As we previously noted, it was recently reported that in the midst of the Copyright Royalty Board (CRB) hearings, the publishers, record labels and digital music providers (DiMA) agreed to a settlement on the royalty rates for limited downloads and Internet streaming, that are scheduled to ratified this October by the CRB. Given the sides’ position throughout the process on this issue was so far apart, it seemed as though these rates, in particular, would certainly be left to be decided by the CRB judges. But in the wake of this news of agreement, the logical conclusion is that the parties agreed on a revenue equation for the rates, as has been the case in other countries for publishing royalties, where the publishers are guaranteed the greater of a certain percentage of revenue or an amount per subscriber, download, stream, play, etc.

If this is in fact the case, the publishers now sit squarely in the driver’s seat for determining the future of purely ad-supported business models in the digital music space, many of which cannot exist if required to make any sort of minimum payment per transaction or subscriber. Once such a rate is set by the CRB, each individual business unable to accept a minimum payment will then be forced to negotiate directly with each individual publisher for each music track, and face not only enormous advance payment demands, but an endless nightmare of tracking down each individual publisher (which for some music tracks may be 5 or more) and securing a licensing arrangement that does not involve any such minimum.

The enormity of this time and money consuming endeavor will certainly turn many current and future purveyors of digital music away from the distribution of on-demand streaming music and conditional downloads which, in comparison to the permanent downloads, do not earn enough revenue given their ephemeral nature to warrant a fixed payment amount other than a percentage of what they actually generate.