<<<<
publisher in America. It will be the most important rate hearing in the
history of the music industry because in addition to setting rates for
physical products, rates will be set for the first time ever for digital
products such as digital downloads, subscription services and ringtones.
>>>>

Does this assertion bother anyone? It does me. While it may technically be
correct, everything I've heard previously has suggested that permanent
digital downloads and ringtones are to be treated the same as physical
products with respect to mechanical royalty rates. Subscription services
and limited downloads are the new territory.

<<<<
To give you an example of what is at stake, the current rate for physical
phonorecords is 9.1 cents. The NMPA is proposing an increase to 12.5 cents
per song. The RIAA, however, has proposed slashing the rate to
approximately 6 cents a song - a cut of more than one-third the current
rate!
>>>>

While I would tend to agree with NMPA that the rate should not be set back a
decade or more to the 6-cent level, I also do find it hard to justify the
level of increase they are talking about, which is significantly more than
past increases. It's not like CD prices, which is basically what we're
talking about with physical product at this stage, are increasing. Either
the past rate was fair or it wasn't. Maybe this should be a proportional
rate to price? Of course, that is much harder to deal with for accounting,
and easier to "trick" as a result. I believe it is, however, what is used
in most other countries.

<<<<
For permanent digital downloads, NMPA is proposing a rate of 15 cents per
track because the costs involved are much less than for physical products.
The RIAA has proposed the outrageous rate of approximately 5 - 5.5 cents per
track, and DiMA is proposing even less.
>>>>

NMPA raises a good point about the physical product cost consideration, and
the question as to whether record company profit should enter into the
picture, with the notion that, if record companies make more of the product,
so should publishers and songwriters. And, if they're talking about a
99-cent download, where the record company gets 70 cents, I might be
inclined to agree that 15 cents (21.4%) might seem fair. On the other hand,
not all permanent downloads yield 70 cents. If it were an eMusic worst case
download, that only gets something like 25 cents total to the record company
(if I remember correctly), now you're talking about 60% to the
publishers/songwriters, which doesn't seem fair. This makes me think that
the best scenario for permanent digital downloads is a percent rate, rather
than a penny rate. In this case, I also think the numbers to do the
calculations are much more available, so the accounting should be able to be
fairly transparent.

As for the DiMA position, if we're talking about 99-cent downloads, it is
downright insulting to songwriters and publishers. On the other hand, if
we're talking about cheaper downloads, it could end up being fair, depending
on how low the price goes. This seems to me to reinforce the notion that a
percentage rate makes the most sense.

<<<<
If you find that troubling, it gets worse. For interactive streaming
services, which some analysts believe will be the future of the music
industry, NMPA is proposing a rate of the greater of 12.5% of revenue, 27.5%
of content costs, or a micro-penny calculation based on usage. The RIAA
actually proposed that songwriters and music publishers should get the
equivalent of .58% of revenue. This isn't a typo - less than 1%. And DiMA
is taking the shocking and offensive position that songwriters' and music
publishers' mechanical rights should be zero, because DiMA does not believe
we have any such rights!
>>>>

This is, of course, the big gray area that has never been resolved by the
parties involved, even on a temporary basis. It is also the area of dispute
that led to the reported pulling of the publishing arm of Sony's pulling of
its songs from Harry Fox's streaming service licensing.

I don't have a good handle on how to assess the NMPA's numbers since I don't
have a good appreciation for the costs involved in running an interactive
streaming service (e.g. Rhapsody, Napster, etc.). Also, I'm a bit confused
on why they are needing three different rates, and they don't give detail of
the micro-penny part of the proposal.

My best guess on the 27.5% of content costs part is that, if we're talking,
for example, about a penny stream (i.e. to the record company or indie
artist) from Rhapsody, then this may be what is represented as content
costs, and the publisher would get $0.00275 of that overall $0.01, or a
little over a quarter penny. Is the song worth a quarter of the recording?
It's not compensated that way at the moment (9.1 cents out of the 70 cents
iTunes pays only gives 13% -- of course, NMPA is proposing 15 cents, which
would raise the figure to 21.4%). Maybe it's because I'm a songwriter, but
I am inclined to think a song is worth some decently healthy portion of the
overall recording proceeds.

On the revenue percentage, whose revenue -- the interactive streaming
service? If that is it, is it the streaming service that pays or the record
company? I suppose, if they are really looking to base the song percentage
on overall content value, then this could represent a way to enforce that
the content value isn't given too low a figure, or, if it is, it doesn't
come out of the song proceeds. If so, I guess what it is saying is that, if
Rhapsody receives $10 a month from a given customer, the
publishers/songwriters should et $1.25 of that, even if Rhapsody and the
record labels agree to some figure that makes that $1.25 represent more than
27.5% of content costs.

The concept seems fair, if a bit tricky to handle on the administrative side
given the question as to who is actually paying. For example, if it is the
interactive streaming service itself, will they be able to deal with all the
independent publishers/songwriters out there who are potentially getting
micro-penny payments? Or should the record companies, who are being paid
for the recordings, be responsible for handling their publisher/songwriter
payments as they have been for normal mechanicals to date?

Or perhaps this stuff should not be considered mechanicals at all but
performances, even if the same rates are applied as suggested here for
mechanicals? In that case, there is already someone set up to collect and
manage complex payments, in the form of the PROs, and most publishers and
songwriters will already have an affiliation with a PRO, so it doesn't
require a separate affiliation, for example with Harry Fox, to manage lots
of potentially small payments. Not that I necessarily trust the PROs to
fairly account for these, but at least there should be 100% survey data in
these scenarios, so they SHOULD be able to.

In that sense, maybe DiMA is actually right, that there shouldn't be any
mechanical rights in interactive streams (and possibly limited downloads),
because they should be treated as performances instead. That shouldn't
affect the notion that they are still worth some amount of money
proportional to the money that is being taken in for access to the
recordings, only who is involved in administering the payments. Of course,
NMPA would like it to be Harry Fox so they get their 9%, but, as a
songwriter, I think I'd prefer it be administered by ASCAP (i.e. my PRO) and
the other PROs, because I don't want to have to affiliate with Harry Fox
when their rules at present make it impossible for me to affiliate with
them, and I already have an affiliation with ASCAP and can deal with normal
mechanical licenses directly with the record companies and self-released
artists who are using my songs. OF course, DiMA may have another goal in
mind, such as paying nothing, or paying a lesser percentage, but, as far as
I'm concerned, there are two questions here. One is how much gets paid, and
the other is how it is administered. I don't think how it is administered
should have an effect on the question as to how much gets paid, or vice
versa.

Rick

==========================================
Rick Paul
Closet Cowboy Music (ASCAP)
Web: www.RickPaul.info

Pandora web radio founder Tim Westergren has to say about the CRB and proposed new royalty rates.

http://hypebot.typepad.com/hypebot/2007/10/pandora-westerg.html