How much can songwriter royalties grow? A look at three scenarios

An Aug. 31 settlement covering US mechanical streaming rates — which must now be approved by the Copyright Royalty Board — will allow publishers and songwriters to enjoy a slightly larger share of streaming revenue over the next five years. For Phonorecords IV, the National Music Publishers’ Association and Nashville Songwriters Association International negotiated a royalty increase as a percentage of revenue with streaming services, growing from 15.1% in 2023 to 15.35% in 2027, up to 1.7% cumulatively. But the real gains will depend on how much streaming growth happens during this time.

A handful of variables, including subscriber acquisitions, increased advertising revenue and possible rising subscription costs, will create a multiplier effect that far exceeds the small increases in Phonorecords IV royalty rates. The same forces that built today’s music business are generally expected to continue for the foreseeable future. Streaming expands as downloads and CD sales decline. Subscription services will find new paying customers – even in a mature market like the US – and raise prices. Ad-supported streaming will also improve as companies better monetize ever-growing free streaming hours.

To show how publishers’ streaming royalties could grow, Billboard constructed three scenarios based on US streaming revenues from recorded music reported by the RIAA:

In the bull case, the average earnings per user (ARPU) by 2% annually as streaming services pass price increases without harming subscriber acquisition. Subscriptions, limited revenue and ad-supported revenue are each growing at 7% per year.

In the base case, ARPU remains flat. Subscriptions, limited revenue and ad-supported revenue are each growing at 5% per year.

In the bear case, ARPU falls by 2% annually, as growth in low-cost subscriptions exceeds price increases. Subscriptions, limited revenue and ad-supported revenue are each growing at 3% per year.

Streaming services’ ability to acquire new customers and raise prices will be the most important factors for publishers’ streaming earnings. And music executives believe there is potential for both, as streaming companies are pressured by investors to improve margins while maintaining growth. In 2021, the US averaged 84 million subscribers, according to the RIAA, an increase of 8.5 million (or 11%) from 2020. If subscriptions grow at 7% per year and ARPU increases at 2% per year (bull) case), under Phonorecords IV, settlement publishing revenue will grow by a cumulative 53.9% over the five-year term. At 5% subscription growth and zero improvement in ARPU (the base case), revenue would still grow by 29.7% – with nearly four-fifths of that coming from newly acquired subscribers.

The biggest problem facing companies in 2022 – inflation – will not last throughout Phonorecords IV. In the short term, streaming services may be less willing to raise subscription prices while Americans feel financially stressed. During Phonorecords IV, however, there will still be ample opportunity to raise prices that have been kept low for the past decade to help gain subscribers.


amritabazar.com

Related Posts