There's no mistaking who benefited from a federal-court decision to set licensing fees that three top Web services must pay songwriters and publishers for the right to stream their music.
But the question left unanswered is whether the losers also include consumers.
AOL, RealNetworks, and Yahoo may end up paying the American Society of Composers, Authors, and Publishers (ASCAP) $100 million as a result of a decision by a U.S. district judge to set the licensing fee for streaming music at 2.5 percent of adjusted music-use revenue.
"(The court's decision) is a victory for songwriters, composers, and publishers, and something they have been looking forward to for a long period," said John LoFrumento, ASCAP's chief executive. "In the past, we've settled with (Internet companies) at low rates. We wanted to encourage the growth of these businesses, but these businesses have matured...they have been using our members' music to attract people to their Web sites...it's time to compensate (our members)."
While none of the Web companies involved would comment on the judge's decision, a source close to the three sounded like the players on a baseball team after the other side just hit a walk-off home run.
"This wasn't good for us, to say the least," the source said, adding that the judge's order isn't yet final and that the three companies plan to continue fighting.
If the final fee structure looks anything like what is prescribed in the judge's written opinion, RealNetworks, Yahoo, and AOL would likely have to raise prices. It may also mean that the cost of doing business for anyone streaming music over the Web just went up.
"What this means to other licensees is, they now see what a standard benchmark fee should look like," LoFrumento said. "They now know what to expect from the rate court."
The three Web services had negotiated with ASCAP to obtain a license for unlimited play on the Web of any of the millions of songs in ASCAP's repertory. Following a stalemate, the two sides took their case to a rate court. The court's mission in the case was to determine a fair licensing fee.
The judge considered proposals from both sides. AOL, Yahoo, and RealNetworks wanted a multitiered plan with different rates, depending on the nature of the stream. For example, the three Web services wanted to pay 2.5 percent for on-demand audio, 1.7 percent for Internet radio, and .9 percent for music videos.
ASCAP scoffed at those figures. It said any structure should be set up to charge a percentage of a Web service's net revenue.
When it came to actual dollars, the two sides were worlds apart. Under the formula the Web services proposed, AOL and Yahoo would have paid ASCAP respectively $872,000 and $1.1 million for the year 2006.
Under ASCAP's plan, AOL and Yahoo would have paid $7.8 million and $7.3 million for the same year.
Jonathan Potter of Digital Media Association, a trade organization devoted to companies competing in online audio and video sectors, said the Web services involved absolutely want to fairly compensate songwriters and music publishers.
"We are disappointed, however, that the court ruled that online services' royalties should be based in part on service-wide revenue," Potter said, "(and) not simply on revenue directly attributable to music usage."
A federal district court in New York ruled Wednesday that the American Society of Composers, Authors and Publishers is owed "reasonable license fees" by online media powerhouses AOL, RealNetworks, and Yahoo for the music streamed and distributed on their sites.
Currently, music streamed by sites owned by the three companies is advertising-supported and no dividends are paid to ASCAP.
The U.S. District Court for the Southern District of New York will now determine appropriate fees for AOL, RealNetworks, and Yahoo, all of which have applied for ASCAP licenses but have not been able to agree upon fees. The total payments to the group, which represents over 320,000 songwriters, composers, and music publishers--not record labels--could reach $100 million. (Click here for a PDF of the court's decision.)
The license fees would cover music distributed as early as July 1, 2002, and then up through the end of 2009. Because songwriters and composers often aren't affiliated with record labels that distribute their music as performed by another artist, they presently are left without licensing fees from digital distribution on the three companies named in the court decision.
ASCAP President Marilyn Bergman wrote in a statement following the decision:
The court's finding represents a major step toward proper valuation of the music contributions of songwriters, composers and publishers to these types of online businesses.
It is critical that these organizations share a reasonable portion of their sizable revenues with those of us whose content attracts audiences and, ultimately, helps to make their businesses viable. This decision will go a long way toward protecting the ability of songwriters and composers to be compensated fairly as the use of musical works online continues to grow."
More details to follow.
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