The SCL Objects to the Phonorecords V Settlement

To the attention of the Copyright Royalty Board judges:

The Society of Composers & Lyricists (“SCL”) representing independent composers, lyricists, songwriters and music copyright owners, object to the proposed settlement submitted by the National Music Publishers’ Association (“NMPA”), Nashville Songwriters Association International (“NSAI”), Music Artists Coalition (“MAC”), Sony Music Entertainment, Universal Music Group, Warner Music Group and the American Association of Independent Music (“A2IM”), hereinafter referred to collectively as the “Settling Parties.”

The proposed settlement would establish the mechanical royalty rates and related terms for physical recordings, permanent downloads, ringtones and certain bundles for the next five-year period. The SCL believes the proposed settlement is not reasonable and should not be adopted by the Copyright Royalty Board (“CRB”). Under the Copyright Act, when participants object to a proposed settlement, the CRB can adopt it as the basis for statutory royalty rates only if it determines that the agreement provides a reasonable basis for establishing those rates.

The SCL believes the proposed settlement fails that test.

1. General Comments

The Society of Composers & Lyricists (SCL) is the premier U.S. organization for music creators working in all forms of visual media. With chapters in Los Angeles, New York, Nashville and Chicago, and members in every state of the U.S. as well as over 80 countries around the world, the SCL operates as the primary voice for approximately 4,000 members who work as creators of scores and songs for film, television, video games, and theatre.

The SCL believes the proposed settlement is fundamentally unfair to composers, lyricists, and songwriters. The organizations supporting the settlement largely represent major companies that control substantial portions of both music publishing and recorded music. Because some of these companies operate on both sides of the industry, they can have competing interests: what a songwriter or composer receives as a royalty can be an expense to one part of a corporate group while income to another.

The SCL therefore questions whether the proposed settlement was truly negotiated at arm’s length, owing to the obvious shortcomings discussed in these comments. The CRB itself took note of the danger of conflicts of interest in the formulation of voluntary settlements in the Phonorecords IV proceeding, before rejecting an initial Subpart B settlement. In our view, the CRB should do this again.  

The settlement is presented as a simple continuation of the cost-of-living adjustment (“COLA”) system established in the previous Phonorecords IV proceeding. But the SCL believes that description is misleading. Instead of simply carrying forward the existing inflation-adjusted rate, the proposed settlement appears to do two things that would reduce the value of mechanical royalties:

1. It fails to account for inflation during 2021 and 2022, and
2. It appears to reset the royalty rate in 2028 to 12 cents, even though the actual inflation-adjusted rate will be substantially higher by then.

Those two provisions could cause the royalty rate to remain permanently below the value it should have had if inflation had been fully considered. Applying annual percentage increases to an artificially low starting point does not correct the problem. It simply carries the loss forward and compounds it. The SCL believes this could result in hundreds of millions of dollars in lost royalties for independent creators and smaller music publishers over time. We also question whether the proposed settlement was negotiated primarily among different divisions and trade associations representing the same large corporate interests, rather than through a genuinely broad negotiation involving independent creators. We have been pointing out this problem for years, including in a widely distributed letter to Congress dated December 30, 2022, which is available here.

For those reasons, we believe the CRB should reject the settlement and encourage the parties to return to negotiations.

2. Background of CRB Decision During Phonorecords IV

By way of background and as a reminder, in March 2022 during the Phonorecords IV negotiations, the CRB rejected an initial, Subpart B Royalty Settlement proposal that had been negotiatedprincipally between the major record labels and their own, affiliated major music publishing companies. That rejection by the CRB was based in large part on the grounds that such obvious conflicts of interest between the negotiating parties had produced a grotesquely unfair “frozen mechanical royalty rate” proposal that a Governmental agency could not properly approve.

