Online royalties are the leading source of revenue in the music industry. Due to its importance, complexity, and its fusion of mechanical and performance rights, we’ve decided to dedicate its own chapter to this rights type. Online revenue in the current publishing landscape is a little bit of download, and a lot of streaming.
Streaming is the leading format in the present-day music industry, and the main driver of Wall Street gaining an interest in music in recent years. Platforms such as Spotify, Apple Music and YouTube (Music) have made spending money on music cool again. These platforms are within the music industry commonly referred to as Digital Service Providers or, in short, DSPs. Whenever a song is streamed, both the master and publishing rights holders will earn a remuneration
Looking at the publishing rights; for each stream, a performance royalty is triggered because the song is performed and a mechanical royalty is triggered because a copy of the song is cached to the device in order for it to be played. The publishing royalty is calculated as a percentage of the streaming platform’s net revenue. A good estimation is that a streaming platform will pay 10% to 15% of its monthly net revenue to the publishing rights holders, split across all streaming units within that month. They apply a separate equation for revenue coming from different subscription plans and different territories. So you can expect a higher royalty for streams performed by a listener on Spotify’s Premium plan versus a free user on Spotify’s Ad-Supported plan. Or a higher royalty for a stream in the United Kingdom, where a Spotify Premium plan costs the equivalent of $12, compared to a stream in India, where a Spotify Premium plan costs the equivalent of $2.
These royalties will be collected by the performance and mechanical societies respectively. How this publishing revenue is split amongst the performance and mechanical societies depends on the legislation of the collecting societies. Many societies will allocate a split of 50/50 or 25/75 in the favour of performance societies.
Whereas societies are generally limited to collecting publishing royalties directly within their own mandated territories, the world wide web is somewhat, well, worldwide. Many societies will have removed the online rights from their reciprocal agreements with their sister societies, and instead licence their catalogue with the DSPs for multiple territories. Thus when a song is streamed, which society collects the royalty depends on both the songwriter’s membership and the territory in which the song was streamed. Let’s take an example from the Dutch society BUMA/STEMRA, who is very transparent about their deals in their From Play To Pay documentation. BUMA/STEMRA has a direct deal with Spotify in over 40 territories. They will collect both the writer’s and publisher’s share for any song (or share of a song) written by a BUMA/STEMRA member whenever it is streamed in one of these territories. Whenever a song by a BUMA/STEMRA writer is streamed outside one of these territories, the local sister society will collect the publishing royalty from Spotify before passing it on to BUMA/STEMRA. Similarly, whenever a song is streamed in the Netherlands that is written by a society’s composers who does not have a direct deal with Spotify in the Netherlands but does have a reciprocal agreement with BUMA/STEMRA, then BUMA/STEMRA will collect the publishing royalties from Spotify before passing it onto its sister society.
In the below example, we summarise how royalties flow for online usage within a territory that is covered by the writer’s society. We make the assumption that both the writer and the publisher are members of BUMA/STEMRA. The writer’s society will claim both the writer’s and publisher’s share of both the mechanical and performance royalty and then share this with the writers and publishers accordingly. Note that STEMRA is a mechanical society on continental Europe, and thus pays a writer’s share for mechanical royalties directly to the songwriter.
The below example shows what happens when the online usage happens in a territory that is not covered by the writer’s society. The usage is first claimed by the local society within that territory, who then passes the writer’s share on to the writer’s society and the publisher’s share on to the publisher’s society.
Different rules may apply to different societies, so always check with your societies which rules may apply to you and your repertoire.
Music streaming is an extremely lucrative but very concentrated market, meaning it’s never been easier within the publishing industry to have direct licences with a few key players to cover the lion’s share of the revenue. In recent years many publishers are on a mission to circumvent the collective licences for online rights. A common occurrence are publishers pulling the online mechanical rights for their Anglo-American catalogue away from the societies, and instead licence these rights directly with the DSPs in many territories. Large publishing companies may negotiate the licences directly with the DSPs, but still start a joint venture with a society to handle the administration. Projects such as IMPEL and PRS’s Core Collective provide a similar service to small and medium sized independent publishers.
You may wonder, why only the Anglo-American mechanical rights? Because, if you remember, the Anglo-American mechanical rights are fully controlled by the publisher. Continental European mechanical rights and global performance rights are subject to a writer’s share controlled by the society, so the publishers can’t just take these rights away from the societies when the writer has a society affiliation. However, where publishers have pulled their online Anglo-American mechanical rights away from the societies, they sought permission from the performance societies to also include the society-controlled performance rights in their direct negotiations. It means that where permitted, performance rights will flow via the direct licences of the publishers, with the administrating society in the joint venture ensuring the writer’s share of online performance royalties continues to flow to the songwriter’s society.
For a permanent download, a mechanical royalty is triggered because a copy of the composition is made in a digital format such as mp3. But also a performance royalty is triggered as these songs can generally be previewed and streamed before downloaded. The value of the publishing royalties payable by a download platform largely depend on local legislation.
These royalties will be collected by the performance and mechanical societies respectively. How this publishing revenue is split amongst the performance and mechanical societies depends, again, on the legislation of the collecting societies. Many societies will allocate a split of 75/25 in the favour of mechanical societies. The flow of royalties from DSPs to songwriters are the same for downloads as for streaming, as we described above.
In the below image, you can see how online download platforms pay a publishing royalty to both the performance and mechanical societies, who in turn pass this royalty on to the publishers and composers. Only the continental European societies will pay a mechanical royalty directly to the composers. Anglo-American societies will pay the full mechanical royalty to the publishers. Different rules may apply to different societies, so always check with your societies which rules may apply to you and your repertoire.
However, one note-worthy exception still applies. Up until recently, there was no mechanical collection society in the United States that was legally mandated to collect mechanical royalties.
The United States being the biggest music market in the world, one could say it makes this exception a rather important one. Whilst independent agencies such as Harry Fox and Music Reports existed to facilitate streaming services in licensing these mechanical rights, the industry standard for download stores in the United States was to pass this mechanical royalty on to the labels, after which it is the label's responsibility to pay this mechanical royalty to Harry Fox or the publishers. Come the year 2022, and the United States now has its own fully fledged legally mandated mechanical collection society. Download platforms are now no longer bound to pay through these mechanical royalties to the record labels, and can pay these to the MLC instead. In practice, however, many download platforms have pre-existing agreements with labels establishing the flow of mechanical royalties. So we won't see a great shift in the flow of US download mechanical royalties until these download platforms update their own agreements.