Year in Review: Publishing & Royalties

Two thousand and eight saw the resolution of a seven year dispute over the payment of mechanical royalties for limited download and streaming services in the United States. The Copyright Royalty Board also determined the royalties payable for permanent downloads, there was further reflection and negotiation on the royalties payable by webcasters, and a court decision in relation to the royalties to be paid to ASCAP by AOL, Yahoo and Real Networks. BMI reported record earnings for performance royalties and Universal consolidated its position as the largest music publishing company. There was also ongoing contention regarding the introduction of a Pan European licensing structure.

There are a number of different royalty structures in place with respect to music, these include:

1. Performance royalties of sound recordings
2. Reproduction and distribution of the sound recording
3. Performance of the underlying musical composition
4. Reproduction and distribution of the underlying musical composition.[1]

Mechanical royalties – limited downloads and streaming services
On 23 September 2008, agreement was reached after seven years of negotiation with respect to the royalties to be paid for limited downloads and streaming music services.[2] The voluntary agreement which is yet to be approved by the Copyright Royalty Board sees services such as Napster, Rhapsody, MySpace, iLike and Imeem pay 10.5% of total revenue minus any amounts for performance royalties to publishers for the reproduction and distribution of a musical composition.[3] With respect to physical recordings the rate is already set at 9.1c per song unless independent negations are undertaken – the calculation that is required considers the number of songs per CD x number of CDs manufactured x 9.1c.[4] The RIAA were lobbying with the DIMA to have the royalty rate reduced.[5]

The agreement does not relate to non interactive streams (Pandora, webcasting) nor does it relate to permanent downloads such as those from iTunes and Amazon.[6]

Royalties for permanent downloads
The Copyright Royalty Board determined that the mechanical rate of royalties to be paid to publishers by permanent download services such as iTunes and Amazon is to remain at 9.1 cents per song under 5 minutes in length for the next five years.[7] This follows lobbying efforts from iTunes to prevent an increase in the rate to 15 cents per song which the National Music Publishers Association were seeking.[8] iTunes had claimed that if there had been an increase their service would not have been able to operate at a profit and would therefore be closed.[9]

Webcasting royalties
In 2007 the Copyright Royalty Board set royalty payment rates for webcasters that many deemed to be too high and claimed would force them out of business - the rate was significantly higher than for terrestrial and satellite radio.[10] The rate was set at $0.0019 per stream, per listener which for Pandora equates to around 60% of its revenue stream.[11] The United States House of Representatives passed the Webcaster Settlement Act of 2008 (H.R. 7084) on 27 September 2008 which enables webcasters and the content industry through their representative, SoundExchange, to enter into separate negotiations to establish a workable alternative.[12]

ASCAP, AOL, Yahoo and Real Networks
A court decision of the United States District Court in 2008 held that AOL, Yahoo and Real Networks must pay royalties to ASCAP for the use of music in its repertoire.[13] The complicated calculation set at 2.5% of revenue mins traffic acquisition costs and other expenses and which may result in back payments of $100 million has been criticised for being based on total revenue rather than revenue just derived from the use of music.[14]

Europe
Despite a determination by the European Commission that having 24 independent collection societies in the various countries across Europe had led to anti competitive behaviour and a decision to allow pan European licensing of musical works in 2008, to date there has been little practical change to the operation of the royalty collection societies.[15]

In September the Dutch collection agency BUMA attempted to license works across Europe only to have legal action brought against it by GEMA – the German collection agency which presently administers the rights for more than 60,000 composers, lyricists and music publishers.[16] The Mannheim Regional Court issued an injunction preventing the licensing of the music on the basis that the collection society could not grant licenses to works in the catalogue of other collection agencies without their permission.[17]

It was also reported that the UKs performing rights society won a case on 19 July 2008 against BUMA for licensing works outside of their catalogue and jurisdiction.[18]

Meanwhile GEMA has partnered with the British PRS to form Celas, a pan European licensing body.[19]

BMI
In August 2008 it was reported that BMI had reached a record profit level of $900 million in the past financial year and added 30,000 new composers and song writers to its repertoire of 6.5 million works .[20] Songwriters and composers received $786 million with digital revenues accounting for 15%, terrestrial radio and broadcast television accounted for 38% of revenue, satellite and cable formats 23% and restaurants and bars contributed 11%.[21]

Harry Fox
The Harry Fox agency reported royalty payouts of $393.5 million in 2007 from 1.51 million licenses, a 4% increase on 2006.[22]

Unpaid Royalties
In June 2008 it was reported that the band Poison commenced litigation against EMI for unpaid royalties.[23]

