Two of Three Majors Reach Settlement with Publishers on Digital Sales Rates

At the annual National Music Publishers Assn. convention Wednesday (June 8), held at the Marriott Hotel in Times Square, NMPA president David Israelite announced that music publishers have reached a settlement on mechanical licenses with two of the three majors, Universal Music Group (UMG) and the Warner Music Group (WMG). Terms of the settlement weren’t disclosed, and the deal still needs to be submitted to the Copyright Royalty Board (which began the rate-setting process on mechanical royalties for songs and albums on Jan. 5). 

During the meeting, NMPA president David Israelite announced the agreement. “Five hours ago, we have settled with Universal and Warner for the CRB” rate-setting process, for the period of 2018-2022. He thanked WMG and UMG executives for recognizing that the industry should work together and not fight over slices of the pie.

While the NMPA and sources at the majors wouldn't comment -- beyond confirming the agreement -- sources tell Billboard it will keep mechanical rates flat for track downloads and CDs and that the mechanical rate, if approved by the CRB, would remain at the current rate of 9.1 cents per song; and 24 cents for ringtones.

While the mechanical rate for song and album sales is paid by the labels to the publishers, the mechanical rate of streamed recordings is paid by those services to publishers. 

In another part of the settlement, the two majors have agreed to sit out the rate-setting process for streaming services, which means that publishers will be left to contend with digital services in front of the CRB's judges, sources say. Independent label groups, chiefly A2IM and Merlin, have also chosen to sit out the rate setting proceedings, according to one source.

A list of petitions to participate in the rate setting proceeding at the CRB website shows mostly digital services like Rhapsody, SoundCloud, Spotify, Pandora, Omniphone, Google, Deezer, Apple, Amazon and the Digital Media Assn., as well Gear Publishing Company. George Johnson, David Powell, Music Reports Inc. and a petition from Copyright Owners , which represent the NMPA, the Harry Fox Agency; the Nashville Songwriters Assn. Church Music Publishers and the Songwriters of North America.

The RIAA has filed a petition to participate in the rate-setting proceedings, citing the three majors as having a “significant interest in this proceeding.” But with the settlement and, as mentioned, two of the three majors dropping out, that would leave only Sony Music Entertainment as the third named entity still functioning as a participant. Its unclear whether Sony will participate under its own name or via the RIAA.

Since Sony Music Entertainment and subsidiary Sony/ATV are not a part of the settlement, to some it looks like the company is preparing to be a participant in the streaming mechanical rate-setting procedure. Sony/ATV and Sony Music Entertainment didn’t immediately respond to a request for comment. 

Some sources speculate that Sony's opting out of the deal is due to its recent (and long-desired) acquisition of Sony/ATV's entire catalog, currently under review by regulators. Those sources suggest that Sony doesn’t want to be seen as moving in lockstep with the other majors and worries about regulators' concern over its sole control of the publishing entity alongside of its ownership of a major label.

Still other sources argue that Sony is sitting out the settlement because it is worried that if the publishers are successful in pushing a higher mechanical rate through CRB litigation, it could impact the rates services are willing to pay the labels in direct licensing deals.

In addition to buying out the Michael Jackson estate’s share of Sony/ATV, Sony also owns 29 percent of EMI Music Publishing and is the administrator of that catalog. Combined, the two publishing catalogs are estimated to generate about $1.2 billion in revenue annually, giving it control of the largest publishing catalog in the world.

With UMG, WMG and the indies recusing themselves from the CRB's rate-setting, “Sony is the only label that believes it should have a role in meddling with what the services pay publishers," says a source in the music publishing community. "Instead of working together to increase the pie like all the other labels are doing, they seem to want to stay in the proceeding to ensure they can fight to get a bigger piece for their labels.”