Business selling MP3 downloads - License necessary?

A few friends and I are looking at starting a sideline business selling mp3 versions of various creative commons works (can't get into too many more details). We've done the legwork on the legal side to make sure that we can sell the content legitimately. However, one friend brought up something that I had never heard which was that you actually have to pay a licensing fee (2% of revenue) just to sell mp3 files (details here: http://mp3licensing.com/royalty ).

This seems like a bit of a scam but obviously if it's legit we don't want to get into legal issues down the road. I checked their list of licensed companies and while many big names are on it (e.g., Apple, eMusic, etc.) a number of others (e.g., CD Baby, Pandora, etc.) are not.

Can anyone offer additional insight here?

Pandora allows you to buy through Amazon or iTunes, rather than selling directly.

Wikipedia can tell you more about why MP3 Licensing is an issue, as well as what some of the alternatives are. AAC is an extremely popular format thanks to its use on almost every Apple platform, but most of the geeks who are really into this stuff are pushing for wider support of Ogg Vorbis, a patent-free audio codec.

Depending on how your customers will be consuming the files you sell them, either AAC or Ogg may be a viable alternative.

On the other hand, 2% is a pittance most companies are willing to pay for the near-universal platform support for MP3. (But, keep in mind: you vote with your money.)

Edited to respond to comment: I'd like to help you Tommy, I guess I just don't find your question as clear anymore.

If you're asking, "Are MP3-streaming sites subject to licensing fees?", then according to the patent-holders, they are.

If you're asking, "Does Pandora pay these fees?", I'd assume so. My understanding is that they primarily stream AAC-encoded music at this point, but for the content that is MP3-encoded, I'm sure they're above board.

If you're asking, "Why is Pandora not on MP3Licensing.com's list?", I'd say you'd have to ask them. :-) Pandora may be part of a larger association that jointly pays fees, they may be on the list under the name of a different legal entity, or MP3Licensing.com's list may simply not be complete.

If you're asking, "Why is there not more discussion on this issue?", I'd say it's very, very complicated. Some of the factors are:

• There has been quite a bit of discussion on it, but less so recently. MP3 has been a standard since the early 90s, and popularized since the mid-90s. A lot of the things you're now discovering have been hashed over by industry pioneers, again by settlers, and again by immigrants.
• Earlier on, the only people capable of running services that had to deal with these issues were much more likely to have to have full knowledge of each piece of technology involved; today, it's much easier to interact with hundreds of technologies we know little about, so there's consequently less discussion.
• Many people are simply waiting for the patents to expire. They have until about 2017 for the last of them to fall. I have no clue which of the patents involved are the truly significant ones, or when they go.
• Many people are playing a wait-and-see game as other technologies are developed (Ogg) and/or gain traction (AAC). This involves everything from what codecs music players decide to natively support (and which music players gain/keep traction themselves), to what (if any) native support for media codecs modern web standards may include, and how closely modern browsers decide to follow those standards.
• And finally, as mentioned before, a 2% fee is a small enough cost that it really only matters for the major players, who do discuss this, but less so in public forums, and less often lest they annoy their users, who don't understand or care about technology licensing issues. There's plenty of circa-2005 blog entries about this topic, but I don't think it'll see a resurgence until:
  • Apple's AAC format reaches a point where it has the potential to become a defacto standard in hardware & software outside of its own products...
  • How HTML5's watered-down recommendation for common, open-source codec support will be implemented by browser makers becomes apparent...
  • MP3 patent holders do something stupid to try and milk a last rush of licensing gold out of expiring patents.

Hope that gives you some answers. If you're interested in getting involved in discussions about these things, I'd recommend contacting owners of services that have to deal with it directly, or people you can find who are talking about it. The Ogg Vorbis community is filled with people who passionate about this issue (as well as straight-up audiophiles & tech nerds who are just interested in their own tech usage, not the industry's). Good luck!

Thomson is the licensing company for mp3 so you do have the correct site. AAC is licensed by: www.vialicensing.com. You cannot hope to create a legitimate business using either one of these codecs without having an agreement from one of them, at least until the patents run out. At the least have a conversation with them on what type of license you need, streaming, encoder or decoder or a combination.

You may then have to track down a source code licensor unless you are an audio expert and can code from a reference doc/code base. Companies using these codecs have either bought a codebase from a developer or spent a lot of time developing and optimizing the code to get the best audio quality for the performance. These licensors should also have a current list of the developers.