Rulings on music streaming royalties highlight growing discontent

3 Aug 2022

Wireless headphones and laptop

Streaming royalties continue to be one of the hottest topics in music, with many artists, songwriters, catalogue holders and various other stakeholders campaigning for a genuinely fair and equitable rate.

Hipgnosis (a UK based music IP investment and song management company) confirmed a landmark victory on 4 July 2022, as the US Copyright Royalty Board (CRB) disallowed an appeal from various streaming services and upheld their decision to incrementally increase the percentage of streaming royalties from 10.5% to 15.1% percent for songs played on streaming platforms in the US between 1 January 2018 to 31 December 2022.

This increase will represent a 44% uplift in mechanical and performance streaming minimum royalties’ rates for streaming paid in the US.

This milestone ruling is a breakthrough in the music industry and ultimately takes a slice of the cake away from the streaming providers and passes it further down the line.

This will be seen as a huge victory for songwriters across the globe, who will ultimately benefit financially from this decision.

Founder and CEO of Hipgnosis Songs Fund Ltd, Merck Mercuriadis, quantifies the importance of this ruling stating: “CRB has delivered a strong message not only to the digital service providers like Spotify, but also to the recorded music companies about the importance of the songwriter in our industry.”

However, as a fund that invests in music IP, it’s worth pointing out that Hipgnosis is set to benefit significantly from the ruling.

Another important factor to consider is the impact on negotiations and valuations of future royalty deals. We have seen the multiples applied to catalogue deals skyrocket in the last few years, with some of the world’s largest artists selling their catalogues to holders. This ruling could see a further increase in these multiples, as the potential to earn more royalties from rights held increases.

This isn’t the only significant royalty case in recent months. Revolutionary electronic artist Kieran Hebden, better known as his stage alias ‘Four Tet’, reached a settlement agreement with Domino Records in June for a dispute over the royalty rates on his downloaded and streamed music. The musician had originally argued that the 13.5% ‘sales’ royalty rate was unfair and commanded a 50% ‘licensing’ rate, similar to the rate applied to CD, vinyl and cassette. This variance arose from an interpretation of the original contract between Domino and Hedburn signed in 2001, a pre-streaming era.

The dispute escalated when an additional claim for breach of contract was submitted after Domino withdrew four albums from streaming services. However, on 20 June 2022, Hebden announced on social media that Domino records had offered to fulfil the underpayment in the form of a settlement totalling £56,921 plus interest. In his online statement he offered further support to artists:

“I really hope that my own course of action encourages anyone who might feel intimidated by challenging a record label with substantial means.”

Both challenges in the US and UK capture the sustained frustration of artists and songwriters over royalty rates for digital downloads and streaming services. We expect to see this repeated in the future as artists continue to battle with labels and streaming providers for fairer rates.

We work with music artists and their agents to help maximise returns and achieve clients’ financial and business objectives. For further information on this issue or advice relating to royalty payments, please contact Rory McKaig.

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