Don’t Freeze Mechanicals Again

Key Takeaways

• CRB to set new mechanical royalty rates for physical records.
• Proposal to revert to 12¢ baseline conflicts with inflation adjustments.
• CPI‑adjusted rate could reach 13.6¢ by 2027, boosting payouts.
• Resetting benchmark would cut songwriter earnings by ~20%.
• Continuity principle favors using final rate as next period’s reference.

Pulse Analysis

The Copyright Royalty Board (CRB) is convening its next mechanical‑royalty hearing, a session that determines the statutory rates for physical formats such as vinyl and permanent downloads. The last round, known as Phonorecords IV, broke a two‑decade freeze that had left the mechanical rate stuck at 9.1¢ despite rising consumer prices. By adopting a 12¢ base rate plus an annual cost‑of‑living adjustment (COLA), the judges created a formula that ties future royalties to inflation. That shift marked the first substantive update since 2006 and set the stage for the upcoming Phonorecords V proceeding.

Stakeholders now argue over whether the 12¢ figure should remain the permanent benchmark for Phonorecords V. Economists warn that anchoring the new period to a static 12¢ rate ignores the inflation‑adjusted trajectory established in IV, which projects the statutory rate to rise to roughly 13.6¢ by 2027. Reverting to 12¢ would effectively shave about 20 % off songwriter and publisher earnings, a cut that runs counter to the purpose of the COLA mechanism. Maintaining the CPI‑driven rate preserves the purchasing power of royalties and aligns the statutory license with broader market expectations.

The broader lesson is one of regulatory continuity. Historically, the CRB has used the final rate of one proceeding as the starting point for the next, a practice that provides predictability for rights holders and users alike. Allowing a downward reset would undermine confidence in the statutory licensing system and incentivize endless litigation each time a new hearing opens. Industry observers therefore urge the Board to adopt the inflation‑adjusted reference rate—estimated at 13.6¢—as the baseline for Phonorecords V, ensuring that royalty growth is cumulative rather than episodic.