(Hypebot) – In a follow up to a still popular 2012 piece revealing how major music companies are funneling royalties generated from sources outside the US into their own pockets rather than those of songwriters and music publishers, Jeff Price explores how the issue has not only persisted but grown and expanded in ways that make matters worse.
Guest post by Jeff Price of Audiam
It’s been five years since I first wrote “How Major Music Companies Are Getting Your Royalties: The Global Songwriter Shell Game” for Hypebot. The article reveals how hundreds of millions of dollars of songwriter’s and music publisher’s royalties generated outside of the United States are not being paid to them and/or are being re-channeled into the pockets of larger music companies.
It’s half a decade later and I thought it might be of value to see how things have changed (spoiler alert: it’s not good).
THE PROBLEM EXPANDS
First, the original problem continues to exist. However, with the passing of another half a decade there is a lot more infringement and even larger piles of royalties being funneled to music companies not affiliated with the actual rights holder.
Second, with the consumer shift in the United States from downloading to interactive streaming there is a new type of royalty, and a lot of money, not being paid to the world’s songwriters and music publishers.
Third, as the music industry market share continues to shift away from the major music companies towards artists using self-serve companies like DistroKid, it means even more money is being generated that is ending up in the wrong pockets.
Let me explain.
THE TWO COPYRIGHTS AND THE TWO SEPARATE ROYALTIES
First, the issue is over the royalties generated/owed for the “composition”, not the “sound recording”.
For example, Sony hired Whitney Houston to sing “I Will Always Love You”. The recording of the song is owned by Sony. However, the lyric and melody of the song (called a “composition”) was written, and is owned, by Dolly Parton.
To allow people to stream the Sony recording of Whitney singing “I will Always Love You”, a music service like Spotify must get one license from Sony (for the recording) and a second separate license from Dolly Parton (for the composition). The royalties owed, and the mechanism to actually pay the money differs for the recording and composition.
For the composition specifically, how much is generated in royalties and the mechanism to get the royalties into the hands of the rights-holder differs depending on if the recording was downloaded or streamed.
THE DIFFERENCE BETWEEN DOWNLOADS AND INTERACTIVE STREAMS IN THE UNITED STATES
For each download, the amount generated for the composition is an amount of $0.091 (a little less than a dime). If the recording is over five minutes the rate is about $0.0174 cents a minute. These royalty rates are set by the US government.
For downloads, the burden to get the license for the “composition” is on the record label/distributor not with the download store.
In addition, the money owed for the composition is paid by the download store to the label/distributor. It is the label/distributor who must then pay the songwriter/publisher.
For example, a copy of “I Will Always Love You” as performed by Whitney Houston is bought and downloaded on iTunes for $0.99. iTunes pays $0.70 to the label/distributor for the sale. The label/distributor must then pay $0.091 of the $0.70 to the songwriter/publisher.
Or, as we say in the music industry, the money owed for the composition is “passed through” the label/distributor.
It is important to note this “pass through” exists almost exclusively in the United States. In most other countries, the money owed for the composition is NOT passed through. Thus the problems of non-payment, or payments going to other entities based on market share, that I wrote about in the original article.
Two more other important notes about downloads in the U.S.:
Distribution companies that take a percentage of revenue from downloads as a fee for their distribution service are taking their fee on both the sound recording money AND the composition money and not just the sound recording money (as perhaps they should). If they took their distribution fee only from the sound recording revenue it would leave more money in the artist’s pocket.
Distribution companies like TuneCore have, for a period of over five years, received money from Apple for US iTunes Match but then failed to pay all of these royalties to the songwriter(s) and publisher(s). (Side note: As the founder and former CEO of TuneCore its upsetting to watch the company lose its direction and mission.)
For an interactive stream, the amount generated for each composition is about 10.5% of the digital music services monthly gross revenue divided by the number of streams in that month. This is a rate also dictated by the US government.
For example, if there is $10 in gross revenue and 100,000 streams, each stream generates $0.0001 per stream ($10/100,000).
For Spotify’s U.S. ad-supported service the current per stream composition is about $0.00014. You can see all the per stream rates back to 2014 here (http://resources.audiam.com/rates/)
In addition to the different royalty rate, there are two additional very important differences between streams and downloads.
The burden to get the license for the “composition” is on the interactive streaming service (i.e. Spotify, Apple Music, Tidal) NOT on the label/distributor.
The money owed for the composition must be paid by the interactive streaming service (i.e. Spotify, Apple Music, Tidal). The composition money CANNOT “pass through” to the label/distributor to then pay the songwriter/publisher.
These two differences between streams and downloads explain why there is a higher percentage of money now not being paid to songwriters/publishers.
As U.S. consumers shifted from downloads to streams, the money for the composition stopped flowing to many songwriters/publishers via the label/distributor as it was no longer “passed through”. Instead, the burden to get the license and make the payment for the composition shifted to the music service (which is how it works in the rest of the world).
The digital music services built no internal systems to deal with licensing and paying compositions. This then triggered the non-payment problems that existed in the rest of the world to now exist here in the United States for streams (but not for downloads).
This explains why there was a US class action lawsuit against Spotify
In short, Spotify was sued for taking compositions without licenses. This is called “infringement” as a music service (or any entity) can’t just take someone else’s property (i.e. their composition) and use it without a license (which usually comes with a payment for the use).
So now, in addition to the plethora of problems outlined in my first article, we have this new problem.
Add to this that we are seeing a myriad of “Settlements” with digital music services where the money that would have been generated if the composition was licensed in the first place is now paid to larger music companies that opt-in to these settlements.
For example, in the recent NMPA/Spotify settlement it was announced there was approximately $25 million in generated but unpaid composition royalties.
Any of the $25 million that could not be identified was divided among participating publishers based on their market share on Spotify.
Now add one more very unique wrinkle that, due to US copyright law, allows music services to basically steal music and not pay for it: If a composition is not registered with the US Copyright Office then the music service technically does not need to pay any royalties for the composition.
Take a moment to let that sink in.
The world used to have just a few entities controlling 10 million compositions. These entities would register the copyrights. As the power and control has shifted from requiring an artist to get “signed” for access into the music eco-system to allowing them to do it themselves, we now we have 10 million entities controlling the 10 million compositions. Each one of these entities now has the burden of knowing about and paying for the registration of their copyrights with the US Copyright office.
(To register your copyright, you must pay a fee and submit the composition to the US Copyright office using its forms).
This means that if you’re an artist/songwriter who lives anywhere in the world, let’s say the U.K., and a recording of your composition is streamed in the US, and you have not registered the copyright with the US Copyright office, the US based music service can use your music and pay you nothing.
The music rights organizations suggest you affiliate with them to help collect, but the non-payment infringement issues still persist as outlined in the first article.
Never in the history of the world has so much money been made off the use of music with less and less of it going back to the artists, labels, songwriters and music publishers (if any of it is even bothered to be paid at all).
IPOs, fund raising, sales of hardware, software, cell phones, apps etc are generating huge amounts of money and value from music and yet the entities using the music did not write, did not record and, in many cases, did not license or pay for the use.
There will be a breaking point if this continues. How can the artist continue to create, write, record if they can’t even get paid their $0.00014 per stream (something we can barely call money)?
Which in a nutshell is why I created and launched Audiam about four years ago. Its going to take a bit more time, but we’ve already begin the process of getting things sorted.
Jeff Price is founder and former CEO of TuneCore and Founder and current CEO of Audiam; a Reproduction Rights Collection agency that gets music publishers paid their digital mechanical royalties and YouTube income.