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Music royalty system debuts
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November 28, 2000: 4:57 p.m. ET
Record labels, artist groups start collective to recover performance royalties
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NEW YORK (CNNfn) - The recording industry on Tuesday unveiled a program that will reimburse American artists for music played on the Internet and other new media outlets.
The system, called SoundExchange, will be collecting and distributing royalties for performances that occur over the Web, cable and satellite subscription music services and non-interactive "Webcasters," or Internet radio station, the Recording Industry Association of America (RIAA) said.
The alliance represents nearly 2,100 record labels and 270 recording companies, including the world's five largest record labels -- Time Warner Inc.'s (TWX: Research, Estimates) Warner Brothers music group, Sony Music Entertainment (SNE: Research, Estimates), Seagram Co.'s (VO: Research, Estimates) Universal Music Group, Bertelsmann's music unit, BMG, and EMI Group PLC. Time Warner is the parent of CNNfn.
RIAA, the lobbying organization for the major recording companies, will serve as a member of the SoundExchange Governance Committee which will be responsible for overseeing distribution methodology and dispute resolution, as well as other governance issues.
The committee will also be comprised of artists, as well as groups such as the American Federation of Television and Radio Artists (AFTRA) and the American Federation of Musicians (AFM).
Copyright laws and different types of legal rights ensure that artists, rights holders, musicians, and the company's that back them, receive payment when songs are performed, whether live or on a disk, or over the Web.
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But the system comes nearly six weeks after it was originally scheduled to launch. That launch was postponed for more fine tuning. The collective now awaits designation from the U.S. Copyright Office, which selects agents to collect and distribute royalties, John Simson, executive director for SoundExchange, told Reuters.
Meanwhile, criticism mounted among its opponents who fear the trade group will wield too much control over royalty payments in the fledgling online radio business.
"This should be administered by a third party. There should be transparency and no control by any members of the music industry in this process," said Jonathan Potter, executive director for the Digital Media Association (DiMA), with members like Amazon.com Inc. and Spinner.com.
Simson of SoundExchange downplayed the concerns and expects the U.S. Copyright Office to select it as an online royalty collection agent during proceedings that begin in February.
"It's a landscape that will keep changing. And while these concerns are important, ultimately it will all get settled and we'll be collecting on these licenses," said Simson.
While the RIAA has been embroiled in that high-profile court battle regarding copyrights in cyberspace, tensions regarding Webcasting have been quietly simmering for months.
With traditional radio broadcasting, recording companies have never received royalties in the United States when songs are broadcast on the air. Rather, composers and publishers of songs get small royalties, which are collected and distributed on their behalf by ASCAP and BMI.
But under the Digital Millennium Copyright Act, copyright holders, such as record labels, are entitled to royalties when a song is played or streamed online. The question of how much to pay them has been at the center of the disputes.
Potter and others expect other groups will seek designation as agents from the Copyright Office.
"We have no problem with SoundExchange being one agent that collects royalties but they should not be the sole agent. It's a clear conflict of interest," said Jenny Toomey, executive director of the Coalition for the Future of Music, which urged the Copyright Office against selecting the RIAA as an agent in mid-October.
Specifically, Toomey said her group was concerned that artists would get shortchanged out of royalties if a collective was run by a group that represents the major labels.
She said there is a big fear the labels will hold much of the royalties collected for themselves. Her group is also concerned about one group representing both independent and major labels, which are competing entities.
-- from staff and wire reports 
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