Photo Credit: Alexander Shatov
Earlier this month, amid a high-stakes Phonorecords V rate-setting proceeding, participating copyright owners proposed a simplified mechanical that would end the “bundling loophole.” Now, DSPs including Spotify are defending the Phono IV terms and pushing to leave them in place through 2032.
Spotify, Apple Music, Pandora, and other DIMA members just recently laid out their own Phono V proposals in detailed statements submitted to the Copyright Royalty Board (CRB). The platforms are, of course, weighing in on statutory rates for on-demand streaming. But a contentious Phono V proceeding is underway for physical formats and permanent downloads as well.
Despite spanning hundreds of pages apiece and touching on a number of multifaceted angles, the DSPs’ submissions are aligned at the top level: The Phono IV settlement was the result of intense negotiations, has been a success, and should therefore remain in place for Phono V between 2028 and 2032.
Regarding rates, this refers to adopting the current headline rate, 15.35% of applicable service provider revenue, for the entire half-decade stretch.
Spotify’s voluminous submission is decidedly light on mentions of inflation – meaning the DSPs don’t appear to be on board with the annual inflation adjustments sought by Word Collections, the Songwriters Guild of America, and others.
But they are adamant that Phono IV’s bundling provision, which, in brief, enables them to unilaterally reclassify multi-product subscriptions as bundles and reap massive mechanicals savings, has been an unmitigated success.
Needless to say, those on the opposite side of the negotiating table have a far different take. But at this stage of the game, Spotify’s filing is heavy on potentially difficult-to-refute facts and data.
Technically, the copyright owners were said to have obtained “the highest headline statutory mechanical royalty rate in the history of the statutory license” under Phono IV, for instance.
Furthermore, Spotify reclassified nearly all its subs as bundles in keeping with the Phono IV terms, the Mechanical Licensing Collective (MLC) unsuccessfully sued the DSP over the changes, and the National Music Publishers’ Association (NMPA) touted the Phono IV terms immediately following the settlement.
The circumstances surrounding said settlement are also front and center in Spotify’s filings. As many in the industry have noted in different words, the involved parties didn’t hammer out the Phono IV agreement during casual talks over drinks; entities including the NMPA were very much aware of the bundle terms following what Spotify describes as “intensive, arms-length negotiations.”
“The bundle terms and economics in particular were a known, core term of the Phonorecords IV settlement,” Spotify’s Phono V comments read in part. “Copyright Owners fought for improved bundle terms and economics throughout the Phonorecords III litigation, and again in the Phonorecords IV proceeding.
“In the final Phonorecords IV agreement, Spotify and the other Services agreed to bundle terms and economics that were more favorable to the publishers than what was in place under Phonorecords II and III—on top of the unprecedented headline rate. In publicly celebrating the settlement, both sides recognized the bundle terms and economics as a central component of the deal,” the text continues.
A couple closing notes: First, some interesting elements of the DSPs’ filings will have to wait for future coverage, as the documents span well over 1,000 pages in total. And second, despite supporting the same general position, the services’ submissions cover a few unique ideas.
Just in passing, besides suggesting a flat 15.35% headline rate for the entire Phono V period, “Spotify proposes that no other changes be made to the current rates, terms, and other regulations applicable to Section 115 statutory licenses.”
On the other hand, Pandora, evidently quite far from putting its MLC legal battle in the rearview, is seeking “four modest modifications” under Phono V.
In short, these include late-fee changes that could also compel the MLC to cough up when it receives overpayments from DSPs; a clause requiring the MLC to return mechanicals tied to works found to be in the public domain; the omission of fake-stream accounts from royalty calculations; and the removal of app-store fees (“Pandora should not have to pay royalties on revenues it never receives”) from the same calculations.
