You have to pay them to play their stuff?

SomaFM listener Robert hits the radio royalty thing on the head:

Beginning with iTunes and through that my intro to your excellent station, I was not listening to music at all. For me was impossible to listen too on a lot of levels. So you introduced me to electronica, remix jazz and the like. Well now I am looking at my purchased iTunes library with  1700 + songs. I was thinking; "You have to pay them to play their stuff?", they should be paying you for bringing them customers like me , where else am I or anybody else going to hear this. Personally I like listening to music again, Thank You!

Most of the indie artists we play feel this way, and many of the independent labels feel this way too. For the most part, it's the big labels with lots of back-catalog that don't see the value in radio play.

If the royalties we pay were much lower (in line with what is proposed for terrestrial radio), this wouldn't be a big issue. But considering that SoundExchange is now pushing for higher and higher rates, there isn't much hope of our getting a royalty rate on par with what the terrestrial guys will likely get.

Looks like our ultimate solution will be directly licensing tracks from artists and indie labels, and play less and less music from the big labels. (We already play less than 20% of our music from big labels, so that won't be too hard.)

Muzak Files Chapter 11 to Refinance Debt - NYTimes.com

Muzak Files Chapter 11 to Refinance Debt - NYTimes.com:

"Many of Muzak’s biggest creditors are music companies that license songs for use on Muzak playlists. While the company is known as the creator of elevator music, its business is now more focused on creating playlists for use in retail stores, installing professional sound systems and providing other services."

So even industry giant Muzak is being crushed by the high cost of licensing music.

Wasn't internet radio killed last year?

KG Writes in:

I thought internet radio was killed last year. What gives?

SomaFM and most other internet broadcasters have technically been operating "out of compliance" (that is, we're not paying the royalties we are supposed to be paying). At some point, we can't keep doing this... someone will sue us for copyright infringement. SoundExchange has informally agreed to not sue any broadcasters who continue negotiations with them, that's why stations are still on the air. Other large services like iMeem and Last.FM have made direct deals with the large record labels, in most cases resulting in the "Big 4" record labels owning a part of those companies. (And with that ownership comes influence over the music they feature.)

So making a deal with the big record labels is not acceptable for most broadcasters who strive to be independent in the music they broadcast.

We have continued to negotiate with SoundExchange (the agency that collects the royalties) over the last year, and are close to a settlement. Originally, one problem was that a SoundExchange settlement would only cover their members, and not apply to all music as the CRB ruling did, unless congress acted to codify any settlements. HR. 7084 which was recently signed into law, does exactly that: it tells the CRB that they have to codify any settlement internet broadcasters and SoundExchange agree to. This is the only way we can get the royalties reduced to a reasonable level.

Internet radio is running on borrowed time. But even without a deal, big, venture-capital funded services like Pandora will likely survive in a slightly altered form: they'll have to make deals with all the major labels which will cause them to lose some of their independence. But small stations like SomaFM will be put out of business: either by lawsuits from the RIAA if we continue to operate without paying the royalty fees or more likely by just not having enough money to continue our operations after paying all these royalties.

Can Payola can save Internet Radio?

Doug Perlson writing in Silicon Alley Insider thinks that Payola can save Internet Radio from the high royalties that we currently face.

From strictly a financial-gain perspective, he may be right.

But for broadcasters looking for a long-term sustainable business, and not a short term financial gain (such as getting bought out by a larger company), this approach will not have success.

First off, "Payola" is not illegal in the net-radio space. In fact, it's already happening lots of places. The big labels have equity positions in several of the largest webcasters. You don't think those labels are influencing what gets played? Of course they do.

SoundExchange (the agency that collects the royalties for internet radio) is even encouraging this behavior, suggesting that stations work with labels to play the music that labels will let them use without royalties... except those deals are always more complex than that. (Basically, they give the labels control over what gets played. "You can use this particular music for free, only if you give x number of plays to these other tracks.")

I'm happy that some of the larger guys, like Pandora, have demonstrated their opposition to this. But many others, who are proponents of "direct licensing deals" are already playing the Payola game.

Music should be chosen on its artistic merit, not because of a opportunistic financial decision.

Payola, while technically illegal, has still been happening at AM/FM radio stations (under the guise of "independent promotion"). Many FM radio stations were so reliant on "promo money" that it was a significant part of their annual operating budgets- especially in mid and smaller markets. And while this practice has come under fire and largely discontinued just recently, many variations on the game sill exist, and you're fooling yourself if you think that labels have stopped using money to influence program and music directors.

Many people (including myself) believe that this is what has caused consumers to turn away from commercial radio: programmers were playing what they were paid to play rather than choosing the best material to play. So commercial FM became the land of the safe, proven hits of the past and the crap that the labels were paying to get played.

The people who say this would work for net radio have never been on the receiving end of the music promotion industry. There are tons of crappy records that labels (big and small) would happily pay to get played on the radio. But listeners are smart, and have plenty of options to choose what they want to listen to. They'll just start "tuning out" if this happens.

