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Composers and songwriters on Friday set out their case for an increased royalty rate for the sale of music downloads and challenged record companies to disclose the monies they make from the sale of internet downloads.

The musicians were responding to a legal action filed by record label trade group the British Phonographic Industry (BPI) in June.

That claim, filed with the UK Copyright Tribunal, sought to challenge licence terms set out by music publishers and composers for the use of their compositions on the internet and on mobile devices.

In 2002, music publishers and composers, acting through trade association The Music Alliance – a joint venture between the UK licensing and collecting societies MCPS (Mechanical-Copyright Protection Society) and PRS (Performing Right Society) – approved a Joint Online Licence, allowing online music providers to obtain a licence for performing and mechanical rights in one easy step.

But the licence imposes a rate of 12% of gross retail revenues on nearly all online music offerings (subject to a temporary discount to 8%).

This compares with publishing royalties on physical products, such as CDs, which stand at 6.5 per cent of retail price (or 8.5 per cent of the published wholesale price) and broadcast radio rates, which range from 3– 5.25 per cent of net advertising revenues.

The UK’s leading online music services and the BPI, representing more than 300 UK record labels, have taken exception to the tariff, and in June filed a complaint with the Copyright Tribunal.

Geoff Taylor, BPI General Counsel said at the time:

“The licence that the Alliance is trying to impose for online music is unreasonable and unsustainable. It is charging a royalty rate on a download that is double the rate it charges for a song on a CD. It applies this excessive rate to a whole range of online music services, without taking into account their different characteristics. The Alliance’s tariff threatens to seriously harm the development of the legal online and mobile music markets.”

According to the online music services and the BPI, the terms set by the Music Alliance are unreasonable because the Alliance and its members have not had to invest heavily in creating new legal online services and fighting internet piracy. Moreover it simply applies a single rate, without taking into account the nature and features of the service involved.

The BPI also argues that imposing higher royalties on online services than on their off-line equivalents puts online services at an unfair commercial disadvantage.

The Music Alliance filed its response to the claim on Friday, explaining that composers and songwriters currently earn around 5p from the sale of a download. BPI proposals would see them earning 2½p. In contrast, record companies keep 40–50p from the same sale, it says.

The Music Alliance proposes that, as of 1st January, composers and songwriters receive 7–9p per download, to bring their earnings in line with those they might have received in the past.

This is not a cost to the consumer, says the Alliance, but a cost to be recovered from the enhanced profits currently being enjoyed by record companies as a result of the savings being made from digital distribution.

Adam Singer, group chief executive of the Music Alliance, said:

“We have now submitted our reasons for why the record industry should adopt fresh economic thinking in a digital age in order to sustain the composing community upon which they rely. We believe that this dynamic digital market should not be stultified in the aspic of analogue thought; we should recognise that digital liberates margin and why writers should share in the new wealth that modern record companies will be able to create.”

Copyright © 2005, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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