BPI and legal download services challenge online publishing royalties

August 2005

Record Labels, Music Publishers, Internet

A number of the UK’s leading online music services and the BPI, representing more than 300 UK record labels, are mounting a legal challenge to the licence terms demanded by music publishers and composers for the use of their compositions on the internet and on mobile devices. The seven online services – AOL, Apple iTunes, MusicNet, Napster, RealNetworks, Sony Connect and Yahoo! – are filing references to the Copyright Tribunal, alongside the BPI, challenging the tariff set by the MCPS-PRS Alliance for the use of musical works on the internet and on wireless devices. The MCPS-PRS Alliance is a joint venture between the MCPS and PRS, the collection societies that fix and collect royalties on behalf of music publishers and composers. These filings follow several years of negotiations with the Alliance by the BPI and online music services to try to achieve acceptable terms. Geoff Taylor, BPI General Counsel said: “The licence that the Alliance is trying to impose for online music is unreasonable and unsustainable. It is charging a royalty rate on a download that is double the rate it charges for a song on a CD. It applies this excessive rate to a whole range of online music services, without taking into account their different characteristics. The Alliance’s tariff threatens to seriously harm the development of the legal online and mobile music markets.” Publishing royalties on physical products, such as CDs, stand at 6.5% of retail price (or 8.5% of the published wholesale price). Broadcast radio rates range from 3% – 5.25% of net advertising revenues. But the Alliance’s online tariff proposals would impose a rate of 12% of gross retail revenues on nearly all online music offerings (subject to a temporary discount to 8%). The online music services and the BPI argue that the terms set by the MCPS-PRS Alliance are unreasonable for (amongst others) the following reasons which include the argument that a change in the technical means of delivering music to the consumer does not warrant a sudden increase in royalties for using compositions. The BPI also argues that imposing higher royalties on online services than on their offline equivalents puts online services at an unfair commercial disadvantage; The BPI further argues that by applying a single rate to gross revenue, without taking into account the nature and features of the service, is wrong as music may be delivered as part of a broader array of products and services (and therefore a substantial part of the licensee’s total revenue is unrelated to the use or distribution of music). The BPI lastly argue that the non-returnable quarterly fee demanded by the Alliance will unfairly disadvantage independent record companies and small online music services. The online music services and the BPI argue that the royalties to be paid to the Alliance should reflect the specific nature of the service concerned (e.g. permanent downloads, webcasting, etc.) and the level of royalties paid for similar uses of musical works offline. They should also take into account the massive investments made by online music services and record labels in developing legal online music services and fighting the unauthorised distribution of music online. BPI chairman Peter Jamieson commented, “We are very disappointed that we have been forced to resort to the Tribunal on a matter that we hoped would be settled by negotiation. However, we are confident that the Tribunal will find that the Alliance’s tariff is unreasonable.”

See: http://www.bpi.co.uk/news/legal/news_content_file_932.shtml and see the Update below on EC moves to streamline online licensing (European Commission proposes Europe wide music licensing for online use)

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