A Tale of Two Press Releases - Who Is A Musician to Believe?

David Oxenford (an attorney representing small commercial webcasters and who SomaFM contributed funds to) writes in his blog:

Two press releases about the radio music royalty controversy were issued late last week from groups appealing to musicians - and they couldn't have been more different in tone.:
(excerpt)
FMC suggests that multiple tiers of licensing are necessary so that all kinds of webcasters can continue to exist (unlike the one size fits all scheme adopted by the Copyright Royalty Board). FMC urges SoundExchange and the webcasters to come to a settlement that will preserve webcasting while fairly compensating musicians.
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By contrast, SoundExchange argues in its press release that some webcasters are acting in bad faith in arguing that the rates are too high - and are "engaged in a campaign of misinformation about the process, the decision itself, and the impact of the decision on the participants." The Press Release itself is subtitled "Suggests Some Webcasters Not Telling the Truth About the Royalty Process."
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In other forums directed to musicians, SoundExchange President John Simson has posted a more detailed statement, arguing that the music industry is changing through the digital revolution, and that music is an important portion of most webcasting operations - points with which no webcaster can argue. But where there is an argument is the further claim made by SoundExchange in these postings - that Internet radio revenues have increased in recent years from $50 million to $500 million (implying that these revenues allow webcasters to pay the new royalties). That $500 million figure apparently came from a widely quoted report recently released by an analyst at JP Morgan. However, that analyst, John Blackledge, last Thursday stated at a Jupiter/Kagan Conference on Radio and Television Values and Finance that the actual revenues from Internet Radio were in the $50 to $100 million dollar range, not the $500 million dollar number that many press reports seized on.

Read the whole thing here.

Should All Broadcasters Pay the Same Royalties?

When asked in an NPR interview about special deals for small, independent or non-commercial webcasters, John Simson of SoundExchange says: "Whether you're a corner market versus a big supermarket," Simson says, "you both have to pay the same amount for the milk that you sell. It's not like the little guy gets a cheaper price for milk."

But if I follow that logic, we shouldn't have to pay anything at all, because over-the-air broadcasters do not have to pay these royalties (the "sound recording copyright royalties"). Only digital broadcasters. (Both over the air and digital broadcasters also pay royalties on the "composition copyright", aka the composers' royalty. Only internet/digital broadcasters have to pay the additional "sound recording" copyrights.

Smaller webcasters have always wanted a "percentage of revenue" deal. The big guys, like AOL and Yahoo, want a rate based on how much music is consumed by their audience... either an "aggregate tuning hours" method, or a per song per listener. This is because radio makes us such a small percentage of their over revenue that a percentage of revenue deal would actually cost them more than the consumption-based fees.

I'm not sure if John Simson is stating that he opposed a percentage of revenue deal for smaller webcasters. In the past, SoundExchange has supported a percentage of revenue deal (albeit at 3 times the current rates).

John: if you're going to compare rates that broadcasters pay, compare the rates that all broadcasters pay - especially those that don't pay a dime!

Do royalties trickle down to the small artists?

Here's a letter from a listener who is also an artist we play (and has several commercially released CDs):

This points out why webcasters need to provide SX with artist, track and album (if available) for EVERYTHING they play and not just for a census period (as much as possible). (The "census" method relies on taking several weeks of SomaFM playlists, and extrapolating annual royalty distributions on that sample period.)

Now in the defense of SoundExchange, the reporting requirements have only been in place for a few months, so all the data isn't in yet. Perhaps this artist will eventually receive some money from SoundExchange. Let's hope so!

I have gotten a fair amount of feedback from listeners who have discovered my music through SomaFM - for that I am eternally grateful.

But, things have really gotten screwed up here, haven't they? I would agree wholeheartedly with your feelings regarding royalty payments from small webcasters.

Maybe this will interest you, although it embarrasses and infuriates me: the only broadcast royalties I have EVER received from ASCAP are those for FOREIGN broadcasts. (I belong to SoundExchange too, but they only ever tell me that they have no records on any of my 'play', and definitely nothing in the bank that they're holding for me).

For my Echoes feature, my inclusion on three different Hearts of Space syndicated programs, my play on 365, somaFM, etc., etc. (not to mention all of the college stations which I guess we all are supposed to know by now "don't count"), I have received, since the release of Where the Earth Meets the Sky in 2001, ABSOLUTELY NOTHING for any of my various forms of airplay.

This probably doesn't come as a surprise to you, but as I read Royalty Week over lunch, to read the piece on SoundExchange you'd think - if you didn't know any better - that the copyright holder and featured artist on a recording actually get paid by them for all non-interactive digital broadcasts.

I'm here to tell you I've gotten absolutely nothing, ever. Sucks, don't you think? (My paperwork is in order, titles registered, etc., of course).

At least, some of those who have heard me on somaFM have come and bought CDs from me. Regardless, I wish us all luck and I continue to be grateful for your support of my music.

The different types of broadcasting

I think it's very, very important to distinguish the different types of broadcasters.

Traditional Radio Style: this would include simulcasters, and stations like SomaFM, Radio Paradies, DI.fm, SmoothJazz.com, etc. Internet stations that work just like an over the air station would; with all listeners receiving the same programming.

