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Online royalties deal is reached

September 24, 2008|Jim Puzzanghera | Times Staff Writer

WASHINGTON — The different parts of the music industry found harmony Tuesday, at least when it came to some online royalties.

In an agreement hailed as a "breakthrough that will facilitate new ways to offer music to consumers online," groups representing songwriters, music publishers, record labels and digital music websites ended a seven-year dispute over two types of music royalties.

Unfortunately, neither of those is the controversial performance royalty for Internet radio. That remains the subject of a high-stakes stalemate between SoundExchange, which collects the fees for artists and record companies, and Internet radio sites such as Pandora and Live365.

Tuesday's agreement resolves some contentious issues that were the subject of a six-month trial this year before the Copyright Royalty Board, a group of judges charged by Congress with tackling these disputes. The groups -- the Digital Media Assn., the National Music Publishers' Assn., the Recording Industry Assn. of America, the Nashville Songwriters Assn. International and the Songwriters Guild of America -- have agreed on so-called mechanical royalties for interactive streaming music and limited music downloads.

It's all pretty complicated, but the groups said the deal should help lead to more cutting-edge music services.

"The agreement demonstrates that our industries can work collaboratively to solve complex issues," Mitch Bainwol, chief executive of the RIAA, said in a news release.

And there's no doubt this is complex. So here's a quick glossary.

Let's start with the mechanical royalty. It is the fee paid to the songwriters, composers and publishers of the actual music -- not the artists who perform it or the record companies that produce the recording.

Interactive streaming is different from most Internet radio. It involves listeners choosing which specific songs they stream. It's a model that has yet to fully develop, in part because of the royalty concerns.

Limited music downloads are ones with significant restrictions attached, such as the songs disappearing from your device if you don't continue paying a monthly fee. As an example, iTunes downloads are not considered limited because you can listen to them as often as you want (although there are some restrictions on how many computers you can load the songs on to). But Napster to Go, which allows you to listen to songs you transfer to a mobile device as long as you connect to the service once every 30 days, provides limited downloads.

When both those approaches began emerging in 2001, the music publishers and the RIAA cut a deal to allow them to operate without an agreed royalty rate. According to the agreement announced Tuesday, the rate now will be 10.5% of revenue as of Jan. 1, 2008, with a rate of 8.5% of revenue applied retroactively from Dec. 31, 2001, until the end of 2007. The groups agreed that any performance royalties those services pay would be deducted from the mechanical rate.

There still are some big mechanical royalty issues to be resolved by the Copyright Royalty Board, which must rule by Oct. 2. Among them: updating the 9.1 cents paid for each song on each physical CD sold; creating a rate for the first time for regular digital downloads, such as iTunes, which has been using the CD rate; and a rate for certain types of cellphone ring tones.

Everyone may not be so happy after that ruling. But for now, the different industry groups are singing the same happy tune.

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jim.puzzanghera@latimes.com

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