Music Streaming Giants To Pay $424 Million In Royalty Fees

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Music streaming brought boom times back to the music business after years of disruption. But that doesn't mean that everybody's getting paid. Last month, news broke that many of the biggest streaming platforms had been sitting on more than $424 million of royalties. Here's Alexi Horowitz-Ghazi from our daily economics podcast, The Indicator.

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ALEXI HOROWITZ-GHAZI, BYLINE: Before we get to streaming, we have to go all the way back to CDs, which were popular when songwriter Michelle Lewis got into the business.

MICHELLE LEWIS: So this was, say, like, the '90s, early '90s.

HOROWITZ-GHAZI: Writing original songs, Lewis explains, is a lot like writing books or poems. Songs are a form of intellectual property that fall under the copyright system.

LEWIS: As someone who creates copyrights, you want people to record your music. That's sort of how it gets out into the world and how it earns money.

HOROWITZ-GHAZI: There are a few different ways a songwriter can earn money from a song they wrote. But one of the main ones is something called a mechanical royalty. This is the fee that people pay to a publisher or songwriter every time they duplicate or copy one of their songs for sale. And these royalties apply to everything from vinyl to cassettes to CDs.

LEWIS: The CD comes out. It goes into stores. People buy them. And then, for the song that I co-wrote - I wrote it with two other people - we split that money. That one song on the CD will get 9.1 cents per sale. Those are your mechanical royalties.

HOROWITZ-GHAZI: And even though nine cents per song split among multiple songwriters and their publishers may not sound like a whole lot, Lewis says those royalties could add up pretty quickly.

LEWIS: You could write a album track on a platinum-selling album and make a decent living just from that song.

HOROWITZ-GHAZI: That is, of course, when people still bought albums. Peer-to-peer file-sharing sites like Napster came in and exploded the music business. And when those sites were shut down in the early 2000s, many people were buying music song by song through services like iTunes. Songwriters like Lewis couldn't count on a track on a platinum album to keep them afloat. Then YouTube came along, making it free and easy to watch music videos at the click of a button. And all of this added up to a kind of collapse of the music industry as people knew it.

LEWIS: That sucked, I think, two-thirds of the value out of the entire (laughter) music business.

HOROWITZ-GHAZI: But finally, after all that intense disruption came a new hope with the arrival of these streaming platforms.

LEWIS: And thank you, streaming services, for figuring out a way to get people to pay for music again. The problem is - well, should we go into, like, where the problem is (laughter)?

HOROWITZ-GHAZI: Yeah. Yeah. I want to know about the problem.

KRIS AHREND: The problem was that since 1909, under the Copyright Act, the rights to use musical works were cleared one work at a time and one share at a time.

HOROWITZ-GHAZI: This is Kris Ahrend, CEO of a non-profit organization called the Mechanical Licensing Collective.

AHREND: While that worked reasonably well in a physical marketplace where the number of records released in a given month may be in the thousands, it proved far less effective when today some of the services claim that they are receiving as many as 60,000 new sound recordings and works a day.

HOROWITZ-GHAZI: So the streaming platforms have been inundated with millions of songs, many of them with unclear or incomplete metadata about who should be credited or paid for any given track. And this is where Congress stepped in. The Music Modernization Act was passed by Congress in 2018. And one of the major mandates of that law was the creation of a new organization to help solve this problem of unmatched streaming royalties. The Mechanical Licensing Collective, which Kris Ahrend oversees, would be charged with tallying up, collecting and, eventually, dispersing all that unmatched money the streaming platforms had been setting aside.

AHREND: And the total of all of those accrued royalties was a little over $424 million.

HOROWITZ-GHAZI: Kris says what happens now will be a mixture of outreach and a kind of forensic accounting process so they can start cutting checks.

AHREND: And our job is to get the right person their share, whatever it is.

HOROWITZ-GHAZI: Songwriter Michelle Lewis says she doesn't expect a huge personal windfall when that pool gets divvied up. But she says the fact that it's happening at all is a promising sign of change in the music industry.

Alexi Horowitz-Ghazi, NPR News. Transcript provided by NPR, Copyright NPR.

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