Presented in hearing held by House Subcommittee.

The National Music Publishers' Assn. and the Digital Media Assn. have come up with a proposed solution to streamline the licensing of compositions for audio-only digital deliveries of music.

A joint legislative proposal, which has taken more than a year to hammer out, was disclosed today (May 16) during an oversight hearing held by the House Subcommittee on Courts, the Internet and Intellectual Property.

The proposal sets up a blanket license for all compositions that are subject to a compulsory license for digital phonorecord deliveries (DPDs). The license would cover audio-only digital activities under section 115 of the Copyright Act, which includes permanent downloads, temporary downloads and interactive streams of recorded compositions. The licenses would also apply to reproductions of recorded compositions made by Internet, cable and satellite services.

The draft bill sets up a general designated agent, to be selected by the music publishers' trade group, to administer the blanket licenses. It would be similar to the way SoundExchange was set up to administer sound recording licenses in certain digital performances. It is expected that the Harry Fox Agency would be the general agent.

Additional designated agents may also be certified as long as they represent no less than 15% of the music publishing market. If a publisher fails to select an agent, the general agent would be that publisher's designated agent. Music publishers and digital media services would share the cost of administering these licenses.

The royalty rates would be determined through an arbitration process before the Copyright Royalty Board. The CRB would also decide whether the rates would be based on a penny-rate or a percentage of some amount. Other disputes would also be subject to resolution by the CRB.

Under the draft bill, a copyright owner could still enter into a voluntary agreement with a digital music service as long as it covered all musical works owned and controlled by that owner and all uses under the section 115 license.

The proposal changes the current right of record companies to pass their rights under a DPD to third parties. This would force online services to deal directly with the agent rather than secure the licensing rights through a record company. By directing DPD license royalties to publishers rather than through labels, it could remove a certain amount of revenue from artist/songwriter's controlled composition clauses in their record deals. This clause essentially reduces the amount of mechanical royalties labels must pay for recorded songs to publishers.

The RIAA maintains that the proposal does not do enough to resolve current problems. It does not address uncertainty and disagreements over which licenses are necessary for certain physical, hybrid and online formats that have "paralyzed the licensing process."

At the hearing today, RIAA president Cary Sherman recommended that the proposal either be limited to subscription services (rather than all digital activities) or not be introduced until all problems in connection with the compulsory mechanical license can also be addressed.

There are still a couple sections of the proposed bill in dispute between the NMPA and DiMA. The digital services do not want copies made by an interactive service that streams music to be classified as a DPD, even though it is a "reproduction" under copyright law.

When pressed by Congressman whether the current draft without revision would be supported by DiMA and the NMPA, Jonathan Potter and David Israelite, heads of the respective trade groups, said they supported the proposal and could manage to work out their differences.

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