Spotify, NMPA in a war of words over CRB appeal

By Emmanuel Legrand

The row between Spotify and the US music community has reached another level after Spotify published a long document explaining why it had decided to appeal the decision from the Copyright Royalty Board to raise mechanical rates by 44% by 2022 and the subsequent rebuttal by the National Music Publishers Association.

  Spotify has been strongly criticised by the NMPA and songwriters' body SONA for appealing the CRB decision. DavidIsraelite, president and CEO of the NMPA, said the appeal was similar to “suing songwriters.”

  Music publishers such as Sony/ATV, Warner/Chappell and Concord Music Publishing have voiced their support to the NMPA. "With this opposition to the CRB’s ruling, we are back on the defensive, but we are ready to represent you and all songwriters. As a result, we are reassessing our day to day interactions with these companies and are seeking your feedback as we take a stand alongside the NMPA," wrote Concord Music Publishing CEO Jake Wisely in a letter to songwriters.

  Spotify tried to set the record straight. In its blogpost titled 'You Might Have Heard about the Streaming Industry’s CRB Appeal—Here’s What You Need to Know', Spotify gave its side of the story. "In the US, the royalty rates for publishing rights for digital music services are determined by a panel of judges, the Copyright Royalty Board (CRB). The rates also create a reference point for services that don't rely on these government-set rates, and they indirectly influence the ways that publishing license rates work around the world. The CRB recently came to a conclusion about how these rights and rates would work for the next few years. And we appealed the outcome."

Significant flaws

The streaming service went on to list five key points delivered here in full:

  - "Is Spotify suing songwriters? No, Spotify is not suing songwriters. Spotify, Amazon, Google, and Pandora have each individually appealed the CRB outcome. The National Music Publishers’ Association, or NMPA, also filed an appeal. An appeal is the only avenue for anyone to clarify elements of the CRB ruling.

  - "Does Spotify think songwriters deserve to be paid more?Yes – this is important to songwriters and it’s important to Spotify. The industry needs to continue evolving to ensure that the people who create the music we all love — artists and songwriters — can earn a living. The question is how best to achieve that goal.

  - "Do you support the CRB rates? We are supportive of US effective rates rising to 15% between now and 2022 provided they cover the right scope of publishing rights. But the CRB’s 15% rate doesn’t account for all these rights. For example, it doesn’t consider the cost of rights for videos and lyrics.

  - "So why is Spotify appealing? The CRB rate structure is complex and there were significant flaws in how it was set. A key area of focus in our appeal will be the fact that the CRB’s decision makes it very difficult for music services to offer “bundles” of music and non-music offerings. This will hurt consumers who will lose access to them. These bundles are key to attracting first-time music subscribers so we can keep growing the revenue pie for everyone.

  - "So what’s the right way to split the pie? Music services, artists, songwriters and all other rights holders share the same revenue stream, and it’s natural for everyone to want a bigger piece of that pie. But that cannot come at the expense of continuing to grow the industry via streaming. The CRB judges set the new publishing rates by assuming that record labels would react by reducing their licensing rates, but their assumption is incorrect. However, we are willing to support an increase in songwriter royalties provided the license encompasses the right scope of publishing rights."

  Spotify concluded: "We hope this helps explain why we took this step, and what you can expect from Spotify as the industry works together moving forward. These are hard issues but we will listen and be open about what we think. Our mission is clear: we want to help more artists and songwriters make a living doing what they love."

Misleading spin

  NMPA's Israelite wrote in a rebuttal the Spotify statement contained many "lies" and "misleading" points. "Spotify is appealing the decision of the CRB to the US Court of Appeals for the DC Circuit in order to reduce or eliminate the royalty rate increases granted to songwriters by the CRB. It’s that simple," wrote Israelite. "Everything else — including Spotify’s attempt to describe its filing as “clarifying elements” of a ruling — is misleading spin."

  He added: "Simple question for Spotify: Do you want to reduce or eliminate the rate increase? If the answer is anything but an unqualified 'no', then all songwriters should see right through Spotify’s attempt to divert and distract. Further, NMPA made clear it would not appeal unless the digital services appealed first. If the digital companies withdraw their appeal, so will NMPA."

  Spotify's wrote that the CRB judges "assumed" that if the mechanical rates would go up, record labels would reduce their royalties rates to make up for the increase. Israelite said this was simply "not true" and that the judges wrote the opposite in their opinion.

  "The truth," said Israelite, "is that unlike songwriters, Spotify and record labels are in a free market. What Spotify pays record labels is negotiated between the parties. How those two parties split the 85% of revenue left over after paying songwriters and publishers their 15% of revenue is irrelevant and has no relationship to the value of the songs to Spotify’s business model. Simple solution: let songwriters and publishers negotiate the value of their copyright the same way that record labels do, but Spotify opposes that."

  He concluded: “This fight has just started.”

>Mark Mulligan from MiDIA Research suggested in a blogpost that Spotify could fix things with songwriters and publishers by increasing its subscription fees, but at the same time rights holders should allow streaming services to have higher margins. "The issue is so complex because both sides are right: songwriters need to be paid more, and streaming services need to increase margin," wrote Mulligan. "Spotify has only ever once turned a profit, while virtually all other streaming services are loss making. The debate will certainly continue long after this latest ruling, but there is a way to mollify both sides: price increases."

  He added: "Rights holders are already eager to see pricing go up, while streaming services fear it would slow growth. Between them, there are enough carrots and sticks in the various components of their collective relationships to make this happen. However – and here’s the crucial part – rights holders would have to construct a framework where streaming services would get a slightly higher margin rate in the additional subscriber fee. Otherwise, we will find ourselves in exactly the same position we are now, with creators, rights holders, and streaming services all needing more."