In February 2008 it was reported that more than a dozen artists were suing Universal Music for failing to pay royalties of $US6 million since 1998.[24] Artists include the estates of Count Basie and Benny Goodman, Les Brown, Richard Hayman, Dick Hyman, Woody Herman, Kitty Kallen, Frankie Lane, Tony Martin, John Mills, Jerry Murad, Patti Page, Sister Rosetta Tharpe and Sarah Vaughn.[25]

In a separate development the Allman Brothers commenced litigation against Universal for failing to pay royalties.[26] The group are seeking $10-13million in unpaid royalties from CD sales and a 50% pay out from digital sales.[27]

In April 2008 a new program called ‘Project Unfound Artist’ was launched by P2pNet and Nashville attorney Fred Williams in an attempt to locate artists that are owed money by SoundExchange.[28] If artists are not registered and the money is not collected within a 3 year period it is deemed to be attributable to SoundExchanges operating expenses and general revenue.[29] Despite 2,387 artists and 871 labels registering since 15 September 2006 the unregistered artist lists contains over 7,700 names.[30]

Universal Publishing
Universal Publishing became the largest publisher in the world following its acquisition of BMG music publishing in February 2008.[31]

[1] Digital Music News, Lost In Licensing? Royalty 101 Now In Session... (24 September 2008) <http://www.digitalmusicnews.com/stories/092308licensing101> at 26 September 2008
[2] Future of Music Coallition, Agreement Royale (1 October 2008) <http://futureofmusiccoalition.blogspot.com/2008/10/agreement-royale.html> at 27 October 2008; TechDirt, One Of Many Online Music Royalty Rates Settled (For Now) (23 September 2008) <http://www.techdirt.com/articles/20080923/1832232352.shtml> at 26 September 2008; Digital Music News, Developing: Digital Royalty Rate Thawing Emerges (20 June 2008) <http://www.digitalmusicnews.com/stories/061908rates> at 26 June 2008
[3] Future of Music Coallition, Agreement Royale (1 October 2008) <http://futureofmusiccoalition.blogspot.com/2008/10/agreement-royale.html> at 27 October 2008; CNet News, Music groups reach accord on royalties (23 September 2008) <http://news.cnet.com/8301-1023_3-10049452-93.html> at 26 September 2008; ArsTechnica, New royalty agreement leaves Internet radio out in the cold (23 September 2008) <http://arstechnica.com/news.ars/post/20080923-new-royalty-agreement-leaves-internet-radio-out-in-the-cold.html> at 24 September 2008
[4] Future of Music Coallition, Agreement Royale (1 October 2008) <http://futureofmusiccoalition.blogspot.com/2008/10/agreement-royale.html> at 27 October 2008
[5] Digital Music News, Mechanical Licensing Battle Royale Gets Started (6 February 2008) <http://www.digitalmusicnews.com/stories/020508mechanical> at 19 February 2008
[6] Digital Music News, Lost In Licensing? Royalty 101 Now In Session... (24 September 2008) <http://www.digitalmusicnews.com/stories/092308licensing101> at 26 September 2008; ArsTechnica, New royalty agreement leaves Internet radio out in the cold (23 September 2008) <http://arstechnica.com/news.ars/post/20080923-new-royalty-agreement-leaves-internet-radio-out-in-the-cold.html> at 24 September 2008
[7] Digital Music News, Oh the Drama: Royalty Decisions Await; iTunes Ultimatum Surfaces (1 October 2008) <http://www.digitalmusicnews.com/stories/093008royalty> at 5 October 2008; TechDirt, Copyright Royalty Board Keeps Download Rates The Same; iTunes 'Saved' (3 October 2008) <http://www.techdirt.com/articles/20081002/1807062438.shtml> at 5 October 2008; SiliconValley/Associated Press, Copyright board leaves music royalty rate unchanged; Apple had threatened to shut iTunes (2 October 2008) <http://www.siliconvalley.com/news/ci_10620493> at 5 October 2008; SiliconValley/Associated Press, Federal copyright board to set digital music royalties (1 October 2008) <http://www.siliconvalley.com/news/ci_10611112?nclick_check=1> at 5 October 2008; Digital Music News, Mechanicals Staying Steady on Paid Downloads... (3 October 2008) <http://www.digitalmusicnews.com/stories/100208rates> at 5 October 2008
