Friday, April 13, 2012

New royalty deals for digital music

Music industry groups, digital music services and mobile telecomm operators have reached an "historic" deal on mechanical royalties (dealing with the reproduction of recorded material).  For the most part, the agreement continues the existing royalty structure and rates in existing markets, but establishes new rate formulas for newer digital music business models such as Cloud storage, some interactive streaming services, and digital music bundled with other services or content.
Tights for the newer services run about 12% of total revenue, 21% of the total costs of digital music, or 17-18 cents per subscriber (whichever is greater.  RIAA Chairman Cary Sherman hailed the deal -
"This is a historic agreement that reflects our mission to make it easier for digital music services to launch cutting-edge business models and streamline the licensing process ... This is a major win for consumers, the music community, and entrepreneurs and investors in new music services."
Another music business association leader, Jim Donio of NARM, proc;aimed that "the standardizing of rates and terms encourages innovation and fosters growth of new digital and physical products and services in the marketplace, giving consumers more choices around the music they love."

Certainly it's good for the music industry, and having a settled rate structure is helpful for digital music services as they will know what costs they face.  The downside will be for the consumer - who if they use a cloud service to hold music they've already bought and paid for, or in the case of digital music bundled with CDs, will be paying again for accessing and using his or her legally owned music online.  And as online music services aren't likely to just absorb the cost of royalties, the music consumer is looking at price increases of 10-25%..
  Then there's the secondary impacts of establishing an economic threshold for digital music services.  Fixing rates imposes known costs independent of any inherent value in either the music or the service. This discourages experimentation, innovation, and sampling of new artists and music, particularly when commercial value is low or uncertain.  It rewards content owners and services with proven high commercial value, to everyone else's detriment.  It imposes a burden on possible noncommercial options, or in situations where the production or distribution of digital music or digital music content is motivated by factors other than direct commercial gain.  As happened when rights fees were first imposed on online audio (radio) streams, experimental, noncommercial, and educational services will disappear, leaving only increasingly commercialized options,
  Further, as prices rise to incorporate new rights fees, consumers be less willing to purchase, and demand will fall.  As the music industry and commercial music services seek the short term stability and revenues they see excessive rights fees generating, they're continuing to alienate consumers and shrink demand, and hampering true innovation that they fear will challenge their market share,   In looking back, they're failing to consider the huge potential of the digital market economy.

Sources - Music Industry Groups, Digital and Cellular Interests Reach Royalty DealAllAccess
Music Industry, Online Services Strike DealWall Street Journal


  1. I think it's good that we have standardized some of our legal language regarding DRM and royalties. I think I remember a similar situation arise when sampling and DJ'ing really took off. The legal language was too archaic and that caused some musicians to hold off.

    The increase in price for the customer is a concern, but there isn't much one can do. Re-Digi, a second-hand digital music seller just won in court allowing them to keep their site and service open. This could force music companies to not pass these new costs off to the customer.

  2. I also agree with Jamison. It is good for the artists that they are trying to create ways for them to capitalize on their work. At the same time the artists who need the money to keep their band going give their music away for free all the time because it's an expression of who they are and they feel good about it and want to share it. Mega stars get tons of money from concerts and CDs and digital downloads already. I do not think it's fair that the people, the soul supporters, should be charged another fee. Especially if it's a doubled fee like with the cloud service and already purchased music.

  3. I think this is a step in the right direction for the music industry. As long as the internet is around, there will be piracy. The music industry is finally becoming more proactive in their approach in curbing piracy instead of standing on the outside looking in.

    However, they need to be willing to compromise more with their newly found initiative. The incredibly high cost of CD's was a major contributing factor that led to the initial explosion of online piracy in the late early 2000s, and alienating the consumer by raising costs another 10-20% may only foster more innovative ways for piracy to spawn undetected on the internet.

  4. Once again the music industry has decided to shoot themselves in the foot. These actions will only increase the rate of online piracy. The flat rates kill independent options as stated earlier. Furthermore, there should be a grandfathering system for those who already had accounts. It is false advertising to do such actions.
    I'm just weary, b/c this seems like a monopoly on the industry, and as a fan of non-commercial and independent outlets, I don't like it one bit.