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Source: Bloomberg
By David Glovin and Susan Decker
Aug. 21 (Bloomberg) — A Yahoo! Inc. unit won an appeals court ruling that may protect Internet radio stations from paying higher music royalties, in a setback to labels such as Sony Corp.’s BMG Music and Bertelsmann AG’s Arista Records.
The labels don’t have the right to demand that Yahoo’s Launch Media, in which users receive songs based on individual preferences for specific kinds of music, pay licensing fees to individual copyright holders of recordings, the court in New York ruled today. Instead, sites pay fees based on their size.
“It brings a great clarity to an area that has vexed innovators for a long time,” said Jonathan Potter, executive director the Digital Media Association, which represents Internet companies. “There’s been 10 years of litigation over this. Companies have been put out of business because of this issue.”
The appeals court became the first to decide whether a Webcasting radio service is an “interactive service” that would require payment of individual licensing fees. The court, upholding a 2007 lower court decision that Launch’s service isn’t interactive, said LAUNCHcast, the Web service, doesn’t ensure a predictability of songs such that listeners stop buying music.
“LAUNCHcast’s listeners do not even enjoy the limited predictability that once graced the AM airwaves on weekends in America when ‘special requests’ represented love-struck adolescents’ attempts to communicate their feelings to ‘that special friend,’” the appeals court said.
Who’s in Charge
BMG spokesman Brian Garrity declined to comment, as did Jonathan Lamy, a spokesman for the Recording Industry Association of America. A spokeswoman for Sunnyvale, California- based Yahoo didn’t immediately return a call. Yahoo owns the second-biggest search engine, behind Google Inc.
“This is a classic case of tension of who’s in charge of what they hear and what they enjoy — is it the listener or is it the provider?” Potter said. “If you know you like Madonna, we’re not going to make the next song Simon & Garfunkel. The song gets played to an audience that will appreciate it.”
The ruling is “excellent news” for independent record labels, said Rich Bengloff, president of the American Association of Independent Music.
‘Larger Platform’
“It gives us a much larger platform, we believe,” Bengloff said. The Internet stations let a user chose a genre or style of music, like the blues, and get a larger playlist than on traditional AM or FM radio stations, he said.
Congress set up a procedure that would allow for a sort of subscription fee set by the Copyright Royalty Board. The Internet radio stations pay a set amount for each song or recording played based on the number of listeners. SoundExchange, a nonprofit Washington group set up by Congress to handle the fees, distributes the money to individual rights holders.
Had the ruling gone the other way, the sites would have had to go to each copyright holder, such as the record companies or artists who own their own rights, and negotiate a payment. Interactive sites are ones in which the computer user selects a specific song or group.
“The success of the Slackers and the Pandoras that are non-interactive and have customized playlists are important to us,” Bengloff said. “When you have a service like SoundExchange that has parity for everyone, you’re going to be treated fairly.”
Both sides have been operating under the presumption that Webcasting would fall under the board, and they have been fighting there over the amount that must be charged.
The Internet radio companies, including Pandora Media Inc., last month reached a 10-year music-royalty agreement with the record companies, resolving a fight that threatened their business.
The case is Arista v. Launch Media, 07-2576, U.S. Court of Appeals (Manhattan).
To contact the reporters on this story: David Glovin in New York federal court at dglovin@bloomberg.net; Susan Decker in Washington at sdecker1@bloomberg.net.
Last Updated: August 21, 2009 17:14 EDT