[8] Digital Music News, Oh the Drama: Royalty Decisions Await; iTunes Ultimatum Surfaces (1 October 2008) <http://www.digitalmusicnews.com/stories/093008royalty> at 5 October 2008
[9] Digital Music News, Oh the Drama: Royalty Decisions Await; iTunes Ultimatum Surfaces (1 October 2008) <http://www.digitalmusicnews.com/stories/093008royalty> at 5 October 2008; The Register, Apple screws songwriters (again) (1 October 2008) <http://www.theregister.co.uk/2008/10/01/apple_itunes_threat/> at 5 October 2008
[10] Future of Music Coallition, (Web)Casting Call (30 September 2008) <http://futureofmusiccoalition.blogspot.com/2008/09/webcasting-call.html> at 27 October 2008; Digital Music News, Westergren, Pandora Await Upcoming Webcaster Royalty Rates (6 October 2008) <http://www.digitalmusicnews.com/stories/100308westergren> at 10 October 2008; Digital Music News, SoundExchange, Large Broadcasters Still at Loggerheads (14 May 2008)<http://www.digitalmusicnews.com/stories/051508loggerheads> at 21 May 2008
[11] Digital Music News, The Dirty Game Behind Webcaster Royalty Rates... (21 October 2008) <http://www.digitalmusicnews.com/stories/102008politics> at 22 October 2008
[12] Future of Music Coallition, (Web)Casting Call (30 September 2008) <http://futureofmusiccoalition.blogspot.com/2008/09/webcasting-call.html> at 27 October 2008; CNet News, Net radio bill passes House (27 September 2008) <http://news.cnet.com/8301-1023_3-10052966-93.html> at 5 October 2008; Digital Music News, House Extends SoundExchange, Internet Broadcaster Talks (29 September 2008) <http://www.digitalmusicnews.com/stories/092608hr> at 5 October 2008; Digital Music News, Deal Ahead? Senate Okays Extended Webcaster Talks (1 October 2008) <http://www.digitalmusicnews.com/stories/093008senate> at 5 October 2008; The Register, US politicians back Act to save internet radio (29 September 2008) <http://www.theregister.co.uk/2008/09/29/internet_radio_act/> at 5 October 2008
[13] TechDirt, Do Songwriters Deserve A Cut Of Yahoo Search Revenue? (13 May 2008) <http://www.techdirt.com/articles/20080512/0252111088.shtml> at 21 May 2008; Digital Music News, Yahoo, RealNetworks, AOL Bite Back Against ASCAP Rates (5 May 2008) <http://www.digitalmusicnews.com/stories/050508yahoo> at 6 May 2008; The Register, Songwriters score victory over AOL, Yahoo! and Real Pay up (1 May 2008)<http://www.theregister.co.uk/2008/05/01/ascap_aol_real_yahoo/> at 2 May 2008; The Register, Songwriters score victory over AOL, Yahoo! and Real Pay up (1 May 2008)<http://www.theregister.co.uk/2008/05/01/ascap_aol_real_yahoo/> at 2 May 2008; TechDirt, District Court Tells Yahoo, AOL To Pay Millions To Songwriters (1 May 2008) <http://www.techdirt.com/articles/20080501/020611996.shtml> at 2 May 2008; CNet News, Court: Online services must pay up for song use (1 May 2008) <http://www.news.com/8301-10784_3-9933398-7.html> at 2 May 2008; Digital Music News, Court Determines ASCAP Rates for Yahoo, AOL, RealNetworks (30 April 2008) <http://www.digitalmusicnews.com/stories/043008ascap> at 2 May 2008
[14] TechDirt, Do Songwriters Deserve A Cut Of Yahoo Search Revenue? (13 May 2008) <http://www.techdirt.com/articles/20080512/0252111088.shtml> at 21 May 2008; Digital Music News, Yahoo, RealNetworks, AOL Bite Back Against ASCAP Rates (5 May 2008) <http://www.digitalmusicnews.com/stories/050508yahoo> at 6 May 2008; The Register, Songwriters score victory over AOL, Yahoo! and Real Pay up (1 May 2008)<http://www.theregister.co.uk/2008/05/01/ascap_aol_real_yahoo/> at 2 May 2008; The Register, Songwriters score victory over AOL, Yahoo! and Real Pay up (1 May 2008)<http://www.theregister.co.uk/2008/05/01/ascap_aol_real_yahoo/> at 2 May 2008; TechDirt, District Court Tells Yahoo, AOL To Pay Millions To Songwriters (1 May 2008) <http://www.techdirt.com/articles/20080501/020611996.shtml> at 2 May 2008; CNet News, Court: Online services must pay up for song use (1 May 2008) <http://www.news.com/8301-10784_3-9933398-7.html> at 2 May 2008; Digital Music News, Court Determines ASCAP Rates for Yahoo, AOL, RealNetworks (30 April 2008) <http://www.digitalmusicnews.com/stories/043008ascap> at 2 May 2008
