Mechanical Royalty Rates From Music Sales and Streaming to Increase in the USA
Mechanical royalties are an important source of revenue for songwriters and their publishers; and if you’re in the United States, they can get even better from 2023 on.
That’s because streaming platform companies and organizations that represent songwriters and publishers have agreed on setting higher mechanical royalty rates. While the agreement still has to be approved by the Copyright Royalty Board (CRB), within a proceeding called “Phonorecords IV”, hopes are high in the country.
Let’s break “Phonorecords IV” down into what it’ll mean for two types of mechanical royalties that are due to songwriters and publishers: those earned from sales, and those earned from streaming.
Mechanical royalties for sales
Mechanical royalties are due to a songwriter whenever there’s a sale of a product that contains a song they wrote. When we say “songwriter”, please note that their publishing company is paid these royalties too.
In short, sales that generate mechanical royalties include digital songs, ringtones, physical copies (CDs, vinyl), and even music bundles (that is: two or more physical phonorecords, permanent downloads or ringtones delivered as part of one transaction).
The rate for mechanical royalties is adjusted every five years – quite a baffling setting if you think of how much the music industry can go through in the course of this interval. The current rate dates from 2006, though. For each track sold, 9.1 cents are due in mechanical royalties for songwriters and publishers. To put things in perspective, think of how iTunes was one of the main sources for buying music in 2006, and how it was discontinued in 2019.
However, according to the Agreement settled within the “Phonorecords IV” proceedings, such an amount should go up to 12 cents per track, an adjustment that took into consideration the US inflation from 2006 to 2021. That means a 31,9% increase (although the percentage mentioned in the Motion filed towards the CRB is actually 32%), which was settled to take place immediately after approval by the CRB.
Mechanical royalties for streaming
Mechanical royalties are also due to songwriters whenever a sound recording of a song they wrote is streamed on a digital service provider (DSP) such as Spotify, Tidal, Deezer, Amazon Music, or Apple Music.
That is because, for a song to be streamed through these platforms, first the sound recording has to be “Inserted” into their servers (similarly to how a sound recording has to be affixed on a CD).
It’s important to note that mechanical royalties are due only when it comes to interactive streaming (also known as “on-demand” streaming), that is, the kind of streaming where the user can choose which songs are going to be played. The broadcast that takes place on services and platforms where there’s no option to choose which song to stream (such as online radios) is called non-interactive streaming. For these, performance royalties are due, but not mechanical royalties.
As for interactive streams, both performance and mechanical royalties are due to songwriters. The rates for these consist of a percentage of the service provider’s revenue — 10,5% for mechanical royalties due between 2013 and 2017, and the Copyright Royalty Board ruled that such percent should go up to 15,1% for the years 2018-2022.
For 2023-2027, the mechanical royalty rate was agreed to go from 15,1% to 15,35%, as in the following schedule:
2023 - 15,1%
2024 - 15,2%
2025 - 15,25%
2026 - 15,3%
2027 - 15,35%
The CRB already agreed on these rates, as seen from their Proposed Rule published on November 7th, even though the proceedings have not terminated yet.
Library of Congress. Photo credit: Trev Adams
Who decides music royalty rates in the USA?
The Copyright Royalty Board (CRB) is a unit within the USA’s Library of Congress that is in charge of a series of decisions regarding copyright royalties, as described in the Copyright Royalty and Distribution Reform Act. It’s composed of three judges. When deciding the rates and distribution of royalty payments, these judges can adopt as a basis an agreement reached among participants in a proceeding.
That’s what happened at the proceeding known as ‘Phonorecords IV’: the National Music Publishers’ Association (“NMPA”), the Nashville Songwriters Association International (“NSAI”), as well as DSP companies Amazon, Apple, Google, Pandora and Spotify (who participated collectively as “Service Participants”) filed petitions to participate in the proceeding and have come to an agreement.
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What do you think about the new mechanical royalty rates?
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This content was written based on the information made available on the eCRB website until the date of its publication. Please note that this content is published for informational purposes only and does not constitute legal or financial advice.
