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SoundExchange freezes Webcast royalties

A record industry group that collects royalties says it will not distribute payments from Webcasters to labels and artists this year.

SoundExchange, a record industry group that collects Webcasting royalties, said Thursday that it will not distribute money to labels and artists this year.

The group, which was scheduled to distribute the money in July, said it is still working with its 25 Webcasters to get reports needed to accurately distribute the money. The group said it has collected Webcasting royalties "in the low millions" of dollars.

SoundExchange licenses, collects and distributes royalties for music played through digital channels including cable, satellite and the Internet. Anytime a song is played over the airwaves or streamed online, record labels are entitled to royalties under the Digital Performance Rights Act of 1995 and the Digital Millennium Copyright Act.

From the outset, however, the collective has met with criticism from artists and technology companies, which question whether the Recording Industry Association of America is taking a prominent role in controlling the royalty distribution process.

"We have a lot of concerns about SoundExchange," said Noah Stone, executive director of the Recording Artists Coalition, a Los Angeles-based trade association for recording artists. "We want to make sure the money is collected or can be collected by an independent body and that digital performances will be paid to artists directly. The law in some ways favors the labels over the artists, so we're not sure the RIAA can be trusted to pay this money fairly."

Webcasting royalties are only one battleground in the online music wars, but the issue has caught the attention of lawmakers. A House subcommittee heard testimony Thursday from digital music executives and music publishers regarding the debate over royalty payments for music played online.

Also at the hearing, RealNetworks detailed a subscription service dubbed MusicNet, which the streaming media company is building through a joint venture with major record labels owned by AOL Time Warner, Bertelsmann and EMI Group.

SoundExchange said it has been collecting Webcasting royalties for more than a year and expects to distribute the money next summer. In the meantime, the group plans to place the money in an interest-barring account.

"We're in the process of working with our licensees to make sure we have an accurate picture of exactly what they performed," said John Simson, SoundExchange's director of artists and label relations. "So that's why (Webcasting royalties) are essentially being held until they can be distributed accurately."

The group still plans to distribute in July about $6 million collected from satellite subscription services, a more established service than Webcasting that dates back to the mid-1990s.

The RIAA unveiled SoundExchange last fall after spending several months inking deals with thousands of independent record labels to become members of the group. Simson said SoundExchange now represents more than 2,200 labels made up of 300 companies, including the Big Five labels: BMG Entertainment, EMI Recorded Music, Sony Music Entertainment, Warner Music Group and Universal Music Group.