DiMA addresses Webcasting royalties

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By Sam Costello

(IDG) -- The Digital Media Association (DiMA) will file documents with the U.S. Copyright Office, asking the government to set the rate at which Webcasters will pay copyright owners for songs broadcast, members of the group said on a conference call Wednesday.

At issue is the rate at which Webcasters, either radio stations that simulcast their programming over the Internet or Internet-only radio outfits, will have to pay owners of the song's broadcast. Currently, radio stations must pay a royalty to owners of the musical composition copyright -- the copyright that governs the notes and lyrics of a song, not any particular recording -- for every song broadcast over the air. The Digital Millennium Copyright Act (DMCA) of 1998 added an additional Webcasting fee, one requiring that the owners of the copyright for the specific performances -- usually record labels -- also be paid.

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DiMA and its member companies, which include RealNetworks, America Online, and MTVi, have been negotiating the rate to be paid to the record labels with the Recording Industry Association of America (RIAA), an industry trade group which represents five major labels: Universal Music Group, Sony Music Entertainment, Warner Brothers Music Group, EMI Group, and BMG Entertainment. The negotiations have so far failed to reach an agreement, however, and the matter will go before a copyright arbitration royalty panel at the Copyright Office starting July 30.

"Creators should get paid and consumers should get fair value" from any agreement, said Jonathan Potter, executive director of DiMA, on a conference call.

In order to achieve this balance, DiMA will propose to the Copyright Office Wednesday that Webcasters pay a rate of $0.0015 per listening hour of Webcasts, according to Ken Steinthal, an attorney at Weil Gotshal & Manges and counsel to the 15 DiMA members involved in the arbitration.

That number was arrived at by Adam Jaffe, an economist at Brandies University in Waltham, Mass., who will testify on behalf on DiMA at the July hearing. Jaffe used the rate paid to music publishers for over the air radio broadcasts, which he determined to be $0.0022 per listening hour, said Steinthal. As Webcasts "have been very much in the promotional benefit" of the labels, according to Steinthal, Jaffe reduced the figure accordingly, thus arriving at the $0.0015 rate. The fee paid by each Webcaster to the record companies would then be calculated as the total number of aggregate listening hours (as measured by the Webcasters) times $0.0015. Webcast fees will also be paid retroactively starting from October 1998, the date the DMCA went into effect.

Having a number in hand for recommendation will not resolve the impasse, however, because the RIAA is asking that the fee be more than 10 times DiMA's number, though the exact number is private, said Steinthal. Also, royalty payments to the music publishers are subject to a separate negotiation, an issue that also has to be settled. The fee paid to the publishers could be close to the $0.0022 they already receive for over the air broadcasts, Steinthal said.

Resolving the payment issue is important because Webcasting as an industry is still "in the infant stage" and will only continue to grow if financial terms allow it to do so, said Alex Alben, vice president of government affairs at RealNetworks, who also participated in the call. Webcasts not only drive album sales but also offer exposure to new artists in a way that heavily format-driven radio stations or MTV cannot, he said.

"Webcasting is poised to become a very big economic factor in the distribution of music," he said.

The Copyright Office hearing will begin on July 30 and will likely run three weeks to four weeks in direct arguments and one week to two weeks in rebuttal, Steinthal said. The hearing will be presided over by a three-member panel of arbitrators. Also scheduled to testify on behalf of DiMA at the hearing are Michael Fine, the CEO of SoundScan, the company that tracks record sales, and Jonathan Zittrain, a professor at the Harvard University Law School's Berkman Center for Internet and Society.

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