Streaming Royalty Issue Heats Up

The streaming royalty debacle goes back quite a while, but 2008 has seen its share of headway on the issue. In May, ASCAP announced a favorable ruling giving it “legacy” (back pay) royalties from AOL and Yahoo to the tune of millions of dollars. Keep in mind that ASCAP is a performing rights organization that represents performance rights only, and only as such rights relate to compositions (as opposed to sound recordings). That was great news for songwriters, composer and publishers who – up to that point – may have been uncertain as to how the law would treat streaming for royalty purposes. But the case really only answered two questions: 1) are performance royalties due for streams; and 2) if they are, how much. It left a host of other questions unanswered.

Then along came the RIAA.

Last week, the RIAA (representing the recording industry, i.e., record labels), and DiMA (representing digital media outlets), and other trade groups, reached an agreement concerning the ‘other’ piece of the puzzle: the mechanical royalty. The agreement only applies to interactive streaming and limited download scenarios, and does not address non-interactive streaming, such as your standard Internet radio station. Likewise, it does not address digital downloads. The agreed rate is 10.5% of net revenue, reduced by the amount of performance royalties. In other words, it’s a royalty cap. Betanews reports, however, that the cap relates to performance royalties for sound recordings, leaving an additional royalty tier for performance royalties due to ASCAP and the other Performing Rights Organizations.

Three royalties for a single activity? Sounds like it.

This all sounds like good news, because if the Copyright Royalty Judges adopt the agreement, it will clarify any uncertainty as to which royalties are due for interactive streaming activities, and how much will be paid. The agreement also created a byproduct acknowledgement: mechanical royalties are required for interactive audio-only streaming, but not for non-interactive audio-only streaming (i.e., Internet radio).

That’s an interesting non-point, because most Internet radio stations are non-interactive audio-only, so they won’t be paying mechanical royalties. But yes, they’ll still be paying performance royalties for both the composition and the sound recording. What will they Pay? At this point, Internet radio really doesn’t have an answer. The more intriguing question is whether this agreement between the music industry and the trade groups is in contemplation of a new music delivery method yet to be unveiled.

For now, even though this is a substantial milestone in royalty clarification, there are many questions unanswered. The Copyright Royalty Judges are expected to rule on a few royalty matters on October 2, and we may see additional revelations concerning this agreement. Stay tuned.