SXSW Panel: The Trials and Tribulations of Using Music Online

Be sure to come by the panel I'm on at SXSW: The Trials and Tribulations of Using Music Online.

This panel will discuss the usage of music for various online formats, including (but not limited to) podcasting, blog MP3 postings, internet radio, and vlogs (or other video). This session will address the different copyrights, licensing, and royalties associated with different types of use. Learn how and why you need to get copyright and/or licensing clearance for the music you use, and which clearances you need for which uses in order to operate legally. We will also discuss copyright royalties, royalty payments, and royalty collectors, including SoundExchange, ASCAP, BMI, and SESAC.

Should be fun. If you've never met Richard Bengloff (who heads up A2IM and is on the SoundExchange board and will be on this panel), he's a great guy who is amazingly knowledgeable about the music business, and genuinely cares about artists and content creators. Rich and I don't always agree, but I learn something every time I talk to him.

I can't wait. The other folks on the panel are all great as well (Brian Zisk and Chris MacDonald) as well as our moderator Elise Nordling (who besides programming and hosting Indie Pop Rocks works for IODA, an online music licensing company).

Room 10
Tuesday, March 11th
3:30 pm - 4:30 pm
South by Southwest, Austin, TX

Senator Clinton "backs webcaster compromise"

Wired is reporting that Sen. Clinton Backs SoundExchange/Webcaster Compromise, although the letter they print from her to her NY constituents isn't that much different from the letters coming from all other senators: namely, "we don't want to legislate, but back a compromise between webcasters and SoundExchange".

Alas the big problem is that if there is no change in legislation, only SoundExchange member artists and labels will be affected; stations will still have to pay the highest CRB rates for non-SX material.

And that's a serious problem because of how few of the artists played by independent webcasters are SX members.

RIAA blocking IREA, holding up any settlements

I've heard "off the record" now from several sources that the RIAA has been the party behind a large mis-information push about the Internet Radio Equality Act.

One example is claiming that the biggest internet radio services are giant corporations. With the exception of Yahoo and AOL, most of the largest internet broadcasters - in terms of listeners - are all independent operations.

As Bill Goldsmith at Radio Paradise says:

SoundExchange has been challenged many times, by numerous people (including myself) to give ONE example of a webcaster currently online in the U.S. who could operate successfully under the CRB rate structure. They have never done so, because there are no stations that meet that criteria.

Instead, the RIAA brings up misleading statements of how most webcasters are all billion dollar corporations who could easily afford these rates, yet won't state facts. (I've asked members of the SoundExchange board as well as their news department to name the 20 major webcasters and gotten no response.) WHY? Because they can't name them because they don't have the facts to back it up.

Additionally, the RIAA is holding up settlements that could be enacted (and congressionally codified). Independent artist representatives on SoundExchange's board support a settlement that's favorable to independent internet broadcasters, but since the majority of the SoundExchange board is controlled by the RIAA and the musician's union (which represents session musicians performing on RIAA label recordings), nothing is happening.

Why?

It should be obvious. The RIAA wants to force all webcasters to make direct deals with the Big 4 labels, because that's the way the Big 4 labels get control back. They want to control what you hear over the air.

Don't let this happen.

Get on the phone right now and call SomaFM's home town representative, House Speaker Nancy Pelosi's office at (415) 556-4862 and ask Speaker Pelosi to demand that the RIAA come to a fair settlement with small webcasters. Remind her that otherwise, the RIAA will end up forcing small webcasters out of business through impossibly high royalty rates. Also remind her that the majority of the "Big 4" labels represented by the RIAA are foreign-owned, and will be putting American companies out of business.

Call her office now. You can leave messages after hours.

SoundExchange represents less than 10% of artists

John Simson quoted in the Hartford Courant: We [SoundExchanve] represent over 20,000 performers and over 3,000 independent labels and the four major labels.

Johnny Floater over at Live365 tells me that there are 250,000+ artists that get airplay on Live365. On SomaFM, we've played 8000 different artists this year, and we have only 11 different channels. Because SoundExchange doesn't publish a list of their member artists and labels, we can't compare our playlists to see how much of the music we play is by SoundExchange member rightsholders. But I bet we play a lot of stuff by artists and labels that aren't affiliated with SX.

There are also over 8200 artists on SoundExchange's "unpaid artists list"; artists that SoundExchange has collected statutory royalties for but hasn't distributed because you have to join SoundExchange before you can get paid. And if these people don't join within a certain point of time, they lose their royalties and SoundExchange gets to keep that money.

Bottom line: this is why we can't make a deal with SoundExchange. A deal with SoundExchange would only cover their members, and that's less than 10% of the artists out there. It would be fine if we were playing Top 40 or Big 4 label releases, those guys are all covered. But we play "long tail" stuff, and much of it is likely not going to be by SoundExchange members.

Listener Questions: Will this really affect SomaFM?

A listener writes:

The question I have though is how badly are "ambient" stations like Soma going to be hurt? The music labels that put out this kind of music are not the big boys. I think most of them would realize that this type of broadcast is their best bet for getting heard. Aren't the royalties up to them? As for playing top 40 on the internet. Who cares. Let them have it.

