Music publishers and industry groups have submitted to a panel of judges a precedent-setting proposal that would establish royalty rates for online streaming music. If approved, the agreement would settle longstanding uncertainty regarding compensation for content creators and owners -- and potentially spur more dealmaking in the Web music sphere.
The accord establishing a baseline mechanical royalty rate of 10.5% of revenues, less amounts owed for performance royalties, was reached among the Digital Media Association, the National Music Publishers' Association, the Recording Industry Association of America, the Nashville Songwriters Association International and the Songwriters Guild of America, according to a statement. The agreement would cover online streaming services as well as some that offer limited downloads, including subscription services such as RealNetworks Inc.'s [RNWK] Rhapsody and personalized radio provider Pandora Media Inc. [UPDATE: Pandora is considered noninteractive, and is therefore not covered by the new agreement.] Approval of the agreement now lies with three judges on the Copyright Royalty Board, a group under the auspices of the U.S. Copyright Office.
Last week, I spoke with Pandora investor Jim Feuille of Crosslink Capital, who said some digital media companies have been slow to complete deals because such rates haven't been firmly established yet.
"Right now, the buyers are content to watch as royalty and licensing structures evolve," he said. "On the content side, there are still a lot of moving parts."
The establishment of royalty rates could provoke both M&A activity and continued venture funding of disruptive startups. Digital Media Association executive director Jonathan Potter said in the organization's statement that "innovative music services will enjoy a more stable business environment because of this agreement, and that will benefit music fans and music creators alike."
The parties involved also agreed that certain types of promotional streaming do not require payment, and that noninteractive streaming such as Webcasts and satellite radio do not require mechanical licenses. - Paul Bonanos
See press release from the Digital Media Association
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