Record companies face off against music publishers and songwriters like Lyle Lovett in Washington this week in a growing dispute over royalty payments that threatens industry plans to sell music online.
The major recording labels and music publishers, who own music rights, are at odds over on-demand or interactive music streamed over the Internet, which allows consumers to listen to whatever song they want when they want.
While the world’s big music labels argued successfully that free song-swap service Napster infringed their copyrights, songwriters and music publishers now claim that at least one major label, Vivendi Universal’s Universal Music Group, has violated their copyrights.
The House of Representatives Subcommittee on Courts, the Internet and Intellectual Property has called a hearing for May 17 as the major record companies gear up to launch online subscription services they hope will convert millions of Napster users into paying customers.
“Companies are trying to build legitimate online services to compete with Napster and the music publishers are the biggest stumbling block to that,” said Jonathan Potter, executive director of the Digital Media Association, (DiMA) a trade group representing Webcasters or online radio companies.
Publishers say they are merely defending songwriters’ rights to be compensated.
“The reality is that songwriters have been ignored – or taken for granted – in the debate over distributing music on the Internet,” said Carey Ramos, an attorney for music publishers.
Scheduled to speak at the hearing are country star Lovett, on behalf of songwriters; Edgar Bronfman Jr., executive vice chairman of entertainment giant Vivendi Universal; and officials from digital media company RealNetworks Inc. (NasdaqNM:RNWK – news), online music company MP3.com Inc. (NasdaqNM:MPPP – news) and the National Music Publishers’ Association (NMPA).
The licensing conflict centers on streaming music, which enables users to listen but not copy songs online. For months, publishers, labels and Webcasters have been in negotiations over how much publishers should earn for streamed music.
Publishers claim that to stream music requires reproduction of a composition, which carries a larger royalty payment than a performance. The labels argue that streaming music should be treated as performances and if there are reproductions then they are subject to compulsory licenses.
The labels have asked the copyright office to set rates for these licenses.
“We think the copyright office is well positioned to issue the rules necessary to get the online market moving,” said Cary Sherman, general counsel for Recording Industry Association of America (RIAA), a trade group for the recording labels.
“Some Internet companies and record labels want the music publishers to let them use their music for free – or else have the government step in to force the publishers to do so. That is self-serving and, some might say, hypocritical – but not fair,” Ramos, the lawyer for the publishers, said.
The royalty issue has already cropped up in a lawsuit pitting publishers against Universal Music Group, in which publishers claim Universal violated copyrights by not paying them for the right to use their songs on its trial of its FarmClub.com online subscription service.
Universal has said its existing licenses from publishers cover usage for FarmClub.com subscription service.
The publishers’ claims in such cases differ than the record labels’ claims against Napster, for instance, in that the publishers own copyrights to underlying compositions of songs themselves. The labels sought damages from Napster on copyrights for sound recordings.
In another lawsuit, online music company MP3.com has agreed to pay publishers 10 cents to copy a song to its database, plus a 1/4 cent each time a song is streamed.
The streaming feud is problematic for the big labels anxious to launch subscription services like MusicNet – a joint venture between RealNetworks and AOL Time Warner Inc., parent of Warner Music Group; Bertelsmann AG, owner of BMG; and EMI Group Plc.
Days after MusicNet was announced in early April, Universal and Sony – which had previously announced formation of a similar service called Duet – said they had struck a deal with Yahoo Inc. to offer subscription services.
Industry insiders have eagerly awaited subscription services as secure alternatives to Napster, which has seen usage decline as it struggles to comply with a court-order barring the trade of copyrighted songs on its service.
The licensing dispute is also critical for Webcasters, or online entertainment distributors. Webcasters have claimed that treating streams as reproductions would put undue burdens on the smaller players struggling to survive in this sector.