Are You Being Shorted on the Streaming Mechanical Extra time Adjustment? – Music Expertise Coverage

As we put together for the upcoming Phonorecords V rate-setting continuing, one factor is obvious: there are long-standing however largely unexamined flaws within the streaming mechanical royalty calculation. Chief amongst them are bundling charges (at the moment being litigated) and the so-called “lengthy tune” method for streaming—each embedded within the regulatory framework for years, but solely now drawing targeted scrutiny. The current Spotify bundling debacle, which delivered a considerable royalty haircut to songwriters and publishers, ensures that bundling will probably be a front-and-center situation going ahead. (These things provides up: See Kristin Robinson’s wonderful reporting on the $230 million price of the little bundling mishap.) Assuming the case is ongoing when Phonorecords V begins subsequent yr, this energetic dispute will probably be vaguely paying homage to Phonorecords III hangover which did precisely not make for a clean negotiation in Phonorecords IV.

However one other neglected loophole—the oddly named “extra time adjustment” utilized to longer recordings—could also be quietly distorting songwriter compensation as nicely. We’ll take a more in-depth take a look at that one right this moment. (And sure, we’ll save for one more put up the equally puzzling and inexcusable query of why there’s a cost-of-living adjustment for bodily codecs, however not for streaming.)

The Lengthy Music Bonus as Streaming Penalty

The “lengthy tune” method has been round for the reason that 1976 revision to the Copyright Act when Congress tried to restore the injury it had performed to the world’s songwriters by freezing mechanical charges at 2¢ for 68 years.  In step with Congress’s intent to make up for sins of the previous, the 76 Act transformed the long-frozen “statutory price” established in 1909 right into a “minimal statutory price” for recordings of songs of 5 minutes taking part in time or much less, and launched a then-new pro-rated time-based bonus for recordings of songs of greater than 5 minutes known as the “lengthy tune method” in widespread dialog.  That bonus primarily prorated the minimal price by 5 after which summed the per-minute price (or portion thereof) as a means of offering extra compensation to copyright homeowners of the tune that was recorded.

In different phrases, if an album included recordings of 9 songs of 5 minutes or much less and a ten^th tune of 6 minutes, the mixture mechanical royalty payable for the album was 9 x minimal stat PLUS 6 x per minute price.  What did not occur—to foreshadow the place we’re occurring this situation—what did not occur was that the 5 minute songs had been lowered by the quantity of the bonus paid to the 6 minute tune.  Maintain that characteristic in thoughts. (Setting apart the results of managed compositions shenanigans, in fact.)

Right here’s the Copyright Workplace’s useful abstract of statutory charges over time (however observe the erratum within the grid on web page 2 exhibiting the 2023 charges being in impact since 2009 and modify accordingly).

Streaming Mechanicals “Extra time Adjustment” Established in Phonorecords I

Enter streaming and restricted downloads round 1999 or so underneath the rateless license from HFA to RIAA with the thriller recoupable advances underneath the settlement introduced in 2001.  (“Thriller” as a result of how are you going to recoup an advance should you don’t know what it’s superior in opposition to or what price is used to recoup it?). No person obtained round to setting a streaming mechanical price for about 10 years as a result of that’s life among the many sensible folks.

When the Copyright Royalty Board established the streaming mechanical royalty charges in 2008,^[1] the CRB wanted to derive an equal assemble to the minimal charges.  The CRB adopted rules that established simply such a corollary—or meant to, anyway—by adjusting the variety of performs for exercise occurring on or after October 1, 2010 known as the “extra time adjustment”.^[2]  Because it’s simply multiplication, does it intuitively make a distinction whether or not you apply the extra time adjustment issue to bonus the speed or the performs?  It in all probability shouldn’t make a distinction to the lengthy tune.  However does it make a distinction to another songs that ostensibly ought to nonetheless be paid the corollary to minimal statutory?

The so-called “lengthy tune” bonus method paid by music customers to songwriters was established by Congress within the Copyright Act of 1976^[3] and continues to the current day^[4] for bodily configurations.   The 76 Act additionally launched Congress’s promise to songwriters of a “minimal” statutory price paid by music customers to songwriters for recordings of songs of 5 minutes taking part in time or much less.  The long-song bonus^[5] was meant by Congress to mandate “simply” compensation to songwriters and publishers for songs of greater than 5 minutes length, as recorded.  

Congressional Intent Behind Lengthy Music Components/Extra time Adjustment Bonus

With out the long-song bonus, Congress would use the obligatory license to primarily take uncompensated property rights away from songwriters on the face of the Copyright Act.  Not solely is the lengthy tune bonus method rooted within the Structure and legislative historical past, additionally it is has the advantage of widespread sense; if Congress establishes a minimal statutory price based mostly on taking part in time of the sound recording, it’s only good housekeeping to handle what occurs if the inventive course of exceeds the time allotted to the statutory minimal.  Or you would simply have an arms-length negotiation between a prepared purchaser and a vendor not compelled by the federal government however we are able to’t have that, now can we?

