Who decides what a song is worth? In this episode, Jenny Rae speaks with Prerna Rakheja – Managing Economist at Bates White – about the landmark Phonorecords IV case that set new streaming royalty rates.
For aspiring consultants, this conversation is a rare look inside economic consulting: how teams structure complex problems, build models that influence billion-dollar industries, and communicate insights to lawyers and judges.
Quick note: Bates White is hiring – see open roles at a firm known for its culture and impact.
Connect with Bates White:
- Explore current openings and apply to roles at Bates White
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- Learn more about the case – background on the Phonorecords IV royalty decision
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Transcript: Phonorecords IV and Music Royalties with Prerna Rakheja:
Prerna Rakheja is a Managing Economist at Bates White who specializes in antitrust and competition cases. She's worked on everything from airline mergers to music streaming disputes.
She helps legal teams and experts make sense of complex data and turn it into insights that non-technical audiences can actually use.
Beyond her client work, Prerna has been a driver of firm culture. She helped launch annual cultural festivals, advocated for a new caregiver leave policy that's made a real difference for staff, and continues to mentor the next generation of consultants.
She earned her PhD in economics from Johns Hopkins University, where she also taught courses in game theory and finance. Total slacker—we're really going to have to just drag you along in the conversation today.
No, seriously—very impressive background. Really excited to have you here.
Choosing Economics as a Career
And as we kick off, Prerna, welcome to Strategy Simplified. I'd love for you to just share your journey first into economics. Why did you pick that field? How did you get there?
A PhD in economics is not really something you stumble into. You do it on purpose, so we'd love to know a little bit about that.
And then also what helped you pivot. For context, a lot of our listeners are advanced degree folks who are thinking about making that same leap. Many are nervous because the field of academia is defined and certain—even though it's completely uncertain—but it's also certain.
And then there's this kind of no-rules environment over in consulting, which is just very, very different. There are also folks that are trying to differentiate between management and economic consulting. They're trying to understand some of those differences.
And I'm assuming that you looked into many different options in the process. So yeah, we'd just love to know a little bit about your journey to where you are today.
Early Inspiration in Economics
Yeah, thank you for having me. So I'll start with what got me into economics.
My dad runs a shop in India, a clothing store, and he's been doing it for over 50 years. All through my childhood, I had the privilege of hanging around there during summer vacations or weekends and just observing what was going on.
What always caught my attention was the economics of the business. I would notice things like, oh, the winter clothes are more expensive than the summer clothes. But also in India, most of the festivals are in the winter.
So the margins are higher, and demand is higher. And a shop opened across the street—how does that change things?
So when it was time for me to go to college, my choice of major was very obvious. I knew I wanted to study economics, and my love continued through my master’s and my PhD.
From Academia to Consulting
But my discovery of Bates White was kind of accidental. When I was on the job market, I thought I was going to be an economics professor.
But then COVID happened and not many schools were hiring. So I was kind of forced to see, okay, what other jobs are out there that still would use my skill set and are fairly economics heavy but are working on interesting problems?
And I stumbled upon economic consulting. Bates White in particular, among all the firms that I interviewed with, I just had a great interview experience.
They were very thoughtful. Somebody had actually read my job market paper and asked very interesting questions. And, you know, it was like a virtual eight-hour interview, but they had factored in time for me to take a break and use the restroom.
It sounds simple, but not everybody was doing that at the time. It was a new concept to do things virtually. And that's how I kind of pivoted towards Bates White.
What Is Economic Consulting?
Well, you know, somebody once told me that if you're not sure about the quality of a company, you should always check out their bathrooms. But I've never thought about checking out their policy on bathroom breaks.
So that's pretty great actually to understand that. And I love that you've discovered that excellence of culture along the way. That's one of the reasons we really enjoy speaking to folks from Bates White and hearing about what you do.
So I'm really excited for this conversation today. For those that are new to economic consulting, can you describe what the heck it is you do?
It sounds like you're consulting on the economy, but obviously just from what you described a little bit there, you're not. I know what it is, but I think for our listeners—especially those that may be new to the field or exploring the field—it'd be great to know a little bit about how you would describe the work that you do.
Yeah, so my sponsor Randy at Bates White said this to me, and it really stuck with me—that at a very high level, we are doing math for lawyers.
But more specifically, if a company gets pulled up for anti-competitive behavior—for example, monopolization like in the current Google ad tech case, or price fixing like the vitamins cartel in the early 2000s, or if the government wants to block a merger, for example from the recent past, the JetBlue–Spirit airline merger, which is also something I worked on.
