Current royalties for music streaming 'unreasonable' says court

Posted by Emma Woollacott

A federal appeals court has ruled that the current system for calculating royalties on music downloads is flawed.

The court overruled a lower court's decision in order to side with Yahoo and RealNetworks in their dispute with the American Society of Composers, Authors and Publishers (ASCAP).

ASCAP collects royalties for streamed music as well as radio stations and distributes them to the copyright holders. It deals with nearly 400,000 composers and music publishers, licensing almost half of all music played online.

In 2008, a district court ruled that royalties for streamed music should be set at 2.5 percent, a decision that was challenged by RealNetworks and Yahoo. They argued that a blanket fee covering all the authors represented by ASCAP would be more appropriate.

But the US Second Circuit Court of Appeals now says that this was 'unreasonable' as it overestimated the benefit to the companies of having streamed music on their sites. It pointed out that on-demand music streaming, for example, was of much greater benefit to the companies than, say, music playing in the background on a video.

The case has rumbled on for so long that Yahoo no longer has a presence in the music streaming business, having sold out to CBS Radio in the meantime.

But there are still millions of dollars in back royalties at issue, and the decision could also have implications for other streaming services, including those from AOL, YouTube and Pandora.

The court has now ordered the lower court to reevaluate the way royalties are calculated. Yahoo, unsurprisingly, says it's pleased with the decision; ASCAP is keeping its fingers crossed.