Rul­ing may af­fect mu­sic-stream­ing sites

An ap­peals court sides with RealNet­works and Ya­hoo in a bat­tle over roy­alty for­mu­las.

Los Angeles Times - - Business - Alex Pham alex.pham@latimes.com

In a rul­ing that has the po­ten­tial to af­fect many web­sites that stream mu­sic, a fed­eral ap­peals court on Tues­day said a lower court’s method for cal­cu­lat­ing mu­sic roy­al­ties was flawed.

The case in­volves a dis­pute over how much Ya­hoo and RealNet­works should have to pay the Amer­i­can So­ci­ety of Com­posers, Au­thors and Pub­lish­ers in roy­al­ties for the abil­ity to stream mu­sic on their web­sites. ASCAP col­lects per­for­mance roy­al­ties from ra­dio sta­tions and other busi­nesses that play mu­sic on be­half of song­writ­ers and then dis­trib­utes the pay­ments to the artists.

While the case is re­stricted to Ya­hoo and Real, its out­come could af­fect how much nu­mer­ous sites and on­line ser­vices pay for the right to stream mu­sic, in­clud­ing AOL, YouTube, Pan­dora, Slacker Ra­dio and MOG, said Jon Pot­ter, a prin­ci­pal at RPG Strate­gies, a dig­i­tal me­dia con­sult­ing firm in Mary­land.

“This will ab­so­lutely im­pact the roy­alty rates for all In­ter­net ra­dio com­pa­nies and mu­sic-stream­ing com­pa­nies, as well as any com­pany stream­ing any type of me­dia with a mu­si­cal com­po­nent, in­clud­ing videos and games,” Pot­ter said.

At is­sue is a District Court de­ci­sion in 2008 to set a 2.5% roy­alty rate for mil­lions of songs owned by song­writ­ers rep­re­sented by ASCAP. Real and Ya­hoo ar­gued that the cal­cu­la­tion was ex­ces­sive.

The three-judge panel of the U.S. 2nd Cir­cuit Court of Ap­peals sided with Ya­hoo, say­ing that the lower court’s method for set­ting roy­al­ties was “un­rea­son­able” and “im­pre­cise” be­cause it over­stated how much the sites ben­e­fit­ted from hav­ing stream­ing mu­sic in var­i­ous ar­eas of their site.

The ap­peals court faulted the lower court’s “in­cli­na­tion to lump all of Ya­hoo’s vary­ing mu­si­cal uses to­gether, in­stead of look­ing into the na­ture and scope of Ya­hoo’s dif­fer­ent types of uses.” On-de­mand mu­sic stream­ing, the court noted as an ex­am­ple, would have a dif­fer­ent rev­enue stream than mu­sic that plays in the back­ground of a video.

The rul­ing di­rected the District Court to come up with a new and more fair method for cal­cu­lat­ing roy­alty pay­ments. While Ya­hoo ex­ited the mu­sic-stream­ing busi­ness in 2008, hand­ing that func­tion of its site over to CBS Ra­dio, the case in­volves tens of mil­lions in po­ten­tial back roy­alty pay­ments from Ya­hoo, Pot­ter said. Over­all, ASCAP stands to col­lect hun­dreds of mil­lions more depend­ing on the out­come of the case.

Ya­hoo, in a state­ment, said it was “pleased with the court’s de­ci­sion and looks for­ward to the es­tab­lish­ment of a truly rea­son­able roy­alty-li­cense rate that prop­erly ac­counts for mu­sic use on its ser­vices.”

ASCAP said in a state­ment it was “dis­ap­pointed” but added, “We an­tic­i­pate that in the end, the pro­ceed­ing will re­sult in a fair and fa­vor­able li­cense fee.” RealNet­works did not im­me­di­ately re­spond to emails re­quest­ing com­ments.

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