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Pay to Play

Will retroactive royalty payments for Webcast music fly?

By Michael Della Bitta
May 9, 2001

Thought the Napster lawsuit was the only legal battle the Recording Industry Association of America (RIAA) was fighting? Not true. The RIAA is wrestling with an alliance of Web media companies over the royalties Webcasters should pay for playing copy-righted songs over the Internet.

A law enacted in 1995--the Digital Performance Right in Sound Recordings Act--dictates that Webcasters pay royalties to the recording industry for the music they play. The fee structure, however, was left to the United States Copyright Office, which has been holding hearings on the matter. The decision of the Copyright Office may take a heavy toll on Webcasters, who not only will be saddled with new fees, but will have to pay retroactively for every song they've played since October of 1998, when the Digital Millennium Copyright Act went into effect.

Radio Royalties
Strangely, traditional broadcast radio has never had to pay royalties to the recording industry for playing music. Last century, when the laws governing broadcasting were written, the recording industry opted to waive rights to royalties because it expected that airplay would promote music and the industry would profit in the end. The recording industry is whistling another tune when it comes to Webcasting.

"For generations the recording industry has regretted giving terrestrial broadcasters the right to play albums without paying them. It's not so much saying that the digital world is different than the terrestrial world, it's righting what it's seen as a wrong," says Ric Dube, a Webnoize analyst and online music expert.

The RIAA proposal puts Webcasting royalties at $0.004 per song. Although mere fractions of a cent might seem like a pittance, the proposed rate has other industry insiders hopping mad. "It's too expensive. It has no rational connection to the economics of Webcasting," says Jonathan Potter, executive director of the Digital Media Association (DiMA).

Fee Feud
Potter contends that the RIAA's rate is 30 times the rate collected from radio broadcasters by publishing royalty groups such as ASCAP and BMI. Aggregated, the fees will net the recording industry "a remarkable amount of money" Potter says. Not surprisingly, Potter's DiMA, which represents Webcasters, has filed a counterproposal with the Copyright office for a cheaper rate: $0.0015 per listener hour.

The RIAA justifies the higher rate on the grounds that it is based on a "fair market value," according to Jano Cabera, a RIAA spokesperson: "We think that we were in a particularly strong position to justify our rate. We think that the 25 companies that we've negotiated with are a pretty fair representation of the market.".

DiMA disagrees. Aside from Yahoo, the RIAA's list included "companies you've never heard of--that I've never heard of," Potter says. He suggests that the RIAA may have strongarmed smaller Webcasting companies into agreeing with an inflated rate to skew the numbers. And he takes issue with the structure of RIAA's fee." A per-song fee is more likely to persuade Webcasters to not play songs. It doesn't promote music."

On the other hand, DiMA's rate is based largely on ASCAP and BMI's rates and rates charged for broadcasts in other countries. "DiMA's plan is grounded in facts and history," in Potter's view.

According to Cabera, however, the numbers aren't applicable. "It's like apples and oranges," he says. "This is a specific rate for Webcasting." Webnoize analyst Dube thinks both numbers are biased: "These two trade groups are looking to get the best deal possible for their constituents. They're probably going to meet somewhere in between."

http://www.zdnet.com/pcmag/stories/trends/0,7607,2717063,00.html