Royalty Agreements in New Business Models

Traditionally royalties are paid to composers, labels, and publishers through music societies like BMI, ASCAP, and SESAC for the public performance of their music on things like the radio, stages, and jukeboxes. With webcasts and new music services entering the playing field, a collection agency called Sound Exchange has surfaced. Sound Exchange acts on behalf of the record companies to negotiate royalties with broadcasters, handle their performance licensing and reproduction rights, and distributing royalties to its members. Unlike the above music societies, Sound Exchange only collects royalties from compulsory licenses for non-interactive streaming services that are distributed through satellite, cable, or the Internet.
The question is, how will new media pay out to music companies and artists? Traditionally, labels have made money off record sales, but the shift to digital and their declining sales have led them to explore new options. Myspace Music is one of the up-and-coming new sources of revenue for recorded music. Advertising, music streaming, digital downloads, and merchandising all bring in revenue from the site. Because the four majors are also part owners, they will benefit by collecting a piece of the overall profit that is made by the service. On the other side, publishers will collect royalties from the service every time a song is downloaded digitally or an interactive stream takes place.
Other innovative new business models are coming from the mobile market in the UK and Europe. Nokia’s Come With Music service will be included on certain phones, and the one-year music subscription that they offer will be built into the purchasing price [see our cover article for more information –Ed.]. Customers who buy one of the select phones will be able to download any amount of songs without being additionally charged. Sony also will be coming out with a subscription service called PlayNow Plus. With this subscription customers will pay monthly for unlimited music downloads, and labels involved with this service will collect a certain amount of money for each download and each active subscriber. It is unclear what kind of deal publishing companies are receiving with either service.
Recent talks between labels, publishers, and digital music providers have led to an agreement concerning mechanical royalty rates for ad-supported streaming music and subscription services1. This royalty rate pays out to publishers for interactively streamed music and downloads that include DRM. It was also agreed to continue allowing artist, label, and retail web sites to operate without making mechanical royalty payments when promotional interactive streaming takes place. That means the iTunes and Amazon music stores can provide short previews of songs without paying any royalties. These agreements represent tangible process in making new business models a reality.

1 Ed Christman and Anthony Bruno, “Getting Paid,” Billboard 4 Oct. 2008

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