Music Streaming Services File Formal Appeal of Royalties Rate Increase in U.S. Court

Spotify, Amazon, Google and Pandora formally filed an appeal in the United States Court of Appeals over the U.S. Copyright Royalty Board’s (CRB) rate increase ruling.

The appeal was filed Wednesday in the U.S. Court of Appeals for the D.C. Circuit.

The services are asking the appeals court to examine whether the CRB made legal errors while adopting a rate structure that was “not proposed — and not justified by explanation or evidence — thereby depriving the services the right to rebut the logic on which the determination is based.”

Following a lengthy trial, in December 2018, the CRB determined an increase of rates from 10.5 percent to 15.1 percent of revenue during a five-year term, amounting to a 43.81 percent increase. The 15.1 percent of revenue will be split between the mechanical and performance royalties to publishers and songwriters.

Certain aspects of the ruling are disputed among the worlds leading music streaming services.

On March 7, Spotify, along with Google, Pandora and Amazon, took the unprecedented step to file notices of appeal to the CRB’s rate determinations. The National Music Publishers’ Association then it would challenge the appeal.

Google, Pandora and Spotify, among others, are credited with reviving the music industry through digital music streaming innovation. Apple Music was noticeably absent from the group of appealing companies.

Table: U.S. Royalties Rate Determination Timeline

October 2018U.S. President Donald Trump signs the Music Modernization Act into U.S. law
December 2018U.S. Copyright Royalties Board CRB announces royalties rate determination
February 2019CRB publishes rate determinations, starting a 30-day window in which appeals could be made
March 2019Spotify, Google, Pandora and Amazon file notices to appeal CRB rate determinations
August 2019Spotify, Google, Pandora and Amazon file formal appeal of CRB rate determinations

Scope, Not Payment, is the Issue, Says Spotify

Spotify has been clear that the issue is not over payment, but rather, what the rates cover in what it says is the “right scope of publishing rights,” including those for videos and lyrics. Spotify argues that the CRB’s decision limits the type of non-music offerings it can present to potential subscribers.

Still, NMPA President David Israelite called the recent course of events “shameful.”

In a press release he said: “When the Music Modernization Act became law, there was hope it signaled a new day of improved relations between digital music services and songwriters. That hope was snuffed out today when Spotify and Amazon decided to sue songwriters in a shameful attempt to cut their payments by nearly one-third.”

Spotify defended its decision to appeal royalty rates set by the CRB, calling into question “significant flaws” in how they were determined.

The Copyright Royalty Board’s rate determination, which consists of a three-step formula that produces a royalty amount that is paid to publishers, and thus songwriters, in exchange for a mechanical license, or, for the right to host the song.

The formula has been in use since 2008, the year Spotify debuted, when music streaming was still in its infancy.

What to Know: U.S. Music Modernization Act

  • Also known as The Orrin G. Hatch–Bob Goodlatte Music Modernization Act
  • United States legislation signed into law by President Donald Trump on October 11, 2018
  • Created to modernize copyright-related issues for music and audio recordings due to new forms of technology like digital streaming
  • It is a consolidation of three separate bills introduced during the 115th United States Congress
  • The CRB rate determination is an action to fulfill the purpose of the Music Modernization Act