Wednesday, August 22, 2007

SoundExchange extends (not very good) offer to small webcasters

Yesterday, SoundExchange emailed a not very good offer to small webcasters. This offer is separate from an offer being negotiated with a group of 6 small webcasters who were parties to the CRB hearings known as the Small Commercial Webcasters group and represented by David Oxenford.

There has been some news coverage about webcasters' reactions to this.

As for my reaction to parts of parts of the offer:

These attached rates only apply toward each webcaster’s first 5,000,000 aggregate tuning hours (“ATH”) of usage each month. For any usage in a single month above 5,000,000 ATH, the webcaster must pay the applicable commercial webcaster rates (currently $0.0011 per performance during 2007.) By way of example, a service would need to have an approximate average of 6,945 simultaneous listeners, each listening for thirty consecutive days, 24 hours a day, in order to exceed 5,000,000 ATH of usage.
It should be pointed out that this number is very low; to put that into context, we're capped at an AQH of under 7000; but for example WBUR, a public radio station in Boston has an AQH of over 40,000. Currently, SomaFM averages a little over this, typically around 7800 average listeners.

Now according to a discussion I had with John Simson, this only applies to listeners in the US. So that reduces our amount of listeners by 40%. But at the rate we're growing, in 2 years we'll be over that limit with our US listeners. So this agreement won't work for us.

If a webcaster’s total annual revenue exceeds $1.25 million, it is no longer eligible for these offered rates and terms. After the conclusion of a six-month “grace period,” during which time it may continue to pay under the offered rates and terms, the webcaster must calculate any subsequent liability using the applicable commercial or noncommercial webcasting rates, as defined in the Federal Register at 72 Fed. Reg. 24084 (May 1, 2007).
So if we exceed that revenue cap, our royalties would go from $150,000 a year to over $2 million or more a year. In fact, if we extrapolate our current revenue to royalty ratio, our rates would go from $150,000 to $5 million at the point we hit the $1.25 million revenue cap.

So if we can increase the size of our business to over 1.25 million dollars, we'll be forced out of business.

This isn't an offer. This is a restraint of trade.

Please note that SoundExchange is making this offer only on behalf of its copyright owner members and has no authority to make this offer on behalf of non-members of SoundExchange. For transmissions of sound recordings owned by non-members of SoundExchange, webcasters must comply with the rates and terms in the Final Determination of the CRJs, published in the Federal Register at 72 Fed. Reg. 24084 (May 1, 2007).
This is the real problem here, and why we need congress to act. SoundExchange only represents 20,000 artists, and many artists SomaFM plays are not SoundExchange members (we are playing about 8000 different artists currently). To put the 20,000 number in context: Live365 plays over 250,000 different artists.

Bottom line: this is an unworkable offer, and it is not in any webcaster's interest to accept this offer.

Here's the full text of the letter, or get a PDF of this letter and the actual SWSA Term Sheet 2006:

Dear Small Commercial Webcaster,
 
  I am writing on behalf of SoundExchange, Inc. (“SoundExchange”) and its member copyright owners to offer certain small commercial webcasters an alternative rate structure to that enacted by the Copyright Royalty Judges (CRJs) in the recent webcasting proceedings.  Through this offer, qualified webcasters have the option of utilizing the attached rates and terms for nonsubscription transmissions of SoundExchange member sound recordings under 17 U.S.C. § 112 and § 114. 
 
  At the request of members of Congress and congressional committees, SoundExchange is making the attached offer available to small commercial webcasters which do not exceed an annual revenue threshold or a monthly threshold on aggregate tuning hours.  The attached rates and terms generally track those previously available under the prior agreement negotiated pursuant to the Small Webcaster Settlement Act (SWSA), which allow qualified entities to pay royalties based on a percentage of revenue (10% or 12%) or a percentage of expenses (7%) as long as their total annual revenue (both direct and affiliated revenue) does not exceed $1.25 million.  However, there are certain additional terms:  
               
