The major players in the digital music business including AOL, Apple, Napster, Sony Connect and Yahoo! are taking the struggle with the MCPS-PRS Alliance, which collects royalties on behalf of composers and publishers, to the Copyright Tribunal. The dispute centres around the MCPS-PRS plan to hike the royalty rate for digital music sales to 12% from the current range of 8% of gross retail revenues. CDs and other formats are charged at 3.5-5%. The digital music stores have been joined in the dispute by the BPI, which represents UK record labels, and despite talks taking place over a number of years, these broke down.

Adam Singer, Group CEO of the MCPS-PRS Alliance, said, “This is a disappointing Tribunal reference by the BPI and the DSPs and one that could have been avoided. Industry observers must be baffled by record companies taking the publishing divisions of their own companies through a Tribunal procedure – spending millions that neither side can afford. This Tribunal reference does tremendous damage to the Industry as a whole, not least in the eyes of Government. For a creative industry this demonstrates a complete lack of imagination.”

The MCPS-PRS Alliance Joint Online Licence (JOL) was launched in 2002 and since then over 100 music service providers have signed up to its terms. Licensees are able to operate a number of business models under the one licence at a rate of 8% of revenues (discounted from 12% to help the growth of the legal online music market). Composers, songwriters and music publishers have supported the licence terms of the JOL which they believe has enabled the establishment and growth of the online music market.

A 12% rate would have a big impact on the big players in the DMS market, increasing pressure on already shakey financial models where the DMS make very little margin on sales. However, such a rate would all but wipe out the independents and smaller players. It would force a rise in digital music pricing that could hamper or even kill off the fledgling industry. At such an early stage in development, the DMS and BPI are hoping not to strangle the potential golden goose.

The UK government in the form of the Department Of Trade & Industry will now have to try and mediate between the warring parties.