The “Fifth Wheel”: Just How Financially Secure is Music Publishing?

There was unified relief and joy across the digital music business in the US at the end of August when an agreement between publishers and streaming services with regard to future mechanical streaming royalty rates was agreed upon – in principle, at least.

The National Music Publishers’ Association (NMPA), the Nashville Songwriters Association International (NSAI) and the Digital Media Association (DiMA – representing DSPs in the US) reached a settlement on the rates before having to go through the potentially protracted proceedings of Phonorecords IV at the Copyright Royalty Board (CRB).

The new rate will be 15.35%, a slight uptick on the rates for Phonorecords III, covering 2018 to 2022, that saw a rate increase from 10.5% to 15.1%.

There had been a very acrimonious and public standoff between publishers (pushing for mechanical rates as high as 20%) and streaming services (looking to either freeze the existing rates or reduce the rates they currently paid to 10.5%) over Phonorecords III. It was feared that Phonorecords IV might prove to be equally fraught, but consensus was found much swifter than anyone involved might have anticipated.

The CRB could still reject this proposal if, in the words of Music Business Worldwide, “notable opposition to its suggestions arises”.

Should it pass the CRB, the new 15.35% rate is expected to be “phased in over the five-year term”, but it comes with a number of caveats, as per a joint NMPA/NSAI/DiMA press statement.

“The deal also includes a number of changes to other components of the rate, including increases to the per-subscriber minimums and the ‘Total Content Costs (TCC)’ calculations which reflect the rates that services pay to record labels.”

Billboard worked out a rough calculation of what the incremental rate increases could mean for songwriter income. It estimated that 1 million on-demand streams in the US could generate $1,380 in publishing royalties, rising to $1,389 in 2024, $1,393.53 in 2025, $1,398 in 2026 and $1,403 in 2027. Not a massive increase, but an increase nonetheless.

The day after the agreement was announced, the publishing community was quick to issue statements applauding the developments here. They were all keen to accentuate the positives: that this was incredible progress and that the lot of the songwriter was improving as their worth was finally being recognised.

Sony Music Publishing Chairman and CEO, Jon Platt, said, “The settlement is an important win for songwriters and composers, reflecting years of effort and hard-fought litigation.”

Kobalt Music said, “Today’s settlement is a historic day for songwriters, securing the highest steaming rate in the world, a victory for all.”

Warner Chappell Music pushed a similar line, saying, “Today, after months of negotiations, the NMPA and NSAI on behalf of all songwriters and publishers reached a settlement with streaming services to set the highest royalty rate in the history of streaming anywhere in the world.”

Some did, however, temper their effusiveness over an increased rate with mild reality checks.

Platt accepted “there is more to be done in the fight for better songwriter pay and recognition” while Warner Chappell Music stated “there is still more work to be done”.

All in all, however, the developments landed to a warm reception.

The international issue: why the US offers an important glimpse of where everyone else would like to be (at least)

The line from Warner Chappell Music (and echoing what everyone else in the US publishing world was saying) – namely that this is “the highest royalty rate in the history of streaming anywhere in the world” – is something to be proud of. Equally it is something that publishers in every other market around the world will be keen to secure (or at least get close to) for themselves.

It all links into a wider existential worry about just how financially secure the music publishing world can allow itself to feel in the streaming age and if it believes it is being properly and fairly recompensed as the streaming boom continues apace.

This is a topic widely covered in our in-depth music publishing report, with leading executives and songwriters including Jon Platt, Carianne Marshall, Mary Megan Peer, Merck Mercuriadis, Björn Ulvaeus, Nile Rodgers, and Helienne Lindvall weighing in on the debate. 

Coming mere days after the Phonorecords IV news, a study in Germany laid out the challenges facing music publishers and songwriters there.

A survey of 4,000 GEMA members by Goldmedia – and published by the collecting society – looked at how streaming revenues were split up. Between 50% and 55% is assigned to recording rights (split between labels and artists as per their individual deals) and between 10% and 15% for the song rights (split between publishers and songwriters). The remainder goes to the DSPs.

The report made the point that when looking at what music creators (i.e. songwriters and musicians) get here, their estimated 22% of net revenues lags behind the 30% that goes to DSPs and the 42% that goes to labels.

The report glumly noted, “Current mechanisms of the streaming economy tend to strengthen the position of older, commercially successful catalog titles. Newcomers and musical niches are left with a correspondingly lower share of revenues.

