The BPI (British Phonographic Institute) has teamed up with major digital music services including iTunes to take on the UK publishing royalties collecting agencies.

Seven major online music services including iTunes, AOL, MusicNet, Napster, Real, Sony Connect and Yahoo! have joined with record label trade body the BPI to engage in legal action alleging that the licence terms demanded by music publishers and composers for the use of their compositions on the Internet and on mobile devices are "excessive".

In a move BPI chairman Peter Jamieson describes the litigants to be "disappointed" to engage in, they are filing references to the Copyright Tribunal challenging the tariff set by the MCPS-PRS Alliance, a joint venture between the MCPS (Mechanical Copyright Protection Society) and PRS (Performing Rights Society). MCPS and PRS set, regulate and collect publishing royalties.

'Unreasonable licence fee demands"

Explaining the rationale behind the dispute, BPI general counsel Geoff Taylor said: “The licence that the Alliance is trying to impose for online music is unreasonable and unsustainable. It is charging a royalty rate on a download that is double the rate it charges for a song on a CD. It applies this excessive rate to a whole range of online music services, without taking into account their different characteristics. The Alliance’s tariff threatens to seriously harm the development of the legal online and mobile music markets.”

The BPI claims publishing royalties on physical products, such as CDs, to be set at 6.5 per cent of retail or 8.5 per cent of published wholesale prices. Broadcast radio rates range from 3 to 5.25 per cent of net advertising revenues.

This contrasts with the Alliance’s online tariff proposals which allegedly impose a rate of 12 per cent of gross retail revenues on nearly all online music offerings (subject to a temporary discount to 8 per cent).

It's a format

The litigants argue that a simple change in the way music is delivered to consumers does not automatically justify a sudden rise in royalty rates, arguing that the Alliance and its members: "Have not had to invest heavily in creating new legal online services and fighting Internet piracy". Allliance members include publishing houses and music composers.

The litigants also believe that imposing higher royalty rates will put online music services at a commercial disadvantage.

The BPI and the online music operators also argue that the Alliance is being insufficiently flexible in how it applies the rate, insisting on a single rate applied across all licensee revenues while taking no account of the nature and features of the service.

Nature or nurture - the song continues

"Even where music is delivered as part of a broader array of products and services (and therefore a substantial part of the licensee’s total revenue is unrelated to the use or distribution of music). This is like charging a royalty on a department store’s total revenues, instead of on just its music sales," they say.

The online music services and the BPI argue that the royalties to be paid to the Alliance should reflect the specific nature of the service concerned (permanent downloads, webcasts, and so forth) and the level of royalties paid for similar uses of musical works offline.

Kenneth Steinthal of law firm Weil,Gotshal & Manges said: “We are taking this step in an attempt to establish a licensing structure for publishing rights that can allow our companies to stream Internet radio programming and otherwise distribute online music lawfully in the UK, while paying fairly for publishing without being placed at a severe competitive disadvantage relative to offline distribution of music and radio.”

Pay for your music

BPI general counsel Geoff Taylor stressed: “Record labels and legal online music services absolutely accept that composers should be fairly paid for their work and their creativity. Our highly-publicised campaign against illegal filesharing is based on the premise that music is something that has to be paid for.

“However, online music is ultimately just another music format – like a CD, a DVD or a 12-inch vinyl record. It doesn’t make sense that, because downloads and other online music services have come along, royalties to publishers and songwriters should suddenly double. Reluctantly, therefore, we have had to ask the Copyright Tribunal to set reasonable royalty terms that will allow the legal online and mobile music markets to continue to grow on a basis that is sustainable in the long term.”

BPI chairman Peter Jamieson commented, “We are very disappointed that we have been forced to resort to the Tribunal on a matter that we hoped would be settled by negotiation. However, we are confident that the Tribunal will find that the Alliance’s tariff is unreasonable.”