September 23, 2008

By By Ed Christman, N.Y.

The recording industry, music publishers and online music services have revealed the details of a landmark royalty deal for streaming and limited downloads of music, which was first announced June 18.

The agreement proposes a mechanical royalty rate of 10.5% of revenue, less any amounts owed for performance royalties for composition, for digital service providers that offer interactive streaming and limited downloads such as subscription and ad-supported services. When the settlement was first announced, details were kept confidential until they were submitted to the CopyRight Board in draft regulations.

In the settlement, the Recording Industry Association of America, the Digital Media Association, the National Music Publishers' Association, the Nashville Songwriters Association International and the Songwriters Guild of America have all agreed to the new rate.

The deal doesn't address rates for physical product, permanent music downloads or ringtones, but all of those issues, as well as today's agreement, are expected to be ruled on by Oct. 2 by the U.S. Copyright Royalty Judges.

"The music publishers understand that as technology evolves they have to support new applications," says A2IM president Rich Bengloff. "So the agreement provides for new business models by charging a percentage of revenue, instead of charging a per stream royalty rate, which would be difficult due to the uncertainty of a service's ultimate revenue."

Bob Kohn, CEO of music-royalty processing company RoyaltyShare, says the mechanical royalty agreement will provide music subscription services with a welcome bit of certainty that the rates won't be renegotiated later.

The agreement also confirms that audio-only streaming services like satellite radio and webcasting do not require mechanical licenses.

Also, the agreement allows for promotional interactive streaming to continue without royalty payments. So marketing devices like songs being available for streaming on artists and label website, which promote the sale of music are not subject to royalty payments.

Additional reporting by Cortney Harding.

Subscribe to Billboard magazine today!