In their March 30, 2022 ruling, the Copyright Royalty Judges clearly stated: “Conflicts are inherent if not inevitable in the composition of the negotiating parties. Vertical integration linking music publishers and record labels raises a warning flag…. While corporate relationships alone do not suffice as probative evidence of wrongdoing, they do provide smoke; the Judges must therefore assure themselves that there is no fire. The potential for self-dealing present in the negotiation of this proposed settlement and the questionable effects of the [private Memorandum of Understanding among the parties (“MOU”)] are sufficient to question the reasonableness of the settlement at issue as a basis for setting statutory rates and terms…. [T]he Judges find that the proposed settlement does not provide a reasonable basis for setting statutory rates and terms. Furthermore, the Judges find a paucity of evidence regarding the terms, conditions, and effects of the MOU. Based on the record, the Judges also find they are unable to determine the value of consideration offered and accepted by each side in the MOU. These unknown factors, as highlighted in the record comments, provide the Judges with additional cause to conclude that the proposed settlement does not provide a reasonable basis for setting statutory rates and terms. Presumably chastened, those same, vertically integrated negotiating parties returned to their one-sided bargaining table to devise a revised settlement proposal to replace the rejected, frozen royalty rate deal.

3. What The Society of Composers & Lyricists Is Proposing

The SCL’s position is relatively simple. We support using the Consumer Price Index (“CPI”) to make cumulative annual cost-of-living adjustments to mechanical royalty rates. The purpose is simply to make sure that the royalty retains the same purchasing power over time. Our proposed starting point is December 31, 2020, because that is the date on which the relative value of the 9.1-cent mechanical royalty instituted in 2006 reached 12 cents, the rate that was used as a base figure in Phonorecords IV for Subpart B royalties. 

The basic principle is:

If a music creator’s royalty was worth a particular amount in 2006, the music creator should receive a rate in 2028 that has the same purchasing power after accounting for inflation. The SCL therefore believes that the 2028 rate should be approximately 15.6 cents, followed by annual CPI adjustments. We argue that anything substantially below that amount would represent a reduction in the real value of the royalty rather than merely an adjustment for inflation.

4. The Problem with the Missing Inflation from 2021 and 2022

As noted, in the Phonorecords IV proceeding, the mechanical royalty rate for physical recordings and downloads was increased from 9.1 cents to 12 cents. The SCL points out that at that time the 9.1-cent rate had remained unchanged for more than 15 years. Using government CPI figures, we calculate that:

• The purchasing power of 9.1 cents on January 1, 2006 was approximately 11.95 cents by the end of 2020. 
• By the time the revised Phonorecords IV settlement was proposed in 2022, the equivalent value had risen to approximately 13.1 cents. 
• By the end of 2022, the equivalent value had risen further, to approximately 13.6–13.67 cents.

But the Phonorecords IV settlement established a 12-cent base rate. We believe the reason was largely one of timing: the settlement negotiations took place before the final CPI statistics for 2021 and 2022 were available. The problem, as we see it, is that this temporary omission was never corrected.

The proposed Phonorecords V settlement simply carries the 12-cent benchmark forward.

That means the substantial inflation that occurred during 2021 and 2022 is effectively lost forever. The SCL argues that this is particularly serious because those two years represented one of the most inflationary periods in the United States in decades. If that lost inflation is not restored, every future COLA adjustment will be calculated from an artificially low starting point.

5. Why Starting from a Low Rate Matters

The SCL emphasizes that this is not simply a dispute over a few cents. Suppose a royalty should properly be 15.6 cents, but instead begins at 12 cents. If the rate then increases by 3 percent, the 3 percent increase is applied to 12 cents—not to 15.6 cents. The gap therefore continues indefinitely.

The same thing happens every year. The percentage increase may look fair, but because it is being applied to the wrong starting point, the creator never catches up. The SCL considers this as carrying the deficit forward and allowing it to compound over time. We believe the resulting losses could amount to hundreds of millions of dollars during the five-year Phonorecords V period.

6. The Proposed Settlement May Actually Reduce the Current Royalty Rate

The SCL identifies what it considers an even more serious problem in the wording of the proposed settlement. The settlement says that the existing regulations governing Subpart B royalty rates should remain in effect, except for continuing inflation adjustments. Those regulations, however, contain a formula based on a 12-cent benchmark. 

The concern is that this language could mean that when Phonorecords V begins on January 1, 2028, the royalty rate would not simply continue from whatever the inflation-adjusted rate is at the end of 2027. Instead, it could effectively be reset to 12 cents and then begin increasing again, from that amount. That would mean taking a rate that is expected to be approximately 13.6 cents or higher by 2027 and reducing it back to 12 cents.

