Copyright board leaves royalty rate unchanged

LOS ANGELES (AP) -- The federal Copyright Royalty Board on Thursday left the royalty that songwriters receive on sales of CDs and digital downloads at 9.1 cents per song for the next five years.

Both songwriters and music sellers applauded the ruling - but for different reasons. Apple Inc., which had threatened to shutter its iTunes store if the rate increased, appeared to have scored a clear win.

"We're pleased with the CRB's decision to keep royalty rates stable," Tom Neumayr, an Apple Inc. spokesman.

The Recording Industry Association of America, representing record labels, was pleased that the rate was frozen for the first time since 1977, meaning that if song prices increase, royalties will make up a falling percentage of the companies' costs.

"No party got everything it wanted, yet at the end of the day, the certainty provided by this ruling is beneficial," said Mitch Bainwol, chief executive of the RIAA.

This was the first time in nearly three decades that the recording industry couldn't set a fee on its own for sales of recorded music. The last government hearing to set the so-called mechanical royalty rate was in 1980 and was triggered by a change in federal law.

Part of the disagreement stemmed from the vast array of new ways of distributing music and the rise of digital downloads - driven in large part by Apple's iTunes store. Downloads had never been treated separately from CD sales, which are plummeting.

The Digital Media Association, representing online music stores including Apple, Amazon.com and Best Buy, said the decision will "help digital services and retailers continue to innovate and grow for the next several years."

The National Music Publishers' Association, which represented songwriters in the case, was happy the fees weren't cut in a declining music market.

It also preferred the per-song fee structure because the money its members are due won't change if record companies slash song prices to promote products like live concerts, from which songwriters and their publishers do not collect royalties.

"If prices go up, we're not going to share in that increase, but if prices go down, we're going to have a guaranteed value for that property," said David Israelite, president of the publishers' association, after the ruling.

For ringtones, the federal agency set a new rate of 24 cents, roughly in line with industry practice of paying songwriters 10 percent of revenue on each $2.50 ringtone. The rate was even higher than the 15 cents per song requested by songwriters and publishers.

The board also adopted an industry settlement made last week covering interactive streams and limited downloads offered by subscription services like Rhapsody and Napster.

In those areas, digital operators agreed to pay songwriters and their publishing agents 10.5 percent of all revenue minus roughly 5 percent paid in performance royalties. That agreement is retroactive to 2001.

The board's decision, which capped proceedings that began in January, was not immediately made public to give the parties involved the chance to redact confidential information.

Digital downloads grew 38 percent from 2006 to 2007 to become a $1.26 billion business, making up 23 percent of the market for recorded music, according to the RIAA.

Sales of physical music media such as CDs, cassettes and DVDs declined 19.1 percent to $7.5 billion in the same one-year period.


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