Webcasters And Music Publishers Consider Judge's Formula

A judge's ruling that AOL, Yahoo and Real could owe as much as $100 million to music publishers and songwriters has both sides puzzling over implications of the judge's formula for determining the royalties, although organizations representing publishers are cautiously celebrating the news.

Here's our translation (from the legalese) of the judges formula:

(Total revenue of business unit - ad sales commissions - traffic acquisition costs) x (total hours of ASCAP music streamed to users / total hours of general use on the website) x 0.025

There's at least one point of debate here: what constitutes the business unit in question? Since music is used in so many different ways by sites like Yahoo and AOL, they could end up having a massive chunk of their revenue factored into this equation as being music-related.

There is a natural balance, however, built into the judge's formula.
If the "business unit" is considered to be a large percentage of thecompany, webcasters could argue that the "total hours of general use onthe website" denominator could include every hour spent by usersanywhere on the its network. As a result, it's still unclear how much,
exactly, webcasters will owe.

ASCAP had argued that the formula should address the wholemusic-related business unit (which could be hard to define for reasonsstated above), while the webcasters argued that the judge shouldspecify five different formulas – one for songs, another for musicvideos, another for ancillary music and so on, and apply them to each service offered by the companies. The judge went withASCAP's approach in this regard, apparently leaving the question ofwhat constitutes the "business unit" open to further interpretation.

Here are the official statements from ASCAP, the Digital Media Association(representing webcasters) and BMI, an ASCAP competitor that could standto benefit from the ruling:

Marilyn Bergman, president of ASCAP:

The Court's finding represents a major step toward proper valuation ofthe music contributions of songwriters, composers and publishers tothese types of online businesses - many of which have built much oftheir success on the foundation of the creative works of others. It is critical that these organizations share areasonable portion of their sizable revenues with those of us whosecontent attracts audiences and, ultimately, helps to make theirbusinesses viable. This decision will go a long way toward protectingthe ability of songwriters and composers to be compensated fairly asthe use of musical works online continues to grow.

John A. LOFrumento, CEO of ASCAP:

Musical works both support and enhance the business models of manymajor technology- and Internet-driven organizations - especially thosethat derive advertising revenue from consumer traffic and engagement. This historic decision, for thefirst time, provides a clear framework for how the online use ofmusical works should be appropriately valued. This decision alsoprovides clear validation of the flexibility and applicability of theASCAP blanket license model relative to the use of musical works on theInternet - something the Court itself specifically noted in its writtendecision.

BMI:

We applaud the decision bythe ASCAP rate court and congratulate our colleagues at ASCAP on thisimportant litigation milestone. The decision will benefit allsongwriters, composers and publishers by affirming the value of publicperformance rights in diverse uses of music by the three companies inthe litigation and across the digital marketplace. While there arestill some important issues to be resolved, the direction set by thecourt should be helpful to BMI as we continue to negotiate retroactivecompensation for certain music uses by these applicants.

Jon Potter, executive director of DiMA (Digital Media Association):

DiMA agrees that Internet portals and multi-facetedonline services should pay fair royalties to songwriters and musicpublishers. We are disappointed, however, that the court ruled thatonline services' royalties should be based in part on service-wide revenue, notsimply on revenue directly attributable to music usage.

DiMA is studying the 153-page decision, and at thispoint the only certainty is that the court's complex rateformula will require several weeks of additional consideration, includingperhaps additional court hearings, before its impact on the parties(Yahoo!, AOL and RealNetworks) and other ASCAP licensees is known.

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