Record Labels Seek Federal Clarification on Online Royalties

The five major record labels asked federal copyright officials Wednesday to settle a royalties feud over innovative Internet music services, such as Web-based jukeboxes that can play an unlimited number of popular songs on demand.

The Recording Industry Assn. of America is petitioning to clarify when songwriters need to be paid, and how much, for the right to transmit their works over the Internet.

In particular, the RIAA wants the copyright office to weigh in on two types of online music services: ones that “stream” music to listeners on demand, and ones that download song files temporarily for fans to sample.

The labels’ eagerness to settle this reflects the pressure they feel from Napster Inc., the wildly popular online music file-sharing service, and other online sources of free music.

The RIAA has been in talks with the National Music Publishers Assn., which represents songwriters and publishers, for months about these copyright issues. So far, say industry officials, little progress has been made.

The request for regulatory intervention is “a backup, in case things don’t come together on the bargaining table,” said Cary Sherman, senior executive vice president of the RIAA. “We’d rather just work things out between ourselves, but there’s also a need for a plan in case things don’t work out.”

Sherman admitted, however, that it could take at least several months for the copyright office at the Library of Congress to settle this dispute.

The record companies are now eager to convert the millions of Napster users into paying customers. But to do so, they must develop an alternative that gives consumers access online to the music they want, such as charging a flat monthly fee to hear an unlimited number of songs from an online jukebox. However, no company has yet been able to get all the necessary licenses from the labels and music publishers--hence the copyright dispute.

At least one record label is jumping into the fray, despite the uncertainty about these royalty issues. Universal Music Group is quietly testing an online music jukebox service, through its Farmclub.com site, which streams music over the Net and allows people to create personalized playlists. Sources at Universal say it plans to charge subscribers a flat monthly fee of about $10, which is expected to roll out commercially sometime next year.

The RIAA’s request shines a light on the copyright morass that’s causing huge problems for online music services. The irony is that the RIAA’s members have been roundly criticized for not granting other companies licenses to distribute their copyrighted songs online.

“What they’ve now done is turn the tables on music publishers,” said Jonathan Potter of the Digital Media Assn., a trade group for companies distributing music and video over the Web. “They’ve said, ‘We, the record companies, are ready to launch.’ ”

The petition came on the same day a series of digital-music companies asked the U.S. Commerce Department to modify the nation’s copyright laws to spur the deployment of digital music to consumers.

Much of the current confusion about licensing involves streaming music, which is a way of transmitting songs online that lets users listen but not copy them easily.

A key question is whether a stream is a reproduction, which carries a comparatively large royalty, or a performance, which carries a smaller one.

According to the RIAA, the music publishers haven’t argued that the typical online radio stream is a reproduction. Instead, they’ve only sought reproduction royalties for Web jukebox services that let users hear songs on demand.

The RIAA’s petition asks the copyright office to decide whether an on-demand stream is a reproduction. If it is, the RIAA argues that it’s an “incidental” copy subject to a mandatory license that any company could obtain, without having to negotiate with the publisher of each song.

The RIAA also asks that the copyright office convene an arbitration panel to set the royalty rate for such incidental copies.

The music publishers want to be paid not just when a song is streamed but also when it is copied to the central computer database that delivers the service.

That’s what MP3.com agreed to do to settle a lawsuit about its service, which involved on-demand streams of songs. Specifically, it agreed to pay the publishers 10 cents to copy a song to its database, plus 1/4 cent each time a song is streamed.

Universal, by contrast, hasn’t paid the publishers at all for the on-demand service at its Farmclub.com, despite making a database of more than 20,000 songs by Universal artists. A spokesman for Universal said the company is in “active negotiations with the music publishers over whether a . . . royalty is payable, and if so, on what terms.”