Another battle has touched off in Washington DC between different facets of the music industry over royalty rates, again with the additional impetus of those on the emerging new media side of the business. This time, however, the issue is over mechanical royalties and has one very interesting alliance. The Digital Media association (DiMA), a trade group consisting of various companies involved in the delivery of online content, often in new interactive formats like the internet radio station Pandora, has teamed up with the Recording Industry Association of America (RIAA) to lobby for lowering the rates.

What is so interesting about this alliance is that just last year SoundExchange (formerly part of the RIAA) lobbied hard for and won heavy increases in the royalty rates to be paid by internet radio. In doing so, SoundExchange and the RIAA fought hard against DiMA and several representative bodies of the internet radio community to raise their royalty rates to a level that would have put most stations out of business, all in the name of artists getting their fair share. Now that the issue at hand is mechanical royalties, and these come out of the labels’ earnings from albums, the RIAA doesn’t seem so keen on standing up for fair artist compensation. It seems the RIAA members are fine with people adding money to their pocket in the name of paying artists, but not so fine with people taking money from them for the same noble cause.

For those of you unfamiliar with royalties for the record industry, the process works like many others, with a label collecting revenue from album sales and then guiding it along to its next path while always taking a cut of the pie. The labels distribute the royalties from album sales, typically making payment to a publisher who takes 50% and guides the other 50% to the songwriter. While the royalty fees mandated are statutory, the law allows labels to negotiate a lower rate in many instances. Usually if the songwriter and the performer are the same, the label negotiates a lower mechanical rate, generally 75% of the statutory rate. Not only that, but the record label shaves off all kinds of percentages here and there for things like breakage (a problem back in the days of vinyl-only distribution) that are no longer issues, and packaging, of which the percentage deducted is often way more than actual cost. This is all before the label takes back the money for recording advances, touring, music videos, etc., but that is a discussion all on its own.

Since 1831, when the Copyright Act of 1790 was expanded to include musical works, various copyright acts have dictated the terms of copyright royalties paid to artists. In between those acts, rates have been adjusted—either to inflation or by the decision of a Mechanical Rate Adjustment Proceeding. The last set of adjustments expired on January 1, 2007 and is currently up for review. In addition to a review of the rate structure, the royalties due from nonphysical use of nonphysical mediums (like digital downloads) are being considered as a possible separate rate class.

Like the previous fight over the royalties for internet radio stations, the Copyright Royalty Board, part of the Library of Congress, is deciding this one. What differs this time around is the RIAA will be fighting its former partners in the previous case, artist royalties collectors ASCAP, BMI, and SESAC. Representing the artist royalties groups in the fight is National Music Publishers Association (NMPA). While the warring factions obviously disagree with the new rates, what is most intriguing is the battle over the nonphysical rates, and many in the industry view online interactive distribution (such as Rhapsody) as a major future for the industry. For this new rates class the RIAA is proposing a rate reduction to 5 – 5.5 cents per song (per song=five minutes or under), down from the current rate of 9.1 cents, and the NMPA is proposing a rate of 12.5% of the revenue of the companies putting the content online.

It’s interesting that the organizations that NMPA now represents argued vigorously against a percentage of a revenue model that was asked for by DiMA and the small webcasters in the previous royalty over online digital content, the fight over internet radio royalties. The only one who seems to be clearly and consistently backed by principal in these disputes is DiMA; for their part they are insisting that the songwriters and publishers have no rights to royalties in this instance. It seems progress can be slow indeed.

More articles by Jason Thomas:

The Summer of One Million Festivals

Thoughts on the XM and Sirius Merger

Industry vs. Academia: Part 2