases until the agreement ends in 2022. Sirius XM currently pays just 10.5% of its “Gross Revenues” 2016 and 11% in 2017.
For Music Choice and Muzak, SoundExchange has proposed a per subscriber per month rate starting at $ 0.019 per subscriber per month with annual increases. The current rate for Music Choice’s and Muzak’s cable/satellite TV music services is 8.5% of Gross Revenues in both 2016 and 2017.
As you can see, SoundExchange likes to reach for the stars when it comes to proposed rates. Even though these seem reasonable for everyone involved in the music business, effectively doubling a rate does put any distributor in an immediate financial hole that some might find difficult to climb out of. That’s why we can expect higher royalty rates from SiriusXM, Music and Music Choice once the CRB rules, but they’ll probably not be as high as SoundExchange has proposed.
Who says Apple’s music executives aren’t smart? In what may end up being a brilliant strategic move, the company discretely made a proposal to the governing Copyright Royalty Board to increase the song publishing royalty rate to 9.1 cents per 100 interactive streams, a significant increase over what is currently paid, according to the NY Times.
On the surface, this is not only an greater payday for songwriters and music publishers, but also a vast simplification over the current complex royalty calculation. Streaming services now pay publishers from 10.5 to 12% of overall revenue, which is determined via a strikingly large number of factors that changes with the device used, the country the user resides in, if the service is bundled, and the type of subscription, to mention just a few. The music royalty collection company Audiam reports that the average publishing royalty is now around 5 cents per 100 plays, so Apple’s proposal of 9.1 cents represents a windfall for a part of the industry that has suffered during the run up of streaming popularity.
There’s also a psychological impact that goes along with that figure however. Currently, the mechanical royalty rate for every song on a CD or vinyl record, or a download, is also set at 9.1 cents. A streaming rate set similarly will not only bring it in line with those standards, but put the ease of calculation back in the hands of the songwriter and publisher, who must now depend upon the streaming company to calculate the monies owed.
The Back-Door Strategy
While simplicity may seem to be the overriding factor for the proposal, there’s something much more strategic behind Apple’s thinking. First of all, an increase in publishing royalty payments would severely stress stand-alone streaming companies who’s only product is music streaming like Deezer and Tidal, but most especially Spotify. That company still hasn’t turned the corner to profitability, and having to pay roughly 80% more in publishing royalties might keep it that way, which may put the company in a more serious bind with its already itchy investors.
Not only that, it would put a severe crimp on any interactive streaming service (as opposed to non-interactive like Pandora) that currently features a free ad-supported tier, since the royalty rate per 100 streams would be the same regardless of if the subscriber makes a monthly payment or not. Such an increase in expenditures might put an end to the free tier as we know it (which in the end, might not be such a great thing for the industry – a topic for another day). [Read more on Forbes…]
Artists and songwriters, even some publishers, very often misunderstand how streaming income and royalty rates and payments are determined because it’s a immensely complex subject. One of the things that I’ve done in my new Music 4.1 book is provide an overview of how streaming royalties work and are paid, in many cases following the revenue stream down to the last $0.001. Here’s an except from the book explaining how the streaming performance royalty rate for songwriters is determined, since that’s the area that’s frequently quoted in articles and more often than not blown out of proportion. We’ll also introduce a brand new royalty that only applies to on-demand streaming services like Spotify called the streaming mechanical.
Just like when it’s played over the radio, when a song is streamed, a performance royalty is generated. It’s almost always collected by one of the performing rights organizations (PROs), like ASCAP or BMI, and then distributed to the publishing company and songwriter.
Performance Royalty Rate Variables
There are a staggering number of variables when it comes to the different performance rates paid on a stream because there are a lot of different streaming services, and each has a slightly different way of determining the royalty it must pay. Just this section alone could take up at least several chapters, but because this isn’t a book on publishing, here are some of the situations you should know about where the performance royalty rate might vary, along with a short explanation of each:.
The average composition royalty rate per stream is around $0.0005, according to Audiam.
In the case of on-demand streaming services like Spotify or Apple Music, there’s an additional royalty generated on the composition called a streaming mechanical.
The Streaming Mechanical Royalty
The streaming mechanical royalty is relatively new and was created on the premise that on-demand streaming closely resembles a permanent download because the user has such a high level of control.
When the Copyright Rate Board ruled in 2008, it mandated that the streaming mechanical rate would be around 21 percent of what’s paid to the record label for the sound recording if paid directly to the publisher, or around 18 percent if paid to the record label (depending on a set of variables too deep to get into here). That means that the average streaming mechanical rate per stream is somewhere around $0.0067, according to the digital music accounting firm Audiam. As a general rule, the owners of a sound recording often end up with five or six times more revenue than the owner of the musical composition on a particular song stream.“
As you can see, there’s a huge number of variables when it comes to royalty rates paid to songwriters, and they each pay at a slightly different rate. That’s why whenever you read a figure about how much a stream pays you have to remember that it’s usually an average, and might not apply to your particular situation. Remember, we’re talking royalties only paid to songwriters here, and not to artists, which is a separate subject. In the coming weeks, we’ll look at other aspects of online streaming royalties that you probably won’t see anywhere else.
