Companies:Viacom, Inc. | Activision, Inc. | Warner Music Group Corp. | Time Warner Inc

This week the music industry--record labels, publishers, songwriters and online music sites-- agreed on new royalty rates for online music downloads. The new deal covers what the music industry calls "limited downloads" in which listeners can select songs on-demand but don't keep a copy like they would when they buy a song off iTunes.

Companies offering this on-demand music now will pay a royalty of 10.5 percent of their revenue. This is good news in that it will allow web sites to offer music in different ways, while the music giants--Warner Music Group[WMG Loading... () ], Universal Music, Sony BMG, etc--are compensated. The more potential music distribution models, the more potential revenue.

The bad news; this doesn't cover the highly-debated issue of compensation for Internet radio. Internet radio sites like Pandora and Live 365 have been locked in a battle with SoundExchange, which collects royalties for musicians and record companies. The musicians and publishers want to be paid an amount that would effectively put Pandora and the like out of business. But this is progress in tackling a new streaming technology.

The music labels are consistently demanding more music royalties, aiming to stay afloat. They're given Activision[ATVI Loading... () ] Blizzard a hard time, saying they're not paid enough royalties from hugely popular games like Activision's Guitar Hero and Viacom's [VIA Loading... () ] RockBand. Warner Music's CEO Edgar Bronfman recently said revenues from these video game companies are "paltry" and that the music labels should and could charge more to the game publishers because the games are "entirely dependent' on music.

But now Activision Blizzard CEO Robert Kotick is fighting back, saying maybe music labels should pay them! His argument: music games make songs more popular, driving paid song downloads, album sales, and ticket sales. Kotick also says that the songs themselves don't drive the game purchases: it's not like an album, which you're buying for the artist, you're buying it for the game.

Next week is the Digital Music Forum in Hollywood and I'm starting to talk to industry experts about the industry and where it's headed. Bottom line: paid digital downloads and other paid music services are growing. Unfortunately for the music giants, they're not growing fast enough to compensate for other declines. That gives the music labels more reason to be open to working with, compromising with, new music models, whether it's video games or Internet radio.

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