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RIAA, Webcasters stand off over licensing pacts

Even as the online music world focuses on next week's Napster trial, tension is mounting behind the scenes over the record industry's control of the still-young online radio business.

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Even as the online music world focuses on next week's Napster trial, tension is mounting behind the scenes over the record industry's control of the still-young online radio business.

The Recording Industry Association of America (RIAA) is in the final stages of creating a Court: Shut down Napster collective intended to distribute royalties to artists and record labels every time a song is played online by a Webcasting service such as CMGI's iCast or America Online's Spinner.com.

But a growing number of voices in the artist and technology communities are questioning whether the RIAA is taking too prominent a role in this process. Some groups are discussing challenging the RIAA-organized collective's power in front of the U.S. Copyright Office, which is ultimately responsible for selecting an agent to distribute the royalties.

"(The RIAA group) has no impact at all until the Copyright Office approves it as a collective," said Jonathan Potter, executive director of the Digital Media Association (DiMA), a trade association that represents Webcasters. DiMA has not yet officially decided to set itself as an organization against the RIAA collective's role, but "a number of parties are discussing it," Potter said.

The dissatisfaction underscores what continues to be a contentious three-way relationship between the record industry, technology companies and the artists whose work supports both businesses.

Webcasters are in the midst of a bitter fight with the RIAA about just how much money they should pay in royalties, which almost certainly has heightened their skepticism of the music industry collective. Artists say they have ongoing concerns about the major corporate record labels' abilities to represent their interests fairly.

For its part, the record industry is proceeding with its plans and has consistently said it is doing its best to reach out to as many labels, both independent and corporate, as possible. A source close to the collective said the as-yet-unnamed organization would include representatives from independent labels, artists, and artists' unions as well as major labels on its board of directors when it launches Oct. 11.

Sticky from the start
The Webcasting business has been mired in legal red tape and political gamesmanship for several years. The ongoing struggles have prevented copyright holders from receiving almost any online royalties and have made it difficult for Net radio stations to form solid long-term business plans.

In traditional radio, the record companies don't get paid royalties every time a song is played. Instead, the composers or publishers of a song get a small royalty, which is collected and distributed by groups such as ASCAP and BMI.

But a political tussle in 1998 wound up giving copyright holders the right to a small cut of profits when a song is played online instead of over the air. This was written into the Digital Millennium Copyright Act, a controversial piece of legislation that set broad ground rules on how copyrights should be treated online.

Trouble is, Congress didn't say how much of a Webcaster's profits the copyright holders were entitled to, and that has set off a fight. The record industry has asked for 15 percent of companies' gross profits. DiMA and its member organizations rejected the offer, saying fees that high would cripple their businesses. The issue is slated for arbitration before the Copyright Office later this year.

Some individual Webcasters--most prominently Yahoo--have signed licenses with the RIAA in advance of the industrywide rules. Most in the business have not, and some companies have complained that RIAA has tried to pressure them into prematurely signing these individual licenses.

Throughout this fight over rates, most participants have assumed that the RIAA collective would be the body distributing the royalties. For months, the record industry has quietly been soliciting independent labels to join its collective, widening its representation in anticipation of the collective becoming official. The RIAA already has signed on close to 2,400 labels, either directly or indirectly through a third-party representative, said a source familiar with the collective's work.

Despite some vocal opposition to the RIAA, no alternative group has stepped forward with a plan for coordinating what will certainly be a massive logistical effort to distribute the royalties.

Growing concerns
The opposition to the RIAA's role is still coalescing and may fizzle by the time the industry group's collective unveils itself. Several prominent Webcasters contacted said they are wrestling solely with the royalty rates and have yet to focus on the issue of who controls the royalty group.

DiMA says it is still deciding what position to take as a group, as opposed to letting individual members take the lead on the issue. But it highlights the fact that the RIAA's leadership is not a done deal.

"The RIAA has not yet been appointed," said Seth Greenstein, a Washington, D.C., attorney who has served as DiMA's chief counsel. "It is not a foregone conclusion."

One of the groups that is already publicly criticizing the RIAA's role at the center of the Webcasting business is the Coalition for the Future of Music, a group recently formed to help represent artists' interests in the digital music debates. That group is likely to speak up in the Copyright Office proceeding, says executive director Jennifer Toomey.

Toomey notes that the RIAA, which is largely funded by the five major record labels, has a potential conflict of interest in the distribution of royalties.

Labels have historically tried to keep as much revenue as possible from new mediums for themselves instead of distributing it to artists, she says. If a contractual dispute arises in which a label claims that the artists have signed away online Webcasting royalties, or in some other case where the royalties are not getting passed though to artists, a label-dominated royalty collective might not be the best arbiter of disputes.

"We would be concerned that the RIAA would be able to force its labels to deliver," Toomey said. "Who will advocate for the artists?"

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