  • These rates and terms are available for eligible nonsubscription transmissions for 2006-10, thus effectively extending the rates and terms negotiated pursuant to SWSA for an additional 5 years.  
  •            
  •           These attached rates only apply toward each webcaster’s first 5,000,000 aggregate tuning hours (“ATH”) of usage each month.  For any usage in a single month above 5,000,000 ATH, the webcaster must pay the applicable commercial webcaster rates (currently $0.0011 per performance during 2007.)  By way of example, a service would need to have an approximate average of 6,945 simultaneous listeners, each listening for thirty consecutive days, 24 hours a day, in order to exceed 5,000,000 ATH of usage.  
  •            
  •           If a webcaster’s total annual revenue exceeds $1.25 million, it is no longer eligible for these offered rates and terms.  After the conclusion of a six-month “grace period,” during which time it may continue to pay under the offered rates and terms, the webcaster must calculate any subsequent liability using the applicable commercial or noncommercial webcasting rates, as defined in the Federal Register at 72 Fed. Reg. 24084 (May 1, 2007).  
  •            
  •           Webcasters must provide census reporting to SoundExchange and be willing to work with SoundExchange on implementing technology, developed at SoundExchange’s expense, to track transmissions and provide the census reporting required under the agreement.            
            As with SWSA, a condition of this offer is that all parties affirm that this agreement is non-precedential and does not reflect an agreement between willing buyers and willing sellers in the marketplace.  Rather, this agreement reflects the desires of certain members of Congress that certain small commercial webcasters receive a below-market rate and as a compromise motivated by the unique business, economic and political circumstances of small webcasters, copyright owners, and performers.  All parties agree that this agreement (including any rate structure, fees, terms, conditions, or notice and recordkeeping requirements) may not be introduced in any proceeding, including those related to the setting of rates and terms for the licensing of sound recordings.  

              Please note that SoundExchange is making this offer only on behalf of its copyright owner members and has no authority to make this offer on behalf of non-members of SoundExchange.  For transmissions of sound recordings owned by non-members of SoundExchange, webcasters must comply with the rates and terms in the Final Determination of the CRJs, published in the Federal Register at 72 Fed. Reg. 24084 (May 1, 2007).  SoundExchange is working, however, to implement an industry-wide resolution that would apply rates and terms similar to the attached for all eligible small commercial webcasters and all sound recording copyright owners.  In the event that industry-wide regulations are adopted by the CRJs (or other appropriate authority) with rates and terms substantially similar to those contained in this agreement, this agreement will cease to operate and all parties will be governed by the industry-wide regulations.  Ultimately, an industry-wide resolution will be easier for all parties to administer, so it is our hope that such a resolution can be obtained.  

              If you are interested in accepting these rates and terms offered on behalf of SoundExchange’s members, please sign the attached election form and return the signed form to SoundExchange by September 14, 2007.  

              Should you have any questions about any of the information within, please contact Kyle Funn, Licensing & Enforcement Specialist, at 202.640.5881.  
  
  Respectfully,
  
    John L. Simson
   Executive Director
  SoundExchange, Inc.

 

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Friday, August 10, 2007

Pandora's Tom Conrad at Gnomedex


Tom Conrad
Originally uploaded by crazywanda
Doesn't Pandora's Tom Conrad look great in his SomaFM Tshirt!?

Wednesday, August 8, 2007

Ray of Light For Internet Radio?

Jason Thomas at Crawdaddy Magazine has a great article on the state of net radio, here's a snippet:

The original laws were crafted in a time when technology was seen as having a limitless possibility to change everything about our lives, and much of the very things that the DMCA creates rules for were in states of infancy. Given the way the saga has unfolded over the last 12 years, the only way that harmony is going to be reached is either tossing out or amending the DMCA and, in doing so, re-evaluate exactly how the changes in technology have played out in the forms of digital media. There is little chance of fixing the tangle of existing legislation and Copy Right Board rulings, especially given the fact that webcasters have evolved into quite divergent forms with distinct business models, organizations and revenue/profit streams. Treating them the same would make little sense, and would open the door to fighting amongst themselves over a single rule that applies to them all as they have different interests. That is exactly what SoundExchange is hoping for.

I encourage you to ">read the whole article.

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"Small Commercial Webcasters" (upper case) as opposed to "small webcasters" (lower case)

