Meet The Board That Controls How Spotify Pays Artists

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Penny Fractions
Meet The Board That Controls How Spotify Pays Artists
By David Turner • Issue #160 • View online
Hello! Earlier this year I was elected to the board of Ampled, a co-op music startup that allows fans to subscribe to their favorite artists. I now represent community members alongside worker-owners and artist-owners, so I wanted to extend an invite for folks to join Ampled and sign-up for the next community call on June 7th, at 12 pm EST. In less exciting news, I’m on holiday for the next couple of weeks, so the next newsletter will come out on June 9th. I also plan to take some time off this summer; as always, the most up-to-date publishing schedule is available here. Now, let’s zero in on the oft-ignored Copyright Royalty Board. 

Picking the Board
In 2004, George Bush, former United States president, signed the Copyright Royalty and Distribution Reform Act, which established the Copyright Royalty Board. The three-member panel was created to be a more permanent fixture to address questions over statutory licenses and an ever-expanding range of royalty concerns with the newly developing digital media. (The 1976 Copyright Act and the 1998 Digital Millennium Copyright Act helped shape contemporary music copyright concerns, but truthfully this is a bit too much to cover in a single newsletter.) The formation of the CRB set-up, though perhaps not intentionally, a fairly wide government arm across what’s become the primary revenue stream of the record industry. Once formed, the judges, selected by the Library of Congress with input from the Register of Copyrights, hit the ground running with decisions. 
The music industry used to care a lot about ringtones. Hard to imagine, but fifteen years ago cell phone ringtones generated over $1 billion in revenue, compared to a paltry $20 million in 2020. Though their popularity waned throughout the 2010s, in the 2000s the not-so-cheap digitized songs represented a notable income stream as physical music sales were cratering. The RIAA, sensing this, brought the issue in front of the freshly minted Copyright Royalty Board. The record industry trade association decided to tussle with music publishers, where they argued ringtones should fall under a compulsory license. 
Where previously companies would need to negotiate with record labels and music publishers, the CRB’s decision to place ringtones under a compulsory license gave them the power to set the price of royalties paid to songwriters via ringtones. This was a victory for record labels and cell phone companies who could now go ahead and make their own deals without needing to worry about competing with publishers for ringtone revenues. The first ringtone rates were set in late 2008 ($0.24 per delivery) and announced with several other decisions, which helped establish the new benchmark for digital music royalty rates. 
The next year, the Copyright Royalty Board found its way into the headlines over internet webcasting royalties. A collection of internet broadcasters including AOL, Microsoft, NPR, and Yahoo sought to fight a 2007 CRB ruling that would’ve seen a rather large increase in the amount of money broadcasters paid out to songwriters. There was even a piece of legislation (Internet Radio Equality Act) co-sponsored by former presidential candidate Jay Inslee that would’ve helped protect the likes of Pandora from increased fees. Though there was a legitimate concern from smaller broadcasters about not being able to pay the increased rates, the CRB didn’t budge, and appeals against the decisions were lost. Only a couple of years into existence, the CRB continued to stand its ground against tech and media giants that were hoping that the internet might offer a reprieve from government oversight and accountability towards the artists they needed to pay.
New Mediums, New Rules
A few years later, the Copyright Royalty Board would establish a new set of ground rules for digital music payouts. A coalition of nearly all of the major players in recording, publishing, and tech agreed to update Section 115 of the Copyright Act, where five new categories were introduced to effectively provide new markers for the CRB’s remit in adjudicating disagreements. This included rates for hybrid music platforms that provided downloads, digital music bundles, and other now forgotten ways of selling digital music. Even if the CRB couldn’t keep lockstep with each new method of digital music distribution, this ruling, building upon the previous one in 2008, gave the CRB quite a bit of latitude to operate.
Although the early 2010s were the nadir of the record industry’s revenue, the infusion of tech money and new money lines was starting to come into direct view. This shift from physical to digital may explain the heightened awareness around the CRB and a desire, at least on the side of businesses, to avoid government regulation. SiriusXM wanted to sidestep SoundExchange and do direct deals with rights holders that would be outside of CRB jurisdiction. In late 2014, the Future of Music Coalition summarized the many points of struggle arising from various actors trying to stake their claims over the ever-changing terrain. The board’s shaky foundation and the growing disagreement between all of the record industry players helped set the stage for what became perhaps the most public CRB tussle. 
In early 2018, the CRB announced an increase in mechanical and performance royalties for streaming platforms in non-interactive streams (i.e. Spotify radio, Pandora, etc.), also known as Phonorecord III. The new rates were meant to apply between 2018 and 2022, and while initially met with approval from the National Music Publisher Association (NMPA), streaming companies were less keen on the sudden hike. What’s ensued over the last few years is a rather public back-and-forth, with the likes of Spotify, Amazon, Google, and Pandora filing lawsuits against this CRB ruling that they feel is too costly. The NMPA, though happy with some parts of it, also filed a lawsuit over how the CRB classified different payment schemes for music consumed on family plan subscriptions. Despite the two different clusters of recorded music interests fighting the decision, the Music Artists Coalition and the Songwriters of North America both pleaded to affirm the initial 2018 decision. Even as the battle rages over this decision, the next one is already looming over the board. 