This law covers any and all copyright works, not just recordings owned by the big labels. The RIAA and big labels had a great influence over this law, but it applies to all copyrighted works. In order to play them without royalties, we need to get waivers from the copyright holders. So far many of the copyright holders are reluctant to grant us waivers.

So, we would have to go back and execute licenses directly with every copyright holder whose music we play. That would be a few thousand licenses we'd have to do. Many of the copyright holders won't sign these licenses without having a lawyer look at them, and many of them don't want to pay a lawyer to look it over. Some have already said they won't grant a waiver, even though they like us to play their music.

The reason the statutory law exists is so that radio stations won't have to enter into distinct legal agreements with the hundreds (or in our case thousands) or copyright owners of the material they play. We could easily keep one or more full time paralegals busy managing all the music licensing. It would also put large delays in the time from when we pick a song to play and when we're legally allowed to play it over the air.

Ironically, direct licensing works best for people playing the Top 40. You can enter into blanket direct licenses with the Big 4 labels pretty easily. But their license terms encourage you to play the music they're pushing heavily and discouraging you from playing the songs they're not pushing.

I believe that it is best for the listeners when we choose music based solely on its artistic merit, and not on any financial concerns. If we're playing a song just because it costs us less to play it than another song, isn't that the same as us taking payola to play a song?

tricky lawyers and new media

Fred von Lohmann (on a mailing list, quoted with permission):

The history of the 20th century makes it clear, time and time again, that new media businesses are built by "tricky lawyers" helping their clients to plant a business in the lacunae and DMZs of copyright law. Broadcast radio, cable TV, jukeboxes, VCRs, MP3 players, are just some examples. In many of those cases, the legal rationales were far more outlandish than the DMCA rationales being invoked by Web 2.0 companies (in several cases, the lawyers lost the battle, but the businesses won the war).

Where online music discovery is heading?

Widget provider RockYou inks music promotion deals with SNOCAP, Fliptrack, Pump Audio and Nettwerk Records. Here's how it works: Labels / distributors who want to promote music let RockYou use it for free (or for substantially less than the DMCA statutory rates). The "end users" can then use free music from this pool that's being promoted by the labels. But only the music from those labels.

So much for independent radio, where the music choices are made by music directors and DJs based not on economic issues, but based on what is truly the best music available.

But this is definitely the way that people will get music for free and without commercials. Maybe radio as we know it is dead, and these new distribution methods will be the only ones viable in the future?

Jia Shen, CTO and co-founder of RockYou! says in their press release:

“Artists have realized that giving users access to tracks as background music for their sites, slideshows among other widgets, only enhances the user experience, but more importantly, truly offers them an incredible outlet to be discovered and retain new fans. RockYou! currently showcases hundreds of artists music for people to sample and insert into their widget of choice.”

Just what we used to say about radio.

Ex-SoundExchange Lawyer on why Direct Licensing won't work

Gary R. Greenstein, former general counsel for SoundExchange, explains via the Pho list why direct licensing won't work for most net radio stations:

The Section 114 statutory license grants licensees the right to make digital audio transmissions of any sound recording released to the public with the consent of the copyright owner. A separately negotiated agreement with SoundExchange, on the other hand, would likely only grant the licensee the right to make transmissions of the sound recordings over which SoundExchange had the authority to license. From a practical standpoint this likely means that if a webcaster enters into an agreement with SoundExchange for a rate structure that differs from that adopted by the Copyright Royalty Board, then the webcaster would be entitled to pay the privately negotiated rates for those recordings licensed under the license entered into with SoundExchange while those sound recordings not covered by the license with SoundExchange would still need to be paid for at the rate adopted by the CRB. This could also mean that webcasters streaming non-SoundExchange covered recordings might have to continue to file for the statutory license, pay the CRB-established minimum fees for the non-SoundExchange covered recordings as those minimums are currently required whether you stream one song during a year or 1 million, and comply with the final interim recordkeeping regulations for those recordings that are not covered by a direct license.

Because SoundExchange represents the four majors and a large number of independent labels, the amount of repertoire covered by a private agreement with SoundExchange would likely be substantial but for those copyright owners who have not authorized SoundExchange to license on their behalf, they would likely have a claim to the CRB-established royalty rates for the transmission of their recordings. An open question is whether those copyright owners would look to SoundExchange to pay them the full statutory rate (thus leaving SoundExchange's own copyright owners and artists with even less money) or might seek to go after the individual webcasters for payment of the full CRB-established amount.

Each webcaster may need to evaluate their exposure to infringement liability if they stream recordings not covered by a direct license and fail to pay royalties under the CRB rates and the likelihood that any copyright owner(s) might file suit for such non-compliance.

This is why politicians need to understand that a legislative solution is required, and that it can't be worked out between the parties privately. Private deals will not cover everything. Private deals would force broadcasters to play music from the major and largest independent labels only and would not allow them to play tracks that weren't covered by the agreement.