Music labels promise to split iRadio royalties equally with artists; what could go wrong?

Directly licensing music from labels could let Apple and others offer music services which may be better for the listener, but potentially less profitable for recording artists

Credit: Image credit: REUTERS/Luke MacGregor

There was lots of buzz last week over the release of Google’s music subscription service. While Google and Spotify will now duke it out, Apple continues to hover over it all, working to bring the long-awaited and rumored iRadio service to market (though they reportedly continue to hit snags in trying to negotiate deals with record labels). While music lovers are happy to have more choices for consuming and discovering music, it’s not clear that services like these, which negotiate licensing deals directly with record labels, will be as beneficial to recording artists as they are to labels.

As a quick primer on digital music royalties, if you want to stream music online you have two options for doing so legally: do it under a statutory license available and pay royalty rates defined by the Copyright Royalty Board (Pandora), or negotiate licensing deals with the record labels directly (Spotify, Google, Apple). Why go through the trouble to do the latter? To get a lower royalty rate and/or to avoid the playback restrictions imposed by the DMCA (e.g. no on-demand playback), which those operating under a statutory license must do.

Streamers operating under the statutory license, like Pandora, pay royalties to a performance rights organization named SoundExchange, which collects and distributes royalties for the digital performance of sound recordings. By law, SoundExchange splits the royalty money equally between the record label and the artists performing on the recording. 

However, when a service negotiates its own deals with labels, there is no guarantee how the royalties will be shared with recording artists. In theory, it’s up to the labels and the artists to work it out. As a result, musicians could get a smaller percentage of the royalties from a service like Spotify or iRadio than they would if it operated under the statutory license.

Licensing deals between these music streaming services and the labels are private (unlike the statutory royalty rates), so it’s hard to look at what’s already been done to guess how it will play out when iRadio comes online. There is some anecdotal evidence that artists get more money from premium subscription services (which need to negotiate direct licenses), but, again, it’s the agreement between the label and artists that ultimately determines what musicians will get paid in these cases.

Promising news, though, for recording artists came via Billboard last week, which reported that major labels have promised SoundExchange that, in the event of directly negotiated licensing deals, they will still pay half the royalties to the artists (through SoundExchange). Of course, at this point it’s a rumor and it doesn’t include independent labels. Plus, it’s not clear if that promise would apply to any share of advertising revenue that the service pays to the label on top of royalties. 

Hopefully, the labels will do as rumored with whatever money they get from Spotify or Google or Apple and share it evenly with those who make the music, so recording artists will only be singing the blues by choice.

Read more of Phil Johnson's #Tech blog and follow the latest IT news at ITworld. Follow Phil on Twitter at @itwphiljohnson. For the latest IT news, analysis and how-tos, follow ITworld on Twitter and Facebook.

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