Label/artists vs. webcasters.

The debate over webcasting royalty rates is heating up. Two major groups-one representing webcasters, and one representing record labels and recording artists--filed vastly different recommendations with the new Copyright Royalty Board (CRB) on Oct. 31 for new sound recording digital performance right rates for 2006-2010.

The Digital Media Assn. (DiMA), which represents the webcasting divisions of companies such as Microsoft, RealNetworks, Apple and AOL, recommended that Internet radio broadcasters pay recording companies and artists 5.5% of revenues, much lower than the current royalty rate of 10.9 %.

DiMA director John Potter characterized the rate as “essentially equal to the royalties paid to music publishers and songwriters for the very same performances.”

As alternatives, DiMA also proposed that online radio services could pay a fixed-price royalty rate of $0.0038 per hour of music radio streamed, or an alternative per-song royalty of $0.00025 per song.

SoundExchange recommended boosting the rate to almost triple the current rate, to 30% of revenues. As alternatives, SoundExchange proposed either a rate of $0.0247 per hour or a rate of $0.0019 per song.

Executive director John Simson says that the rate reflects the financial success of webcasters such as AOL and Yahoo in the last few years. “We were basically subsidizing them at the beginning.”

SoundExchange board member Jay Rosenthal puts it plain: “The webcasters continue to minimize the value of music while they use music as the main attraction to get users and advertisers to flock to their services. If they don't think music has much value, why don't they stop using music? Then we can see how many people continue using their services."

The CRB will now oversee a limited factual discovery process. After discovery the parties have 15 days to reconsider their initial royalty proposals and submit amended proposals if they desire. A mandatory settlement negotiation period will follow.

If no settlement is reached then the actual arbitration begins, including live witness testimony, cross-examination of witnesses, and oral argument by attorneys for all parties. The CRB is expected to issue an opinion by the end of 2006