I want to take a second to clear up something: There are a group of webcasters who participated in the CRB hearings over the last 2 years. This group is known as the "Small Commercial Webcasters" group, and it is represented by Attorney David Oxenford. The small commercial webcasters include DI.FM, RadioIO, AccuRadio, Radio Paradise, Ultimate 80s and 3WK. Often times, this group is abbreviated in the press as the "Small Webcasters". Note the capital letters. Now I often talk about "small webcasters" in a more generic sense, referring to those who in the past operated under the 2002 Small Webcasters Amendment, of which there are a few hundred if these. I sometimes also refer to them as "small, independent webcasters" or just "independent webcasters". I'll be using the latter term more in the future to reduce the confusion between the SCW group and the generic class of smaller webcasters. The reason for this is that while I support the Small Commercial Webcasters group (and SomaFM has provided some financial contributions to their legal fund in the past), we are not a party to their direct negotiations with SoundExchange. However, any deal that they get will be extended to the whole class of small webcasters. We are fighting the same war, we're just fighting slightly different battles. I'm often outspoken and I say things that some members of the Small Commercial Webcasters don't completely agree with, and I want to make it clear that I don't speak for them. So when you hear me try to rally smaller, independent webcasters, keep in mind that I'm not speaking on behalf of of David Oxenford's Small Commercial Webcasters group. I have a ton of respect for David Oxenford and the parties to the SCW negotiations, but I don't want to see my outspoken views negatively affect something they're doing. I also want to make sure that people understand that I'm not rallying the Small Commercial Webcasters; they have a board who makes their decisions. While I often talk to members of the SCW and am more than free with my suggestions on how they act, I have no direct influence over how the group acts.

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Friday, August 3, 2007

Small Webcaster Revenue Limits

The RIAA defines small commercial webcasters as entities with less than $1.25 million in annual revenues. Exceeding this amount in a calendar year would disquality a webcaster for paying based on a percentage of revenues, and force them to pay on a per song, per listener basis which would be multiple times their annual revenue. This cap needs to be raised if the webcasting industry is to be allowed to grow. Revenue caps this low will force small webcasters to constrain their growth or else face debilitating royalty liabilities. We think this cap should be raised to at least $5 million. The US Small Business Administration "Table of Small Business Size Standards" defines a small traditional radio broadcasting network as a company with less than $6.5 million in annual revenue (and no limit to the number of employees). An internet broadcasting service is considered a small business if they have less than 500 employees and no revenue limits.

Why is it that SoundExchange insists on setting the revenue limits so low?

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Thursday, August 2, 2007

The ongoing debate over SoundExchange's independence from the RIAA

There is an ongoing debate over whether or not SoundExchange is controlled by the RIAA. Originally, it was an unincorporated division of the RIAA. Then in 2003, it was spun off. But to paraphrase an old saying, you can take the SoundExchange out of the RIAA, but you can't take the RIAA out of the SoundExchange!

Or can you?

In theory, SoundExchange is made up of 9 label representatives and 9 artist representatives. In theory, only 6 of the board seats are supposed to be RIAA. But as we see below, it's not really balanced out the way it should be ideally. Adding 2 more seats to independent labels might be the way to really fix this in the eyes of many.

SoundExchange Board of Directors by categories:

Independent Artist Reps: 3
RIAA-releated Reps: 8
Other reps, often siding with the RIAA: 4
Other reps, often opposing the RIAA: 3

Seems like the votes will fall to the RIAA side in most cases. If I'm wrong, I'd like to know about it.

Truly Independent:

Richard Bengloff - American Association of Independent Music Walter F. McDonough, Esq. - Future of Music Coalition (FMC) Dick Huey - Matador Records (note that Dick Huey holds the small independent label seat on the SoundExchange board, and while he has been a vocal proponent of radio royalties but at the same time a supporter of small webcasters)

RIAA Representstives

Alasdair McMullan - EMI Music North America
Andrea Finkelstein - Sony BMG Music Entertainment
Kendall Minter (Entertainment lawyer, RIAA-affiliated label owner)
Larry Kenswil - RIAA
Michael Ostroff - Universal Music Group
Mitch Bainwol - RIAA
Paul Robinson - Warner Music Group
Tom Silverman - Tommy Boy Entertainment LLC (RIAA board member, although Tommy Boy isn't a RIAA member label)

Board members often siding with the RIAA position

Daryl P. Friedman - Recording Academy
Jay L. Cooper, Esq. - Recording Artists' Coalition (RAC)
Kim Roberts Hedgpeth - AFTRA
Patricia Polach - AFM

Unknown or inconsistent RIAA siding:

Michael Hausman - Michael Hausman Artist Management, Inc. (Manages currently-independent released Aimee Mann, RIAA-released Suzanne Vega among others)
Patrick Rains - PRA Management (Manages RIAA-released artist Cheryl Crow and a lot of big smooth jazz names, operates an indie label PRA records that released 20 discs or so in the 90s)
Perry Resnick - Music Manager's Forum-U.S.

