Future of Music Coalition
(Update: I should not that I'm merely presenting this as information, and I'm not endorsing everything here. I think it is a good starting point for discussion, which is starting to take place in the comments. Make sure you read the comments to this post!)
1. Internet radio is an incredibly valuable music platform for musicians, fans and labels
FMC supports the continued growth of internet radio. It has the unparalleled ability to develop loyal, worldwide audiences for niche musical genres -- from 60s rock to contemporary classical to southern blues. Small and noncommercial webcasters in particular have proven to be a valuable promoter of both independent music and genres that are routinely ignored by commercial broadcasters.2. Performers and labels should be paid.
We have and always will support the digital performance royalty As webcasting continues to grow, and as consumers increasingly trend towards paying for /access/ to music delivered to them via subscription services, satellite radio, etc, the digital performance royalty becomes an even more important revenue stream for artists.3. Rates proportionate to the size of the webcasters.*
We also believe that the "one size fits all" approach that was part of the March 2007 rate setting decision would be harmful to the small and non-commercial webcasters. There's a vast difference between the staffing and revenue generated by a volunteer-run internet radio station and an AOL or Clear Channel. These differences in resources and revenue - not to mention motivation for running a station - makes a tiered system the most sensible solution.4. Streamline the reporting process.
FMC continues to believe that it's important to develop a reporting process that ensures that even the smallest webcaster can file timely and accurate playlists with SoundExchange. For years we have urged the development of an authentication database, managed by a neutral third party, through which copyright ownership and performer information would be verified. Such a database would reduce filling time and errors on playlists, thus making sure more money flows directly to artists.To summarize, FMC believes that large commercial webcasters should pay rates comparable to their size and revenue, and we call on the other parties to adopt reasonable rates and reporting requirements for clearly-defined categories of small, noncommercial and hobbyist webcasters that will ensure the future development of this medium.
In the end, whether through legislation, court action or negotiation, FMC hopes that the webcasters and SoundExchange can work together to strike a balance that recognizes the value of webcasting to creators and listeners, but also properly compensates performers and labels for uses of their work.
posted by Rusty Hodge at
Thursday, June 28, 2007
2 Comments:
Rusty,
Doesn't the FMC's idea of a tiered royalty system pose the exact same problem as the current set-up? If you, as a webcaster, grow bigger than your tier "size and revenue" definitions, you are going to face an immediate royalty obligation that could sink your station as you climb into a higher tier.
On the other hand, we already know that a single "one size fits all" royalty scheme works to make money for everyone involved. Just look to compulsory mechanical licensing rates. No distinction is made in the law based on the size of the licensee, and somehow the licensors make billions of dollars a year. Sure, almost every party to the compulsory mechanical license system complains long and loud about where the rate is set. It is either too high or too low, depending on which side of the transaction you are one, but we have one hundred years of proof the system does work to move substantial amounts of money from the licensees to the licensors.
For purposes of this note, I’m going to leave the purely non-commercial and NPR webcasters out of the equation. At this point, I don’t think anyone truly believes they should be treated like commercial stations in determining their royalty obligations. Furthermore, I believe the differences are sufficient to place them outside a “tier” construct entirely.
It seems to me that the intent of a tiered system is that the big guys pay more than the little guys. Doesn't a single percentage-of-revenue rate accomplish that? More revenue means more royalties. What am I missing?
A tiered system, like the one the FMC proposes, treats the mere size of the broadcaster as a relevant factor. The argument being made is that they are making, or will make, a lot of money from webcasts, therefore they should be paying a larger percentage as a royalty. To me, that's looking at the wrong end of the process. The individual at the other end of the stream can only listen to one song from one webcaster at a time. The size of the station he is listening to is irrelevant.
Size of the webcaster is also irrelevant to the musician who is getting streamed. The number of people who hear a song doesn’t change the music itself.
The FMC has spent much of its existence warring with the large terrestrial broadcasters over consolidation of ownership and other issues. It is a good fight and a noble one, even if their successes have been few and far between. However, I can't help but feel that the effect of their constant opposition to the ClearChannels of the world seeped over into their thinking about this issue. They want those big broadcasters to pay a larger proportion of the performance royalty bill based on what appears to be nothing but emnity for the broadcasters arising from past skirmishes.
