US mechanical rights agency withdraws streaming licence from Musicnet – but do they actually need it?

January 2007

Internet, music publishing

Billboard has reported that the Harry Fox Agency, the US’s largest mechanical rights agency, has told digital music service provider MusicNet that it is withdrawing its proposed licence for ‘interactive streams’ because of a potential industry-wide dispute as to what kinds of licence are
required on such services. The story highlights the legal arguments about what type of distribution (of content) a stream is – is it a ‘sale’ or a rental’ to the user – so administered as a mechanical right (eg by HFA in the US or the MCPS in the UK) or is it a ‘broadcast’ or transmission, in effect a perfoming right. The same confusion appears to apply to video on demand where the exact nature of the service is, in legal theory, an equally grey area.

HFA have been renegotiating their licence agreement with MusicNet ever since the digital music company was acquired by investment firm Baker Capital in April 2005, at which point HFA claimed MusicNet’s existing licence, which was based on a 2001 agreement between the royalties agency and the Recording Industry Association of America (MusicNet was originally co-owned by three of the major record companies), was no longer valid. Those negotiations were thought to be reaching a conclusion until the new setback, which has seemingly been caused by the wider discussions regarding mechanical rights and streamed music. Many in the digital music space argue that streamed music should be fully covered by performing rights licences (which are provided by the likes of BMI and ASCAP in the US and the PRS in the UK), and that there shouldn’t be a need to acquire a mechanical rights licence too. Clearly download sales attract a mechanical licence because they are in effect a sale of a copy – but streaming has been held to be analogous to broadcasting. Needless to say, organisations like HFA don’t agree. They say a mechanical right is required because, technically speaking, a ‘copy’ of their members’ music is made when music is streaming in the same way as when a download or physical CD is sold. That debate is due to go before the US Copyright Royalty Board, and the DiMA, the industry association which represents MusicNet and other digital companies, has declined to suggest a figure for the mechanical royalty on streamed music, raising speculation they plan to dispute that such a royalty is due at all. With that in mind, HFA say they are unwilling to enter into a new deal with MusicNet, though the specific reasons as to why they have reached that conclusion is unclear. It is also unclear what the decision means for MusicNet’s interactive streaming services which, with active negotiations on hold, could be said to be unlicensed. Nevertheless, MusicNet remain optimistic that their ongoing licence negotiations with HFA will still be successful.

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