The SCL regards that possibility as fundamentally unreasonable. We also acknowledge that the language could be the result of a miscalculation rather than an intentional attempt to reduce royalties. But if it is a mistake, we argue that it should be corrected before the settlement is adopted. Leaving the language in place and attempting to explain it later would create uncertainty and invite future disputes.

The SCL’s position is straightforward: a COLA adjustment should increase the value of a royalty over time, not periodically reset the royalty to an old, lower benchmark.

7. The Appropriate 2028 Rate Is Approximately 15.6 Cents

Taking all of these factors into account, the SCL believes that the appropriate starting rate for Phonorecords V should be approximately 15.6 cents in 2028. Our calculation starts with the 9.1-cent rate that went into effect in 2006 and applies inflation through the end of 2027, including the inflation that occurred in 2021 and 2022.

We argue that this is not an increase beyond what music creators are entitled to receive. It simply restores the purchasing power that the original 9.1-cent rate had in 2006. After that, the rate should continue to be adjusted annually for inflation. 

The SCL characterizes this as a matter of mathematics rather than policy preference: if the goal is to preserve purchasing power, the inflation calculation must include all of the relevant years.

8. The Ringtone Rate Has Been Frozen for Too Long

The proposed settlement also leaves the mechanical royalty for ringtones at 24 cents. That rate has not changed since 2009. There seems to be no rational reason for this rate not to be updated by application of COLA statistics back to the original date of the rate’s introduction, and made subject to annual COLA adjustments, thereafter. 

The SCL argues that inflation has substantially reduced its purchasing power since then. If the proposed settlement is adopted, the 24-cent rate could remain unchanged for nearly a quarter-century. We consider that inconsistent with the CRB’s previous recognition that permanently freezing royalty rates is unfair to creators. 

We support adjusting the ringtone rate for inflation to approximately 39.1 cents beginning in 2028, followed by annual CPI adjustments.

At the same time, we acknowledge that the ringtone market has shrunk considerably since first introduced. We nevertheless believe the freezing of the ringtone rate is simply another reason the proposed settlement should not be adopted in its current form.

9. The Settlement Should Also Address “Bundling”

The SCL also objects to the proposed settlement’s failure to clarify how Subpart B bundling should be treated. Bundling occurs when music is combined with other products or services and the value assigned to the music can affect the royalty paid to its creators. The SCL’s members point to problems that they say have already arisen with bundling in the streaming market, and we have little understanding of how Subpart B bundling rates can or will affect the streaming market and royalty rates applicable to streaming in the future.

At the NMPA’s June 10, 2026 annual meeting, it was reportedly acknowledged that streaming-service bundling practices under Phonorecords IV had already cost music creators and publishers at least $480 million in lost revenue. This is profound cause for concern.

The SCL acknowledges that bundling in Subpart B may not be identical to bundling in the streaming context. Nevertheless, we believe the CRB and the parties should make certain that language adopted in the Subpart B settlement cannot later be interpreted in a way that harms music creators in the streaming market. We therefore ask that the settlement contains clear language addressing the issue and avoiding any unintended consequences.

10. The Settling Parties’ Three Main Arguments Do Not Justify the Settlement

The parties supporting the settlement rely on three principal arguments:

1. It provides annual inflation adjustments.
2. It represents the consensus of most of the industry.
3. It will avoid expensive and uncertain litigation.

The SCL believes none of these arguments is persuasive:

1. The settlement does not actually preserve the value of royalties

The settling parties say the agreement provides annual inflation adjustments. But the SCL argues that this misses the central problem. If the settlement begins with an artificially low rate, future percentage increases will simply preserve the value of that artificially low rate. Moreover, the proposal appears to exclude inflation from 2021 and 2022 and could reset the rate to 12 cents in 2028.

The SCL therefore argues that the proposed system does not genuinely preserve purchasing power.

2. It is not really a consensus of the entire industry

The settling parties also describe their agreement as representing the consensus of stakeholders who account for the vast majority of the market. The SCL disputes that characterization. We point out that large numbers of individual songwriters, composers and lyricists could not afford to participate directly in the proceeding.

We also argue that some participants who supported the settlement may not have understood that its wording could result in a lower effective starting rate. In our view, agreement among powerful industry organizations is not necessarily the same thing as consensus among the creators whose royalties are being determined.

