RIAA bids for control of online royalty payments

The Recording Industry Association of America yesterday launched its controversial online royalties collection operation SoundExchange - the RIAA's bid to dominate the finances of the emerging digital music market.

The RIAA claims SoundExchange's role is to ensure that the many recording companies it represents are paid for the use of music broadcast over the Web. In the past, record labels haven't been owed a royalty when music for which they own the copyright is transmitted over traditional media, such as radio. Royalties have, however, been collected on behalf of performers and composers.

However, the US Digital Millennium Copyright Act (DMCA), provides scope for the labels to demand a royalty from Web-sent songs. And the RIAA has been vigorously pursuing a plan to collect those royalties ever since. SoundExchange's mission is to collect online royalties and share them between record labels and artists.

But it's not a plan without controversy. Many online music distributors believe that the royalty collection operation should be run independently of the beneficiaries of those royalties. The RIAA is, after all, funded by the recording companies, and that gives it too much power.

"There should be transparency and no control by any members of the music industry in this process," said Jonathan Potter, executive director at the Digital Media Association (DiMA), cited by Reuters. The DiMA represents online music suppliers, including Amazon.com and Spinner.com, and is keen to prevent the RIAA gaining too much control over how its members can supply songs.

Equally, artists groups are worried that a record label-sponsored royalty collector will find it too easy to pass the bulk of royalty payments to the labels and not the performers and composers. It's a clear conflict of interest, they say.

Of course, all this sounds pretty esoteric and far removed from the Napster controversy. After all, what has royalties for streamed audio got to do with MP3 sharing?

Well, quite a bit really. Napster's MP3 sharing system is the prototype for a variety of peer-to-peer music distribution services, all of whom are going to have to pay for the songs they all users to share. Whether their revenue model is advertising, membership subscriptions or both, they are going to have to pay royalties.

As we understand it, the DMCA grants record labels the right to a royalty on streamed audio, essentially because what's being sent is music data - in the form of bits - rather than the sound of the music, as is the case with radio. Bits may not be physical entities, but in the digital world they're just as much a commodity as a CD, and so the record labels are granted their cut.

With Napster, the argument is even clearer, since its not just bits, but complete files that are traded. However, since users aren't buying tracks but subscriptions, the files cease to be the commodity, but access is. That means, like radio and Web casting, a more nebulous payment system is necessary.

As Potter puts it: "These buffer copies have no independent commercial value and justly should be protected as fair use." (our italics). True, but they do have group commercial value.

That means payments not to record companies directly - since trading isn't done in units - but through collection agencies who can share out fees according to the volumes of files sent from user to user. And the RIAA wants to make sure that it's the one doing the collecting, especially when legitimately trading peer-to-peer music services becomes far more widespread than Web radio. ®

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