How much money will songwriters make? That's the question before the Copyright Royalty Board (CRB) here in the US as the judges have launched a rate setting procedure that will determine—for the first time—what songwriters get for digital downloads and streaming music. Not surprisingly, the issue has become contentious.

On the one side are the music labels (represented by the RIAA) and the digital media companies (represented by DiMA) that stream and sell music over the Internet. Both groups have to pay "mechanical royalties" whenever a physical copy of the song is sold or a digital version is downloaded, and they'd obviously prefer to pay less.

The groups think that the current mechanical rate of about 9 cents, used to calculate how much songwriters get from CD sales, is too high. As the music industry suffers a downturn in overall revenues, these groups argue that songwriters have to accept less money in order to keep the whole industry alive.

But the songwriters don't have an interest in being kneecapped by lower rates for their work. David Israelite heads the National Music Publishers' Association, and he argues that the rates for digital distribution ought to go up, on the theory that digital distribution costs far less than physical distribution and there's more profit to be shared.

Israelite calls the current hearing "the most important rate hearing in the history of the music industry," as it sets a baseline that could be difficult to move much in the years to come.

Here's how far apart the two groups are: when it comes to digital downloads, the NMPA wants 15¢ per track for the songwriters (often split 50/50 between the songwriter and the music publisher), but the RIAA only wants to pay 5¢ or 6¢ a track. DiMA suggests paying even less.

For streaming music, the NMPA suggests that 12.5 percent of total revenue would be a fair payment, while the RIAA thinks that 0.58 percent would be appropriate. DiMA has suggested that songwriters don't actually deserve any mechanical royalties at all for streaming music, comparing the practice of streaming to radio and arguing that radio's "performance royalty" should be used instead.

As the numbers show, these are not trivial disagreements; the two sides have very different visions for the future of the industry. At a CES panel this year that was headed by our own Ken Fisher, DiMA head Jonathan Potter and Israelite sparred over the issue, with Israelite angrily accusing DiMA of trying to undercut songwriters.

If songwriters are not also recording artists (and many are not), these mechanical and performance royalties are one of their main sources of income. Even if the songwriters are in a band and record their own material, songwriter royalties can still be a large percentage of revenue, especially since radio currently pays songwriters but not recording artists (Congress has been considering proposals that could eliminate this carve-out for radio).

Wired's Eliot Van Buskirk covered the issue recently, and he claims that "music is bad enough already. Cutting songwriters out of the equation not only means that manufactured bands that rely on them sound worse. It also means bands that do their own songwriting will have a tougher time surviving."

The move to cut (substantially) songwriter royalties doesn't sound like something done to "support the artists," though perhaps moving more songs at lower prices would be better for everyone in the long run. On the other hand, it's not hard to imagine prices staying the same and the labels and resellers simply keeping the extra cash. It's also important to note that it's not just the RIAA that wants to lower rates; Apple, Amazon, Napster, iMeem, Live365, RealNetworks, and more are all DiMA members, and they're pushing for the lowest rates of all.

The CRB has started hearings and will issue a final decision in October 2008.

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