Primary rights are being treated as the fifth wheel

The European Composer & Songwriter Alliance (ECSA) made a stinging point in its response to the GEMA study. “This research analysis further demonstrates that composers and songwriters, who are at the source of all music, are the fifth wheel on the wagon for revenue distribution, with less than 10% of the revenues generated by streaming,” it said.

That line about composers and songwriters being the “fifth wheel” here gets to the very heart of the arguments on this side of the debate: that songwriters are somehow dismissed financially and are seen as economically less important.

ECSA ramped up its criticisms here, saying there are “conflicts of interests between the recording and publishing arms within the main music majors”, meaning that songwriters end up at the back of the queue.

This all echoes the debates in the UK following the parliamentary inquiry into the economics of streaming in 2021. The majors stated categorically there was no conflict of interests and a six-month follow-on study by the Competition & Markets Authority concluded there was no requirement to refer the issue to full investigation.

Even so, there are plenty in the independent publishing world who have voiced their suspicions and cynicism.

As ECSA President Helienne Lindvall said, “The music industry is like an inverted pyramid, where the song is at the bottom.

She added, “This study puts this reality into context, confirming that the current state of affairs is unsustainable if we want a thriving and diverse music scene for the future.”

The label/publisher imbalance

Wider context was provided in some pieces looking to appraise the increase in publishing revenue in terms of how it compares with the increase in recorded music revenues – and they emerged with more questions than answers.

“Music publishing’s growth in the US in 2021 […] was nothing compared to how the recorded music industry ballooned in the same year,” argued Music Business Worldwide, basing this around the NMPA reporting that the US music publishing industry generated $4.7 billion in 2021, up by $700 million from 2020.

It paralleled this with RIAA numbers showing the wholesale value in the US for recorded music rising from $8 billion in 2020 to $9.8 billion in 2021.

While the dollar increase was greater ($700 million for publishing versus $1.8 billion for recorded music), the percentage increase (14.9% for publishing versus 18.36% for recorded music) was not significantly different. The argument from publishers, of course, will be that the dollar value disparity is the real issue as publishing still takes a smaller part of the overall pie compared to labels.

Speaking to Synchtank ahead of the Phonorecords IV developments (and responding to the Phonorecords III situation), Teri Nelson Carpenter, AIMP Los Angeles Chapter President, said, “This year, we need to ensure not only that the result of the previous trial is finalized and enforced but also that we continue to fight for further increases so that royalty rates are not diluted for future generations.”

The wrong direction of travel?

This point about ensuring that “royalty rates are not diluted for future generations” is a crucial one in the ongoing debates here.

Crispin Hunt, former Chair of The Ivors Academy Board, tweeted in August in response to a Goldman Sachs forecast from its Music In The Air report that suggested music publishing would go from a 21% share of global music revenue in 2021 to a 17% share by 2030.

Worrying direction of travel for songwriters & publishers.

Goldman Sachs forecast publishing share of Global Music revenue dropping from c.21% in 2022 to c17% by 2030.

Songs are the key value driver in streaming /tiktok etc.

So how do we halt the decline in song ratio? pic.twitter.com/L2lwAeNJ2O

— Crispin Hunt (@crispinhunt) August 25, 2022

While the dollar value would grow from $6.9 billion to $11.6 billion in that period (i.e. almost doubling), his concern was that the overall pie might be growing but publishing’s share of it was shrinking. “Worrying direction of travel for songwriters & publishers,” he said. “Songs are the key value driver in streaming /tiktok etc. So how do we halt the decline in song ratio?”

The accuracy conundrum

This all bleeds into wider debates about the need to improve accuracy in the royalties ecosystem and the necessity for better tools/cooperation/interoperability. These issues all underpinned much of Synchtank’s recent music publishing report, notably part 3 – Economics, Transparency & Equality.

As Billboard noted in its Ledger newsletter from May this year, “These conversations aren’t really about fairness anymore, though – they’re about accuracy. Fairness is about equity, accuracy is about accounting. Fairness is emotional, accuracy is analytical. How much somebody is paid is different than how somebody is paid.”

It added, “Improvements in accuracy seem more attainable because they are technical feats, not matters of corporate negotiation (which bring change slowly) or government intervention (even slower yet). That means fairness is about embracing opportunities, not fixing financial inequities.”

If music publishing’s future is to be truly secure, it needs to see rates rising and share of revenue increase. It also has to have the data and tools at hand to get full transparency on all of this.

But more than this (and this is an ideological distinction that bleeds into economic reality), it needs to stop being seen and treated as the “fifth wheel” of the music business and instead start to be seen and treated as the very engine upon which everything else runs.