From Today's NY Times: First Royalty Rates Set for Digital Music

[Phil]

By BEN SISARIO

In a decision closely watched by the music industry, a panel of federal judges who determine royalty rates for recordings ruled on Thursday to renew the current royalty rate for CDs and other physical recordings, while setting rates for the first time for downloads, ring tones and other services.

The ruling by the Copyright Royalty Board — a panel of three judges appointed by the Librarian of Congress — applied strictly to mechanical royalties, which are paid to the songwriters and publishers of music, not the performers. The royalty is paid by the entity licensing the music (which varies, depending on the format of the recording).

Despite a range of proposals from music publishers, record labels and digital music sellers, the judges kept the rate for physical recordings at 9.1 cents for each track. The board set the same rate for permanent digital downloads, effectively equating the value of physical discs with downloads from retailers like Apple, through its iTunes store, and Amazon.com.
The judges also set for the first time a mechanical royalty rate for master tones, ring tones made from a snippet of music from a full recording. That rate is 24 cents. Until now, copyright holders had negotiated royalty payments with users.

The new rates will be in effect through 2012.

The new rates had been the subject of contention among publishers, record labels and retailers, each of which had lobbied the board for significant changes. Publishers, concerned about losing income as music sales decline, sought an increase of 66 percent for physical recordings and downloads, while the labels and retailers petitioned the judges to adopt a new model that would determine royalty payments as a percentage of wholesale revenue.
In one document submitted to the judges, an Apple executive threatened that a significant increase in royalty rates could force the company to shut down its iTunes music store, which has sold 5 billion songs since it opened five years ago but which operates with thin margins.

Not all of the novel proposals from music companies were rejected. Last week most of the interested lobbying groups, including the Recording Industry Association of America, the National Music Publishers’ Association and the Digital Media Association (which represents Apple, Amazon, Pandora Media and other companies), agreed to a plan to set royalty rates for streaming and other nonpermanent forms of music, like subscription services.
For those services, many of which depend on advertising, royalties would be tied to a percentage of revenue. The board has yet to ratify that plan, but the lobbying organizations expected it to pass.

Some in the industry warned that the measures might not be enough to stem the losses suffered since the rise of illegal file-sharing a decade ago. Jonathan Feinstein, a music lawyer at the Krasilovsky & Gross firm in New York, said the ruling introduced needed flexibility and certainty.

“Whether these developments will be sufficient to return the music industry to health is not clear,” Mr. Feinstein said.