The statutory long-song method has, in fact, continued uninterrupted since 1976.^[6]  Part 115 (c)(2) of the 76 Act said clearly “With respect to every work embodied within the phonorecord, the royalty shall be both two and three-fourths cents, or one-half of 1 cent per minute of taking part in time or fraction thereof, whichever quantity is bigger” (emphasis added).  

The lengthy tune method resulted in a bonus paid on a work-by-work foundation along with the minimal royalty that was additionally paid on a work-by-work foundation.  I’ve discovered no proof that it was ever the intention of Congress to make use of the lengthy tune method to cut back the minimal statutory price on a per-music person foundation or to require copyright homeowners, together with unrelated copyright homeowners, to bear the price of the lengthy tune bonus by a discount within the minimal statutory price.

There’s additionally no proof that Congress ever meant that there be an industry-wide cap on the utmost mechanical royalty payable by any music person. (Though the labels tried a model of this story with the Managed Compositions Clause all of them appeared to give you on the similar time.)

Congressional intent in amending and rising the mechanical royalty price required by the 1909 Copyright Act was clearly compensatory and never punitive, which means the lengthy tune price was additive and not dilutive.  Congress additionally clearly meant as each the legislation and customary sense require that the music person decide the payable royalty price in separate calculations based mostly on the taking part in time of every musical work involved, not all musical works exploited by the identical music person in a specific accounting interval.  

However–I believe that’s precisely what is going on with the streaming mechanical “extra time adjustment.”

Lengthy Music Bonus Misunderstood by Streamers

It’s solely doable that the streaming mechanical “extra time adjustment” in 37 CFR §385.21(b)(4) and (c) is misunderstood or misapplied.  This ends in a penalty charged to all musical works homeowners by every service for the complicated streaming mechanical calculation reasonably than the bonus for “lengthy songs” meant by Congress.  That’s, the Judges ought to stop an interpretation of the “extra time adjustment” being a bonus to the music customers reasonably than to the copyright homeowners.

This misapplication first falters with the language that the “payable royalty pool” is by some means a frozen quantity for all royalty-bearing performs that have to be adjusted downward for the lengthy tune extra time adjustment.  It’s this sentence within the Judges’ rules beginning with Phonorecords I^[7] which may be “misunderstood” by companies:

For functions of figuring out the per-work royalty allocation in all calculations underneath step 4 on this paragraph (b)(4) solely (i.e., after the payable royalty pool has been decided), for sound recordings of musical works with a taking part in time of over 5 minutes, every Play shall be counted as offered in paragraph (c) of this part.

Word that the extra time adjustment in paragraph (c) is utilized to performs after the per-work royalty allocation is decided based mostly on the per-work royalty pool.  As a result of the extra time allocation is a bonus, there’s a distinction between the payable royalty pool and the overall payable royalty.  The full payable royalty is clearly higher than the pool used to derive the minimal price as a result of the extra time allocation is additive and never dilutive.

Clearly then, “the per-work royalty allocation” for “every Play” underneath “paragraph (b)(4) solely” refers to recordings of 5 minutes or much less or the analog to the minimal statutory price lengthy.  

Stated one other means, the payable royalty pool ought to be prorated by all royalty-bearing performs (together with putative long-songs) to derive a minimal statutory price per play.  Then the long-song extra time adjustment is utilized to the minimal statutory price per play (and per-long tune) over 5 minutes to derive the relevant lengthy tune royalty.  The minimal price is paid for performs of minimal taking part in time songs and the extra time adjustment price is paid for lengthy songs performs.  There isn’t any easy solution to calculate that whole payable royalty till the charges for all long-songs come to relaxation. Apart from to say the quantity of the overall payable royalty by definition should exceed the quantity of the royalty pool.

Additional, songwriters and publishers ought to take care that music customers accounting underneath the blanket license could embrace tracks within the denominator that shouldn’t be there (similar to podcasts or spoken phrase recordings, white noise, machine generated or AI recordings not able to copyright).  As soon as included, it is rather troublesome to take away these non-mechanical royalty bearing tracks and restate all earnings.

Likewise, what neither Congress nor the Judges meant to occur was the royalty pool be capped. They didn’t intend that lengthy tune bonus develop into a penalty–which is able to occur so long as the royalty pool used to calculate minimal statutory is just not elevated by quantity of the lengthy tune bonus.  It’s not an industry-wide cap on the overall mechanical royalties payable.

As Phonorecords V approaches, it’s time to align streaming mechanicals with each Congressional intent and customary sense.

^[1] Copyright Royalty Board, Mechanical and Digital Phonorecord Supply Price Dedication Continuing, Docket No. 2006–3 CRB DPRA[Phonorecords I], 74 FR 4510 (Jan. 26, 2009) out there at https://www.govinfo.gov/content material/pkg/FR-2009-01-26/pdf/E9-1443.pdf