A federal judge has just set the rate to be paid for a blanket music license by Yahoo, AOL, and RealNetworks. The three companies could owe songwriters as much as $100 million over seven years as payment for streaming their songs on the web. As the Rolling Stones once noted, "You can't always get what you want," but the songwriters seem to done have all right for themselves this time around.

Webcasting on trial

When it comes to the byzantine world of music licensing, one key thing to remember is that songs are licensed by two separate parties: songwriters (and their music publishers) and recording artists (and their labels). Last year's controversy over webcasting rates focused on rates to be paid to SoundExchange, which represents the label side of the equation, but songwriters have also been agitated about their pay when it comes to Internet streaming. ASCAP, one of the three main performing rights organizations in the US, represents songwriters and has been caught up in a court case with AOL, Yahoo, and RealNetworks over the proper payments each should make for a blanket license to stream music on the web.

This is complicated stuff. What rate should apply to on-demand streaming and what rate to non-interactive Internet radio? What should songwriters get when music videos are shown? What about when music is used in news and sports programming streamed online? Et cetera.

A New York federal judge had the unenviable task of wading through the arguments, the proposals, and the counterproposals from the two sides and hashing out a formula that is fair to each; the fact that US District Judge William Conner needed a 153-page ruling (PDF) to do so hints at the difficulties here.

War of the proposals

ASCAP proposed a simple formula that applies a 3 percent rate to each streaming company's music revenues. The webcasters proposed a far more complicated formula involving five "buckets" of content and different fee rates for each one. On-demand streams would be worth 2.5 percent of revenues, for instance, while music videos would only give the songwriters 0.9 percent of revenue.

The webcasters also object to the way that ASCAP would calculate "revenue," saying that it would include all sorts of things that have nothing to do with streaming music. Judge Conner, obviously frustrated with this argument, noted that the "much-repeated contention stubbornly ignores the fact that ASCAP starts with a net revenue of only the business units that perform music." ASCAP has its own worries that the complexity of the webcaster revenue proposals would make the numbers difficult to verify and open to manipulation.

The differences between the two proposals all sound faintly academic until you look at the actual payments that webcasters would have to make, based on their 2006 revenues. In the chart below, ASCAP's proposal is shown in orange and the webcasters' is shown in green, and the two aren't even within shouting distance.

The decision

In the end, the judge allowed ASCAP to use its formula for calculating revenues, but he took a look at other market agreements in setting the rate and determined that 3 percent was a number without precedent. "After consideration of all the factors discussed above," he concludes, "the Court finds that a flat fee of 2.5 percent of Applicants' music-use-adjusted revenue is reasonable." You can see the results of this decision on the chart above.

The decision is particularly significant because it is retroactive, covering a period that goes all the way back to July 1, 2002 (and will continue through the end of 2009). In a statement praising the decision, ASCAP noted that this could mean a $100 million payout from the three companies across all seven years of the blanket licensing. If anyone continues to think that webcasting is still a niche business with no revenues, this ruling should show just how much money exists in the current market.

"It is critical that these organizations share a reasonable portion of their sizable revenues with those of us whose content attracts audiences and, ultimately, helps to make their businesses viable," said ASCAP President Marilyn Bergman. "This decision will go a long way toward protecting the ability of songwriters and composers to be compensated fairly as the use of musical works online continues to grow."

Old media is starting to get the fact that "new media" could quickly become a major revenue source. We saw the same contentious debate in the writers' strike earlier this year that sought higher payments for content delivered on the web, and ASCAP doesn't want to be left behind. In a newly-unveiled Bill of Rights, the group asserted last month that, among other things, its members have the following rights:

We have the right to choose when and where our creative works may be used for free

We have the right to develop, document and distribute our works through new media channels—while retaining the right to a share in all associated profits

We have the right to earn compensation from all types of "performances," including direct, live renditions as well as indirect recordings, broadcasts, digital streams and more

Judge Conner's ruling will no doubt help songwriters feel better about all those digital streams and their associated profits, now that more of the cash will end up in songwriters' pockets.