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SiriusXM pays $210M to settle Oldies fight – will others follow?

D'Angelico guitarD'Angelico guitar
This original D'Angelico guitar was owned by Paul Simon. It was displayed at the Metropolitan Museum of Art in 2011.Stan Honda/AFP—Getty Images

The music industry on Friday announced a major victory in its fight to get a new type of copyright royalty for songs recorded before 1972. Satellite radio service SiriusXM (SIRI) will pay $210 million to resolve a legal dispute with major record companies and independent labels across the country, according to the Recording Industry Association of America.

The settlement is important because it will give extra leverage to the record industry as it seeks to force other digital music services – from Spotify to Pandora (P) to Apple to YouTube – to pay the new royalties too, potentially increasing the cost of music for consumers. Right now, all of these companies are facing legal pressure from the record industry, as well as class action suits from musicians.

The claims for pre-1972 payments are based on a controversial legal theory. That theory holds that, even though copyright law is federal, the digital music companies must pay for performing the pre-1972 recordings (which are not covered by federal law) under a patchwork of state laws; scholars have challenged this premise.

Critics, including me, have pointed out that giving into the music industry over the pre-1972 recordings amounts to paying new money for old rope. Copyright is supposed to act as an incentive for artists to produce, and handing out a retroactive payment for 50 year old songs is unlikely to spur creativity among younger musicians. And, in any event, songwriters (as opposed to performers) are paid when a digital music service plays a pre-1972 recording.

The issue is currently before the courts, including class action cases against Pandora, Apple and others. So far, judges in California and New York have sided with the record labels, though the cases are up for appeal. Meanwhile, a court in Florida this week ruled that SiriusXM should not have to pay.

It’s unclear how settlement announced on Friday would be affected if courts ultimately rule that state law does not cover the pre-1972 recordings. SiriusXM did not immediately respond to a request for comment.

The dispute is also a topic in Washington where the music industry has been lobbying Congress to expand the scope of the sound recording royalties.