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http://news.bbc.co.uk/1/hi/programme...ch/3455073.stm

Music costs set to soar

Working Lunch has been given exclusive access to research that predicts massive rises in music licensing and royalty costs.

The increases are to make up for the losses incurred by the music industry as it switches from traditional record and CD sales to online music downloading.

The music industry is losing millions of pounds every month because of the changes and global CD sales have dropped by over 10% in the last year.

Options

To make up for the loss, the industry is considering all of its options.

One of them, according to recent research, might mean that music retailers, nightclubs and broadcast companies could face a hike in royalty rates of up to 1000%.

Dr Andrew Burke of Warwick Business school is the author of a new report into the subject.

Dr Burke reckons that organisations such as the BBC could see the licenses which they pay to the music industry increase by up to 287%.

Similarly, cinemas, nightclubs and retail outlets could encounter price increases for music licences in excess of 1000%.

Dwindling revenues

The research undertaken by Dr. Burke, looked into the impact of the electronic distribution of music on price regulation of composer and publisher royalties.

The results indicate that the online market for music threatens reduced revenues, higher risks together with unchanged costs for composers and publishers.

Currently it's private users that bear the brunt of royalty costs - around 49% of royalty income comes from this group. But as CD sales have fallen, so have the royalty incomes.

Through the use of an economic model, Dr Burke demonstrates that a reduction in revenues in one set of markets for music i.e. private users tends to push up regulatory prices in other markets for music i.e. commercial users.

"The CD market is in decline," says Dr. Burke, "Falling to perhaps 10% of its current value.

"The music industry is looking to compensate.

"The market could well move to a scenario where private users get music for free, and the only revenue streams are from commercial users."

Nightclubs could face an increase in the price of music licences by a multiple of 23 (from 7 pence to £1.60 per customer) while cinema music licences could potentially increase by a multiple of 16 (from 1% to 16% of box office revenue).

Before this happens, Dr Burke urges regulators to step in.

"Regulators are likely to realise that they need to undertake a review of the rates charged across all markets for music. Not doing so could cause the burden of compensating for a drop in royalties from CDs being imposed on a single, or narrow range of commercial music users which would be excessive."