Inflation Adjustment for Physical and Vinyl Mechanical Royalties 2025 Estimate

The Copyright Royalty Board’s annual inflation adjustment raises physical and download mechanical royalty rates, thanks to past advocacy rejecting frozen rates. What will the inflation adjustment for physical and vinyl mechanical royalties be in 2025?

Inflation Adjustment for Physical and Vinyl Mechanical Royalties 2025 Estimate

by CHRIS CASTLE of Music Tech Policy

The Copyright Royalty Board adjusts the statutory mechanical royalty for physical carriers like vinyl, CDs and downloads annually during the current rate period. This is entirely due to the success of public comments by the ad hoc songwriter bargaining group that persuaded the Copyright Royalty Judges to reject the terrible frozen mechanicals settlement negotiated with the NMPA, NSAI and RIAA. 

As it turned out, once the judges rejected the freeze as unfair, the labels quickly agreed to a fair result that increased the physical/download rate from a 9.1¢ base rate to the 12¢ rate suggested by the Judes which went a long way to making up for the 15 year freeze at 9.1¢. In fact, if it had just been presented to the labels to begin with, a tremendous amount of agita could have been saved all round.

Crucially, not only did the base rate increase, the judges also approved a cost of living adjustment determined by a formula using the Consumer Price Index. The end result is that unlike streaming mechanicals (e.g., Spotify) the value of the increase from 9.1¢ to 12¢ has been protected from inflation during the rate period (2023-2027). 

Unfortunately, the streaming services were allowed to reject a cost of living for streaming mechanicals, notwithstanding the services’ acceptance of an adjustment based on a comparable government measurement of inflation (the Employment Cost Index) used to adjust the services’ financing of salaries and other costs at the Mechanical Licensing Collective. So those who are paid handsomely to collect and pay songwriters get a better deal than the songwriters they supposedly serve.

What is the increase in pennies this year?

The Judges determine the inflation-adjusted rate every year. The calculation is made in December for physical/download with reference to the CPI-U rate announced by the Bureau of Labor Statistics as of December 1, which means the rate published on November 11. The new rate goes into effect on January 1, 2025.

At this point, there does not seem to be any indication that there will be a large spike in inflation between now and November 11, so we can use the September rate (just announced in October) to make an educated guess as to what the 2025 statutory rate increase will be for physical/downloads:

So I think we can project that the base rate will increase from 12.4¢ for 2024 to about 12.6¢ in 2025 without firing a shot. If you have a 10 x 3/4 rate controlled compositions clause, that means the U.S. controlled pool on physical will be approximately 94.5¢ instead of the old frozen rate of 68.25¢.

It’s important to note a couple things about the relevance of CPI-U as a metric for protecting royalty rates from the ravages of inflation. First of all, the CPI-U is a statistical smoothing of the specific rates for particular goods and services that it measures and doesn’t reflect the magnitude of changes of some components.

For example, in September, the CPI-U increased by 0.2% on a seasonally adjusted basis. However, the shelter index and the food index increased at higher rates: The shelter index rose by 0.2%, and the food index increased by 0.4% Together, these two components contributed over 75% of the monthly increase in the all items index.

Moreover, the MLC itself receives an increase that is tied to the lesser of 3% or the Employment Cost Index:

These are good benchmarks to keep in mind as we head into a new rate setting period in a year or so when I expect songwriters to demand a COLA for streaming mechanicals. No more poormouthing from the services.