[15] The Register, Judge bans European-wide online music rights (22 August 2008) <http://www.theregister.co.uk/2008/08/22/judge_forbids_illegal_rights_license/> at 28 August 2008; Guardian, EU to introduce new music rights system despite lobby (15 July 2008) <http://www.guardian.co.uk/technology/2008/jul/15/digitalmusic.digitalmedia> at 18 July 2008; Digital Music News, Commission: Let the Pan-European Licensing Begin... (16 July 2008) <http://www.digitalmusicnews.com/stories/071608eu> at 18 July 2008; SiliconValley/Associated Press, EU musicians oppose Europe-wide online royalties; outcome could affect iTunes (3 July 2008) <http://www.siliconvalley.com/news/ci_9776215?nclick_check=1> 9 July 2008
[16] Digital Music News, Pan-European Panned Once Again; Buma/Stemra Blocked (16 September 2008) <http://www.digitalmusicnews.com/stories/091508buma> at 21 September 2008
[17] Digital Music News, Pan-European Panned Once Again; Buma/Stemra Blocked (16 September 2008) <http://www.digitalmusicnews.com/stories/091508buma> at 21 September 2008
[18] The Register, Judge bans European-wide online music rights (22 August 2008) <http://www.theregister.co.uk/2008/08/22/judge_forbids_illegal_rights_license/> at 28 August 2008
[19] Digital Music News, Pan-European Panned Once Again; Buma/Stemra Blocked (16 September 2008) <http://www.digitalmusicnews.com/stories/091508buma> at 21 September 2008
[20] Digital Music News, The BMI Scorecard: Digital Keeps Growing Up... (26 August 2008) <http://www.digitalmusicnews.com/stories/082508bmi2> at 28 August 2008
[21] Digital Music News, Nice Performance: BMI Breaks Revenue, Payout Records (25 August 2008) <http://www.digitalmusicnews.com/stories/082408bmi> at 28 August 2008
[22] Digital Music News, Harry Fox Still Writing Good Checks; $394 Million In '08 (18 March 2008) <http://www.digitalmusicnews.com/stories/031708hfa> at 23 March 2008
[23] Digital Music News, Latest Lawsuit Gets Poisonous; EMI On Defensive (19 June 2008) <http://www.digitalmusicnews.com/stories/062208poison> at 26 June 2008
[24] ZeroPaid, Universal Music Sued for Cheating Music Artists Out of Royalties (19 February 2008) <http://www.zeropaid.com/news/9277/Universal+Music+Sued+for+Cheating+Music+Artists+Out+of+Royalties> at 21 February 2008
[25] ZeroPaid, Universal Music Sued for Cheating Music Artists Out of Royalties (19 February 2008) <http://www.zeropaid.com/news/9277/Universal+Music+Sued+for+Cheating+Music+Artists+Out+of+Royalties> at 21 February 2008
[26] TechDirt, Allman Brothers Sue Yet Another Record Label Over iTunes Royalties (12 August 2008) <http://www.techdirt.com/articles/20080812/0150041954.shtml> at 20 August 2008; Digital Music News, The Litigious Allman Brothers: Is It Too Late? (13 August 2008) <http://www.digitalmusicnews.com/stories/081208allman> at 20 August 2008;
[27] Digital Music News, Allman Brothers Strike Again, New Lawsuit Emerges (12 August 2008) <http://www.digitalmusicnews.com/stories/081108allman> at 20 August 2008; ZeroPaid, Band Sues Record Label for Digital Music Distribution Ripoff (13 August 2008) <http://www.zeropaid.com/news/9696/Band+Sues+Record+Label+for+Digital+Music+Distribution+Ripoff> at 20 August 2008
[28] Wired, 'Project Unfound Artist' Seeks to Make SoundExchange Pay (29 April 2008) <http://blog.wired.com/music/2008/04/project-unfound.html> at 30 April 2008
[29] Wired, 'Project Unfound Artist' Seeks to Make SoundExchange Pay (29 April 2008) <http://blog.wired.com/music/2008/04/project-unfound.html> at 30 April 2008
[30] Wired, 'Project Unfound Artist' Seeks to Make SoundExchange Pay (29 April 2008) <http://blog.wired.com/music/2008/04/project-unfound.html> at 30 April 2008
[31] Digital Music News, Universal Music Satisfies Regulators, Sheds Publishing Assets (25 February 2008) <http://www.digitalmusicnews.com/stories/022408universal> at 28 February 2008; Digital Music News, Post-Acquisition, Universal Easily Beats EMI Publishing Share (30 January 2008) <http://www.digitalmusicnews.com/stories/013008umg> at 4 February 2008