You can read more from Music 4.1: A Survival Guide For Making Music In The Internet Age and my other books on the excerpt section of bobbyowsinski.com.
(Photo: courtesy of PDPics.com)
Streaming music royalty rates are such a morass of different percentages and possibilities that few people on the planet totally understand everything, and the ones who do are attorneys working in that narrow end of the music business. Even label and publishing execs who have been in the business for 20 or more years can be confused. That’s one reason artists and songwriters frequently cite low rates on what seem to be a large number of streams. It’s also why an average royalty rate is used in articles about this side of the business. Here’s an excerpt from my new Music 4.1 book that tries to clarify some of the misunderstandings by starting with the streaming royalty basics.
“Let’s see if we can at least make sense of why it’s frequently impossible to determine what an exact streaming royalty rate is.
First of all, there are two basic variables to remember that everything streaming works from:
1. There are two kinds of streams—noninteractive or webcast (Pandora), and interactive or on-demand (Spotify). On-demand pays more because it generates more money.
2. There are two tiers for each stream—premium (paid subscribers) and freemium (ad supported). The paid tier generates a higher revenue per subscriber than the free, ad-supported tier.
With this in mind, there are two different copyrights for each stream (the same as for a CD, vinyl record, or download), regardless of the tier, which provide a royalty stream:
1. A sound recording royalty (that the owner of the sound recording gets)
2. A composition royalty (that the publisher and songwriter get)
You can think of the sound recording as what you hear played on Pandora or Spotify (or a CD, vinyl, or download for that matter), while the composition is the notes and lyrics on paper.
Within those parameters there are a tremendous number of variables that can occur, all of which affect both the payout for the sound recording and the composition. Let’s explore the different types of streams first.
The Different Types of Streams
What most artists and bands don’t realize is that there are two types of streaming services, and they each operate differently and therefore pay at a different rate.
The first type of streaming is called a noninteractive or webcast stream and comes from either a platform that acts as an online radio station, like iHeart Radio or any traditional broadcaster with an online presence (like your local radio station), or a service like Pandora where the user has a certain amount of control over what plays but can’t directly select a song or make it repeat. Streaming platforms in this category include services like Pandora and Last.FM. SiriusXM and the music channels on cable television also fit into this category.
All noninteractive streaming services must obtain a congressionally created “compulsory” license with the rate set by an entity called the Copyright Royalty Board (CRB), which I write about in more depth later in the “How Royalty Rates Are Set” section. The CRB recently set the rates for 2016 and beyond for radio broadcasters with terrestrial radio stations at $0.0022 ) per stream. Noninteractive platforms like Pandora pay $0.0022 per stream from a paid subscriber and $0.0017 per stream on the free tier.
Interactive or on-demand streams are treated differently from the radio-style streams in that the rate is considerably higher (between $0.005 and $0.009, depending on how much the listener pays per month, among other factors). Services that provide interactive streaming include Spotify, Google Play, Tidal, Apple Music, and Slacker.
The down side here is that if you’re signed to a label, money from interactive streams is paid directly to them. You’ll then be paid by the label based on the royalty amount negotiated in your agreement with them. For instance, if you negotiated a 15 percent royalty rate, then you’ll be paid 15 percent of $0.005 (using that number as an average), or $0.00075 per stream.
If you’re not with a label, the money will be collected by SoundExchange or an aggregator like TuneCore, Ditto Music, or CD Baby if they distributed your songs to the online streaming services.
Average Streaming Type Royalty Paid
Interactive On-demand – $0.005 to $0.009 (average depending upon the tier)
Commercial Broadcasters – $0.0022
Noninteractive – $0.0022 (paid tier) $0.0017 (free tier)
On top of the royalty paid to the artist and label, there’s also a publishing royalty that varies yet again from the above rates, which we’ll cover in the next section.
You can see why artists, bands, musicians and even record labels can be confused about how much they’re receiving from streaming. As The Temptations once sang, it’s a “ball of confusion.”
This is just the tip of the iceberg when it comes to revenue splits and royalty payments from streaming music. It also doesn’t cover the publishing side of streaming, which is another issue entirely. That said, in the coming weeks I’ll go beyond the basics to explain more about how each streaming music royalty actually works.
You can read more from Music 4.1: A Survival Guide To Making Music In The Internet Age and my other books on the excerpt section of bobbyowsinski.com.