Two Pennies for a Century - New Proposed Mechanical Royalties for Songwriters

Dealmaker Barry Neil Shrum address songwriters regarding the US Copyright Royalty Board's recent publication of a proposed settlement that would establish mechanical royalty rates for physical music, permanent downloads, ringtones, and music bundles in the United States from 2028 through 2032.  It leaves in place the existing rate structure through 2032, with annual adjustments in line with the CPI for inflation. The Board is now accepting comments and objections on the proposal, which are due by August 10, according to a notice in the Federal Register.

Transcript

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Welcome to Music Row Deal Makers, where we explore our world of making deals from Nashville's famed Music Row in the heart of Music City. We are the deal makers, from composing to closing. Now, here's your hosts, Barry Neil Schrump and Dennis Disney.

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Hello, all you dealmakers out there, and welcome to our 24th episode of Music Road Dealmakers from Composing to Closing. Remember, you can always ask us questions at questions at MusicRowDealmakers.com or you can leave us a message at 877-7 DealMakers. I'm glad to be with you today. We were here with some breaking news. Today, the Copyright Royalty Board has published a proposed settlement that would govern mechanical royalty rates for physical music, downloads, uh, vinyl records, CDs, if you can still buy those, ringtones, and other musical bundles. And this rate would exist from 2028 to 2032. It's basically a continuation of the last five-year, what they call the phonal record five rates. And that's the latest installment in this five-year cycle. Let's talk a little bit about the history of this and explain why this is important and what it means for you as a songwriter and for others in the music industry as well. This affects not only songwriters, but music publishers too. And so this settlement was actually reached between a number of music industry people such as Sony Music, some of the publishers, the publishers' organizations, things of that nature. And I'll be more specific in a few minutes. So it was filed with the Copyright Royalty Board, and the board is proposing that they accept that people accept this extension. You can find out more information about this at the Copyright Royalty Board's website. That's crb.gov. There'll be a lot of information about it there. The announcement will be published there. And you, as a songwriter or as an industry professional, can make your voice heard and participate in this debate for 30 days. You have until August 10th to post your objections or your public comments about it, and anybody can do it. So it's important to understand what this is. First of all, it's it doesn't involve anything to do with what we would call streaming, and I'll explain that in a minute. What it does have to do with is a physical copy of the musical composition. And let me explain why that's important. Every song, and and we often with that nomenclature, don't really understand legally what we're talking about. You and I in common parlance might say, I listened to a great song the other day on the radio. What we're really talking about is a sound recording. And there's a difference between a sound recording copyright and a musical composition copyright. So that's why we don't use the word song in a in a music contract talking about musical compositions, because the copyright act itself talks about musical compositions in the form of a C with a circle or a copy, and phonal records in the form of a P with a circle, which is talking about the sound recording. So they're two different things. The mechanical royalty came about in the late 1800s when the player piano started coming around. And the Tin Penn Alley publishers such as Irvin Berlin, George Gershwin, John Phillips Seusa, Herbert Shanley, these people recognized, hey, that's a copy of my musical composition, and that device is playing it. I should be getting a royalty for that. So that's where the word mechanical royalty actually comes from, the player, the mechanical player piano. And the the royalty is only paid to the songwriter and or the music publisher. It's the words, it's the melody, what we used to call sheet music or tabular music. That's the musical composition copyright. Now, when a record company or an artist comes along and says, I want to record that song, that's a copyright that has a derivative right to it. And the sound recording is the most prevalent derivative work from the musical composition. The producer and the record label and the musicians get together and perform that musical composition and record that. That derivative work, if it's done with permission and if the royalty is paid, is entitled to a separate copyright and is usually owned by someone separate and apart from the songwriter andor publisher. There are certain rates that are set for that mechanical royalty, and there have been for years. In the United States, that rate is not set by market-driven factors. It is, in fact, statutory. In other words, it's established in the Copyright Act of 1976. Specifically, it's in Section 115. And the government has set up a royalty board, the copyright royalty board, who determines what that rate is. So it's a very specific