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Sides chosen in royalty tussle

Music publishers, the record labels and digital music distribution outlets began a three-way legal wrestling match Monday over just how much songwriters and the publishing houses should get paid for digitally delivered music.

The case before a panel of copyright judges is different from the usual squabbles over money that pit the major record labels against new-media companies because it also features a family fight between the music publishers and songwriters and the rest of the music industry.

At issue is the so-called “mechanical royalty” — payments made for copies of sound recordings, including those made by digital means, to songwriters and publishers.

In a twist for royalty fights, such new-media players as Yahoo, Apple and Napster and major record labels agree with one another and want the royalty they pay to the publishers and songwriters to be lowered.

The labels contend that the music publishers have gotten fat as their business has starved and want the payment method rewritten. According to papers filed by the RIAA at the Copyright Royalty Board, the labels want the board to reduce the rate to 8% of wholesale revenue. The current rate is about 9 cents per song, but it often is lowered in negotiations with the record companies. That money usually is split 50-50 between the publisher and the songwriter.

The RIAA contends in its documents that the rate is out of whack with the rest of the world and historical context.

“Record companies are suffering a contraction of their business at a time when music publisher revenues and margins have increased markedly,” the trade group wrote. “While record companies have been forced to drastically cut costs and employees, music publisher catalogs have increased in value due to steadily rising mechanical royalty rates and alternative revenue streams made possible, but not enjoyed, by record companies.”

New-media companies want the rate to go even lower, contending that it should disappear when music is digitally streamed.

According to the Digital Media Assn.’s filings with the board, the digital music companies are seeking half of what the record labels want, telling the CRB that the rate should run in the 4% range for downloads.

DiMA argues that paying a high rate will undermine what is a new business model and exacerbate the piracy problem that has been decimating the labels.

“Fundamentally, this fragile marketplace is showing signs of promise, but it cannot be saddled with additional, excessive costs,” DiMA wrote. “The board should be careful not to impose a royalty that kills the proverbial goose and deprives songwriters and publishers of their golden egg.”

Internet streams should not trigger any copyright royalty, the association contends, saying that they are performances and not covered under the mechanical license.

“Digital music services believe that digital performances are like radio and should require a performance license only,” the association said in asking for CRB action on the issue.

Music publishers and songwriters contend that cutting the amount they get paid won’t solve either the music industry’s woes or the problems of the digital music companies.

“This year’s rate-setting trial is indeed historic because for the first time, the Copyright Royalty Board will set rates for digital products as well as physical products,” said David Israelite, president and CEO of the National Music Publishers Assn. “With business models evolving and technology developing, the financial survival of songwriters and music publishers will depend on the decisions made during this process.”

The NMPA is asking the CRB to raise that rate to 12.5 cents per song for CDs and 15 cents for digital recordings. It estimates that the RIAA proposal effectively reduces their royalty to 6 cents per song.

“The contributions songwriters and music publishers make to the creation of songs, and to the music industry overall, are significant — indeed critical — to the success of the industry,” Israelite said. “The NMPA will fight vigorously in the coming weeks to make sure songwriters and music publishers are fairly compensated for their work.”

Eventually, the three-judge CRB, which began hearing live testimony Monday, will have to sort out the arguments. The board has become one of the key policymakers in the copyright arena as it has set rates for satellite radio and webcasters.

Whatever it finally decides, the CRB and the warring industries are in for a long fight as the process is expected to take months, with all three sides digging in for the duration.

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