Labels, webcasters argue royalty rates

RIAA proposing 15% of site's revs be charged for songs

WASHINGTON — Webcasters went at it with the record labels Tuesday, hinting that the majors are exaggerating when they describe the recording biz as financially risky.

At issue is the royalty rate for music streamed over the Internet. The two sides are pleading their cases before a three-member arbitration panel appointed by the U.S. Copyright Office, which will decide on a rate within a year.

The Recording Industry Assn. of America will split the new sound recording royalties 50-50 with artists. Of the half going to musicians, the featured artist will keep 45%, with the other 5% split evenly between backup musicians and backup vocalists.

Closed-door testimony

One of RIAA’s first witnesses, Warner Bros. Records vice chairman and general counsel David Altschul, on Tuesday gave the arbitration panel a primer on the inside workings of a label. Much of his testimony went on behind closed doors — with only counsel allowed to remain in the hearing room — since any financial information offered by a particular company is confidential.

“In the industry, generally only a small percentage of albums recover their costs,” Altschul said in the public portion of his testimony. “Thus, we must rely on the relatively few successes to compensate for the losses we incur on the vast majority of our sound recordings. To remain in business, a record label must continually discover, develop, promote and invest in a steady stream of new talent and maximize the revenues that it earns from sound recordings.”

Challenging the labels

But attorneys for webcasters questioned both Altschul and record industry economist Linda McLaughlin on whether major labels are, indeed, living from paycheck to paycheck.

Roughly speaking, webcasters want the royalty rate set at 0.014% per song, or about 1% of a webcaster’s annual revenues.

The RIAA wants the royalty rate to be calculated at 0.4¢ per song, or about 15% of a webcaster’s revenue.

Ironically, AOL Time Warner is fighting the battle on both sides of the aisle. Warner Music Group, parent of Warner Bros. Records, is a member company of the RIAA. AOL Music and one of its divisions, Spinner.com, are lined up with the webcasters.

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