These companies then hire antitrust lawyers to represent them in court. But the courts in such cases also care about the opinion of economic experts in the field.
And that's where we come in. We provide expert economic testimony, because we're able to, once we have access to all the data, analyze it and tell what patterns the data are supporting in terms of the economics of the case.
Why the Work Is Exciting
And what's really exciting about our work is that we get to learn about different industries. In my particular case, from airlines to music, chocolate—the whole works.
And you really get to dive deep into the industry through data. And also, you get to work with really cool economic experts.
These are top professors at Harvard, Berkeley, Duke, and other universities. And you get to learn a lot from them.
Introducing the Music Streaming Case
I love that you used the words “cool economic experts” in the same line. I think that tells us a lot about you and what gets you excited.
So that’s a good filter for people—if they would also be thrilled to meet those cool economic experts, this might be the place for them.
Well, I want to dive into a specific case, the music streaming case. I want to talk about this music streaming royalty case.
I think this is something that a lot of us grew up with. And just for a little bit of context, I’m ancient. I’m literally ancient history.
So in college, we had Napster and downloads of free music left and right, and hard drives of music. It was kind of a good life for the consumer at the time.
But obviously it was terrible for musicians and challenging for these companies. But I would guess that most people—even me who lived through this—don’t really understand what the context of this case was.
So can you walk us a little back through some of the players, and then also some of the specifics of this case, as well as its importance?
Phonorecords IV: What the Case Was About
Yeah, absolutely. This was my first case at the firm, and I had a great time working on it. I’m always excited to talk about it.
And I’m so glad you mentioned Napster and piracy, because we are going to touch on that. This case is more commonly known as the Phonorecords IV case.
At a very high level, in this case we were trying to solve for what the price of music should be. More specifically, this case was about mechanical royalty rates that are paid by interactive music streaming services such as Spotify and Apple Music.
Mechanical royalty rates are royalties that are paid to songwriters and music publishers for the composition of the music. So think the lyrics and the sheet music, whenever their song is reproduced or streamed.
And these are different from sound recording royalties that are due to the actual performing artist and the record label for the performance of the song.
So for example, if you stream a song that Taylor Swift wrote and sang on Spotify, then she and the publisher and label should get both the mechanical works and the sound recording royalties.
But if you play a Taylor Swift song that was sung by a cover artist, then the cover artist would get the sound recording royalty, but Taylor Swift and her publishers would still get the mechanical works royalties.
And this case was about negotiation of those mechanical works royalties. It’s important because it was trying to solve essentially for the economic value of music, which is different from the social value of music in this evolved music industry.
Why Streaming Changed Everything
So going back to the ’90s, there used to be CDs and cassettes, which became MP3 files. And for the past decade or so, streaming services have been transformational in this space.
Back then with CDs and cassettes, it was simple—a proportion of the sales value would go as mechanical works royalties.
Then there was this period of music piracy, where the format of music was more digital and comparable to what it is today, but the content creators were not getting compensated for their work.
And now with Spotify and other streaming services, you pay roughly the price of a CD every month, but you get access to 100 million songs.
This makes the calculation and the distribution of these royalties a lot more complicated.
The Role of the Copyright Royalty Board
In light of this rapidly changing environment, interactive streaming services and copyright owners meet in front of the Copyright Royalty Board.
They meet roughly every five years to determine what these rates should be. And the goal in Phonorecords IV, the case that we’re talking about, the standard that was set by the CRB judges, was to determine a market-based rate.
So think of it as: what would the rate be if there were to be a negotiation between a willing buyer and a willing seller?
Why a Simple Split Doesn’t Work
So when I think about this really simplistically, let me tell you the math that's in my head. Maybe this will also help you articulate what some of the challenges are.
I always just assumed, as a consumer of these services, that everybody shares a percentage of the plays, right? So you just add it up.
In my very simple math, if the total number of streams was 222 million, and there were 90,000 accounts that were paid, then we just divide 222 million into the revenue earned on the 90,000, minus some proportion for the music streaming service.
And then the rest of it is all paid out evenly. So obviously that's not what's happening, right? It's not as simple as that.
But maybe as you go on, you could explain who thinks they should get more or less—where the contention is and why that equal simple split that I imagined might not be the way it actually works.
Royalty Pools and Complex Calculations
Yeah, so I mean, I gave a very simplistic view that there are musical work royalties. But there are different components, like I said—the sound recording royalty, and also these music streaming services have their own share of operating costs that they need to account for.
What costs, what exactly they host, is also part of it. Sometimes now you also get audiobooks. Should those be compensated similar to songs?
