Spotify and Apple Offer New Royalty Rates for Songwriters


The National Music Publishers Association (NMPA) already officially condemns digital services for its pricing proposals, which it says will reduce the percentage of streaming revenue paid to songwriters and publishers if passed.

The Digital Media Association (DiMA) released a statement on the pricing process on Thursday, stressing that the growth in popularity of streaming will benefit everyone.

“I believe the answer does not lie in rushing judgment or allusions to war, but in a real fight against this cognitive dissonance – ever increasing revenues for rights holders, billions of dollars invested in catalogs and new tools and features that help bring more music to more fans than ever before in a highly competitive landscape, alongside genuine frustrations on the part of creators, ”said the CEO of DiMA. Garrett levin said in a statement. “How do you make the modern music economy work for everyone?” That should be our goal – to preserve the long-term growth of the industry and to ensure that it benefits as many people as possible. “

For Spotify’s premium paid subscription – the company’s main revenue generator – the service offers a return to the 10.5% primary service rate adopted in the Copyright Royalty Board’s Phonorecords I and Phonorecords II pricing. That would be lower than the overall rates adopted in Phonorecords III, which started at 11.4% in 2018 and increases each year to 15.1% in 2022 and is currently subject to a referral by the Court of Appeal.

That 10.5% of service revenue would be measured against a second bucket, the largest of which would emerge as the all-inclusive pool from which performance fees paid to PROs would be subtracted, leaving mechanical fee costs for the services.

The second bucket would be created in a two-step process: the first step would involve multiplying 80 cents per subscriber and measuring it against 21% of the total cost of content, which is what is paid to record companies. . The weaker of these two income pools would then become the second compartment.

That 21% of the cost of the content, plus the 80 cents per subscriber, is the same rates as Phonorecords I and II, but the cost of the content is lower than the subferral rate of Phonorecords III which started at 22% the cost of content, increasing annually to 26.2% of the cost of content in 2022.

In total, Spotify offers pricing proposals for nine service levels created by the CRB process over the years, although not all Spotify offers them. For most tiers, Spotify offers 10.5% of revenue and 21% of the cost of content as components of the pricing plan. For ad-supported streaming – the next level after premium paid subscriptions – Spotify offers 10.5% of revenue versus 22% of what is paid to labels – the same rates used in Phonorecords I and II – and the the higher of the two becomes the all-in-bucket from which the performance royalties are subtracted. Again, these rates are lower than what CRB judges determined for Phonorecords III sub-referral of 12.5% ​​of revenue and the cost of growing content, which in 2021 is 25.2%.

Pandora’s pricing proposals are very similar to Spotify’s.

Amazon offers an overall rate of 10.54% of overall revenue, compared to 80 cents per subscriber for its paid mobile subscription level. The percentage rate is considerably lower than this year’s current rate of 14.2% of income for a paid tier, which is expected to reach 15.1% of income next year, although that overall rate and pricing structure is in effect. pending due to referral. The introduction of a charge per subscriber at this stage of the pricing formula is a new wrinkle.

For its non-portable devices, which typically include subscribers accessing by computer but, in the case of Amazon, also include cheaper plans tied to its smart speakers, Amazon offers the highest of an overall rate of 10, 54% of turnover against 19.1%. the total cost of the content (that is, what it pays to the record companies).

For the three tiers above (portable, non-portable and ad-supported), the resulting compartment would be an all-inclusive revenue pool from which performance revenue paid to performance rights organizations would be subtracted and all that remains is the mechanical rate basin. This pool would then be divided by the total number of streams for the period to determine the price per stream, which is then paid to each song based on the number of streams generated by that song during the month.

For its sleek service available to all Amazon Prime subscribers, which offers a limited inventory of songs, the company offers a direct price of $ 0.00085 per play.

But just as important as the rates for the three tiers based on 10.54% of service revenue, Amazon is looking to reduce that revenue pool by also claiming a deduction for the fees it pays third-party app stores.

Apple’s App Store, for example, charges a 30% fee on monthly subscription payments for subscribers who signed up for the Amazon service using an Amazon app downloaded from the App Store. The Google store also charges the same type of fees. Subscriptions that go through app stores, however, are typically priced at $ 12.99 higher, so that reduction would lower the price of the subscription to around $ 10, or the regular rate.

Amazon is also asking for another deduction of up to 10% of revenue for undefined third party payments, aside from what it wants to deduct for app store payments. This is also a new deduction, and it is unclear what third party payments it might apply to.

Adding the two new deductions – 30% and 10% – does not mean, however, that the service revenue pool would be reduced by 40%. These deductions would only apply to subscriptions that arrive through app stores or in some way involve other third party fees.

Spotify also offers new deductions on service revenue – some nuanced and others more obvious, like podcasts and other non-music content.

Overall, these new irregularities in the pricing formula and what counts as revenue would likely reduce the overall size of the overall 10.54% income bracket in two ways: a lower rate, applied to a smaller one. pool.

Apple, meanwhile, wants to adapt the pricing formula for Phonorecords III but simplify it by eliminating the step that was previously calculated by applying a percentage on everything that is paid to record companies.

Instead, Apple would have an all-inclusive bucket – including the full release payment of performance and mechanical royalties – calculated by applying the overall percentage of the revenue rate to service revenue, which, as previously mentioned, is currently 14.2% of income but subject to dismissal. After the performance payouts to PROs were deducted, anything left over would be measured against a floor of 50 cents per subscriber. The largest would then be the mechanical pool.

In addition, it appears that Apple is planning to offer a new subscription model, as it offers a new category of limited offer services for full catalog services with significantly limited functionality compared to premium services. This would have a lower mechanical floor of 25 cents per subscriber, rather than the more commonly applied 50 cents per subscriber. The lower rate per subscriber would reflect the reduced functionality of the service, although it is not clear how it would achieve this since it offers a full catalog.

Apple is also offering an introductory hardware package that would have a fixed monthly mechanical minimum of 33 cents per subscriber for a maximum of two years, after which the stand-alone royalty formula would go into effect.


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