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New royalty for music played online

Wednesday, October 15th, 2008

On September 23, 2008, songwriters, publishers, record labels and digital music services announced they had finally reached an agreement on mechanical royalties for songs played on online music services. It only took about 8 years for them to figure it out…

Called a “breakthrough that will facilitate new ways to offer music to consumers online,” the voluntary agreement crafted by the Digital Media Association (DiMA), the National Music Publishers’ Association (NMPA), the RIAA, the Nashville Songwriters Association International (NSAI) and the Songwriters Guild of America (SGA) ended the longstanding dispute about mechanical royalties for interactive streaming and limited downloads.

The agreement must be still be approved by the Copyright Royalty Board to take effect, and states that limited download and interactive streaming services will pay a mechanical royalty of 10.5 percent of revenue, less any amounts owed for performance royalties. In certain instances, royalty-free promotional streaming is allowed.
The agreement tries to solve the dispute about what invokes a mechanical royalty in the digital environment, and permits certain kinds of promotional streams without payment, and agrees that webcasters will not owe mechanical royalties for non-interactive, audio-only streams.

The statutory mechanical royalty rate is currently 9.1¢ per song, unless you negotiate with the publisher directly and come up with a different rate.
With physical product, calculating the mechanical royalty using the statutory rate calculated by: # of songs on CD x # CDs manufactured x 9.1¢. But calculating mechanical royalties in the digital environment is more complicated because of considerations like what type of use (download, live stream, etc.) and how each is determined online.
The agreement states that all parties agreed to a “percentage of revenue” calculation so interactive audio-only webcasters and subscription services will pay 10.5 percent of their revenue to songwriters and publishers, minus any performance royalties already being paid to labels.
If a songwriter has a publishing deal with a publisher who’s a member of Harry Fox, the royalties should go from the music service to the publisher through HFA, then be passed along to the songwriter/composer as per their deal. For self-published musicians the royalties should go from the music service to a digital aggregator, which then would pass them on to either the musicians’ indie label, or directly to the musician.
The agreement primarily affects Rhapsody and Napster, for both their on-demand streaming services and their “to-go” services that allow subscribers to put music on portable players. But it will also affect other major services like MySpace, imeem, iLike and others for their interactive streaming options they want to provide.

However, this agreement is not the answer to the ongoing digital performance royalty fight between SoundExchange and webcasters like Pandora and soma.fm. That’s another issue, related to a different copyright. As i’ve mentioned many times, the music industry is unequaled when it comes to beauracracy… According to the press release, the parties agreed that non-interactive, audio-only streaming services like Pandora and soma.fm do not require a mechanical license. This means webcasters no longer have to worry about paying the publishers both for a performance and again for the cache and buffer copies made to enable that performance.
However, this agreement does not solve the debate between webcasters and sound recording rightsholders, which has to do with the non-interactive public performance of a recording on a digital platform. To keep it simple, I’ll just say that the disagreement about this digital performance royalty rate is ongoing. Hopefully a settlement will be reached soon, before it kills internet radio and brilliant musical innovations like Pandora.com

There are many parts of this agreement, like the acceptance of a percentage of revenue calculation that make a lot of sense. Hopefully it will influence and allow new business models to continue and flourish and allow musicians to benefit from increased access, exposure and revenue, and let music fans discover more music.