Apple 'All-In' Mechanical Royalty Rate Plan for 2018-2022 May Get Traction, Face Opposition

Apple filed its proposal as part of the Copyright Royalty Board proceeding on the 2018-2022 mechanical rates (see 1601040069 and 1601070046). Apple’s proposal would maintain the current mechanical rate of 9.1 cents per downloaded copy for songs less than five minutes long and 1.75 cents-per-minute for songs more than five minutes long. The proposal would set the mechanical rate for interactive streams at 9.1 cents per 100 plays. Mechanical rates for interactive streams vary between 10.5 and 12 percent under the CRB existing rate framework.

An “all-in” mechanical royalty rate that aligns the mechanical royalty rate for interactive streams with the rate on downloads would be “fair, simple and transparent, unlike the incredibly complicated structure that currently exists,” Apple said in its filing. “An interactive stream has an inherent value regardless of the business model a service provider chooses.” The proposal would maintain other elements of the current royalty framework, including maintaining publishers as the central collecting parties for mechanical royalties. The plan wouldn't directly affect the rate the royalties Apple currently pays to music publishers under a deal it struck last year when it introduced its Apple Music service (see 1506150073). An Apple spokeswoman confirmed the filing but didn’t comment on its details.

It’s not clear how Apple’s proposal compares with those made by other parties in the 2018-2022 mechanical rate-setting proceeding, as several declined to comment on their proposals, citing an informal confidentiality agreement. Several parties have withdrawn from the proceeding in recent days, including the Digital Media Association, RIAA, Universal Music Group and Warner Music Group, said musician George Johnson, another participant in the proceeding. An RIAA spokesman confirmed the industry group’s withdrawal from the proceeding but declined to comment further.

An “all-in” mechanical rate theoretically should be fairly popular with others because it would bring clarity to a mechanical rate framework that’s become increasingly complicated given the rise of Spotify and other interactive streaming services, but streaming services aren’t likely to favor Apple’s proposal because it would result in higher payments, a music industry lobbyist told us. The plan also may be unpopular with songwriters because of its reliance on the existing 9.1 cent mechanical rate, which has remained the same since 2006, said music industry lawyer Chris Castle. Songwriters have long fought for a significant increase in mechanical rates because they believe maintaining the current rate could result in a similar situation to the one that existed between 1909 and 1978, when the mechanical rate remained frozen, he said.

It’s unclear whether the withdrawals by RIAA and other parties are linked to the Apple proposal. An industry lobbyist noted a recent National Music Publishers Association-brokered settlement agreed to by UMG and WMG that would maintain the mechanical rate at 9.1 cents per copy of a song and 24 cents per copy of a ringtone. Withdrawals by other parties and Apple’s use of the 9.1 cent rate standard may indicate a wider agreement to maintain the existing mechanical rate, with questions about whether to accept Apple’s proposal for changing the rate framework left to be decided, the lobbyist said. Johnson told us he opposes maintaining the 9.1 cent mechanical rate and will continue to push his own proposal to raise the rate to at least 75 cents per song copy beginning in 2018. The mechanical rate would need to rise to at least 52 cents per copy to maintain the inflation-adjusted value of the 2 cent rate introduced in 1909, Johnson told us.