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Defending Issa (and other politicians)

Will Wheaton comments on the Issa/HD radio issues I wrote about recently:
I would like to know why complete idiots like Issa, who clearly have such problems understanding technology, are given the responsibility of crafting legislation that affects technology, and those of us who use it.
I met with Jason Scism, Issa's Counsel on issues of copyright and new media, and I must say that Scism is extremely bright and totally up to speed with these technologies and the state of these copyright issues. I'm drafting a letter to Scism now about the HD radio "issue", as he asked me to stay in touch with him on the things we discussed.

What I've learned from the time I've spent in DC is that you have to be smart to get there. But being smart does not mean being "clueful" about all the issues. Congressmen have to deal with so many different issues that frankly it's amazing they don't come off far worse than they do.

I've also learned that in these hearings, you need to listen to not the exact words that are said, but try to figure out what's behind those words. While Issa used HD radio as his example, he would have been better served by talking about digital audio delivery mechanisms in general. Because he does have a point; as more devices come onto the market, the technology may improve to the point that recording from the radio will be as good as buying the CD/digital download.

But the counter-point is that there are already barriers to making copies from radio that would be as good as a CD. And if you want a bad copy, you've been able to do that since the days of tape recorders. Stream-ripping in most cases is a trojan horse.

But why do they keep bringing this up?

Because XM and Sirius sell devices like the Stiletto, SKYFi and Inno which all feature the ability to record and access individual songs.

When XM uses the tagline, "Hear it. Click it. Save it.", then they are obviously touting their devices as a music-purchasing replacement.

Now people think that these type of devices will come out for HD Radio. And they might (although with the current lack of adoption of HD radio, it's hard to imagine that).

So there are legitimate fears, but in the case of terrestrial radio are these fears warranted?

Most terrestrial broadcasters "production values" are such that they put ads or promo announcements over the beginnings and ends of songs. They also tightly segue songs, unlike Satellite radio. And in the specific of HD radio, the "metadata" or PAD as broadcasters call it is not sent frequently enough to reliably separate songs. Having a copy of the song with the first 5 seconds cut off, or talking over the last 10 seconds of it is not the same as having the real song.

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Wednesday, August 1, 2007

Notes from the Platform Equality hearing

Rep. Howard Berman, Chairman of the House Judiciary Subcommittee on Courts, the Internet and Intellectual Property, held a hearing on "Platform Equality", which would end the decades long royalty exemption for terrestrial broadcasts.

House Hearing on Ensuring Artists Fair Compensation

Howard Coble (R-NC), Steve Cohen, (D-TN), Lamar Smith (R-TX) and Darrell Issa (R-CA) were among those voicing support for the proposal to end the terrestrial broadcast sound recording performance royalty exemption.

The three main arguments for this according to Berman:

    • The exemption was never justified under copyright law
      Calbe, Satellite and Internet have to pay these royalties. There should be no discrimination based on platform.
      US us the only major country that doesn't have a sound recording performance right.
  • Terrestrial broadcasters currently only pay royalties to the composers of the music; the "musical work". They do not pay for the use of the sound recording. In 2005, broadcasters paid $450 million in muscical work performance royalties.

    Issa stated that congress is preparing to reorganize section 114 of the copyright act. (This is the sections that covers royalties for internet, satellite and cable services and provides exemptions for some other uses, such as use of music in business environments.)

    Issa spoke a lot about HD radio, and the threat it makes to sale of CDs. He is under the impression that the 64kb or lower compressed digital audio sounds as good as CD. HD does not stand for High Definition. It stands for "Hybrid Digital". Unlike HDTV, which improved the signal quality delivered to consumers, HD radio is not a marked improvement. Signal to noise ratios are improved, but there are audible compression artifacts in the audio.

    Issa also talked about a flood of HD radio recording devices that automatically split tracks coming out soon. (I think he's extremely wrong on this, there is so little uptake on HD hardware, there are only 2 or 3 HD radios on the market right now, and they're selling very poorly. I've heard a statistic several times that say an American is more likely to be run over by a bus than they are to listen to HD radio in the last year.)

    Steve Cohen, who represents Memphis, TN,

    San Jose, CA representative Zoe Lofgren was the only rep to speak out on the importance of small, independent internet (and non-internet) braodcasters. While she's not necessarily opposing the rate, she wants a rate that won't hurt small and non-commercial broadcasters.

    (more later)

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