Historic Ruling Raises Songwriter Payments For Streaming Music

  in Investing Updates / Analysis

Jan 31, 2018

Over the weekend, news broke that the government entity overseeing how much streaming services must pay for music raised those rates by nearly 44%. 


NMPA Claims Victory: CRB Raises Payout Rate from Music Subscription Services (Billboard)

The entity in question is called the Copyright Royalty Board (or CRB). The CRB meets on a regular basis to determine, among other things, the compulsory rate for what’s called “mechanical royalties.”

This directly affects anyone earning mechanical royalties... including investors who have bought or are considering buying royalty streams on Royalty Exchange. So we wanted to take a moment to explain what has happened and how you can benefit.

Mechanical royalties are what songwriters and publishers are paid when songs they write are reproduced in some fashion for a listener. This includes pressed as a CD or vinyl record, sold as a digital download, or streamed on-demand on services like Apple Music or Spotify. The retailer pays these rates to a music publisher, who then pays the writer of the song.

For instance, this recently-closed auction for “No One To Depend On” by Santana included mechanical royalties, which we outlined in the listing as follows:

This is a different royalty stream than public performance royalties (which streaming services also pay).

[Mechanical and Performance Royalties: What's the Difference?]

The ruling increases the rate streaming services must pay to 15.1 percent over the next five years, up from the 10.5 percent they pay today. That’s a nearly 44% increase, and the largest increase in mechanical royalty rates ever granted in the history of the CRB.

Complete details on the ruling have not yet been released, so we don’t know when exactly the increased rates will go into effect, or in what intervals. We also don’t yet know how much mechanical rates will increase for per-song download or physical sales. We only know the increase for use in streaming music services.

What we do know is that if you have purchased a royalty stream on Royalty Exchange that includes a mechanical royalty, you’ll see a Congressionally mandated, guaranteed increase in payments for the use of those songs over the next five years. How much of a benefit of course still depends on the usage of those songs. But for each use, there will be an increase in payment.

Since not all of our transactions include mechanical royalties, these increased royalty rates may not apply to every asset sold on the exchange in the past (or future). Only those transactions that include a mechanical royalty stream would benefit.

As for Royalty Flow, the first asset in question is for the sound recording royalties of the FBT/Eminem catalog. So this ruling does not affect that royalty stream. However if future Royalty Flow acquisitions include mechanical royalties, then those would see a benefit as well.

Overall, this is very good news for all rights holders--from the songwriters and artists who create the music, to the investors buying into those royalty streams. We hope this is just the first of many potential increases ahead.

An estimated 70% of songwriter income is regulated in some fashion by a government or regulatory body. In the last few years, the music industry has stepped up their lobbying efforts to wring better rates, terms, and other concessions to work in their favor. This is the first major win in that effort, and we look forward to seeing many more in the near future.