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Agreement Reached on Internet Royalties
September 23, 2008
Thomas Mennecke
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The contentious issue of digital royalty rates has reached a tentative conclusion, at least as far as putting agreements on paper is concerned. In an announcement made today, the warring parties entered what is termed a "historic" agreement. Whether this new agreement will challenge the Magna Carta in 800 years remains to be seen. However, in the meantime it appears the feud has been settled for interactive music services and limited download services, but the Internet radio debate remains unresolved.

Whenever an Internet radio station plays a song, it has to pay a royalty. That royalty rate remained firm at $0.000768 from 1995 until all hell broke loose in 2007. In early 2007, the US Copyright Royalty Board (a bizarre sect of the Legislative branch) increased the rates substantially. And not by a few hundred thousandths of a dollar - we're talking somewhere on the order of 300%-1200%, enough to make Internet broadcast giants such as Pandora contemplate ceasing operations. Oh, and for added kicks the rate would be retroactive to January 2006.

Fortunately for Internet radio stations, the massive rate hike hasn't taken hold just yet. Internet radio is no joke, and the technology may represent the future of broadcasting, much in the way the Internet is replacing TV as the video entertainment mechanism of choice. The demand for internet radio is significant, and with WIFI coming to the automobile, terrestrial radio's days could be numbered. With the economic potential of Internet radio facing a mortal crisis, the Congress of the US introduced the Internet Radio Equality Act in an attempt to reverse the CRB's decision. The bill hasn't made significant progress since its introduction, and perhaps that's not such a terrible thing as debate and compromise are often times preferred over government intervention.

Negotiations between SoundExchange, the organization that collects royalties from digital entities (internet radio, XM, Sirius), Internet broadcasters, represented by DiMA, and of course the RIAA ensued. But today's announcement resolves only two issues: interactive streaming music and limited digital downloads.

Limited download services include online stores such as Napster to Go or Rhapsody, where the end user can keep the music he or she downloads - albeit for a "limited" time. Interactive media sites, such as IMEEM and Last.FM, allow the end user to pick and choose the song he or she wishes to listen to. Both these concepts are different from internet radio, where like terrestrial radio, the play list is determined by the radio operator. Unfortunately for sites like Pandora, the agreement leaves their issue unresolved.

"Limited download and interactive streaming services will generally 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. Outside the scope of the draft regulations, the parties confirmed that non-interactive, audio-only streaming services do not require reproduction or distribution licenses from copyright owners."

DiMA was particularly pleased with the results:

“Innovative music services will enjoy a more stable business environment because of this agreement and that will benefit music fans and music creators alike,” stated Jonathan Potter, Executive Director of DiMA. “DiMA is particularly pleased with the agreement to end litigation and threats of litigation involving several of our member companies, so that they can focus on building innovative businesses that can effectively fight piracy, the music industry’s greatest threat.”

DiMA, which represents the larger companies such as Pandora, Napster and Rhapsody, may be satisfied; however, many of the smaller broadcasters not represented have yet to comment. Internet radio services such as Pandora are still threatened by the royalty hike approved by the CRB, but today's agreement provides hope that a reasonable solution is possible.

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Technology News :: Other

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