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AOL, Yahoo, RealNetworks Suffer Setback In Music Licensing Fees

ASCAP estimates that the court's formula would lead to a total payment of $100 million from the three companies.
A federal court has decided that AOL, Yahoo, and RealNetworks must pay higher licensing fees for music broadcast over the Web.

The U.S. District Court in New York this week rejected the companies' request to base the amount of money paid to songwriters and music publishers on revenue directly attributable to music uses. Instead, the court said members of the American Society of Composers, Authors, and Publishers (ASCAP) are entitled to a rate based on a formula in which gross Web site revenue is multiplied by the portion of Web site activity that is music-intensive.

The Digital Media Association, the trade group representing the three companies, said Friday it did not dispute that Internet companies should pay fair royalties. "We are disappointed, however, that the court ruled that online services' royalties should be based in part on service-wide revenue, not simply on revenue directly attributable to music usage," Jonathan Potter, executive director of DiMA said in a statement.

DiMA said it is studying the court's 153-page decision, and the only certainty is that the rate formula would require several weeks of consideration, including possible court hearings, before its impact is known. DiMA has posted the ruling on its Web site.

ASCAP said the decision covers license fees for periods starting July 1, 2002, and continuing through Dec. 31, 2009. The organization estimated that the court's formula would lead to a total payment of $100 million from the three companies. The case involves songwriters and music publishers only. Record companies are not a party.

"The court's finding represents a major step toward proper valuation of the music contributions of songwriters, composers, and publishers to these types of online businesses -- many of which have built much of their success on the foundation of the creative works of others," Marilyn Bergman, president and chairman of ASCAP, said in a statement.

Content providers are seeking a bigger share of the growing streaming video and music market, which will generate $70 billion over the next six years, according to Insight Research. That number, however, could be much higher, if per-stream costs decrease faster than expected, or consumers accept Internet TV sooner than predicted, or 3G delivery takes off more quickly than forecast.

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