What price streaming?

Record companies, Webcasters in battle royal; AOL divisions part company on issue

Record companies and Webcasters last week began a six-week face-off over how much the latter should have to pay the former in royalty fees for streaming their content.

Record companies should receive 15% of Webcasters' revenue, argued the Recording Industry Association of America last week before a copyright arbitration panel in Washington. That amounts to approximately 0.4 cents per song.

Webcasters, including radio stations that stream their programming, say they should have to pay far less—closer to .015 cents per song or 1% of total revenue—because they already pay copyright fees to music publishers of about $300 million annually.

The issue only concerns Webcasters offering non-interactive services, such as a streamed radio signal and not to services such as Napster, in which users download specific songs, or to services that allow users to create custom audio streams.

In the coming weeks, both sides will usher in dozens of witnesses to be cross-examined by lawyers. Last week, the panel focused on the record companies and heard testimony from RIAA President Hilary Rosen and Senior Vice President Cary Sherman. Later this month, top radio executives and singer Alanis Morrisette will present their side.

The panel's judges will issue their decision by the end of January.

The U.S. Copyright Office, part of the Library of Congress, has two or three months to accept that decision. If Librarian of Congress James Billington doesn't agree with the panel's decision, he has three months to issue his own ruling.

During last week's opening statements, both record companies and Webcasters pointed to the law, which establishes that compulsory copyright fees should be set by what a "willing seller and willing buyer" would negotiate in a fair market.

RIAA pointed to some 26 licensing agreements it has already struck with Webcasters, including one with Yahoo! last August, in an attempt to prove that the market already is working and no government intervention is needed.

But through their questions, Webcasters' attorneys implied they felt they had had no choice if they wanted to have a legitimate licensing deal in hand before launching a service.

The proceeding is forcing AOL Time Warner into an internal dispute. Warner Bros. Records sides with RIAA and the record companies. AOL Music, which sits on the Internet distribution side, supports Webcasters.

David Altschul, vice chairman and general counsel of Warner Bros. Records, last week told the panel: "Although Warner Bros. Records is owned by AOL Time Warner, we are run separately from AOL Time Warner and from the other WMG companies. We have our own profit-and- loss statement. We are responsible for paying all of our own expenses and operating a business that is profitable in its own right."

Meanwhile, AOL's Internet service division says they already pay royalties to music publishers and shouldn't be required to pay twice. Fred McIntyre, an executive with AOL Music/Spinner.com, will testify in opposition to Altschul.