For some reason, there’s a focus at the moment on songwriter royalties and in particular for streaming royalty rates. Notice that I said “rates” not “share” or the one I find particularly irritating, “share of the pie.” Let us be clear—there is no “pie” there are only “rates”. Or should be. Let’s investigate why.
To frame this idea (speaking for the U.S. market), let me take you back to a conversation I had with a Nashville session musician and hit songwriter many years ago back before physical mechanical royalty rates were frozen.
He looked at me and said, “Why do I have to take this government cheese royalty rate? I get double scale when I play a date, why can’t I get double stat?”
What he was really saying was why can’t I set my own price as a songwriter for mechanical royalties? And the answer is the same today as it was then: Because songwriters allow the U.S. government to set the price and terms for mechanicals. Or rather the “minimum statutory rate” which is a joke because the “minimum statutory rate” has never been a minimum, it has always been both a minimum and a maximum.
There has also long been an obsession with songwriters and publishers comparing their rates to what artists and record companies get. This comparison was only compounded in the digital era particularly for interactive streaming. If you combine song rates and recording rates, some people get a pie. Other people (like me) get an error message. I’ll explain why.
First, in the interactive streaming market (like Spotify or the censorious Apple) you have the starkest example of free market negotiation on the recording side compared to government mandated deal terms on the song side. And here’s a shocker—the songwriters get a tiny morsel of cheese from the government compared to what the sound recordings get. (I suspect this is the origin of “TCC” or Total Content Cost which I’m told is a pretty useless deal point but allows the lobbyists to say they got parity with the sound recording. Or some other gibberish that I frankly am not smart enough to understand. But then I’m just a country lawyer and not a smart as the city fellers.)
One reason that the songwriters do so poorly is that they are subject to a compulsory license, meaning government mandated deal points and government cheese royalty rates. One reason the sound recordings do better is because they can say “no government cheese for us, thank you very much.” And guess what else? The services can say “no,” too. So the only one who has no bargaining position in the deal is guess who? Could it be the ones with the crappiest deal who can’t walk away? Think there might be a connection there somewhere?
I would try to sell you on what I believe—there’s only one reason why songwriters get screwed in the streaming era and that’s because they are the only ones in the deal who can’t walk away. Songwriters need to throw away the government cheese, but yet we just saw a fine example of the Stockholm Syndrome when songwriters applauded the beatification of the compulsory license in the Music Modernization Act.
Of course Big Tech hates this idea, just ask their acolytes at Public Knowledge or any of the other Concrete Club affiliates. Big Tech would like compulsory licenses as far as the eye can see and government cheese for everyone, no seconds.
Government cheese is the first point of failure in the system. If songwriters could get out of the compulsory license trick bag, instead of comparing themselves to sound recordings, songwriters should just quote their price and let the chips fall where they may. Services enjoying their collusive oligopoly pricing may just have to raise prices to pay for the rights they need. Particularly if hit songwriters adopt variable pricing that reflects their time and effort to write hit songs. To put this in words of one syllable, song catalogs are undervalued due to the government’s rules and could be undervalued by 50% or more. Think on that.
So the fundamental problem with why song rates are so low is not because the labels take too much of the “pie”. There is no “pie.” The “pie” concept is just a way for music users to set songwriters against artists and publishers against labels.
There is a big block of government cheese, however. The fundamental problem is that the government has taken away the songwriter’s ability to bargain for themselves. When you set your own price, you don’t care about what other people are getting. Everyone else can say “no,” too, so that will tend to keep pricing at an equilibrium.
You can’t blame the government for thinking that songwriters actually like the big block of cheese given the applause the Congress just got from a limited group of songwriters who were jumping for joy over perfecting compulsory licensing like they had just ordered a high end government cheese plate to go with their royalty pie a la mode.