Digital music downloads and streaming – royalty rates

The Copyright Tribunal (the Tribunal) has made an interim decision regarding collective copyright licensing and digital downloading and streaming. The decision centred on how much is paid in royalties when music is used or transferred in an online service. These online services include permanent downloads, limited downloads and on-demand streaming/webcasting.

The British Phonographic Industry (BPI) made the application to the Copyright Tribunal together with a number of major Internet companies (including music download sites) and mobile phone companies. The respondents were the collecting societies protecting the proprietary rights of creators and performers (the Alliance).

Background

The decision emanates from a long-running dispute between companies using digital music and societies tasked to collect royalties for performers and composers. The BPI and other distributors applied to the Copyright Tribunal (an independent body established under the Copyright Designs and Patents Act 1988) to settle their collective copyright licensing dispute. In September 2006, a settlement agreement was made between the Alliance and the majority of the industry parties. The agreement included the new joint online licence. The recent interim decision dealt with the outstanding requests that had not been resolved and included an endorsement of the terms of the settlement agreement.

The key points of the Copyright Tribunal’s decision

• The Tribunal endorsed the Settlement Agreement, including the new joint online licence.
• The Tribunal was informed about a number of other schemes and licences and agreed that the Settlement Agreement’s joint online licence would form the template for future online licensing; the Tribunal saw this licence as the nearest comparator for its decisions.
• The Tribunal endorsed the royalty rates set out in the joint online licence, which are a percentage of revenue as follows: permanent download, 8%; limited download or on demand service, 8%; webcasting where more than half is by a single artist or band, 8%; premium or interactive webcasting, 6.5%; pure webcasting, 6.5%. Downloads to mobile phones were agreed at the above rates less a small discount.
• The Tribunal confirmed the new joint online licence’s approach to the concept of minimum royalties for the full range of services. This decision will see royalties being paid to rights holders even when, for example, music is given away for free or at a subsidised price.
• With regard to one of the disputes that had not settled, the Tribunal set the royalty figure for pure webcasting for Yahoo!, AOL and Real Networks at 5.75%.
• The Tribunal looked at a variety of streams of revenue when reviewing the revenue on which the percentage-royalty should be based. This query stemmed from the opposition to the definition in the new joint online licence by a number of applicants. They objected to the possibility that the definition may capture advertising revenue linked to music.
• The Tribunal accepted that a royalty sharing in some of the advertising revenue is due in limited circumstances outside in-stream advertising.
• When music is fully paid for, the Tribunal gave three situations where advertising revenue should attract royalty:

1. when the advertising is in-stream;
2. when the music offered forms the only content of a page featuring advertising (excluding the advert itself); and
3. when the music offered forms more than 75% of a page featuring advertising (excluding the advert itself).

Comment

The parties have spent £12 million in bringing the action – an amount that reflects the desire for certainty in the industry. The decision confirms the general acceptance of the new joint online licence as a template by the Copyright Tribunal. It gives the online corporate users of music a degree of confidence in the level of royalties that they will be required to pay when selling or giving away music. Steve Porter, Chief Executive of the Music Alliance is reported to have said, “The uncertainty has finally been removed and we have a template for the future that recognises and affirms the value of the creative process to the online music business.” By confirming and setting benchmarks, the decision will aid legitimate use of the constantly developing and growing digital music market.

The decision

The full decision can be found on the UK IPO website.