In 2022, the Copyright Royalty Board (CRB) accepted a (near) music industry-wide settlement to improve songwriters’ streaming royalty rates in the United States from January 1, 2023.
The settlement – known as ‘Phonorecords IV’ or ‘CRB IV’ – will see songwriters and music publishers paid a headline rate of 15.35% of a given interactive streaming service’s US revenue by 2027.
That rate is being ‘phased in’, because ‘Phonorecords IV’ covers the five-year period between 2023 and 2027:
- In 2023 (starting January 1), songwriters and music publishers were to be paid a headline rate of 15.1% of a US service’s revenue;
- in 2024, this increased to 15.2%;
- in 2025, it will increase to 15.25%;
- in 2026 it will increase to 15.3%;
- and in 2027 it will reach 15.35%.
The deal also included a number of changes to other components of the rate, including increases to the per-subscriber minimums and the “Total Content Costs (TCC)” calculations which reflect the rates that services pay to record labels.
The agreement (you can read it in full here) also included a provision about how streaming services treat bundles i.e. that they would pay a lower rate for bundles versus stand-alone music subscriptions.
This is all-important context behind some news from Spotify today (April 18).
Spotify has confirmed that a big change has arrived to the way it pays out mechanical royalties in the US, as it now considers its Premium plans to be ‘bundles‘ – because they combine audiobooks and music.
Treating Premium (including Individual, Duo, and Family) as a bundle rather than a standalone subscription impacts how the company pays mechanical royalties to songwriters and publishers in the US.
In short: The rate now paid for Spotify’s Premium plans is lower than the headline rate for a standalone subscription agreed with publishers as part of the CRB IV proceedings.
“MULTIPLE DSPS HAVE LONG PAID A LOWER RATE FOR BUNDLES VERSUS A STAND-ALONE MUSIC SUBSCRIPTION, AND OUR APPROACH IS CONSISTENT.”
SPOTIFY SPOKESPERSON
A Spotify spokesperson said today (April 18): “As our industry partners are aware, changes in our product portfolio mean that we are paying out in different ways based on terms agreed to by both streaming services and publishers.
“Multiple DSPs have long paid a lower rate for bundles versus a stand-alone music subscription, and our approach is consistent.”
The move has raised the ire of the US-based National Music Publishers Association (NMPA), which represents prominent independent publishing companies, as well as major publishers, Sony Music Publishing, Universal Music Publishing Group and Warner Chappell Music.
“It appears Spotify has returned to attacking the very songwriters who make its business possible,” NMPA President & CEO David Israelite told us earlier today.
“SPOTIFY’S ATTEMPT TO RADICALLY REDUCE SONGWRITER PAYMENTS BY RECLASSIFYING THEIR MUSIC SERVICE AS AN AUDIOBOOK BUNDLE IS A CYNICAL, AND POTENTIALLY UNLAWFUL, MOVE THAT ENDS OUR PERIOD OF RELATIVE PEACE.”
DAVID ISRAELITE, NMPA
He added: “Spotify’s attempt to radically reduce songwriter payments by reclassifying their music service as an audiobook bundle is a cynical, and potentially unlawful, move that ends our period of relative peace.
“We will not stand for their perversion of the settlement we agreed upon in 2022 and are looking at all options.
Audiobooks have been bundled in with Spotify Premium since October.
Last month, SPOT announced the launch of a $9.99 per month standalone audiobooks tier aimed at its free users. (Prior to Spotify’s Premium music and audiobooks bundle, the platform treated discounted Premium plans tied up with the likes of HULU as bundles.
Earlier this month, Bloomberg first reported that Spotify is increasing the price of its Premium Individual and Duo & Family plans by $1 and $2 per month, respectively. These price rises will take place in the likes of the UK and Australia by the end of April and in the US later this year.
According to Bloomberg’s report, Spotify is also planning to launch a new “Basic” tier that will offer music and podcasts, but not audiobooks.
The so-called Basic tier will be priced at the current price of the Premium individual subscription: $11 per month, and ‘Basic-tier’ subscribers will have to pay additionally for any audiobook listening time.
MBW understands that this ‘Basic’ music tier will not be considered a bundle by Spotify but rather treated as a standalone subscription that will pay the agreed headline mechanical rate to songwriters and publishers.
Spotify claimed in a statement on Thursday that, globally, the company “is on track to pay publishers and societies more in 2024 than in 2023″.
Spotify reports in its Loud and Clear report that it paid out nearly $4 billion globally to publishing rights holders – who represent songwriters – over the last two years.
The company said in February that it delivered USD $9 billion last year to recipients across record companies and music publishers, plus independent distributors, performance rights organizations, and collecting societies.