Over the past decade, as recorded music revenue in the U.S. grew from $7 billion in 2014 to $17 billion in 2023, the combined market share of music sales and streaming controlled by the big three fell from 64.9% in 2014 to 64.3% in 2023. Advertising sign calculates. That modest decline, which only measures music that the majors control rather than just distribute, came even as the companies bought market share with acquisitions of independent labels such as 300 Entertainment, 12Tone and Alamo, as well as joint venture acquisitions. And it came about in part because about 5% of the global recorded music market — about $1.5 billion a year, according to Advertising sign appreciation — is now dominated by digital distribution services that primarily serve DIY and independent artists like CD Baby, DistroKid, and TuneCore, which I founded and operated until 2012. And that market segment is predicted to continue to grow.
This comes as consumers have access to more independent music than ever before on the same online services, and even the same playlists, as major label releases. But one of the responses from the major music companies seems to be, if you can't beat them, push for a change in the rules to get a cut of their royalties.
Last year, the big three made separate deals with Spotify, as well as Deezer, on new licensing terms for recordings that all other rights holders on those platforms must agree to. The new agreements changed the policy on when a stream of a recording can generate royalties and in some cases how much it earned. Additionally, this year, under the rules set by the Music Modernization Act (MMA), a portion of the “accrued but unpaid” mechanical “black box” royalties currently held by the Mechanical Licensing Collective (MLC) become eligible for payment to member publishers, some of whom have executives on the MLC board, based on their market share on the platform and when they earned the rights. Although both policies apply to the entire market, they will redistribute revenue disproportionately to major labels and publishers, especially major ones, at the expense of smaller labels and DIY and independent creators.
Deezer now applies a royalty multiplier to tracks by artists who get at least 1,000 streams per month from 500 unique listeners, a policy that generally benefits major label artists, who tend to be more popular. Under Spotify's new deal terms, royalties that would previously have been paid to recordings with fewer than 1,000 streams during the previous 12 months are now effectively redistributed to recordings streamed more than 1,000 times in the same time period. And since the majors control fewer recordings that are played less than 1,000 times compared to the huge number controlled by DIY creators and independent labels, those royalties will generally go disproportionately to them.
In 2023, there were 106 million recordings that received between one and 1,000 streams (others generated no streams at all), which together accounted for a total of 13.68 billion streams worldwide, according to Luminate. Since each Spotify stream is worth a global average of between $0.0038 and $0.0042, this suggests that while the impact of individual services is difficult to measure, around $33 million a year could flow from smaller artists to more popular ones who are disproportionately signed to major labels.
To understand what these new policies mean in practice, consider indie band Head of Femur. Over the past two decades, the band has released several albums comprising a total of 58 tracks. Under Spotify's new model, the service will only pay royalties for a band's recordings that were streamed more than 1,000 times in the previous 12 months, regardless of how many recordings were streamed in total. In other words, a band with 58 tracks that stream 999 times each, for a total of 57,942 streams, will make nothing — while a band with one song that streams 1,000 times will get paid. The royalties that would go to those 57,942 streams will go to bigger acts — many of them on bigger labels.
The model for mechanical streaming rights has changed in a way that will benefit the same players. Prior to the passage of the Music Modernization Act in October 2018 and the creation of the Mechanical Licensing Collective in January 2021, Spotify and other streaming services did not receive the mechanical licenses they needed and thus faced multiple copyright infringement lawsuits. rights, with potentially devastating compensation legislation. Additionally, the services were not paying all, or in some cases, the royalties for some of the songs they had licensed — to the point that MLC reported receiving $397.7 million in adjusted unpaid “historical” engineering royalties they had earned but not got paid. The Music Modernization Act was supposed to address these issues by making it easier to license mechanical rights and pay publishers and songwriters fairly.
To do this, the Music Modernization Act made three important changes to relevant parts of US copyright law. First, it created a “blanket” mandatory license for digital services for every song ever written, to protect the services from liability for copyright infringement. Second, it protects agencies from liability for violation before the law goes into effect. Third, it mandated the creation of a database managed by a designated “engineering licensing collective,” with the goal of accounting for and paying publishers and songwriters billions of dollars in engineering royalties generated by trillions of streams — instantly, accurately, and transparently. The collective was also ordered to pay $397.7 million in “historic” engineering royalties that had been earned but not paid before 2021.
By enacting the MMA, Congress facilitated mechanical licensing and protected digital services from liability for infringement. Although the law requires penalties if digital services fail to pay the MLC, it does not include specific regulations on whether the MLC will pay rights holders or provide remedies to rights holders if it fails to do so. (The US Copyright Office oversees the MLC and reviews every five years whether it should continue to administer the compulsory license.) In fact, the Music Modernization Act states that its regulation of collective licensing of engineers “shall supersede and preempt any state law (including the common law) relating to alienation or abandoned property, or any similar provision, which might otherwise apply.''
This means that any unpaid mechanical property royalties are subject solely to the Music Modernization Act, which says that after a certain period of time they become eligible for distribution according to the copyright holders' “relative market share” as reflected in usage reports ». Essentially, the money is divided by market share on a given platform over a given time period, meaning it will disproportionately go to larger publishers. So far, MLC has yet to distribute money based on market share. However, as of June 2024, MLC has $634 million in “black box” royalties that it has received but not distributed, according to the agency. also received $397.7 million in unallocated historical rights, of which $285.9 million. Ultimately, all of that money — $919.9 million — will be eligible for market share distribution over a given platform and time period.
Over the next decade, predictions show that consumers will continue to turn their attention to a wider selection of DIY and independent artists. Under these policies, however, some of the revenue generated by their work would be paid disproportionately to major companies and publishers instead of the artists and songwriters who earned it.
Jeff Price is the founder and CEO of Word Collections. He previously co-founded and was GM of spinART Records and founded and was CEO of TuneCore and Audiam.
from our partners at https://www.billboard.com/pro/record-labels-publishers-lose-power-royalty-rules-changing/