In yesterday's House Small Business Committee hearing, there was some time spent during the question and answer phase dealing with making, packaging and selling lemonade. The analogy was flawed on a lot of levels, and the one really pertinent question never got asked:
"Why should two customers wanting the same size glass of lemonade have to pay two different prices?"
This question can be applied on every level of the debate:
- between the digital customers who pay and the terrestrial customers who get the lemonade for free,
- between the satellite customers who pay a percentage of revenue and the Internet webcasters who are being asked to pay far more for the same glass,
- and now, under the proposed tier system, between Internet webcasters themselves based on "size and revenue."
I will also make one very practical argument in favor of a single percentage-of-revenue rate that I have not heard anyone address.
I have run union health and pension funds. Like SoundExchange, these were non-profit organizations that had to collect immense amounts of detailed data and use that data to accurately divide resources among thousands, or tens of thousands, of individuals. If every entity contributing to the organization pays according to the same basic calculation, the job of determining the accuracy and completeness of the contribution is very simple. In the collection-and-distribution field, simple means efficient, and efficient means cheap. Simple also is more likely to mean accurate, too. If you do your job efficiently, cheaply and accurately, there is more money to give to the people you are supposed to serve.
Start building in levels, especially levels based on arbitrary distinctions, like size of the contributor, that have no relevance to the service being provided, and simple becomes complex. Complex means expensive, both in straight administration costs and in the extra effort needed to determine if the payment is complete and accurate.
The more complex the job, the higher the costs. The higher the costs, the less money there is to pay out to the beneficiaries of the organization.
Let's face facts. SoundExchange has yet to demonstrate any level of administrative competence even dealing with a simple percentage-of-revenue rate. After seven years, they still can’t find almost one in three of the artists who they have determined are owed money. According to their own website, this Saturday, over 8,200 artists they haven’t found are going to forfeit millions of dollars to SoundExchange’s general operational budget. Based on this track record, does anyone really believe they are up to the job of keeping track of who owes what in royalties under a fluid set of extra criteria relating to size and revenue of the contributors?
I doubt it, but I do know that if they even try, it is going to cost a hell of a lot more in administrative costs. Those costs come out of the royalty revenue earned by the webcasts, and the increase will reduce the amount available to pay the artists and the labels. That’s not good for the artists.
Keeping it simple means more money gets to the people who actually earn it, rather than having to pay it to the people who collect the money and disburse it. Effectively and efficiently getting money to the people who earn it should be the primary, if not the only, goal, of an organization like SoundExchange.
In order for a tiered system to meet this goal, somebody is going to have to explain why the distinction between “big” and “small” promotes that end.
Hey Fred:
I am not sure that I completely agree with the tiered system. Parts of it I agree with: for example, as you state, non-comms should be treated differently.
I agree with you that a single percentage of revenue rate works across all sizes of service.
Where I think there should be different tiers are not so much for the different sizes of 'casters, but different types of 'casters. For example, a fully non-interactive music service (one that broadcasts the same programming to all listeners, like terrestrial radio) should have a different rate than services that allow you to receive a custom broadcast. And fully on-demand services like Rhapsody or Yahoo should pay at a different rate as well.
But based purely on the size of the organization? To stretch the lemonade analogy: maybe the first glass of lemonade should be at a discount, to encourage people to try lemonade from various vendors. But what happens when I want to buy 100 glasses of lemonade? Should I pay more because I'm selling more? Or should I get a quantity discount?
I've heard some people say that the reason the rates are lower for Sat broadcasters is because they're drinking lemonade in such large quantities, and webcasters aren't.
But FMC's point is that they want to encourage the diversity of lemonade dealers, especially the ones selling home made, organic, or lemonade made with special ingredients. After all, the big lemonade dealers are mostly selling that cheap frozen lemonade.
The analogy is getting stretched a little too far.
But you have some good points Fred. And I support a single percentage of revenue fee. The current offer that SoundExchange has made to small webcasters has a revenue cap that removes the percentage of revenue option once I hit a revenue level of $1.2 million a year. You would think that if SoundExchange wants webcasters to "more effectively monetize their services" they'd be encouraging us to make more money, not less (which is what revenue caps do).
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