The coronavirus pandemic forced the board to delay the ruling on rates for web broadcasters set to begin in 2023. As Billboard noted, they need to think about Phonorecord IV, the next ruling for non-interactive streams, while Phonorecord III, discussed above, is still being discussed in the courts. The streaming platforms’ reaction to Phonorecord III helps point to a bigger issue now facing the CRB. The board’s early decisions affected a growing yet small part of industry revenue. Disagreement might arise, but ultimately folks would accept these mandated terms. However, now that streaming represents over eighty percent of industry revenue, the idea that the government sets rates for mechanical and performance rights must rankle these tech firms that’d prefer dealing directly with labels. 
(An interesting 2017 proposal by Jody Dunitz argued against the existence of mechanical royalties, characterizing them as a bizarre settlement between major record labels, publishers, and tech companies that sought to mask many other deeper issues in the space of properly collecting royalties.)
A few years ago, David Strickler, a current CRB judge, told the Society for Economic Research that the panel needed more resources and information to make informed decisions. This remark reflects the observations made in a paper by Samuel Meredith in the George Washing Law Review from the same year. Meredith claimed that the CRB, in its current state, isn’t resourced to even handle potential legislation like the Fair Play Fair Pay Act, which would require radio to pay artists, not just songwriters. The CRB will not please everyone, but as a body tasked with making rulings that can have such wide ranging effects, it must be properly staffed and equipped to take on those responsibilities. Many concerns about digital music and payouts already could sit at the feet of a neutral arbiter; we just need to provide it more support to be able carry, and perhaps one day, expand its mission.
Unheard Labor
When faced with the coronavirus pandemic, New York City’s cultural institutions leaned on a classic employer tactic: union busting. Museums in the city that were experiencing a wave of unionization targeted staffers with layoffs, many places decided to lean on non-union work, and the Metropolitan Opera locked out stagehands. Local One of the International Alliance of Theatrical Stage Employees held a rally last week speaking out against the MET, so good luck to these workers and to many folks in the entertainment business trying to return to the stage while management attempt to lower their quality of work.
A Note on Financialization
A new form of music financialization dropped last month. The Music Credit Fund (great name), founded by Jack MacDonald of Alvarium Investments, a boutique merchant bank, is looking to offer loans to artists willing to temporarily part with their catalogs, rather than outright selling (e.g., the Hipgnosis Songs Fund). The initial press release made it sound like another post-Hipgnosis song rights acquisition firm, but an op-ed by Mr. MacDonald argued strongly for loaning, not selling, one’s catalog. What a novel concept! Every month there’s a new way to slice the songrights onion into more complicated ownership models. The MCF wasn’t the only new firm in this space worth highlighting. 
The expansion of the song rights sphere continues to birth firms evermore detached from any connection to the record industry. This week’s example: Catch Point Rights Partners. Last week, Music Business Worldwide wrote that Corey Sorrento joined CPRP as an “investment associate.” The six-person firm’s mission reads: “…acquire and curate an exceptional portfolio of entertainment intellectual property rights.” Beautiful mission statement. What’s interesting to me is that the three founders, all hold solid experience in this space with two of the three working at BlackRock, the asset management firm, and the other hailing from SoundExchange/BMI. At least Hipgnosis gave us Nile Rodgers’ lovely face to mask the financialization. CPRP is just pure asset management alumni setting up shop at the intersection of cultural property and tech-driven growth. Some folks really know how to ride a wave.  
To wrap-up this week, let’s look at catalog purchases. The Hipgnosis Songs Fund reportedly spent “$45 million” on the catalog of pop songwriter Andrew Watt. The British company also picked up the rights from producer Andy Wallace. Round Hill purchased the master recordings of Telegram Studio, a Swedish record label. Influence Media, a music copyright firm devoted to women songwriters, purchased the works of in-demand pop mainstay Julia Michaels. Hopefully those Michigan pensioners are fans of late 2010s pop tunes!
6 Links 2 Read
A comprehensive review of the labor within the record industry that touches on the Union of Musicians and Allied Workers’ “Justice at Spotify” campaign, the Secretly Group Union, the Pitchfork Union, and a few other efforts. Even though we’re still in the early stages, it’s exciting to think where this organizing could lead. 
The answer from the Times appears to be: perhaps. Not the worst response from the paper of record. 
The fact that Apple and Amazon basically threw away the idea of a higher-priced subscription tier without a second thought makes me chuckle. Certainly not great news for aspiring record industry execs, who thought they might get a few more dollars out of audio-obsessed consumers. 
Even though the dream of higher revenues from high-quality audio is dead, expect the price of subscriptions to creep up as the record industry eyes other methods of increasing revenues. 
Music companies continue to march towards public offerings—don’t miss out on the potential gold rush! 
It’s a rare thing to follow a company’s journey from introductory puff piece to bankruptcy in just three months. Make a wish. 
Blog Roll
The Penny Fractions newsletter arrives on Wednesday mornings (EST). You can support via Patreon or follow on Twitter. If curious, here is the newsletter’s budget sheet, publishing schedule, and research database. Artwork is produced by graphic designer Kurt Woerpel, and the newsletter is copy edited by Mariana Carvalho, with additional support from Taylor Curry. My current job is Program Manager at SoundCloud, so all thoughts here represent me, not my employer. Any comments or concerns can be sent to pennyfractions@gmail.com. 
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David Turner

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