So there are a lot of different moving pieces in there. Conceptually, your idea is along the right direction—that the royalties should be a proportion of the revenue that the streaming services make.
But what proportion should that be? And that's kind of what we're trying to solve for.
The Big Sticking Point
So the big sticking point wasn’t necessarily how you divide between Jenny Rae’s son, who makes a guitar special in his room, and Taylor Swift. It’s more like between all of the artists—or the artists and publishing companies—and the streaming companies. Am I right about that?
Yeah, because now on this platform, you’re no longer buying one Beatles album. You get access to all the music with this monthly price you pay.
So the backend calculation is done more at this pool level. A royalty pool is calculated, and then it's split in some way amongst all the different artists.
Artists vs. Platforms
And I’m guessing—shock of all shocks—that the platforms felt like they deserved more of the amount. And the contention was that the artists were like, “Hey, you have to pay the actual piper. You actually have to pay the person who is singing or making the content.” Is that right?
I mean, yeah, exactly. The artists are bringing the content on the platform, but also the platform is serving that gap—bringing music from the artists to the consumers.
So they also have a contribution and are making a kind of new contribution in the industry that hasn’t been made before. They need to be compensated for it.
So everyone is trying to get a share of the pie. And our job is to make sure we’re getting at an economic answer to it, because there can be different ways of looking at it.
Comparing to Netflix and Other Media
And just to draw parallels outside of your work—someone like Netflix would pay the organization usually on a flat rate, not on a usage basis. So those royalties would be defined.
They’ve also developed their own in-house content production, both algorithm-driven and process-driven, where they completely own all of the content. So those are a little bit different, as you’re saying. It’s also content, but those models have evolved differently than music streaming.
Yeah, kind of. There are different incentives. If you base it on the number of times a song is streamed, for example, that changes the incentives.
The artists will want to make shorter songs, and the streaming services will want all the songs to be really long. So there are many different factors at play that change the incentives.
But yes, it’s not on a flat-rate basis. It’s mostly that a pool is determined, based on all the streaming services’ revenue, and then that pool is distributed amongst the various artists.
A Frontier Example in Content Distribution
Which is interesting, right? It’s such a frontier again, because there really isn’t an example of this type of distribution even in other content cases.
So let’s talk a little bit about the Bates White mechanics. I want to get a visual inside your office. I imagine this is a couple of people, but I don’t know how many. So tell us—who was on the team?
Who were the players? What the heck were you all doing? Because now we understand what the problem is, but what did the collaboration look like day to day? How often were you interacting with the client?
Can you tell us a little bit about the team dynamics?
Inside the Bates White Team
Yeah, sure. So in this particular case, the economic expert that was hired was Professor Joe Farrell, who’s also a partner at Bates White. He’s a professor of economics at UC Berkeley.
He was supported by a team of about five to eight people that ebbed and flowed depending on how busy we were. I was on the case almost the entire time, and I learned a lot.
The day-to-day pretty much involved data analysis, discussions of results with Joe, the actual writing of the report, and getting on client calls to make sure we had all the right data and information to do our analysis.
The Importance of Quality Control
A lot of time is also spent on quality control—making sure what we’re doing is accurate, making sure the code is right, and ensuring the writing accurately reflects the results.
Because as part of litigation, not only do we have to do this analysis, we have to submit what we call the backup. That’s essentially all the data and the code and everything that we wrote to the court, and it gets vetted.
So there’s a lot of focus on making sure everything is correct and then packaging it in a way that’s comprehensive.
Shifting Team Roles
Okay, and so you were on the team. Were there other people that switched on and off of the team, and why would those switches happen?
Yeah, so there were other partners and more senior people, but also junior people and mid-level managers—which is the role I’m in now but wasn’t back then.
They would switch primarily because once the workflow is decided, you know what you’re doing, and the team is working on it. The more senior people can also contribute on other cases.
So they might not be working on it full time. But as the deadline gets closer for the report submission, it’s all hands on deck. Everyone is spending all their time on it. That’s what the variation is typically driven by.
Where the Data Comes From
One more thing here—can you tell us a little bit about the data sources for this? I imagine this would have been really interesting from a data perspective. Where were you looking for data?
Yeah. So we essentially end up using both publicly available data sources and data that become available as part of the litigation discovery process.
Publicly, whatever data is available on revenue through royalties from the National Music Publishers Association. We’re looking for all kinds of public data available through our own research.
But then we also inherit a bunch of data as part of the actual litigation discovery process. The companies are supposed to release their data to the other side, and the copyright owners are also obligated to release their data. So we get access to that as part of the litigation.