Custom Radio Style: This would be the Pandoras, Yahoo Music, Slacker.com, etc. People who run a player on the client end, and each user is getting a (mostly) custom channel.

(Here's where it gets confusing: AccuRadio has both a "traditional style" format for some of their channels (like the ones available through iTunes and Shoutcast), as well as their WindowsMedia streams that allow you to skip through the playlists.)

Subscription Services: Like Rhapsody or Napster. These are more like satellite channels, and should pay the same kinds of royalties. (I think most of us agree on that).

Then we have these other "radio" channels that seem to only be radio because of a legal loophole. Like Mercora.

Mercora, if you're not aware, is potentially bad for all other webcasters. Mercora is basically an on-demand p2p system, where each user is a "DJ" creating their own "radio" channel (in reality, just a playlist of files), and Mercora has a system that lets you search for and instantaneously play particular artists or songs. They've changed a bit since I last looked at them, but in reality they're not a radio station. I think the CRB's $500 minimum per channel was largely aimed at those kinds of uses, SoundExchange's John Simson has in the past doubted that they were properly operating under the compulsory licenses. It would be interesting to know if and how much they paid SX for 2006.

Here's a few relevant articles about Mercora:

Online listeners become their own DJs

``On Mercora, DJs-in-the-making download software that identifies all the songs on their computers. From there, they can build as many as five channels of music from their personal library. The channels are streamed on Mercora's Web site. Mercora has 1 million individual DJs, contributing 3.5 million to 4 million tracks. The top DJ gets 7,000 to 8,000 listeners a week, Sampath said.``

P2P radio morphing into free music search

``Mercora's increasing moves toward a nearly on-demand service have drawn scrutiny from Web radio licensing authorities, but as yet there are no indications that the company has gone too far. ``"We're looking at their more recent offerings to see if they're in compliance with the (law)," said John Simson, executive director of SoundExchange, the group that collects and distributes royalties from Web radio stations. "We haven't come to a conclusion yet."

I am not deliberately trying to pick on Mercora but the way they seem to be exploiting loopholes is going to end up costing internet broadcasters, especially the more traditional ones.

SoundExchange on ``the only reason people listen to internet radio``

This was in a recent press release from SoundExchange:

"The music created by artists is the main reason why people listen to internet radio, and those artists should be fairly compensated for the value they bring to each webcaster's business," said John Simson, Executive Director of SoundExchange. "Yet, the webcasters refuse to acknowledge this common sense fact. Webcasters have a number of opportunities to maximize revenue with a captive audience attracted by music created by artists through banner ads, pop-ups, video pre-rolls, audio commercials and other avenues of revenue generation. While we want internet radio to succeed, it is only fair that artists be compensated for the value of their work which forms these services' business."

I find this statement, on its face, insulting.

The value of an internet radio music station comes from the management and music directors at the station who choose the pick the music that their audiences want to hear. Do you think anyone would listen to a radio station that just played and songs that the labels sent to us? Most of the music that's sent to us (especially from the larger labels) is crap. It is a significant job to go through all that music and sort it out, finding the gems, sorting the wheat from the chaff. Not to mention all the work of delivering the music to our listeners, and the work that goes into building the community around our stations.

It's very insulting that the record labels and members of SoundExchange's board think this. Perhaps that's why the Big 4 record labels are doing so poorly, perhaps they should be more selective about what music they release to the public! But saying that internet radio is getting rich off someone else's product is just insulting. I know that if we stopped hunting for music and just played the material the big labels are releasing now, people would tune away in droves.

People listen to Groove Salad because we expose them to all kinds of music they've never heard before. And I have letter after letter from people telling me that after finding our station, they went out and bought lots of CDs by artists they wouldn't have ever known about before hearing them on SomaFM.

We, and most other small webcasters, are extremely dedicated to our programming: that is choosing the best music, and putting it together in a way that the program flows from song to song. We present the music in a setting that makes it the most attractive to the listener. If music is the product, Radio is the packaging. When is the last time you bought something in an ugly package? And Apple and others have shown that packaging makes a product much more appealing.

It's time that our value as radio programmers is recognized. The value of internet radio is not just the value of the music that's played.

CRB Grants Motion Allowing For Possible Rehearing On Internet Royalty Rates

From FMQB:

After petitions and pressure from NPR and other broadcasting organizations, the Copyright Royalty Board (CRB) has agreed to grant motions for a possible rehearing over the controversial, proposed new Internet radio royalty rates. The decision was formally made late Tuesday and the CRB cited a number of petitions from NPR, DiMA, Sound Exchange and many others.

There is no guarantee that a rehearing will be held, but in the official order, Chief Copyright Royalty Judge James Scott Sledge wrote that the "Copyright Royalty Judges desire to hear the positions of each party on each of the issues raised in these motions." Responses to the motions may be filed no later than April 2, which is also the date that written arguments may be filed on the issues raised by the motions.

Yesterday, DiMA executive director Jonathan Potter summed up his organization's position on the issue by stating, "We do not believe that the Copyright Royalty Board intended to shut down the vast majority of legitimate online radio services immediately when it issued its decision, yet that is the sober reality facing many services." Over the past week, there has been an immediate and vocal reaction to the proposed new royalty rates for Internet radio, with the mainstream media picking up the story around the country.