Digital Trends

A new industry agreement sets royalty rates for online music subscription services, but leaves Internet radio still twisting in the wind.

The Digital Media Association (DiMA) has announced a new agreement that aims to delineate how songwriters and music creators will be compensated for music distributed through online subscription servics. The agreement sets a basic 10.5 percent mechanical royalty on revenue generated from "limited download and interactive streaming services," minus any amounts owed for performance royalties. The agreement doesn't apply to purchased downloads (like those from the iTunes store), but is intended to apply to subscription services and ad-supported music steaming outfits (like SpiralFrog and Last.fm).

However, the agreement doesn't resolve royalty issues that threaten the future of non-interactive streaming services like Internet radio, Live365, and Pandora, which are laboring under a show of being wiped out of existence by high royalty rates. The only part of the agreement that would apply to these services confirms an earlier finding that these non-interactive, audio-only streams do not require reproduction or distribution licenses from copyright owners. The agreement also permits royalty-free use of streaming for certain types of promotional streams.

"Innovative music services will enjoy a more stable business environment because of this agreement and that will benefit music fans and music creators alike," said DiMA's executive director Jonathan Potter, in a statement. "DiMA is particularly pleased with the agreement to end litigation and threats of litigation involving several of our member companies, so that they can focus on building innovative businesses that can effectively fight piracy, the music industry's greatest threat."

The agreement will be submitted in the form of draft legislation to the Copyright Royalty Judges for acceptance; the panel is expected to issue a ruling on the agreement by October 2.

Although the proposed agreement at least proved the different sides in the streaming audio debate can talk to each other, it still leaves Internet radio twisting in the wind, wondering if skyrocketing royalty rates will put it out of business.