Sunday, October 5, 2008

Ringtone royalty rate gets big boost

Songwriters and music publishers say they're pleased with a U.S. Copyright Royalty Board ruling issued Thursday that sets a higher rate for ringtones but keeps a 9.1-cents mechanical royalty on all other music, including compact discs and digital download services.

The board set a 24-cent royalty on downloads of musical ringtones for cell phones, which were expected to bring in $510 million in retail sales in 2008, according to BMI. Those royalties previously had been included in the 9.1-cent rate, but the songwriters wanted an increase and got more than they had asked for, said Steve Bogard, president of the Nashville Songwriters Association International.

The copyright board also tentatively approved an agreement between the digital music industry and the songwriters and publishers that will give the songwriters and publishers 10.5 percent of the revenue from interactive music streaming services such as Napster and limited downloads from subscription services such as Rhapsody, in which the downloads remain available only as long as the user's subscription is active.

Until now, the songwriters and publishers received only a small performance royalty for downloads from those services; the new agreement gives them a percentage of subscription and advertising revenues the services collect.

While the songwriters and publishers did not get the raise they asked for in the statutory mechanical royalty rate, the copyright board did reject an attempt by the record companies and their lobbying group, the Recording Industry Association of America or RIAA, to set a percentage rate for mechanical royalties, which songwriters complained would bring a huge decrease in money they get from record companies.

"We're very pleased that the court rejected the proposal for a percentage rate," David Israelite, president of the National Music Publishers Association, said in a telephone interview. "If you look at what the parties were asking for, to keep the penny rate is something we view as very positive."

The board also for the first time set a 1.5 percent late fee that record companies will have to pay if they are late in making royalty payments.

"The late fee is a big step forward, as there has been a problem in the past getting paid on time," Israelite said.

Thursday's rulings were "a big victory for everybody who cares about music, and the songwriters' rights are being respected," he added.

Hearings on the new mechanical royalty rates began in January.

The rates were set every 10 years, but this year that was changed to every five years. Thursday's ruling will be in effect through 2012. The 9.1-cent rate has been in effect since 1997.

Ringtones often cost $2

Getting a 24-cent rate set for ringtones will ensure a big source of revenue for the songwriters and publishers, Bogard said. Ringtone downloads are popular with cell-phone users, and generally cost $2 or more –– even though they include only a snippet of the song.

Most important, beyond the copyright board's rejection of a percentage royalty rate for sales of CDs and permanent downloads, was the ruling to approve the 10.5-percent for digital streaming and limited downloads of songs, Bogard said.

The Digital Media Association, or DiMA, whose members include Yahoo!, Rhapsody, Apple and Microsoft, had argued that such downloads should be considered performances only, and therefore subject only to the same kinds of performance royalties that are paid to songwriters and publishers by radio stations and restaurants that play music for customers.

The agreement between the DiMA and the songwriters/publishers groups that the copyright board tentatively approved establishes a mechanical royalty as well.

The copyright board delayed finalizing the decision on the streaming and limited downloads to allow for a 30-day comment period, Bogard said.

The 10.5 percent rate will be the total the songwriters will receive for performance and mechanical rights.

Rate offers flexibility

The reason a percentage formula was acceptable for these limited downloads and streaming services was because it is a developing market with potential for many different business models, Israelite said. "With interactive streaming, we recognized that it made sense to have more flexibility in the rate structure."

A key to the songwriters' acceptance of the percentage royalty structure was the inclusion of advertising revenue in the deal, the songwriters and publishers said.

Jonathan Potter, executive director of the Digital Media Association, said he was pleased with the ruling because it keeps royalty rates stable for the next five years.

"Keeping rates where they are will help digital services and retailers continue to innovate and grow for the next several years, which will benefit songwriters, artists, labels and publishers," Potter said.

BMI called the agreement "a positive step," and said it supports the group's long-held position that one piece of music can embody several copyrights.

"We're very excited about the Copyright Royalty Board's decisions," Bogard said. "I think this is a huge victory for the whole music industry."

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