Amazon demands refunds of Streaming Music Overpayments [Chris Castle]

Now that the Copyright Royalty Board has set streaming royalty rates, Amazon has sent demand letters designed to force refunds of money it says it overpaid to music publishers and artists.

by CHRIS CASTLE of Music Tech Policy

You may have noticed that sliced bread is in close competition with fire and the wheel for second place behind Greatest Human Accomplishments—both yielding to streaming mechanical royalty rates in the Phonorecords III remand.  Yes, the so-called “headline rates” in Phonorecords III (or “PR III”) are a Nobel-worthy accomplishment.  At least according to the press agents.

And yet something curious has happened. I’m told that Amazon, through its agent MRI, has posted what is essentially a demand letter in the MRI user portal.  This demand letter instructs publishers who have licensed songs to Amazon to pay up because of an overpayment of streaming mechanicals due to the adjustment required by the new-ish Phonorecords III remand rates that finally set the streaming mechanical rates for the industry.  Something similar may be happening at the MLC; we’ll come to that below in just a bit.

In a testament to just how whack the Copyright Royalty Board system actually is when you have vexatious participants overlawyering every possible issue, the PR III remand concerns royalties paid from 2018 through 2022.  That’s right—starting six years ago.  This is largely due to the failure of the publishers to obtain a waiver of the PR III decision as a negotiating chip when they gave away the rest of the farm in Title I of the Music Modernization Act, but is primarily due to the desire of digital music services—the largest corporations in commercial history—to crush the kitchen tables of songwriters.  

And when it comes to the services crushing the little people, money is no object, even if they spend more on litigation than the royalty increase would have cost them.  Evidently the sadistic psychic benefit greatly exceeds the cost.

But now Amazon has discovered that even after all the shenanigans with PR III, it appears that they paid too much and now they want it back.  That’s right—Amazon wants you to cut them a check.  Because a market value over $2,000,000,000,000 is just not enough.

Here’s what it looks like:

A few questions come to mind.  First, realize what Amazon is saying.  They were evidently accounting to publishers at the rates for Phonorecords II during the time that the PR III rates were on appeal.  The PR III rates were supposed to be an improvement over the PR II rates.  At least according to the braying that accompanied the announcement.  In fact, the PR III remand rates where it all ended up were themselves supposed to be an improvement, meaning that publisher were to be paid more under PR III than under PR II.

So if that’s true, and if Amazon paid PR II rates during the PR III appeal, why is there now an overpayment by Amazon?  Wouldn’t you expect to see the true-up resulting in publishers receiving a credit for increasedrates?  Especially if the stream counts and subscriber totals stayed the same on these previously-issued accounting statements? (Not to mention this may be happening at other services, too.)

These statements pre-date the MLC’s creation and the “license availability date” for the 2021 blanket license established under Title I of the MMA.  That means that if you or your publisher had a direct deal with Amazon during the PR III rate period, there may be overlapping periods when the MLC took over Amazon’s accountings.

It has long been the standard industry practice that overpayments are just debited to your royalty account.  Nobody asks you to cut a check.  

This is particularly true for publishing administrators.  If a service were to debit an administrator’s account, that might result in the administrator having to go out of pocket in order to pay their publishers for the amount of the demand.

However, great news!  Amazon will give you an interest-free payday loan so you can pay down your new debt over six months.

Now the MLC—it’s entirely possible that Amazon is pulling the same stunt under the statutory license. However, it appears that MLC is doing what is normally done in these situations and will be debiting and crediting as necessary.  If you’re concerned, it would be worth checking and asking for an explanation from the MLC.

Even so, it does not change anything about why there is an overpayment in the first place.  If there were ever a situation that cried out for an intensive royalty compliance exam, this is it.  It is hard to believe that all this to-ing and fro-ing with your royalty payments across multiple rates in multiple accounting periods hasn’t resulted in mistakes.  No crime, it’s complex.  At a minimum Amazon needs to provide publishers with a detailed breakdown of how the repayment was determined along with an explanation of where the rates changed that caused the overpayment.

That’s why Amazon and any other similarly situated service should welcome an extensive audit.  In fact, the MLC should just include the true-up in their already-noticed audit of Amazon.

This slice of life demonstrates once again how unworkable the Copyright Royalty Board system is for streaming mechanical royalties.