The music kings fight over royalites

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There’s a widespread public impression of the music industry as monolithic corporate horde moving in lock-step to a) force brainless pap down our ear canals, b) exploit lowly artists and c) sue the pants off of 12-year-olds, college students, grandparents and dead people. In truth, only a portion of the industry is dedicated to those three goals. Umm, that was a joke, and so is the notion of a united industry front. A good illustration of the divisions in the music ranks is the emerging battle between the major record companies and the music publishers -- the largest of which are their corporate siblings -- over how much the publishers must be paid whenever a song is copied.

Because of the dual copyrights involved in musical recordings, the labels have to pay publishing arms such as the Harry Fox Agency (which collects the ‘mechanical’ royalties earned by tens of thousands of songwriters) 9.1 cents for every song recorded by their artists. That’s not a one-time payment; it’s a payment due on each CD track or authorized download. The rate, which is set by statute and has risen steadily since 1978, is slated to expire at the end of next year.

Today the two sides asked a copyright royalty board (a three-person arbitration panel) to come up with a new rate for 2008 and beyond. Their proposals reflect a fundamental split, and it’s not just over the size of the royalty. The labels want publishers to be paid a percentage of the revenue made from the sale of songs, while the publishers want to continue being paid a fixed amount, at least for CDs, permanent downloads and ringtones. Specifically, the labels propose a rate of 8% of wholesale revenue, which translates to roughly 6 cents per download and 8 cents per song on a CD. The publishers want 15 cents per download, 15 cents per ringtone (as a minimum; they’ll accept a percentage of ringtone revenues if it yields more money) and 12.5 cents per song on a disc.

I have some sympathy for the publishers’ request for more money, given that the compulsory nature of the license undermines their bargaining power. But fixed royalties are an artifact of a business model that’s dying. What’s worse, they prevent labels and online music outlets from experimenting effectively with new models that have the potential to make everybody better off. The file-sharing phenomenon strongly suggests that the market is crying out for a low-cost, high-volume approach to music, but it’s hard to slash wholesale prices when publishers are guaranteed upwards of 9 cents a track. That’s why the royalties should shift to a percentage of sales revenue. And the two sides should start hammering out a deal now, rather than waiting for the arbitrators to decide. It’s way past time to test the elasticity of demand for music.