Challenges of the Case
Yeah, so I’ll start with what was challenging for me at the time, and then talk about what was challenging for the team as a whole, which included me.
For me personally, it was the change of audience. I was fresh out of grad school and used to presenting my research work to economics professors who welcomed all the complex math equations and jargon.
However, on the case inside the firm, I was still immersed in all the complicated stuff. But any communication of findings outside the firm was targeted at lawyers or judges.
So I had to learn, and continue to learn, how to explain what we do simply and make it digestible for a general audience.
Building a Brand-New Economic Model
For the team as a whole, the challenge was building the economic model to determine the royalty rates. This was totally new—it hadn’t been done before.
Prior proceedings had focused mostly on benchmark rates. You could think of asking: what are the royalty rates paid for sound recordings, or what was paid last year, and then extrapolating from that.
Not to say that’s wrong—that is a valid way of determining rates. But in Phonorecords IV, one of the judges was particularly keen on the economics behind the royalty rates.
So we had to build an actual economic model to determine them. That was both interesting and challenging for the team.
Making Economics Simple for Non-Experts
Very interesting. Well, can you share an example? You mentioned earlier “math for lawyers.” How did you help translate the data from public and private sources into clear insights for non-technical audiences like lawyers or judges?
So I’ll try and explain simply what this economic model was doing. My team and I developed a model that mimicked a hypothetical negotiation between Spotify and a small music publisher. We used something called the Nash bargaining framework.
It sounds complicated, but it’s a mathematical framework used to determine how two parties can divide the gains from trade fairly. In this case, the “trade” was Spotify hosting a music publisher’s songs on Spotify.
Spotify’s gains from trade would be the profit it made if it struck a deal versus the subscribers it would lose if it didn’t have access to that music. So we had to estimate how many subscribers would be lost and the effect of that on revenue and costs.
Similarly, for the music publisher, the gains from trade would be the royalties earned from Spotify versus the opportunity cost—the next best alternative. If the deal didn’t happen, they could still strike a deal with another streaming service, satellite radio, or even vinyl sales.
Then the model equated the gains from trade between the two parties to solve for the optimal rate. Behind the scenes, that meant running complex code with all the data, but the insight for judges and lawyers was a clear, market-based royalty rate.
The Real-World Impact of Phonorecords IV
Well, let me just ask one final thing about the case. What’s the real-world impact your team’s work had on songwriters, streaming platforms, and even listeners? What was the outcome?
Yeah, that’s a great question. Let’s go through them one at a time.
For the streaming platforms like our client Spotify, who pays the artists, they essentially got math-validated, market-based rates. This was important because it helped them ensure their costs wouldn’t skyrocket, since royalties are a big cost for streaming platforms.
Phonorecords III had been a long legal battle with appeals and back-and-forth. With Phonorecords IV, they avoided years of litigation and associated costs.
For the songwriters, they got a significant increase in royalty rates. A simple way of putting it is that they essentially got about a 50% increase—from 10% of streaming revenue to around 15%.
And for streaming listeners, I’d say there were two big benefits. First, access to music. The fact that artists are getting compensated helps prevent situations like in 2014, when Taylor Swift pulled her music from Spotify.
Second, consumers get expanded offerings. There’s been a lot of innovation in family plans, bundled subscriptions with audiobooks, and other features. These innovations are somewhat driven by how royalties are calculated behind the scenes.
So overall, the case helped stabilize the economics of streaming in a way that benefited all parties.
Life as a Managing Economist
What does a typical day look like for you now as a managing economist? You mentioned you had a different role when you were on this project, and now congratulations, you’ve been promoted. What does it look like?
Honestly, no two days are the same. But broadly speaking, there are four or five buckets of things that I’m working on. How much time I spend on each and which industry I’m working on changes from day to day.
There’s a lot of thinking time, because as a managing economist I’m responsible for shaping the content of our analysis. That means building economic models and making sure the data are being run through the right metrics.
There’s also the people side of things—who should work on what, what our project timeline looks like, and the work plan for the week or month.
Balancing Leadership and Mentorship
There’s a lot of reviewing work that I have to do. I’m responsible for organizing and executing the team’s work, but I also like to give them the responsibility and freedom to run with it.
Then it comes back to me to make sure nothing slipped through the cracks. If there’s any way we could improve, I provide that input.
There are a lot of client calls, too. I talk to different clients and lawyers, making sure we have what we need to get the work done, and also communicating progress.
And as a managing economist, there are firm-building activities. You’re officially in leadership, so you go to coffee chats, lunches with peers, and mentoring sessions. I honestly really enjoy that. I love getting to know the people I work with outside of casework.
