Why the Music Industry Should Fear the Latest Ruling on Streaming Royalties

The music industry is facing a new threat from a recent court decision that could slash the royalties paid to songwriters and publishers by streaming services. The ruling, issued by the U.S. Court of Appeals for the D.C. Circuit on August 11, 2023, vacated a 2018 order by the Copyright Royalty Board (CRB) that had increased the rates for mechanical royalties by 44% over five years.

- Based on an article by Peter Csathy on his Fearless Media Newsletter, Aug 2, 2023

Mechanical royalties are the fees that streaming services pay to songwriters and publishers for the right to reproduce and distribute their songs. The CRB, a panel of three judges appointed by the Library of Congress, sets these rates every five years based on evidence and arguments presented by various stakeholders in the music industry.

First, the good news for human creators everywhere. Just this past Friday, a federal judge upheld the U.S. Copyright Office’s continuing policy that AI-only generated works are not open to copyright protection.

The CRB’s 2018 order was hailed as a victory for songwriters and publishers, who had long argued that they were underpaid by streaming services compared to record labels and artists. The order raised the rates from 10.5% of streaming revenue to 15.1% by 2022.

However, the order was challenged in court by Spotify, Amazon, Google, and Pandora, who claimed that the CRB had violated the Administrative Procedure Act (APA) and the Copyright Act in its decision-making process4. The streaming services argued that the CRB had:

• Adopted a flawed formula to calculate the rates based on unproven assumptions and unreliable data.

• Failed to provide adequate notice and opportunity for comment on the proposed rates and methodology.

• Exceeded its statutory authority by imposing a minimum per-stream rate and a late fee provision.

• Violated due process by allowing one of the judges to serve beyond his statutory term.

The D.C. Circuit agreed with most of these arguments and remanded the case back to the CRB for further proceedings. The court did not rule on the merits of the rates themselves, but rather on the procedural flaws of the CRB’s order.

The ruling is a major setback for songwriters and publishers, who now face the possibility of losing their hard-won gains and having to relitigate their case before a new CRB panel. The ruling also creates uncertainty and instability for the music industry, as it casts doubt on the validity and enforceability of the current royalty rates.

The ruling also raises broader questions about the fairness and effectiveness of the CRB system, which has been criticized for being outdated, complex, and costly. Some have called for reforms to make the CRB more transparent, accountable, and responsive to the changing realities of the music market.

The music industry is in need of a clear and consistent framework that balances the interests and rights of all parties involved in creating and distributing music. The latest ruling on streaming royalties does not bode well for achieving that goal.

If you want to learn more about this topic, you can read the full article here: Recent Court Action Does Not Bode Well For Music Industry.

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