process. Now, over the years, any songwriter will tell you who has been receiving money, those monies increase very slowly. They are paid on per distribution. And in 1909, when the first mechanical royalty was inserted into the 1909 Copyright Act, it was two pennies. Two pennies. And unfortunately, it stayed at that level for almost seven decades, almost 70 years until it was finally changed. And then we took another look at it in 2006, and it went up to 9.1 cents. Now that's a dime, basically, for every distribution made. Then it was frozen for a time period again, from 2006 to 2022, when the internet started coming along. The royalty rate had been frozen at 9.1 cents, almost the entirety of my legal career. And then in 2022, a lot of different industry folks got together and said, hey, we this needs to change. And so in 2023, it went up to 12 cents for any distribution. And at that point, they set a five-year period for it to increase according to the consumer price index every year. And so this year, 2026, it has gone up to 13.1 cents per song per physical record or permanent download, or the greater of 2.52 cents per minute if the song is over a certain threshold of time. But typically it's 13.1 cents. Now, as you might imagine, that's not a lot to live on. And in this day of streaming, again, streaming is a separate thing. The mechanical royalty has become a smaller part of the songwriter's life, but still important in that regard. And I've just noticed that I'm a little bit tied in on my face. Let's bring that down. So the proposal is that we extend this 13.1 cent race rate along with increases through the year 2032. And they do this in five-year increments and they revisit it typically every five years. It was proposed by a certain group of record labels. Like I said, Sony Music was among them and others, and they propose extending this until 2032. The National Music Publishers Association is on board. The National Songwriters Association Incorporated is on board. A lot of people are behind this extension of time for these proposed rates. There are a few people like the Songwriters Guild who are not on board and who have not signed off on this. And a few other individuals, like Nashville songwriter George Johnson, for example, are not among the settlement's signatories. So you can opt out. And that's the importance of this announcement is you, as an individual, can comment on these proposals and can make your voice heard. If you think it should be higher, then you should go to the CRB.gov and find out how to comment. If you need help, let us know here at Music Road Dealmakers. We'd be happy to help you out. But what it means for songwriters is important. In the days I was just talking about, the Ten Pan Alley days, when the music publishers were selling sheet music, they got very involved in their government. And that's why we have a lot of these laws that we have on the books today. And it's important for you as well to get involved. It makes your income somewhat predictable. With regard to this mechanical rate, it at least sets the increases for the next five years. It's the money we're talking about when physical product is sold via a label or distributor. It's typically collected by the label and paid through to the publisher and the songwriter. And the publisher generally pays the songwriter if they are published. If not, it goes directly to you. It's modest, yes, but it's very real money. And remember, your voice counts. It's important for you to participate. Once again, we're not talking about streaming royalties. What happened in 2022 when the rate increased was that a group of internet providers got together and they talked about how they are going to compensate songwriters. For streaming companies, songwriters get compensated through something called the Music Licensing Collective as part of the Music Modernization Act. That applies to Spotify, to Apple, to uh Amazon Music, and that's a percentage of revenue format. And that's decided in a different CRB proceeding, not this one. This one, the Phono Records 5 rate, is set in different times. So there's no changes being proposed to that streaming rate. It's just the one for permanent downloads, ringtones, and any physical product. So three things to remember from this: that rate that was frozen for almost 70 years is set to increase, and that's part of what the proposal is. And they're proposing that they lock that format in until 2032, the five-year period. So even though it's modest money, you want to make sure as a songwriter that your your money is getting collected. If you don't know anything about that, please research it, ask questions, call us, 877 DealMakers. We'll inform you about what is required and where you need to go. If you are asking the question, where do my royalties come from? And your answer in your head is I don't know, then you've just found a valuable to-do. Okay? So that's it for us today. We promised that we were going to talk to extend our discussion about defamation. We'll do that in our next episode. But until then, thank you for tuning in. We appreciate you. Have a great couple of weeks.

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Music Row Dealmakers is a production of Shroom Disney and Associates. Recorded on location on Music Row, the heart of Music City, Nashville. Subscribe to future episodes wherever you enjoy your podcasts.