Building Firm Culture
You’ve also gone beyond your formal responsibilities for things like festivals and new policies. Why do you care so much, and what drives you to contribute outside of expectations?
Honestly, it’s just the people. As you said, the culture of the firm is really important, and that’s what it keeps coming back to.
The culture is working. So many bathroom breaks!
Yeah, totally. And that just keeps me motivated.
Also, I love food and anything food-related. A lot of these festivals are kind of my sneaky way of getting to eat all the different food that people at our firm, who are from all over the world, bring to share.
Career Growth and Confidence
Now that you’ve been with the firm for over four years, what’s been the most rewarding part of your personal career journey at Bates White?
I think it’s been personal and professional growth. As a PhD student, we’re taught to be really rigorous and detailed with research.
But in the professional environment, you have to learn to balance that with the 80/20 rule—getting the deliverable out the door and focusing on the most important pieces first.
I’ve learned a lot about working with experts in legal settings, planning projects, and working across industries. Honestly, four years ago I couldn’t have imagined myself managing a team of 10+ people.
And really, it gets at the imposter syndrome that every PhD student has. This experience has helped me build confidence in my competence.
Who’s a Great Fit for Bates White?
What’s a key indicator someone would be a great fit for Bates White? Or maybe the flip side—if you’ve seen people struggle, why was that?
I think what makes people a good fit are those who have an analytical way of thinking but also love working with data. At the end of the day, we work with a lot of data.
In our world, it’s not uncommon to have millions of observations on most of our cases. Someone who thrives in problem-solving and doesn’t get intimidated, but instead figures their way through it, tends to do well.
Not to say they should already have all those qualities. But if they’re curious and interested in building them, that goes a long way.
Tips for Candidates Applying to Bates White
So what are two tips for candidates to stand out in the application and interview process?
It’s funny—I started interviewing a few years ago, and it was so weird to be on the other side. But once you’re on that side, you realize good candidates are not hard to pick out.
The first thing that stands out is people who do their homework. They already know what the role is, what the career trajectory looks like, and they have smart questions ready.
The way to do that is to set up calls with people in the role before applying, and even with people two or three years ahead of that role.
The second is curiosity. You don’t have to know everything. But showing that you’re searching for what you don’t know and asking genuine questions—that goes a long way.
Final Encouragement for Candidates
Do you have any final words of wisdom or encouragement for somebody considering a role with the firm?
I’d say don’t be shy to reach out. Learn about what we do. Even if you’re not sure, you might be surprised—so have a conversation.
For undergrads, we have a great Summer Consultant program that gives you a window into what we do. And for PhDs, our recruiting is going to start in October.
Fun Facts: Hiking, Podcasts, and Food
We need to know a few fun facts about you as we wrap up. First, what’s your favorite hiking spot or trail? Can you share the pin so we can link it in the pod?
I recently went to Crater Lake National Park and swam in the lake—it was amazing. More locally in the DC area, I love the Billy Goat Trail.
I also did a trail in Olympic National Park near Seattle. You’re high up and can see Lake Crescent. I’ll provide the link, but I don’t remember the exact name.
That’s fantastic. Crater Lake is just a day trip from my house, so I’m glad you loved it. It’s pretty special.
Okay, next—best book or podcast you’ve enjoyed recently and why?
I’ve really been enjoying listening to Acquired. They go deep into the workings of businesses. Going back to my childhood story, clearly I enjoy that, so I’ve really loved it.
That’s awesome. Our related podcast, Market Outsiders, goes shallow into businesses—we call it the shallow Acquired. It’s a quick and dirty view on daily business news, but Acquired is pretty special. I’m glad you’re enjoying it.
And last one—the career you’d want to try if you weren’t an economist?
Probably something food-related. I’d love to be one of those people who get to travel the world, eat different food, and make a TV show about it.
I can see what our first in-person meeting is going to involve—hiking and food, 100%.
Yes, we have to do it!
Closing the Conversation
I really enjoyed having you on the pod today and appreciate your perspective. Congratulations on the culmination of the great work you shared from the case, and thank you for illuminating the culture at Bates White.
I hope you have a great rest of your day.
Thank you, you too.
That’s all for today’s episode. Thanks for tuning in. A huge shoutout to Prerna for sharing her journey, and to Bates White for giving us a look at a really cool case.
If you’re considering a career in economic consulting, Bates White is actively hiring. Check out the link to explore open roles and learn more about the firm.
As always, you can find more resources and prep support at managementconsulted.com. Thanks for listening—we’ll see you again soon.