What the ASCAP music decision means for consumers

Victory by songwriters and publishers in federal court may end up costing consumers more to stream music and make it harder for online-music services to compete.

Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
Greg Sandoval
3 min read

There's no mistaking who benefited from a federal-court decision to set licensing fees that three top Web services must pay songwriters and publishers for the right to stream their music.

But the question left unanswered is whether the losers also include consumers.

AOL, RealNetworks, and Yahoo may end up paying the American Society of Composers, Authors, and Publishers (ASCAP) $100 million as a result of a decision by a U.S. district judge to set the licensing fee for streaming music at 2.5 percent of adjusted music-use revenue.

"(The court's decision) is a victory for songwriters, composers, and publishers, and something they have been looking forward to for a long period," said John LoFrumento, ASCAP's chief executive. "In the past, we've settled with (Internet companies) at low rates. We wanted to encourage the growth of these businesses, but these businesses have matured...they have been using our members' music to attract people to their Web sites...it's time to compensate (our members)."

While none of the Web companies involved would comment on the judge's decision, a source close to the three sounded like the players on a baseball team after the other side just hit a walk-off home run.

"This wasn't good for us, to say the least," the source said, adding that the judge's order isn't yet final and that the three companies plan to continue fighting.

If the final fee structure looks anything like what is prescribed in the judge's written opinion, RealNetworks, Yahoo, and AOL would likely have to raise prices. It may also mean that the cost of doing business for anyone streaming music over the Web just went up.

"What this means to other licensees is, they now see what a standard benchmark fee should look like," LoFrumento said. "They now know what to expect from the rate court."

The three Web services had negotiated with ASCAP to obtain a license for unlimited play on the Web of any of the millions of songs in ASCAP's repertory. Following a stalemate, the two sides took their case to a rate court. The court's mission in the case was to determine a fair licensing fee.

The judge considered proposals from both sides. AOL, Yahoo, and RealNetworks wanted a multitiered plan with different rates, depending on the nature of the stream. For example, the three Web services wanted to pay 2.5 percent for on-demand audio, 1.7 percent for Internet radio, and .9 percent for music videos.

ASCAP scoffed at those figures. It said any structure should be set up to charge a percentage of a Web service's net revenue.

When it came to actual dollars, the two sides were worlds apart. Under the formula the Web services proposed, AOL and Yahoo would have paid ASCAP respectively $872,000 and $1.1 million for the year 2006.

Under ASCAP's plan, AOL and Yahoo would have paid $7.8 million and $7.3 million for the same year.

Jonathan Potter of Digital Media Association, a trade organization devoted to companies competing in online audio and video sectors, said the Web services involved absolutely want to fairly compensate songwriters and music publishers.

"We are disappointed, however, that the court ruled that online services' royalties should be based in part on service-wide revenue," Potter said, "(and) not simply on revenue directly attributable to music usage."