Royalties collection still the question

Digital realm complicates artists' rights

In the digital age, slicing the royalty pie is not as simple as it used to be.

Apportioning royalties to musicians, songwriters, producers and record companies is becoming a convoluted affair now that the Internet is providing a forum — sometimes legally, sometimes not — for piping music directly into fans’ homes.

In the wake of the Napster debacle, Don Henley told the Senate Judiciary Committee earlier this month that major labels are ignoring artists and songwriters when it comes to negotiating royalties for music played on the Internet.

“We simply don’t trust the record companies to collect and pay us our royalties,” Henley said. “There are a lot of details that need to be worked out in this new world.”

But just who will be gathering and paying royalties once selling music online becomes an everyday thing? It’s too soon to tell.

“There’s potentially a lot of dollars, and there’s a lot of debate about who should collect that money,” says David Byrnes, an attorney specializing in music issues at the Loeb & Loeb law firm in Los Angeles. “Everybody expects an expansion of the music business and to see some real revenue realized from these new media uses and opportunities.”

Complex past

Musical copyright has always been a convoluted business. Historically, royalties have been collected and distributed by several different bodies, depending on the use of the work. For instance, royalties for a live performance in a nightclub are collected by trade orgs (usually ASCAP or BMI, and sometimes SESAC), and paid out to publishers — minus a fee, of course.

But on the Net, things can get really arcane. An online music stream, for example, is generally thought of as a performance, like concerts or club shows. But some argue that it is also a reproduction of the song, since it makes a temporary copy of the track on a user’s hard drive. That means it might require an entirely different license, called a mechanical.

At present, the law is still unclear on this and a rash of other ambiguities in regards to online copyright, so the companies and the orgs have been forced to hash it out for themselves.


Several firms are already tracking royalties due artists and others in the digital realm –or have offered to do so — including BMI; Reciprocal Inc., a digital rights management company that services the entertainment, publishing and software industries; the Production Music Assn., comprising primarily music libraries; the Harry Fox Agency, which handles mechanical rights; and SoundExchange, a division of the Recording Industry Assn. of America that was created to collect royalties for streaming music under the Digital Millennium Copyright Act of 1998.

“Our clients are excited about having a new platform for the distribution and exploitation of the copyright of their material,” says Richard Conlon, VP of marketing and business development at BMI, which has been licensing music on the Internet for six years.

Because of its connection to the RIAA, SoundExchange’s involvement in representing a new right has not been universally welcomed in the creative community.

“The issue is do we want the RIAA to collect that money for the artists,” says Byrnes. “Often an artist will have a negative balance in their royalty account, whether it’s for unrecouped advances or whatever, and the fear is that the record company will simply credit the account rather than pay it through directly to the artist. If there were an organization of performers to at least collect the money for them.”

Jonathan Potter, exec director of the Digital Media Assn., which represents companies such as RealNetworks,, Amazon, Yahoo! and Liquid Audio, goes a step further.

Sticking together

“A combination of artists, labels and Webcasters should be doing it together, because we all should have a common interest in accurate payments and accurate distribution of royalties,” he says. “No one has an interest in trusting one of the other entities, like the RIAA, to be the sole royalty collector and distributor.

“If I had my way, I’d aggregate the best technologies and turn it over to the best quantitative, analytical and data aggregator I could find,” Potter says, suggesting firms such as EDS, Oracle or Exodus.

The biggest threat to organizations that traditionally have administered royalties is the Internet’s “extraordinary ability to collect data,” Potter says. “As the world moves to-ward the Internet, there’s technology available that enables content owners to track the movement of their music over the Web as a check against the rights societies.

“Someone could look it up and say, ‘If my downloads are up, why did my royalties go down?’ Every rights owner potentially has the right to police the data.”

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