Music Royalties Adjusted: Did Taylor Get Her Way?

December 17, 2015, 8:55 PM UTC
Revenue from licensing music for digital streaming has meant big revenue bumps for agencies like BMI and Ascap. Perhaps it’s time for the “B” in BMI to stand for “billion”—as in $1 billion in annual revenue. The music agency, whose full name is Broadcast Music Inc., announced Thursday that it set an industry record by raking in $1.013 billion over the year ending June 30. That’s BMI’s highest yearly revenue ever, and it squeaks by the $1.001 billion reported earlier this year by ASCAP, BMI’s main rival for handling music licensing and artists’ songs for play on radio, television, streaming media, and other platforms. BMI and ASCAP — the latter of which said it was the first performing rights organization to top $1 billion — have increased their revenue in recent years even as the music industry on the whole remains in flux due to evolving distribution models. The increase comes amid higher consumption of digital music, which requires streaming services like Pandora P 0.38% , Spotify, YouTube GOOG 1.15% , and Apple Music AAPL 2.09% to pay BMI and ASCAP royalties to stream songs by their songwriter members. Together, ASCAP and BMI represent a reported 90% of songs released commercially in the U.S. BMI's roster of artists includes Taylor Swift, Lady Gaga, and Lil Wayne.
Revenue from licensing music for digital streaming has meant big revenue bumps for agencies like BMI and Ascap.
Photograph by Jamie McCarthy — Getty Images

The music industry will be making some extra cash on streaming music next year, but its revenue won’t be nearly as high as it would have liked.

The Copyright Royalty Board (CRB) has set new streaming-music rates for 2016 at 17 cents per 100 plays on free, ad-supported services and 22 cents on subscription-based platforms. The rates, which were set on Wednesday by federal judges who serve on the board, are up from the 14 cents per 100 plays on ad-supported streaming and down from 25 cents on subscription services. The blended rate, however, is now higher, jumping from 15.3 cents per 100 plays to 17.6 cents under the new terms that will take effect on Jan. 1.

While that will likely mean that the music industry will generate millions of dollars more in revenue each year, it wasn’t enough for SoundExchange, the organization that advocates on behalf of recording artists and record labels. SoundExchange, which says it has collected more than $3 billion in digital royalties for artists since 2003, says that the ruling will ultimately hurt artists and the music industry.

“Music has tremendous value and is the core foundation of the webcasting industry,” the organization wrote in a statement. “It’s only fair that artists and record labels receive a market price when their music is used. We believe the rates set by the CRB do not reflect a market price for music and will erode the value of music in our economy.”

The CRB says that the rates will go up between 2017 and 2020 in accordance with the consumer price index (CPI).

The CRB’s decision applies only to so-called “webcasters,” and not streaming services that let users choose the songs they want to hear. The distinction, while seemingly small, is important. Pandora (P), for example, will be affected by the decision, since the company streams music based on users’ tastes, but does not allow those users to decide which song to play at a given time. Internet radio stations that stream random songs over the Internet are also affected.

Apple (AAPL) Music and Spotify (SPOTIFY), however, may not be as heavily impacted by the new rates, since their services primarily allow users to select which songs to play at any time. Both services also have webcast-like features, but it is unclear how popular those are with users, or how much they impact the companies’ bottom lines.

Regardless, the decision is just the latest in a string of disappointments for a music industry that is trying desperately to generate more revenue on digital technology. For years, artists and record labels have railed against streaming services, arguing that they should be generating more revenue for rights holders. In the last year, artists have taken matters into their own hands by banning their songs from services that offer free, ad-supported access to their tracks.

For instance, Taylor Swift sent shock waves through the music industry last year when she announced she had pulled her hit album 1989 from Spotify. She said in an op-ed in The Wall Street Journal that free streaming hurts artists and the music industry in general.

“In my opinion, the value of an album is, and will continue to be, based on the amount of heart and soul an artist has bled into a body of work, and the financial value that artists (and their labels) place on their music when it goes out into the marketplace,” Swift wrote in the op-ed. “Piracy, file sharing and streaming have shrunk the numbers of paid album sales drastically, and every artist has handled this blow differently.”

In Nov., Adele, who sold a record 3.4 million U.S. copies of her album 25 in its first full week on store shelves, also barred her work from Spotify.

Although Spotify has become the focal point of the debate, it’s among the many streaming providers that have argued such services can help artists. Spotify says that as of July 2013 (the last time it offered up figures), an artist offering a “global hit album” could make $425,000 per month. Pandora has similarly said that its artist payouts are “fair” and consume nearly half of its revenue.

Pandora, which paid out more than $400 million in song royalties last year, alone, seemed pleased with the CRB’s decision. The company acknowledged that its royalty rate will jump 15% in 2016, but its CEO Brian McAndrews said it’s not an issue.

“This is a balanced rate that we can work with and grow from,” McAndrews said in a statement.

The royalty rates were of grave concern to investors, who have grown increasingly concerned with Pandora’s cash outlay to artists. Following news of the new rates, investors breathed a sigh of relief, pushing the company’s shares up more than 12% on Thursday.

For its part, SoundExchange says that it will evaluate the decision in the coming weeks and consider any options to appeal the ruling.

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