3. Avoiding litigation is not a sufficient reason to accept an unfair agreement

The settling parties also argue that their proposal would avoid costly litigation. The SCL questions that argument. We suggest that the better alternative is not necessarily litigation at all.

Instead, the parties could return to the negotiating table and attempt to reach a fairer agreement.

We remain willing to participate in those negotiations and believe that the CRB could encourage the parties to do so.

11. Why This Matters Beyond a Few Cents

The SCL emphasizes that the difference between 12 cents, 13.6 cents and 15.6 cents may seem small when viewed on an individual transaction. But mechanical royalties are paid across enormous numbers of recordings and downloads. Small differences therefore become very large amounts when multiplied across the entire market and over several years.

We argue that repeatedly undervaluing mechanical royalties could make it increasingly difficult for professional composers and songwriters to earn a sustainable living. If they can no longer afford to remain in the profession, the effects will extend beyond individual music creators.

The music publishing and recording industries depend upon a continuing supply of new music. The SCL therefore argues that systematically reducing the economic value of composing and songwriting ultimately threatens the broader music business as well as American culture.

12. The SCL is Willing to Offer Advice and Opinion in Order to Reach a Reasonable Agreement

The SCL emphasizes that it is not opposed to a voluntary settlement, and is only prevented from participating in an official capacity due to the enormous financial burden it would cause our not-for-profit organization. Regardless, we remain ready and willing to offer guidance in any helpful way on behalf of our members negotiations. As noted, however, our principal requirements are that the settlement:

• Account fully for inflation, including 2021 and 2022;
• Establish a 2028 physical-recording and permanent-download rate of approximately 15.6 cents;
• Continue to adjust that rate annually according to CPI;
• Increase the ringtone rate to approximately 39.1 cents in 2028, followed by annual CPI adjustments; and
• Clarify the treatment of bundling so that it does not create unintended problems for creators’ rights.

We argue that these changes would not provide creators with an unwarranted windfall. Instead, they would simply prevent the real value of our royalties from being reduced by inflation and by an artificially low starting point. 

We therefore ask the major publishers and record companies to recognize that what may appear to be a small difference in the royalty rate can have significant long-term consequences. The SCL’s argument is that preserving the economic viability of professional songwriting and composition is important not only for music creators themselves, but for publishers, record companies, and the entire music ecosystem.

13. In Summary

The SCL believes it is in the best interests of the entire music community for the Copyright Royalty Board to consider three actions:

1.  Reject the proposed settlement

We ask the CRB not to adopt the proposed Subpart B settlement as the basis for statutory royalty rates and terms that would bind independent music creators without an opportunity for them to provide input.

2. Encourage the parties to negotiate a new agreement

We ask the CRB to encourage all interested parties, including those who negotiated the current settlement, to seek the advice of independent creator groups like the SCL before returning to the negotiating table and attempting to reach a genuine consensus.

At a minimum, we would like consideration of the following:

• Physical recordings and permanent downloads: approximately 15.6 cents beginning January 1, 2028, calculated using the full CPI history from the 2006 baseline, including 2021 and 2022, followed by annual CPI adjustments.
• Ringtones: approximately 39.1 cents beginning January 1, 2028, followed by annual CPI adjustments.
• Bundling: clear language that prevents confusion between Subpart B bundling and bundling in the streaming market.

3. Provide any other appropriate solutions that rectifies an economic imbalance

Finally, we ask the CRB to take whatever additional action it considers appropriate to ensure that the resulting royalty rates and terms are fair and reasonable to all parties, including those prevented from participating due to financial constraints.

In essence, the SCL’s argument is this: the proposed settlement is being presented as a simple continuation of inflation protection, but we believe it actually locks in an artificially low royalty base, permanently excludes two years of substantial inflation, and may even reset the royalty rate downward in 2028. We submit that the fair solution is mathematically straightforward: restore the full inflation-adjusted value of the original 2006 royalty, approximately 15.6 cents in 2028, and then continue adjusting it for inflation each year thereafter.

The Society of Composers & Lyricists appreciates the opportunity to respectfully submit comments on this important matter and thanks the judges for their consideration.

Sincerely,

Ashley Irwin
President, Society of Composers & Lyricists