Music Royalty Rates in an Age of Streaming
Prior to the introduction of streaming as a primary means of playing music, artists relied largely on physical sales of records, cassette tapes, and CDs as a means of generating revenue for the music they created.[1] However, as new technologies have emerged, recorded music has gravitated towards a digital streaming market, wherein users are provided with “instant access to vast libraries of music for a fixed monthly fee.”[2] Today, these digital streaming platforms make up eighty-three percent of music revenue in the United States, acting as the dominant source for music consumption.[3] Despite the prevalence of streaming in the music industry, many songwriters and musicians have argued that artist payouts have failed to keep up with the popularity of streaming platforms.[4]
Under the Copyright Act of 1976 (“The Act”), copyright owners have a bundle of rights which pertain to musical works and sound recordings, including the rights of reproduction, distribution, and performance.[5] However, unlike other copyrighted works, the Act identifies two copyrights within any musical composition: (1) the “musical work,” referring to the “notes, lyrics, embedded performance directions, and related material composed by the” author; and (2) the “sound recording,” which is the artist’s recording of the work.[6] As a result, all streaming platforms must first obtain “permission to disseminate both the underlying musical work and the specific sound recording” before users can access the works on their platforms.[7] §115 of the Act subjects both the musical work and sound recording to a compulsory statutory license, which grants streaming platforms the legal ability to distribute particular musical compositions on their software.[8] As part of this license, the Copyright Royalty Board (CRB) establishes royalty rates per stream every five years, with the next rate setting for said mechanical license taking place in 2027.[9]
As of May 2024, per the current rate-setting mechanism, artists on Spotify, for example, are paid “less than one-tenth of a cent per stream on Spotify,” which has become standard in the industry. Moreover, despite Spotify use increasing exponentially during the COVID-19 pandemic, artist payouts remained the same.[10] Accordingly, music artists and experts alike have increasingly advocated for better regulation and compensation to artists within the digital streaming industry.[11]
While efforts have been made towards improving royalty rates for artists, there is still a long way to go. In 2022, a settlement known as “Phonorecords IV” established a mechanism for increased rates payable to songwriters and music producers over the course of a 5-year period from 2023 to 2027, beginning with a rate of 15.1% in 2023 and ending with a rate of 15.35% in 2027.[12] While a step in the right direction, this rate-setting scheme nonetheless falls short. The rates established by the settlement distinguish “bundles versus stand-alone music subscriptions.”[13] In so doing, Spotify modified the way it pays out royalties to consider Premium subscriptions to be “bundles” rather than stand-alone subscriptions.[14] Unfortunately for artists, Spotify’s decision to consider these Premium plans to be “bundles” results in a lower pay out to artists, since the Premium subscriptions include both audiobooks and music.[15] Thus, the new royalty rate scheme would not apply to Premium subscriptions.
Furthermore, the current rate setting mechanism does not distinguish between small artists and those with mass appeal. Under the current model, Spotify collects all of the money generated from streams within a single “pot,” which is paid out based on the percent of streams that particular artist had in a given month.[16] For example, an artist who makes up 10% of all streams would earn 10% of the overall pot, which effectively translates to 10 percent “of each user’s money, even those who have never listened to [the artist’s] music.”[17] As a result, lesser-known artists suffer while the most popular artists benefit at the expense of these smaller artists.[18] Moreover, while songwriters themselves already do not generate substantial revenue from digital streaming platforms, any money they do obtain is further paid to music producers and record labels, significantly reducing the share payable directly to the artist.[19]
Along with efforts made by artists and other music industry professionals to increase artist-payouts, there have also been efforts made at the governmental level. In 2022, U.S. Representative Rashida Tlaib (D-Mich.) set forth a resolution asserting the rights of songwriters to adequate compensation, stating that Spotify earned over $10 trillion in revenue in 2020, of which artists received meager fractions.[20] In 2021, the United Kingdom Parliamentary committee proposed a right to equitable remuneration, which would ultimately increase artist payouts by mandating payment to performers whenever their works are streamed, regardless of whether the recordings have earned enough to make up for initial investment and expenditure.[21] Equitable remuneration is a “non-waivable, non-transferrable statutory right to payment” which is “paid according to industry standard rates…”[22] Under this proposal, artists would be compensated directly rather than through a record company.[23]
Despite the efforts of songwriters, musicians, and governments alike, the current digital streaming royalty model is largely inadequate in compensating songwriters, particularly those who lack mass appeal. As a result, the four main Performing Rights Organizations (PROs) in the United States, the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music Inc. (BMI), the Society of European Stage Authors and Composers (SESAC), and Global Music Rights (GMR), have continuously fought for greater transparency and artist payouts in the current royalty mechanisms.[24] While some progress has certainly been made, the relative novelty of these digital streaming platforms presents unique issues pertaining to payment of royalties which will need to be addressed in the coming years.
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